INTERPLAY BETWEEN IBC & COMPETITION ACT: FINAL PART
(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-II
WHETHER DIFFERENT TIMELINES ARE HARMONIOUS:
57. The two timelines stipulated under the IBC and the Competition Act do not usually cause any disharmony or conflict. The only exception could be in the extremely rare circumstances, influenced by external factors.
58. The outer timeline of 210 days under the Competition Act would be attracted only in cases which involve an extremely high degree of AAEC, mostly indicative of a complicated super-monopolistic behemoth. It is important to note that CCI in its Annual Report, 2022–2023 stated that the average time required to dispose of combination applications, is usually 21 working days and in no case, more than 120 days have been taken by the CCI. Additionally, of the 99 combination proposals approved by the CCI, an overwhelming 85 were approved within 30 days and the rest 14 approvals took less than 120 days.
59. It was a point of discussion that such disharmony between various timelines arises due to Section 6(2) of the Competition Act, (Already reproduced supra), which require notice to be given to CCI. It was argued that the point at which this notice can be given is, when the Resolution Plan is submitted to the Resolution Professional and, not before.
60. However, such notice or trigger event, need not be limited to when the Resolution Plan is submitted to the Resolution Professional. On the contrary, such notice can be given immediately after or within thirty (30) days of the execution of ‘any agreement’ or ‘other document’, disclosing details of the proposed combination. Regulation 5(8) of the CCI (Procedure in regard to the Transaction of Business relating to Combinations) Regulations, 2011 defines ‘other document’ as including any document conveying an agreement or decision to acquire control over a target company. Therefore, the submission of an application before the CCI can be done at different stages and need not necessarily wait until the Resolution Plan is submitted.
61. However, it was ruled that if notice for the proposed combination under Section 6(2) of the Competition Act has been given within the stipulated time and no dilatory tactics have been employed, the parties should not be held responsible for any delay on the part of the CCI, in examining the combination.
62. It was therefore held that the impugned order passed by NCLAT holding that proviso to section 31(4) of the IBC to be directory in nature and NOT mandatory, because, mandatory prior approval of the CoC would lead to disruption in the CIRP timeline as stipulated under IBC, is not correct and legal. Various case laws like Arcelor Mittal India Pvt. Ltd. v. Abhijit Guhathakurta -2019 SCC OnLine NCLAT 920; Makalu Trading Ltd. v. Rajiv Chakraborty-2020 SCC OnLine NCLAT 643; Vishal Vijay Kalantri v. Shailen Shah- 2020 SCC OnLine NCLAT 1013 relied upon by NCLAT, were distinguished either on facts or/and law, as non-applicable.
ROLE OF RESOLUTION PROFESSIONAL (RP), COMMITTEE OF CREDITORS (CoC) & SCRUTINY BY CCI:
63. The Resolution Professional (RP) has the legal obligation to examine each Resolution Plan and determine whether it contravenes any provisions of law for the time being in force, as per Sections 30(2)(e), 30(3) and 31(1) of the IBC. Only those Resolution Plans which meet the requisite lawful criteria, can be placed before the CoC, by RP.
64. It is well-settled, as per Apex Court judgement in Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, that the Resolution Professional does not possess any adjudicatory powers under the IBC. In fact, the role of the Resolution Professional, as a facilitator of the CIPR, is almost entirely administrative in nature.
65. Whereas, Section 6 of the Competition Act requires that no person or enterprise shall enter into a combination, which causes or likely to cause Appreciable adverse effect on competition (AAEC). Also, no combination shall come into effect until 210 days have passed from the day on which the notice is given to the commission or any other order passed under section 31 of the Competition Act, whichever is earlier. Under section 31, CCI approves or reject the proposed combination/s.
66. Thus, prior approval of the CCI need be secured for the Resolution Plans which are to be scrutinised and approved by the CoC i.e., the body with expertise and resources to appropriately analyse the possible effects of an Appreciable Adverse Effect on Competition (AAEC), in the relevant market due to a proposed combination as well as the viability of the concerned Resolution Plan. 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 RP should not place any Resolution Plan before the CoC, without the scrutiny of and prior approval by CCI.
67. It also needs to be noted that after the CoC’s approval, the Resolution Plan cannot be modified in any manner since the Adjudicating Authority, as per Section 31(1) of the IBC, can only approve the Resolution Plan, as has been approved by the CoC.
