Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors.

Independent Sugar Corporation Ltd. v. Girish Sriram Juneja & Ors.

53. Learned counsel appearing for the parties have made a few submissions on the scope and applicability of external aids, such as the memorandum and explanatory note appended to the amending Act. For continuity, the memorandum and the notes on clauses are excerpted hereunder: Notes on clauses in Amending Act 26 of 2018 “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 provisions for combination the approval of the Competition Commission of India shall be obtained prior to the approval of resolution plan by the committee of creditors.” Memorandum explaining the modifications contained in the Bill to replace the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (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. (emphasis supplied)

54. Reference to these external aids for interpreting the proviso under consideration would arise only after completing the exercise of literal or purposive interpretation.

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55. In Essar Steel India Limited (supra), this Court considered the scope and ambit of section 30(2) and (4) on the one hand and also the jurisdiction of the Adjudicating Authority/NCLAT under sections 30(4), 31 and 60(5) of the IBC on the other hand. The relevant paragraphs read thus: “it is clear that when the Committee of Creditors exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that

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the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal.”

56. This Court has held that CIRP under the IBC is based on a flexible model where market participants (as resolution applicants) can propose solutions for the revival of the corporate debtor. To put it succinctly, the ratio of Essar Steel (supra) can be understood as follows: 56.1. Since it is the commercial wisdom of the CoC that is to decide on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code and the Regulations outline in detail the importance of setting-up of such Committee and leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion. Thus, section 21(2) of the IBC mandates that the CoC shall comprise of financial creditors of the corporate debtor. 56.2. The CoC consists of financial creditors who are in the business of money lending, and the commercial angle of CIRP is within the domain of the CoC. Thus, when the CoC exercises its commercial wisdom, the adjudicating authority cannot interfere on merits with the commercial decisions taken by the CoC. 56.3. This Court also held that there is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and the feasibility of the proposed resolution plan. They act on the basis of a thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority and is made non-justiciable. 56.4. While the ultimate business decision lies with the CoC, such a decision should indicate adequate consideration of the objectives of the IBC. Accordingly, the adjudicating authority

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should ensure that the decision of the CoC takes into account the following factors: (i) the corporate debtor should continue as a going concern during the resolution process, (ii) the value of assets of the corporate debtor should be maximised, and (iii) interests of all stakeholders are balanced. 56.5. In the event that the adjudicating authority, on a review of the facts of the case, concludes that the aforesaid factors have not been considered, it may send the resolution plan back to the CoC but not alter the resolution plan of its own accord. 56.6. The jurisdiction bestowed upon NCLAT is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in section 61(3) of the IBC, which is limited to matters “other than” enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (the Adjudicating Authority/NCLAT) have been endowed with clearly demarcated jurisdiction as specified in the IBC and are not to act as a court of equity or exercise plenary powers.

57. The admitted circumstances are that – 57.1. On 27.09.2022, AGI in Form I applied for approval of the combination of the subject resolution plan. 57.2. On 22.10.2022, the application in Form I was rejected by CCI. 57.3. On 27.10.2022, through e-voting, the CoC approved AGI’s resolution plan for HNGIL. 57.4. On 03.11.2022, AGI applied to CCI in Form II for approval of the combination. 57.5. On 15.03.2023, CCI approved the combination with a few conditions.

58. The above narrative is relied on to argue that the proviso to sub- section (4) of section 31 is violated by the RP and CoC. The above literal construction ignores the circumstances that surround Act 26 of 2018 and Act 26 of 2019, which introduced a few amendments to both sections 30 and 31 of the IBC. 58.1. The amendment of a provision of law is appreciated by a comparison between the pre-amendment and post- amendment law. The amendment to an existing law is

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necessitated to supplement the gaps noted in achieving the purpose or object of the existing enactment. The Parliament, after realizing the existence of a few bottlenecks in the smooth working of the Act in achieving the object, makes amendments in the nature of additions, deletions, exceptions, provisos, etc. 58.2. IBC has undergone a few major changes to improve the working of the Code. The Parliament, in its wisdom, has not only incorporated the amendments but also the place at which the amendments are to be positioned.

