INTERPLAY BETWEEN IBC & COMPETITION ACT: PART-I

(Natural Intelligence (NI) has been used)

By: Ram Chander Sankhla, Advocate | Former Chief Commissioner, GST & Customs| Managing Partner, Sankhla Law associates.

By: Adv. Rahul Sankhla, Partner, Sankhla Law Associates

PREFACE:

  1. The Bankruptcy Law Reforms Committee (“BLRC”) headed by Dr. TK Viswanathan, presented its report in 2015 in two volumes. Vol.-I was ‘Findings & Recommendation’ and Vol-II was draft Insolvency & Bankruptcy Code (in short IBC). The Committee studied the deficiencies in the then-prevailing laws like Companies Act, 1956 & 2013 & SICA, 1985, dealing with insolvency and bankruptcy of individuals, Partnerships and corporate entities. The Parliament, guided by the BLRC report, enacted the IBC-2016.
  2. The Insolvency and Bankruptcy Board of India (IBBI) is established by the Central Government, which makes regulations and guidelines on matters relating to insolvency and bankruptcy as required under IBC, including mechanism for time bound disposal of the assets of the corporate debtor or debtor, besides registering insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registrations.
  3. The statutory scheme of IBC provides for comprehensive remedies, i.e., recovery of debt through maximization of asset value through CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) i.e. a Re-negotiating Process, and in a chronic case where redemption of debt through CIRP does not make business sense for the stakeholders, then liquidation is triggered. The CIRP keeps the corporate debtor as a going concern and runs on the theory that the value of the business is worth more than the realisation of the piecemeal distribution of assets. The fulcrum of IBC is the preservation of the company in distress as a going concern and ensuring the discharge of debt(s) of a target company.
  4. Whereas, THE COMPETITION ACT, 2002 is much prior to this but later to companies Act 1956 & SICA 1985. It succeeded the Monopolies & Restrictive Trade Practices Act, 1969 (MRTP). It ensures prohibition of certain Agreements, Abuse of dominant position and Regulation of combinations to promote & sustain fair competition in the market by eliminating adverse effect on competition.
  5. Competition Commission of India (in short CCI) is established by the Central Government, under Competition Act, to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India.
  6. Seemingly, both these legislations appear to operate in different fields, having diverse objectives. However, both operate to achieve common purpose of Economic Development of the Country. Though, there are few provisions in both these Acts, requiring complete harmony to achieve the intended purpose. But for the harmony and smooth operations of these provisions, the purpose of IBC, i.e. to realise the maximum assets value in a given time frame and of The Competition Act, ensuring no appreciable adverse effect on competition (AAEC), will not be achieved.
  7. Accordingly, an attempt is being made to understand those relevant provisions and the interpretation given by Hon’ble National Company Law Appellate Tribunal (in short NCLAT) and Honourable Supreme Court, vis-à-vis these provisions. An effort is also made to understand the practicalities of these provisions.

 

PURPOSE OF IBC & THE COMPETITION ACT- THE PREAMBLES: 

  1. What could be the better way to understand the purpose for which these legislations were enacted, than to read the preamble itself, i.e.

 

Preamble of IBC: “An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”

Preamble of the Competition Act: “An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.”

  1. Thus, to achieve the purpose of Economic Development of the Country (according to the Competition Act), value of various assets has to be maximised in a time bound manner, to promote entrepreneurship and ensuring availability of credit (in the words of IBC). And, various provisions of these two legislations achieve those intended purposes.
  2. So, broadly, it can be said that, the intended aim is one and same.
  3. It may also be of interest to note that First Appellate Authority, under both these legislations is NCLAT.
  4. It is also of importance to note that Section 5 (1) of IBC defines “Adjudicating Authority”, for the purposes of Part-II, Chapter-I, as National Company Law Tribunal constituted under section 408 of the Companies Act, 2013.

 

 

WHY TO STUDY THEM TOGETHER- THE RELEVANT LEGAL PROVISIONS:

  1. The relevant provisions, for the purpose of this discussion are Section 30 & 31 of the IBC and Section 5 & 6 of the Competition Act. All these provisions have been reproduced below.
  2. While Section 31(4) of the IBC, read literally or plain meaning, permits to obtain other statutory approvals as required under any other law, within one year of NCLT approval or within such period as provided for in such law, whichever is later. Whereas its proviso excludes combinations under Section 5 of the Competition Act, 2002, requiring stricter compliance i.e. it mandates statutory compliance by the CCI, before the resolution plan is approved by the Committee of Creditors (in short CoC).
  3. For the sake of clarity, Section 31 (4) IBC is reproduced,

[(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.]” (Emphasis Supplied)

 

  1. Thus, some think that section 31(4), proviso, of IBC is mandatory, whereas others think that it is directory. To complicate this, there are decisions for and against the said assertion.

 

  1. “ 30 of IBC: Submission of resolution plan. —

(1) A resolution applicant may submit a resolution plan [along with an affidavit stating that he is eligible under section 29A] to the resolution professional prepared on the basis of the information memorandum.

(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the 2[payment] of other debts of the corporate debtor;

(b) …………

(c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time being in force;

(f) conforms to such other requirements as may be specified by the Board.

1[Explanation. —For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law];

      1. Ins. by Act 26 of 2018, s. 23 (w.e.f. 6-6-2018).

(3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2).

[(4) The committee of creditors may approve a resolution plan by a vote of not less than 3[sixty-six] per cent. of voting share of the financial creditors, after considering its feasibility and viability, 4[the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor] and such other requirements as may be specified by the Board:

Provided that ……..

Provided further that …….

Provided also that ……..

[Provided also that …..

(5) ………

(6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority. (Emphasis Supplied)

 

Sec. 31of IBC: Approval of resolution plan. —

(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 1[including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.

