INTERPLAY BETWEEN IBC & COMPETITION ACT: PART-II
(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
Continued from PART-I
BRIEF FACTS OF THE CASE:
26. The brief facts (Independent Sugar Corp Ltd- Appellants herein) indicate that statutory appeals under Section 62 of IBC against the judgement dated 18.09.2023 (impugned order) passed by the NCLAT in appeals, pertained to the Corporate Insolvency Resolution Process of the Hindustan National Glass and Industries Ltd. [in short ‘HNGIL’]. Additionally, there is a set of appeals arising out of the NCLAT Order dated 28.07.2023, pertaining to the approval accorded to the combination between HNGIL and AGI Greenpac.
27. HNGIL is the Corporate Debtor/Target Company with a 60% market share of the glass packaging industry in India. Combining with HNGIL is AGI Greenpac Ltd. i.e., the Successful Resolution Applicant, which is the second largest company in the field of glass packaging and manufacturing in India, after HNGIL. The combination between AGI Greenpac and HNGIL is likely to result in an Appreciable Adverse Effect on Competition [AAEC] in the glass packaging industry generally and in particular, within the subsegments of F&B and alco-beverages.
28. The main contesting party to the aforementioned proposed combination is the Bermuda-registered Appellant – Independent Sugar Corporation Ltd. [in short INSCO] which also submitted their Resolution Plan for HNGIL – the Corporate Debtor/Target Company in India.
29. In response to an e-mail by the Appellants seeking clarification with respect to the timeline for obtaining approval of CCI, the RP, vide e-mail dated 25.08.2022, granted relaxation to Resolution Applicants, to procure CCI approval, after CoC’s approval of the Resolution Plan but prior to filing the application before NCLT.
30. On 27.09.2022, AGI Greenpac submitted an application with the CCI, to get prior permission under section 5 & 6 of the Competition Act read with proviso to Section 31 (4) of the IBC, intimating that it proposed to enter into a combination with HNGIL, by acquiring 100% of HNGIL’s shareholding and business. On 22.10.2022, CCI declared the application filed by AGI Greenpac as ‘not valid’. Thereafter, final Resolution Plans were submitted for consideration by the CoC. It must however be noted that at that stage, neither AGI Greenpac’s Resolution Plan had the requisite CCI approval nor did they have any pending application, seeking such approval from the CCI.
31. Despite objections by the Appellant, the CoC approved the AGI Greenpac’s Resolution Plan on 28.10.2022.
32. Thereafter, on 03.11.2022, AGI Greenpac submitted another application under Form II seeking approval of CCI. At the same time, the Resolution Professional filed an IA (interim application) under Section 30(6) of the IBC before NCLT Kolkata, seeking approval for AGI Greenpac’s Resolution Plan while INSCO filed an IA before NCLT Kolkata challenging the approval granted to AGI Greenpac’s Resolution Plan, by the COC.
33. On 15.03.2023, CCI granted an approval to AGI Greenpac’s combination proposal with HNGIL.
34. Challenging the approval to HNGIL and AGI Greenpac’s Resolution Plan and seeking reconsideration of INSCO’s Resolution Plan, INSCO filed an application before NCLT Kolkata. On 28.04.2023, the NCLT rejected the application, thereby upholding the approval granted to AGI Greenpac’s Resolution Plan. While challenging the NCLT rejection dated 28.04.2023, the Appellant filed the Company Appeal (AT) (Insolvency) before the NCLAT.
35. The NCLAT vide judgment dated 18.09.2023 upheld the approval accorded to AGI Greenpac’s Resolution Plan, stating that although the requirement of approval by the CCI was mandatory in nature, its prior approval by the CoC, was only directory. The reasoning given was that the timeline for CCI to decide upon a combination proposal is much longer and should not lead to a situation where the CIRP is frozen or halted because of a pending application before the CCI.
36. The Appellant INSCO also challenged the CCI approval dated 15.03.2023 vide Competition Appeal (AT) before the NCLAT, which upheld the approval vide judgement dated 28.07.2023. These two judgements are, now, before Supreme Court, under appeal, by the Appellant.
PROVISO TO SECTION 31 (4) IBC-MANDATORY OR DIRECTORY:
37. In this factual background, the principal issue is whether the approval of a proposed combination by the CCI must mandatorily precede the approval of the Resolution Plan, by the CoC, as stipulated under the proviso to Section 31 (4) of IBC.
38. The proviso to Section 31(4) of the IBC was inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2018.
39. A proviso in a given statute may be introduced to serve various purposes, like qualifying or excepting certain provisions from the main enactment or insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable or as an optional addendum to explain the real intendment of the statutory provision. Please refer Hon’ble Apex Court judgement in Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591.
40. Further, The language used therein appears to be clear, precise & straightforward. As such, to understand the legislative intent, the Rule of Plain Reading or literal interpretation should find favour rather than the rule of purposive interpretation. 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.