ENSURING DELICATE BALANCE BETWEE IBC & COMPETITION ACT:
68. The interplay between the IBC and the Competition Act presents a delicate balance. While the IBC focused on expeditious revival of distressed assets, the Competition Act ensures that the resolution process does not distort market dynamics. 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.
69. Further, Section 29(1) of the Competition Act and Regulation 2(f) of the Competition Regulations, 2011 mandate the issuance of a Show Cause Notice [SCN] to the ‘parties to the combination’ if and when the CCI forms a prima facie opinion that a combination is likely to cause or has caused Appreciable Adverse Effect on Competition (AAEC), within the relevant market.
70. Various statutory obligations in the form of Sections 29(2) to 29(6) of the Competition Act, outline the consequential steps, aimed at gathering comprehensive data from not just the acquirer and the target company, but also from other stakeholders, potentially impacted by the combination. The legislative wisdom embedded within these provisions attempts to recognise the ripple effects of the existence of an AAEC in a market, which would transcend the immediate parties to the transaction, thereby necessitating a broader consultation and data collection process. Even Section 30 explicitly directs that the prima facie opinion formed under Section 29(1) must guide subsequent steps under Section 29.
71. The statutory scheme of employing the term ‘investigation’ in Section 29, as against with ‘inquiry’ in Section 26, pertaining to anticompetitive agreements and abuse of dominant market position, underscores that ‘investigation’ is far-reaching exercise of evidence-gathering and fact-finding, compared to an ‘inquiry’. This is so held by Apex Court in CCI v. Steel Authority of India Ltd.-(2010) 10 SCC 744.
72. In the case at hand, it was specifically observed that though above are procedural requirements but compulsory to be observed by the CCI to ensure that all perspectives, interests, and potential implications are considered in assessing the combination’s impact on competition. The exclusion of the target company from the scope of parties especially in cases of insolvency where the target retains critical relevance, would undermine the procedural safeguards, designed to achieve transparency and fairness.
73. Regulation 25(1A) of the Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011, unequivocally mandates that a voluntary modification submitted to the CCI, must bear the imprimatur of both parties to the combination, namely, the acquirer and the target. It is a substantive safeguard, designed to ensure that interests of all stakeholders are duly represented and protected. In the case at hand, the proposed modification seeks the divestment of the Target’s plant, a move that inherently attracts the provisions of the IBC.
74. In the present case Hon’ble Court frowned upon the conditional approval granted by the CCI based upon presumption of future compliance. It was observed that while the legislative intent behind CIRP is to create a process characterised with finality and decisiveness, conditional approval appears to be a perilous deviation from the stated objectives. The judgement in Ebix Singapore Pvt. Ltd. v. CoC of Educomp Solutions Ltd., (2022) 2 SCC 401, may be referred.
CONCLUSION:
75. The above discussion can be summarised as,
I. Since India aspires to be a global manufacturing powerhouse and investment hub, it has to ensure that entities operate with utmost confidence in the sanctity and fairness of India’s legal and regulatory system, the objectives of the IBC and the Competition Act must also necessarily be in harmony with one another. Principles of rule of law is upheld in alignment with global best practices which underscore fairness, predictability and transparency.
II. Providing relief for stressed assets under IBC must necessarily align with the statutory framework including the Competition Act, as adherence to legal principles is fundamental to a fair and just resolution process.
III. For a Resolution Plan containing a combination, the CCI’s approval to the Resolution Plan must be obtained before and consequently, the CoC’s examination and approval should be only after the CCI’s decision. This interpretation respects the original legislative intent, and deviation from the same would not only undermine the statute but would also erode the faith posed by the stakeholders in the integrity of our legal and regulatory framework.
IV. The indispensability of procedural safeguards as an integral component of a just legal order must be given its due weight, especially as procedural requirements are not mere formalities to be circumvented for expediency (under IBC) but substantive protections designed to ensure fairness and transparency (under Competition Act.)
V. Therefore, a balance between the need for expeditious relief and adherence to the statutory framework must necessarily be maintained, in order to ensure that the objectives of both, the IBC and the Competition Act are met in a manner that supports India’s long-term economic aspirations.
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