Background

On September 18, 2023, NCLAT dismissed certain appeals filed against the NCLT Kolkata’s Order dated April 28, 2023^[1] (‘Impugned Order’).^[2] The proceedings before the NCLT Kolkata were with respect to the following:

i.    Certain corporate insolvency proceedings were initiated against the corporate debtor – Hindustan National Glass & Industries Limited vide the NCLT’s Order dated October 21, 2021, based on an application filed by DBS Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’);

ii.   On March 25, 2022, the appointed resolution professional (‘RP’) issued the Invitation for Expression of Interest (‘IEI’) containing a provision for mandatory CCI approval before obtaining the Committee of Creditors’ (‘CoC’) approval of the resolution plan;

iii.  One of the resolution applicants, Independent Sugar Corporation Ltd. (‘Independent Sugar’) successfully secured the CCI approval, whereas the other resolution applicant, AGI Greenpac Ltd.’s (‘AGI’) form I Notification was invalidated by the CCI;

iv.   Later on, the resolution plans by both the applicants were placed before the CoC and they approved AGI’s plan with 98% vote, and Independent Sugar’s resolution plan secured 88% votes;

v.    Thereafter, AGI submitted a form II before the CCI and in the meantime a resolution plan under Section 30(6) of the Code was submitted before NCLT, Kolkata by AGI. In response to that an Intervention Application (‘A’). was filed by Independent Sugar seeking to set aside the selection of the resolution plan submitted by AGI; and

vi.   AGI subsequently received the CCI approval which it placed before NCLT, Kolkata. At the same time NCLT, Kolkata went on to reject the I.A. moved by Independent Sugar. Ultimately aggrieved by this Order, the present appeals were filed.

Questions before NCLAT

i.    Whether the requirement CCI’s approval prior to the approval of CoC is mandatory?

NCLAT’s Decision

i.    The NCLAT noted that the proviso to Section 31(4) of the Code states that, ‘Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the CCI under that Act prior to the approval of such resolution plan by the committee of creditors’ (‘Proviso’); and

ii.   In this regard the NCLAT held that: (i) looking at the timelines under Corporate Insolvency Resolution Process (‘CIRP’) and approval of a combination by CCI, holding that securing a prior approval of CCI before approval of plan by CoC will lead to adverse effect on CIRP; (ii) if it is held that CCI’s prior approval is mandatory prior to the approval of the plan by CoC, it will lead to an incongruous result; and (iii) finally, that the Proviso has to be read to mean that though the approval by the CCI is ‘mandatory’, the approval by the CCI prior to the approval of CoC is ‘directory’.

[1] Soneko Marketing Pvt. Ltd. v. Girish Sriram Juneja & Ors. Company Appeal (AT) No. 807 of 2023 & I.A. No. 2721 of 2023 along with Company Appeal (AT) (Insolvency) No. 607 of 2023, Company Appeal (AT) (Insolvency) No. 724 of 2023, Company Appeal (AT) (Insolvency) No. 735 of 2023.

[2] I.A. (IB) No.1497/KB/2022 and I.A. (IB) No.628/KB/ 2023 and I.A. (IB) No.701/KB/2023 in C.P.(IB) No.369/KB/2020