59. In the said background, the Parliament has not incorporated the proviso to sub-section (4) of section 31 in the text of section 30 of the IBC. Section 30(2) of the IBC, read with Regulation 39(4) of CIRP Regulations, 2016, has provided for what is to be reported to the CoC by RP through Form H.

60. It is axiomatic to not interpret a section by referring to or relying on the Regulations made by the Insolvency and Bankruptcy Board of India (“IBBI”). The plain requirement for the RP is to state whether the resolution plan contravenes any of the provisions of the law for the time being in force.

61. The Parliament, guided by the real-time working of an enactment based on a report received or otherwise, had undertaken to amend IBC. The amended and unamended provisions are excerpted as follows: Section Unamended Amended 25(h) 25(2)(h) invite (h) invite prospective resolution applicants, prospective lenders, who fulfil such criteria as may be laid investors, and any other down by him with the approval of persons to put forward committee of creditors, having regard to resolution plans the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans; 30(1) 30. (1) A resolution (1) A resolution applicant may submit a applicant may submit resolution plan [along with an affidavit a resolution plan to the stating that he is eligible under Section resolution professional 29-A] to the resolution professional prepared on the basis prepared on the basis of the information of the information memorandum. memorandum.

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30(2)(e) (2) The resolution (e) does not contravene any of the explanation professional shall provisions of the law for the time being in examine each resolution force; plan received by him to confirm that each [Explanation.—For the purposes of clause resolution plan— (e), if any approval of shareholders is required under the Companies Act, 2013 (e) does not contravene (18 of 2013) or any other law for the time any of the provisions of being in force for the implementation of the law for the time being actions under the resolution plan, such in force approval shall be deemed to have been given and it shall not be a contravention of that Act or law.] 30(4) (4) The committee of (4) The committee of creditors may creditors may approve a approve a resolution plan by a vote of resolution plan by a vote not less than [sixty-six] per cent of voting of not less than seventy share of the financial creditors, after five per cent. of voting considering its feasibility and viability [the share of the financial manner of distribution proposed, which creditors. 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 the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. 7 of 2017),where the resolution applicant is ineligible under Section 29-A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it: Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of Section 29-A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of Section 29-A: Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of Section 12 and the corporate insolvency resolution process shall be completed within the period specified in that sub-section] [Provided also that the eligibility criteria in Section 29-A as

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amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.] 31(1) (1) If the Adjudicating (1) If the Adjudicating Authority is satisfied Authority is satisfied that the resolution plan as approved that the resolution plan by the committee of creditors under as approved by the sub-section (4) of Section 30 meets committee of creditors the requirements as referred to in sub- under sub-section (4) section (2) of Section 30, it shall by of section 30 meets the order approve the resolution plan which requirements as referred shall be binding on the corporate debtor to in sub-section (2) and its employees, members, creditors, of section 30, it shall [including the Central Government, by order approve the any State Government or any local resolution plan which authority to whom a debt in respect of shall be binding on the the payment of dues arising under any corporate debtor and its law for the time being in force, such as employees, members, authorities to whom statutory dues are creditors, guarantors owed,] guarantors and other stakeholders and other stakeholders involved in the resolution plan: involved in the resolution [Provided that the Adjudicating Authority plan. 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.] Proviso to - (4) The resolution applicant shall, pursuant 31(4) 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.

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62. Section 30(1) provides for the submission of a resolution plan by the resolution applicants. Section 30(2) obligates the RP to examine each resolution plan received by the RP to confirm that the resolution plan does not contravene any of the provisions of law for the time being in force. The relevant portion of Form H is reproduced hereunder:

Form H Section Requirement with respect to Clause of Compliance of Code/ Resolution Plan Resolution (Yes/No) Regulation Plan No. 25(23)(h) Whether the Resolution Applicant meets the criteria approved by the CoC having regard to the complexity and scale of operations of business of the CD? Section 29A Whether the Resolution Applicant is eligible to submit resolution plan as per final list of Resolution Professional or Order, if any, of the Adjudicating Authority? Section Whether the Resolution Applicant 30(1) has submitted an affidavit stating that it is eligible? Section Whether the Resolution Plan- 30(2) (a) provides for the payment of insolvency resolution process costs? (b) provides for the payment to the operational creditors? (c) provides for the payment to the financial creditors who did not vote in favour of the resolution plan? (d) provides for the management of the affairs of the corporate debtor? (e) provides for the implementation and supervision of the resolution plan? (f) contravenes any of the provisions of the law for the time being in force?

