The recent Supreme Court ruling in Independent Sugar Corporation Ltd. (INSCO) v. Girish Sriram Juneja & Ors. has been hailed as a landmark judgment, fundamentally reshaping how insolvency and competition laws intersect in India. The verdict underscores the judiciary’s commitment to statutory compliance, reinforcing the principle that regulatory approvals must precede the approval of resolution plans under the Insolvency and Bankruptcy Code (IBC) and certain sections of the Competition Act, 2002. This decision sets a critical precedent that will guide future insolvency resolutions and protect market fairness.

Background and Legal Dispute

The case revolved around the insolvency resolution of Hindustan National Glass & Industries Ltd. (HNGIL), a major player in the glass packaging industry. AGI Greenpac Ltd., the second-largest entity in the sector, submitted a resolution plan to acquire HNGIL. INSCO is part of the Madhvani Group conglomerate from East Africa across industries, including container glass manufacturing, with no presence in India.

However, INSCO challenged the approval of AGI Greenpac’s plan on the grounds that it lacked prior clearance from the Competition Commission of India (CCI), as mandated under Section 31(4) of the IBC.

A crucial aspect of the Supreme Court's judgment refers to the provision of Section 31(4) of the Insolvency and Bankruptcy Code (IBC) that the resolution plan containing a combination proposal must receive prior approval from the Competition Commission of India (CCI) before it is approved by the Committee of Creditors (CoC). The Supreme Court also laid emphasis on Section 29 of the Competition Act 2002, which mandates a structured approval process for mergers and acquisitions involving potentially anti-competitive combinations. The Court found that AGI Greenpac's resolution plan bypassed the statutory requirement of securing prior CCI approval before the Committee of Creditors (CoC) could vote on it. The judgment ruled that failure to comply with Section 29 was a fundamental violation of competition law, rendering AGI Greenpac’s bid legally untenable.

Despite the CCI rejecting AGI Greenpac’s application under Form 1 on October 22, 2022, the CoC went ahead and approved AGI Greenpac’s CCI-rejected resolution plan with an overwhelming 98% vote, in clear violation of the Provision to Section 31(4) of the IBC and Section 30(2)(e) of the IBC. The IBC mandates that a resolution plan must comply with all applicable laws, including competition law, before CoC approval. However, in this case, the CoC’s decision ignored the statutory requirement of securing prior CCI clearance, undermining the legal rigor of the insolvency process.

Notably, INSCO’s resolution plan had already secured prior approval from the CCI and was backed by 88% of the CoC’s vote, yet AGI Greenpac’s plan—despite lacking the required regulatory clearance—was approved by 98% of the CoC. The Supreme Court found this to be a clear misinterpretation and misapplication of insolvency law, reinforcing that a resolution plan that does not comply with competition law cannot be approved under the IBC.

Key Takeaways

1. Mandatory Compliance with Competition Law

The judgment establishes that regulatory compliance is not a mere formality but a substantive legal requirement. Section 31(4) of the IBC explicitly states that any resolution plan involving a merger or acquisition must obtain CCI approval before CoC approval. The Supreme Court reaffirmed that this provision is mandatory This ensures that potentially anti-competitive combinations undergo scrutiny before they are finalized, preventing market distortions.

Additionally, the Court cited Para 18.9 of its ruling, stating that “The CCI granted approval based on factually incorrect and misleading data, provided by AGI Greenpac.” This observation raises serious concerns about the integrity of the approval process and highlights the necessity for accurate disclosures to regulatory bodies. Any misrepresentation in the approval process not only jeopardizes fair competition but also undermines market confidence.

2. Literal Interpretation of the Law

The court rejected the argument that statutory provisions should be interpreted flexibly to accommodate business exigencies. It held that the term “prior” in Section 31(4) must be given its ordinary meaning—meaning that CCI approval must be secured before CoC approval. This literal interpretation prevents any ambiguity in the insolvency process and strengthens legal certainty.

This stance was further reinforced by the Court’s reference to Pg. 79 of the judgment, which stated, "Bearing in mind the fact that the CCI is empowered to approve, reject, and/or modify a proposed combination, a Resolution Plan approved by the CCI should only be placed before CoC. The ‘commercial wisdom’ accorded to the CoC being paramount, the legislature, in our understanding, intentionally provided for prior approval of the CCI with respect to Resolution Plans, containing combination proposals.”

This clarifies that the legislative intent was to ensure that CoC decisions are based on fully vetted and legally compliant proposals, not ones that may later face regulatory rejection.

3. Accountability of Resolution Professionals and CoC

By quashing AGI Greenpac’s resolution plan, the court sent a strong message to resolution professionals and CoCs that procedural lapses will not be tolerated. The ruling places the onus on them to ensure all legal requirements are met before proceeding with a resolution plan. This enhances transparency and discipline in insolvency resolution.

The Court also criticized the structure of AGI Greenpac’s resolution plan, pointing out a fundamental flaw in its implementation. According to Para 18.10, "The plan creates an unfeasible sequence, as the divestment depends on the Resolution Plan’s implementation, which itself requires prior CCI approval, leading to unfeasible complications, which should have been avoided by the NCLAT.”

This highlights how procedural shortcuts can lead to impractical and legally untenable situations, necessitating stricter adherence to regulatory guidelines.

4. Precedent for Future Insolvency Cases

This judgment has wide-ranging implications for ongoing and future corporate insolvency resolution processes. Resolution applicants must now obtain CCI clearance in advance, leading to more stringent due diligence and adherence to regulatory timelines. This reinforces India’s commitment to a fair and competitive market economy.

Impact on the Insolvency Landscape

The ruling is a necessary step toward strengthening regulatory oversight. The judgment aligns IBC with competition law, ensuring that financial distress does not become an excuse for monopolistic takeovers. While some critics argue that the requirement for prior approval may prolong insolvency timelines, the court has rightfully prioritized legal integrity over expediency.

By striking down AGI Greenpac’s plan, the Supreme Court also set a precedent that resolution plans failing to meet statutory requirements will not be allowed to proceed, regardless of commercial interests. This ensures that insolvency proceedings are conducted in a manner that upholds competition laws and prevents market distortions.

The Supreme Court’s ruling is a milestone in India’s insolvency jurisprudence. By affirming the mandatory nature of CCI approvals in resolution plans, the Court has fortified legal safeguards against anti-competitive mergers and acquisitions. The verdict also underscores the importance of regulatory compliance in ensuring fair market practices.

In an evolving corporate landscape, where insolvency resolutions are increasingly intertwined with competition concerns, this landmark judgment will serve as a guiding principle. With this ruling, the Supreme Court has not only safeguarded market competition but also reaffirmed the sanctity of statutory compliance, ensuring that insolvency processes remain transparent, legally robust, and aligned with the public interest.

This decision is expected to have a lasting impact on the intersection of insolvency and competition laws, setting a clear precedent for future corporate resolutions.

(This article is authored by Advocate Vishwanathan Iyer)