41. On the need for literal interpretation of a statue, when the words are clear and unambiguous, Mr. Francis Bennion in his oft-quoted treatise Bennion on Statutory Interpretation, 5th edition, stated:
“Where the enactment is grammatically ambiguous, the opposing constructions put forward are likely to be alternative meanings, each of which is grammatically possible. Where on the other hand, the enactment is grammatically capable of one meaning only, the opposing constructions are likely to contrast an emphasised version of the literal meaning with a strained construction. In the latter case, court will tend to prefer the literal meaning, wishing to reject the idea that there is any doubt.”
42. To the same extent, the Supreme Court in case of Kanailal Sur v. Paramnidhi Sadhu Khan- 1957 SCC OnLine SC 8 stated as,
“If the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such hypothetical construction is more consistent with the alleged object and policy of the act.”
43. If the statute is plain and unambiguously-worded, the consequences of such construction no longer remain a matter for the court to decide on, even if they appear to be strange, surprising, unreasonable, unjust or oppressive. (Pl. refer Tamil Nadu State Electricity Board v. Central Electricity Regulatory Commission, (2007) 7 SC 636 and Mahalaxmi Mills Ltd., Bhaunagar v. CIT, Bombay, 1963 SCC OnLine SC 190; Nasiruddin v. State Transport Appellate Tribunal, (1975) 2 SCC 671; Precision Steel and Engineering Works v. Premdeva, (1982) 3 SCC 270.) Further, even hardship, inconvenience or penalty being the consequence of compliance with such construction cannot be deemed sufficient to alter the meaning of the language employed by the legislature, if such meaning is clear on the face of the statute or the rules- (pl refer Tata Consultancy Services v. Andhra Pradesh, (2005) 1 SCC 308; CIT, Agri. v. Keshab Chandra Mandal, (1950) SCC 205.)
44. The Hon’ble Court, thus held in para 52 & 53, after relying on at least 20 judgements of the Supreme Court/ Foreign law and GP Singh’s treaties on interpretation, as,
“52. ……… When there is no ambiguity in the words used, the question of finding a disguised intention or purpose behind the use of a particular word (the word ‘prior’ in this case), would not ordinarily arise.
53. The legislative intent behind inserting the proviso to Section 31(4) of the IBC would suggest that prior approval of the CCI was specifically mandated and it should not be seen as a flexible provision to be ignored in certain exigencies. In fact, a contrary interpretation of the said proviso, i.e., that the prior approval is directory, would distort the objective for which the legislature inserted the proviso, thereby rendering the proviso totally inconsequential.”
EXTERNAL AIDS TO CONSTRUCTION:
45. While interpreting this proviso, The Apex Court also took help of the external aid to construction but with word of caution, lest they obscure the plain meaning of the text or elevate subjective predilections of the judge above the clear mandate of the law. Such an inquiry into legislative history, therefore needs to be carefully undertaken as a supplement to but not as substitute of the literal interpretation of the statutory language, mindful of the risks of wandering too far afield into the uncertain waters of committee reports, memorandums and legislative debates.
46. Report of the Insolvency Law Committee (dated 01.03.2018), which recommended that specific timelines be incorporated in the IBC, stated as,
“16.1… … However, the timeline within which such approvals are required to be obtained, once a resolution plan has been approved by the NCLT, has not been provided in the Code or the CIRP Regulations. The Committee deliberated… the Code should specify that the timelines will be specified in the relevant law, and if the timeline for approval under the relevant law is less than one year from the approval of the resolution plan, then a maximum of one year will be provided for obtaining the relevant approvals, and section 31 shall be amended to reflect this… …
16.3… … Thus, as the CIRP period is sacrosanct, the Committee, keeping in mind the practicalities of the issue, deemed it fit to provide for a period for obtaining the necessary approvals as mentioned in paragraph 16.1
above, after the approval of the plan by the NCLT.
16.4. However, the Committee was of the opinion that approval from CCI may be dealt through specific regulations for fast tracking the approval process in consultation with the CCI. The Committee was informed that pursuant to discussions with CCI, it has been agreed that CCI will have a period of 30 working days for approval of combinations arising out of the Code, from the date of filing of the combination notice to the CCI. Further, this timeline of 30 days may be extended by another 30 days, only in exceptional cases. In the event that no approval or rejection is provided by the CCI within the aforementioned timelines, the said combination would be deemed to have been approved. Details forms and relevant regulations in this regard may be provided by CCI in due course of time.”
47. Thus, distinction was drawn between necessary approvals required to be received from different statutory bodies (one year subsequent to CoC approval) and regulatory authorities vis-à-vis the CCI’s approval to be obtained prior to the approval of the Resolution Plan, by the CoC. Such arrangement appears deliberate as the Competition Act contains both specific restrictions with respect to combinations that may lead to an Appreciable Adverse Effect on Competition (AAEC) in the relevant market as well as a detailed procedure of enquiry and scrutiny of such combinations, to prevent such AAEC.