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63. Section 30(2)(e) of the IBC requires that the resolution plan does not contravene any provisions of the law for the time being in force. Further, the explanation to section 30(2)(e) is that the approval of shareholders for the implementation of actions is available. With a report received in Form H from the RP, the issue moves into the hands of the CoC under section 30(4). Section 30(4) of the IBC has the following facets: 63.1. The CoC approves a resolution plan by a vote of not less than sixty-six per cent of the voting share of the financial creditors. 63.2. The CoC ascertains the feasibility and viability of a resolution plan and also the manner of distribution of priorities. 63.2.1. The manner of distribution may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53. 63.2.2. The manner of distribution includes the priority and value of the security interest of the secured creditors. 63.2.3. Such other requirements as may be specified by IBBI.

64. It is noteworthy that sub-section (4) of section 30 of the IBC conspicuously does not refer to the checklist prescribed in sub- section (2) of section 30 of the IBC. By law and precedent, the CoC, while exercising its commercial wisdom, is required to assess the feasibility, viability and prioritisation of interests. In its commercial wisdom, nothing prevents the CoC from appreciating the fallout of non-compliance with combination approval by one of the resolution applicants. This circumstance may influence the voting pattern of the CoC. However, it cannot result in the rejection of a non-compliant resolution plan.

65. The duties and functions of the Adjudicating Authority under section 31 of IBC are as follows. 65.1. Section 31(1) provides for approval of a resolution plan by the Adjudicating Authority and is summarised thus: 65.2.1. If the Adjudicating Authority is satisfied that the resolution plan as approved by the CoC under section (4) of section 30 meets the requirements referred to in sub-section (2) of section 30;

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65.2.2. Adjudicating Authority then shall, by order, approve the resolution plan; 65.2.3. The approved plan is binding on (a) the corporate debtor, (b) employees of the corporate debtor, (c) members, (d) creditors, (e) Central and State Governments or local authorities to whom statutory dues are owned, and (f) Guarantors and other stakeholders involved in the resolution plan. 65.2. The proviso inserted by Act 26 of 2018 to section 31(1) of the IBC obligates that the Adjudicating Authority shall, before passing an order of approval of a resolution plan under sub- section (1), satisfy that the resolution plan has provisions for effective implementation. 65.3. The proviso stipulates a threshold consideration on provisions, i.e., steps and means for effective implementation of the resolution plan. 65.4. Sub-section (2) of section 31 obligates a different function or duty, i.e., to reject a resolution plan which does not confirm to the requirements referred to in sub-section (1) of section

31. Sub-section (2) of section 31 notes that if the Adjudicating Authority is not satisfied with the resolution plan, which does not confirm to the requirements referred to in sub-section (1), the Adjudicating Authority may reject the resolution plan. The occasion to reject a resolution plan arises under section 31(2) of the IBC. In contrast, there is no occasion for the CoC to reject an eligible resolution plan.

66. One of the facets of literal interpretation is the grammatical usage of sentences in the appropriate syntax. Grammatical usage is one of the means, and it is by law established, not the exclusive means, by which the sense of the statute is conveyed. The words employed by the parliament are the instruments by which the parliament expects or hopes to give effect to a policy or framework. 66.1. In Gurudevdatta VKSSS Maryadit v. State of Maharashtra,12 this Court, while dealing with section 27(3) of the Maharashtra

12. (2001) 4 SCC 534.

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Co-operative Societies Act, 1960, held that words must be given their due meaning in their grammatical sense:

26. Further we wish to clarify that it is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the lawgiver. The courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute.” (emphasis supplied)

66.2. Further, this Court, in Harbhajan Singh v. Press Council of India,13 dealt with the interpretation of sub-section (7) of section 614 of the Press Council Act, 1978, and employed grammatical tenses to present tenses used in the statute: “8. The provision is cast in the present tense. A retiring member is ineligible for renomination. “Not more than one term” qualifies “renomination”. The words “retiring”, used in the present tense, and “renomination” speak aloud of the intention of the legislature. If the word “retiring” was capable of being

13. (2002) 3 SCC 722.

