IBC | Resolution Professional Dutybound To Ensure Resolution Plan Is Legally Compliant Before Placing It In CoC : Supreme Court

While holding by a 2:1 majority that the proviso to Section 31(4) of the Insolvency and Bankruptcy Code is mandatory in nature, the Supreme Court recently observed that a Resolution Professional is obligated to ensure that a resolution plan placed before the Committee of Creditors is legally compliant.It was opined that when a resolution plan containing a combination that leads to an Appreciable Adverse Effect on Competition (AAEC) is placed before CoC for approval without prior approval from CCI, it is incapable of being enforced. As such, a Resolution Professional should place only those resolution plans before CoC which comply with the 'provisions of the law for the time being in force'."When the aforementioned provisions of the IBC and the Competition Act are juxtaposed together, it is clear that any combination that leads to an Appreciable Adverse Effect on Competition in the relevant market, is void. Any Resolution Plan containing provisions for a combination that results in an Appreciable Adverse Effect on Competition would therefore be not compliant with the provisions of the Competition Act. In that light, the Competition Act mandates that a notice of combination be given to the CCI and approval obtained at the earliest.""If prior approval of the CCI is not obtained, it may lead to an incongruous situation where the CoC approves a Resolution Plan which may be in violation of Section 6 of the Competition Act i.e., causing an AAEC in the relevant market or that subsequent to such approval by CoC, the CCI rejects the said combination, thereby rendering the entire exercise futile. In other words, the Resolution Professional should not place any Resolution Plan before the CoC, without the scrutiny of and prior approval by CCI."A bench of Justices Hrishikesh Roy, Sudhanshu Dhulia and SVN Bhatti rendered the decision on the issue as to whether Competition Commission of India's (CCI) approval of a resolution plan containing combination is mandatory prior to its consideration by the Committee of Creditors (CoC). While Justice Dhulia concurred with the opinion of Justice Roy - that the prior CCI approval is mandatory - Justice Bhatti took a different view and wrote a separate opinion.In the facts of the case, the majority noted that the CCI approved the proposed combination only after a proposed divestment by the successful resolution applicant. But, the Resolution Plan was placed, voted upon and approved by the CoC before CCI's approval thereto (and the proposed divestment). As such, the successful resolution applicant's resolution plan was without the requisite approval of the CCI on the date it was considered by CoC. "this would be in contravention of Section 6(1) of the Competition Act for the combination in question", it said.BackgroundThe issue arose from a proposed combination between Corporate Debtor/Hindustan National Glass and Industries Ltd (HNGIL) and Successful Resolution Applicant/AGI Greenpac, which was claimed to be likely to result in an AAEC in the glass packaging industry.Primarily, the combination was opposed by appellant/Independent Sugar Corporation Ltd. (INSCO), which also submitted a Resolution Plan. INSCO objected to the approval of AGI Greenpac's resolution plan stating that it did not have the requisite CCI approval when its Resolution Plan was put to vote (which was a condition precedent). Nonetheless, the CoC approved AGI Greenpac's resolution plan.Subsequently, CCI granted approval to AGI Greenpac's combination proposal with HNGIL, subject to certain modifications. Aggrieved, INSCO moved NCLT, which rejected its claim and upheld the approval granted to AGI Greenpac's resolution plan. In appeal, NCLAT as well upheld AGI Greenpac's resolution plan based on a finding that though CCI's approval was mandatory, obtaining 'prior approval', was directory.INSCO also challenged CCI's approval, but NCLAT upheld it. Challenging NCLAT decisions, INSCO approached the Supreme Court. While INSCO's claim was that the proviso to Section 31(4) IBC, on literal interpretation, is 'mandatory', AGI Greenpac argued that the proviso, on applying the rule of purposive interpretation, is directory. Majority's application of literal rule to gather legislature's intentOn a "clear, precise & straightforward" reading of the proviso to Section 31(4) IBC, the majority found that it creates an exception for those resolution plans that contain provisions for combination."The introduction of a proviso, specifically addressing those Resolution Plans with provisions for combination, and the use of the term 'prior' therein, makes it starkly clear that the intent of the legislature was to create an exception. This ensures that in cases containing combination proposals, the approval of the CCI i.e., the regulatory body designated to ensure fair competition in markets and preventing anti-competitive practices, should first be obtained before the same is approved by the CoC."AGI Greenpac's contention that the Court apply ...

IBC | Resolution Professional Dutybound To Ensure Resolution Plan Is Legally Compliant Before Placing It In CoC : Supreme Court

Debby Jain

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