48. In that context, the Notes on Clauses to the Insolvency and Bankruptcy Code (Amendment) Act, 2018 read as follows:
“Clause 24 of the Bill seeks to amend section 31 of the Code to provide that the Adjudicating Authority shall, before passing an order for approval of resolution plan satisfy that the resolution plan has provisions for its effective implementation and that the resolution applicant shall obtain the necessary approvals required within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority or within such period as provided for in such law, whichever is later and where it contains a provision for combination for approval of the Competition Commission of India shall be obtained prior to the approval of resolution plan by the committee of creditors.”
49. Whereas, Memorandum explaining above modifications stated:
“(d) in clause 24 of the Bill, in sub-section (4) of section 31 of the Code, a new proviso is inserted “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 Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors” so as to clarify that the approval for the combinations from Competition Commission of India has to be obtained prior to the approval of resolution plan by the Adjudicating Authority.”
50. Thus, confusion arises as Notes on clauses and Memorandum state two different things for same modification. Was it then, an inadvertent legislative error. The Hon’ble Court, however noted that there could be error as noticed, which appear having made inadvertently while drafting the memorandum, but this is not the case in the drafting of the statute. The particular line in the memorandum could also be ‘Scrivener’s Error’, a judicial doctrine developed in the USA. This doctrine is explained by legal scholar namely, Ryan Doerfler, The Scrivener’s Error, Northwestern University Law Review, Vol. 110 (2016), as under,
“In the literal sense, then, a “scrivener’s error” is a mistake of transcription, which is to say a mismatch between original (e.g., spoken word, manuscript) and copy. Today, of course, Congress does not use actual scriveners. Indeed, the phrase “scrivener’s error” came into popular usage only once reliance upon scriveners was uncommon. The phrase is thus a term of art, referring to a particular sort of legislative mistake. Specifically, and as explained more fully throughout Part I, a “scrivener’s error” is a case in which the words of a legislative text diverge from what Congress meant to say. Such a case contrasts with one in which Congress simply should have said something else.”
51. Assuming that there is no such error in the Memorandum and therefore the Memorandum presents a conflicting view vis-à-vis the Notes on Clauses in explaining the legislative intent behind introducing the said proviso, the implication thereof can be understood from the following passage from the three Judge Bench opinion in a similar context. In Shashikant Laxman Kale v. Union of India- (1990) 4 SCC 366, the Court opined that the final Act would be the guiding factor:
“20. Strong reliance has been placed on behalf of the petitioners on the memorandum explaining the provisions in the Finance Bill, 1987, wherein the explanatory note relating to clause 4(a) of the Bill proposing insertion of clause (10-C) in Section 10 of the Income Tax Act, 1961 appears under the heading ‘Welfare Measures’. It may be mentioned that this heading is only in the explanatory memorandum and not in the ‘Notes on Clauses’ appended to the ‘Statement of Objects and Reasons’ of the Bill. [ See (1987) 165 ITR (Statutes) at pp. 119, 122 and 155] We would presently show that the petitioners cannot draw support from this heading in the explanatory memorandum. Moreover, an explanatory memorandum is usually ‘not an accurate guide of the final Act’. [See Francis Bennion’s Statutory Interpretation, 1984 edn. At p. 529].”
52. Additionally, it is not necessary to refer to Memorandum explaining particular clauses of a Bill when the language of the provision is clear and unambiguous, as has been held in ACG Associated Capsules v. Commissioner of Income Tax- (2012) 3 SCC 321.
53. In any case, a Memorandum explaining a particular proviso stands at a lower footing when compared with Notes on Clauses, explaining the entire amendment, especially in cases where the language in the statute is definite and straightforward. In fact, the Memorandum does not even feature in the Hindi version of the Bill whereas the Notes on Clauses elaborately explaining the intent behind introducing each amendment, features prominently in both the English and Hindi versions. This would also indicate that the Memorandum can never play the decisive role.
54. More importantly, such external aids of interpretation could have a limited role only when repugnancy within the statute fall for consideration. But that is not the situation here as the language of the statute is clear, specific and unambiguous.
55. Further, the erstwhile Ordinance provided for a ‘post-Adjudicating Authority’ approval stage. The Memorandum clarified that a new step had been added at a ‘pre-Adjudicating Authority’ approval stage. It would therefore be logical to hold that obtaining prior approval of the CCI before the CoC approval, would seamlessly cover the ‘pre-Adjudicating Authority’ approval stage without any possible disruption.
56. Additionally, the CCI has also been empowered under Section 31(3) of the Competition Act as well as Regulation 25(1)(A) of the Combination Regulations to direct modifications to the Resolution Plan or a combination proposal. Therefore, the approval from CCI must be obtained before the same is approved by the CoC.
Otherwise, an illogical situation may arise since any modifications so directed by the CCI, would be kept out of the scrutiny of the CoC and the CoC would be forced to exercise its commercial wisdom without complete information.
To be Concluded in FINAL PART ….
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