14. Section 6(7): A retiring member shall be eligible for renomination for not more than one term.

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read as “retired” (sometime in the past) then there would have been no occasion to use “renomination” in the construction of the sentence. If the intention of law-framers would have been not to permit a person to be a member of the Council for more than two terms in his lifetime then a different, better and stronger framing of the provision was expected. It could have been said: “no member shall be eligible for nomination for more than two terms”, or it could have been said:“a retired member shall not be eligible for nomination for more than two terms”.

16. We are clearly of the opinion that sub-section (7) of Section 6 of the Press Council Act must be assigned its ordinary, grammatical and natural meaning as the language is plain and simple. There is no evidence available, either intrinsic or external, to read the word “retiring” as “retired”. Nor can the word “renomination” be read as nomination for an independent term detached from the previous term of membership or otherwise than in succession. (emphasis supplied)

67. The rules of grammar are to be applied unless those rules contradict the legislative intent or purpose. This statement is more so if it refers to legislative intent or purpose manifested in the only manner in which a legislature can authoritatively do so in the text of the enactment. Though not to find out violability in the text of the enactment, but to keep the content consistent throughout the enactment – the court gathers the meaning of all the expressions used in the same section. In this manner, the courts have applied grammatical construction to provisions of law.

68. In sub-section (2) of section 31, the words “does not confirm to the requirements of sub-section (1) of section 31” grammatically interpreted throw light on the stage of satisfactory compliance of all the requirements of sub-section (2) of section 30. The Parliament, in its wisdom, would have employed the expression “did not” in place of “does not” if the requirement is that the resolution plan is fully compliant at a stage before consideration of the resolution plans by the CoC. As part of the interpretative process, the Court ought not

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to lose sight of expressions which are in the present tense, such as “meets”, “does not”, and “satisfies” in section 31 of the IBC. The word “confirm” literally means “to verify” for both positive recordings of requirements of sub-section (1) of section 31 and also negative recordings of omissions or illegality in the resolution plans voted by the CoC. There is no ambiguity that when sub-section (1) of section 31 is referred to in both the eventualities stated above, it includes clause (e) of section 30(2) of the IBC. The above literal construction, as has been canvassed by the appellants, must be applied to the entire scheme of sections 30 and 31 and not merely in isolation to the proviso to sub-section (4) of section 31 of the IBC. Sub-sections (1) and (2) of section 31 obligate the Adjudicating Authority in its jurisdiction to decide these aspects and consider whether approval should be granted or rejected.

69. The consequences of approval are also set out in sub-section (1) of section 31, including transferring the business of the corporate debtor to a successful resolution applicant. Sub-section (4) grants a window of one year to the successful resolution applicant for obtaining permissions, licenses or permits under applicable laws. These are ex post facto operational permissions/consents/licences needed to run the business as a going concern by the successful resolution applicant and to avoid civil or penal consequences. Sub-section (4) provides for a legal fiction to continue to operate with the existing permissions/licences/consents in favour of the corporate debtor from a host of authorities by the successful resolution applicant.

70. Whereas the meaning, definition and implication of combination attracting sections 5 and 6 of the Competition Act are distinct. By keeping in perspective the language of sections 5 and 6 of the Competition Act, the combination should have the approval of CCI on the day on which the resolution applicant receives approval under section 31(1) of IBC. In the alternative, the absence of combination approval would result in the combination being void. The successful resolution applicant cannot be allowed to take over the management awaiting orders of CCI, and the successful resolution applicant cannot undertake business operations. The memorandum and notes on clauses appended to the ordinance and amendment recognised the need for statutory protection and the need for due compliance with statutory requirements of approval of combination under the Competition Act by the successful resolution applicant. There is an

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inconsistency and ambiguity in the stage of having CCI approval. In such cases, the text of the amended and unamended sections should guide the interpretation.

71. Section 30(4) does not obligate the CoC to examine whether the resolution plan contravenes the requirements of section 30(2)(e) of the IBC. The comprehensive proposals submitted by the RP and the resolution of the CoC will disclose feasibility and viability. The proposal of the successful resolution applicant being legally compliant in a CIRP attracting CCI’s approval for combination is examined by the Adjudicating Authority.