2[Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.]

(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

(3) After the order of approval under sub-section (1),—

(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.

[(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.]” (Emphasis Supplied)

 

  1. Whereas, section 5 & 6 of the Competition Act are reproduced as,

Regulation of combinations

Combination

“Sec. 5. The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises, if—

(a) any acquisition where—

(i) the parties to the acquisition, being the acquirer and the enterprise, whose control, shares, voting rights or assets have been acquired or are being acquired jointly have, —

(A) either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or

(B) 7[in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]

(ii) the group, to which the enterprise whose control, shares, assets or

voting rights have been acquired or are being acquired, would belong after the acquisition, jointly have or would jointly have, —

(A) either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores;

or

(B) 8[in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or]

(b) acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if—

(i) the enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have, —

(A) either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or

(B) 9[in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]

(ii) the group, to which enterprise whose control has been acquired, or is being acquired, would belong after the acquisition, jointly have or would jointly have, —

(A) either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores or

(B) 10[in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or]

(c) any merger or amalgamation in which—

(i) the enterprise remaining after merger or the enterprise created as a result of the amalgamation, as the case may be, have, —

(A) either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or

(B) 11[in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]

(ii) the group, to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation, would belong after the merger or the amalgamation, as the case may be, have or would have, —

(A) either in India, the assets of the value of more than rupees four-thousand crores or turnover more than rupees twelve thousand crores; or

(B) 12 [in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees Fifteen Hundred Crores in India

Explanation. — ……”

 

Sec. 6 of the Competition Act:

 (1) No person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void.

(2) Subject to the provisions contained in sub-section (1), any person or

enterprise, who or which proposes to enter into a combination, [shall]

give notice to the Commission, in the form as may be specified, and the fee which may be determined, by regulations, disclosing the details of the proposed combination, within [thirty days] of—

(a) approval of the proposal relating to merger or amalgamation, referred to in clause (c) of section 5, by the board of directors of the enterprises concerned with such merger or amalgamation, as the case may be;

(b) execution of any agreement or other document for acquisition referred to in clause (a) of section 5 or acquiring of control referred to in clause (b) of that section.

[(2A) No combination shall come into effect until two hundred and ten days have passed from the day on which the notice has been given to the Commission under sub-section (2) or the Commission has passed orders under section 31, whichever is earlier.]

(3) The Commission shall, after receipt of notice under sub-section (2), deal with such notice in accordance with the provisions contained in sections 29, 30 and 31.

(4), (5) ……..

Explanation. —…….

(Competition (Amendment) Act, 2023 has reduced the timeline for approving combination proposal from 210 days to 150 days and CCI to give a prima facie opinion on the likelihood of a combination causing an Appreciable Adverse Effect on Competition (AAEC) from 30 days to 15 days.)

 

  1. The interplay between the IBC and the Competition Act presents a delicate balance. While the IBC focuses on expeditious revival of distressed assets, the Competition Act ensures that the resolution process does not distort market dynamics.
  2. The Competition Act operates on a suspensory regime, under which no transaction involving a combination can be completed, without prior approval from the CCI. Such mandate ensures that competitive equilibrium in the market is not disrupted during the CIRP. In fact, Section 43A of the Competition Act prescribes severe penalties for any attempt to consummate the transaction, prior to securing the CCI’s approval.

                                                                                      

HARMONIOUS READING OF THE TWO- LARGER BENCH JUDGEMENT IN CASE OF INDEPENDENT SUGAR CORPORATION LTD. VS. GIRISH SRIRAM JUNEJA & ORS. BY THE APEX COURT- (CIVIL APPEAL NO. 6071 OF 2023) – 2025 INSC 124:

  1. To better understand the nuances of the interplay between these two legislations, is to go through the rationale of the recent judgment of the larger bench of Honourable the Supreme Court in case of INDEPENDENT SUGAR CORPORATION LTD. VS. GIRISH SRIRAM JUNEJA & ORS. which was decided on 29.01.2025.
  2. Though the said judgement is passed with 2:1 majority, where Justices Hrishikesh Roy and Sudhanshu Dhulia allowed the statutory appeals filed by the Appellant i.e. Independent Sugar Corp Ltd (judgement penned by Justice Hrishikesh Roy) but rejected by Justice SVN Bhati.
  3. However, interesting to note that both parts of the judgment are quite lengthy and explanatory, running into almost 170 pages. When one goes through both the parts, both seems convincing based on logical conclusion after analysing facts and legal provisions involved.
  4. This goes on to show that how important but complex, these provisions are. So much so, the three brains, heavily trained and super expert in the field of law, who are engaged, day in day out, in interpreting the diverse laws, duly assisted by batteries of similarly trained and expert senior Advocates, could not form uniform opinion cum conclusion.
  5. This also demonstrates that jurisprudence in the field of Insolvency and Bankruptcy Code, 2016 and the Competition Act, 2002 is evolving. What better way to convey this message than to quote justice Hrishikesh Roy, while concluding the said judgement,

“In these matters, the three of us could not reach a common conclusion. Brother Justice Sudhanshu Dhulia has concurred with the opinion that has been penned by me, while Brother Justice S.V.N. Bhatti has decided to write a separate opinion canvassing an alternate view, reaching a different conclusion. However, such differences must be understood as useful steps towards the evolution of jurisprudence in the field of Insolvency and Bankruptcy Code, 2016 and the Competition Act, 2002. In that context, I am reminded of the quote from Shakespeare’s “The Taming of the Shrew” the theme of which we do not necessarily endorse. But there the playwright perhaps accidentally, touched the world of our adversarial litigation. He wrote – “And do as adversaries do in law, strive mightily. But eat and drink as friends”.

Continued in the PART-II ….

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