72. Essar Steel (supra) has laid down as a clear principle or ratio that the CoC is primarily concerned with feasibility, viability and the manner of distribution proposed, etc., amongst the creditors and may keep in mind section 53(1) of the Code. The insistence upon approval of CCI before CIRP reaches section 30(4) would limit the number of eligible resolution applicants, and the core objects of CIRP, intended to benefit the stakeholders through maximization of recovery, is defeated. Noted from the sense of commercial prudence, unless the resolution plan is acceptable to the CoC, a question arises as to the prudence for a business entity to move the CCI for approval. Through the Amendment Act, the proviso to subsection (4) has been inserted within section 31. If the timing of having approval of the combination is at the stage where the CoC is considering the resolution plans, then the insertion would have been in section 30, but not as is reflected in the amended section 31 of the IBC. Stepping up the requirement to a stage not envisaged by the parliament, particularly not resulting in a consequence for not having the approval of CCI, would be akin to writing too much into the sentence. In this context, if the requirement of approval of combination at the stage of CoC is held as mandatory, then through a literal interpretation of the proviso to section 31(4), the Court would be catapulting the proviso to a place not expressed by the parliament. Precisely reiterated, such interpretation, apart from causing difficulties in CIRP defeats the very object of maximization of recovery.

73. In contradistinction, section 31(4) specifically refers to due compliance with the requirements of sub-section (1) of section 31, which then refers to the requirements in sub-section (2) of section 30 with regard to approval of the resolution plan. The statutory compliance by the resolution applicant is divided into two stages viz., firstly, sub-section

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(4) provides a window time of one year to obtain necessary approval under any law by the resolution applicant; and secondly, having the combination approval before sub-section (2) of section 31 of IBC. This said compliance status enables the Adjudicating Authority to accept or reject a resolution plan which does not confirm to the requirements referred to in sub-section (1) of section 31. The final consideration of the resolution plans before the Adjudicating Authority arises in the manner laid down by this Court in Essar Steel (supra). The absence or presence of combination approval while a decision is taken under sub-section (4) of section 30 is not very relevant from the perspective of feasibility or viability. The Adjudicating Authority, if it is satisfied that the resolution plan has provisions for effective implementation, then one facet of verification is over. After which, it is verified whether to reject the resolution plan for not confirming to the requirements referred to in sub-section (1) of section 31. To wit, it is noted as an example that a resolution applicant gets into the management of the corporate debtor by an order under section 31(1) of the IBC, and has combination approval for the resolution plan on that day, then the consequence of section 6 of the Competition Act, namely the combination being void, is not attracted. The purpose and object of the IBC and the subsequent amendments are to provide theoretical and practical resolution to the financial difficulties of a stressed corporate debtor for the benefit of the stakeholders of the corporate debtor. The statutory scheme is not intended to give undue advantage or hardship to the resolution applicants.

74. Yet another reason taken note is that as per the statutory scheme, the resolution plan receives two kinds of approvals, one by the CoC under sub-section (4) of section 30 primarily on feasibility and viability and another from the Adjudicating Authority that the resolution plan has provisions for its effective implementation and that the resolution plan confirms to sub-section (2) of section 30, including clause (e). The proviso to sub-section (4) of section 31 needs to be carefully examined. It may be noted that the proviso to sub-section (4) of section 31 refers only to a resolution plan containing a provision for combination.

75. The question as to whether a requirement under the statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed. The meaning and intention of the legislature must govern, and these are to be

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ascertained not only from the phraseology of the provision but also by considering its nature, its design, and the consequences which would follow from construing it one way or the other.15

76. The use of the word ‘shall’ raises a presumption that the particular provision is imperative. However, the prima facie inference about the provision being imperative may be rebutted by other considerations, such as – the object, scope of the enactment, and the consequences flowing from such construction. The interpretation of the word ‘shall’ as directory has been a purposive effort of the court to sustain the object of the statute and, at the same time, ensure compliance with the requirements. This Court has interpreted ‘shall’ as directory to preserve the legislative effort and intent of the statute. 76.1. In Sainik Motors v. State of Rajasthan,16 State of UP v. Babu Ram Upadhya,17 and State of MP v. Azad Bharat Finance Co.,18 this Court has held that the word ‘shall’ does not always imply that a provision is mandatory. If the legislative intent or the context requires the statute to be not mandatory, then the word ‘shall’ is to be contextually interpreted. 76.2. This Court has also held that the ultimate rule in construing auxiliary verbs like ‘may’ or ‘shall’ is to discover the legislative intent without giving it a controlling or determinative effect. The subject matter, the purpose of the provisions, the object intended to be secured by the statute which is of prime importance, and the actual words employed have to be considered in determining the nature of the obligation cast by the statute while employing ‘shall’ or ‘may’.19

77. In determining whether the word ‘shall’ is mandatory or directory, the court examines noscitur a sociis20, the operation, functions, duties, and consequences for non-performance. The rule of literal interpretation with its exceptions is noted, and the grammatical interpretation of

15. Earl T. Crawford, The Construction of Statutes (Thomas Law Book Company, 1940), p. 516.

16. AIR (1961) SC 1480

17. AIR (1961) SC 751

18. AIR (1967) SC 276

19. Bachahan Devi v. Nagar Nigam, Gorakhpur (2008) 12 SCC 372

20. The meaning of words should be identified by reference to other words in the context of which they appear.

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sections 30 and 31 of IBC sets the stages of consideration of twin approvals – one by the CoC, and the other by the Adjudicating Authority – while approval or rejection is granted to the resolution plan. The combination approval as an enclosure to an applicable resolution plan at the stage of section 30(4) of the IBC is a form or procedure that does not have consequences. At the same time, the combination approval to an applicable resolution plan at the stage of consideration of the Adjudicating Authority under section 31(1) and (2) of the IBC becomes substantial. This is because, a non-compliant resolution plan can be rejected only by the Adjudicating Authority, whereas the CoC is principally concerned with the feasibility and viability.

78. When adopting a consequentialist approach, it becomes clear that the insistence upon a combination approval at the stage of Section 30(4) does not place the stakeholders at an advantageous position. Further, presenting the combination approval at the stage of consideration by the Adjudicating Authority under section 31(1) and (2) does not diminish the value of the stressed assets because of robust competition among eligible resolution applicants. Further, the opportunity cost that arises from treating the stage at which combination approval is required as mandatory may disturb the smooth working of the intricate and competitive insolvency resolution system that the IBC envisages. Thus, the consequences of compliance and non-compliance with all the legal requirements of the resolution plan arise only before the Adjudicating Authority. Consequently, to keep section 31 uniform in all perspectives, it is concluded that in the place of literal interpretation, purposive interpretation is apt; therefore, the word ‘shall’ in the proviso to section 31(4) of the IBC is interpreted and held as directory.

79. From the above discussion, it is held that the proviso to sub-section (4) of section 31 is directory and would be compliant with IBC and the Competition Act. Hence, the combination approval of CCI at the stage of consideration of the resolution plan by the Adjudicating Authority under section 31(1) would be proper and legal. Such interpretation keeps the operations of the successful resolution applicant as a going concern, without deviating from the rigour of the Competition Act, and simultaneously, a one-year window is granted to obtain licenses, permissions, consents and other regulatory approvals envisaged by a host of laws. Therefore, the proviso is interpreted purposively

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and held that the approval of a combination of CCI at the stage of consideration by CoC is directory and not mandatory. By operation of section 31(2) of the IBC, to avoid rejection of a fully compliant and voted resolution plan, the Adjudicating Authority confirms that the approval of the combination is available before implementing the resolution plan. At best, the use of the words “prior to” is a temporal expression whose mandatory or directory nature is to be determined from the context surrounding section 31.

80. IBC and the Competition Act have timelines for the discharge of a duty and function. In this light, it is impermissible to interpret the provisions in one enactment by keeping in perspective the starting point of a timeline and the termination of a timeline in the other enactment. The enactments are allowed to work parallelly and without pressure for performance from the other in line with the duties and obligations cast through the enactments.

81. It is argued that the NCLAT in ArcelorMittal (supra), Vishal Vijay Kalantari (supra) and Makalu Trading Limited (supra) held that the requirement under proviso to sub-section (4) of section 31 is directory at the stage of CoC approval. The view of that NCLAT was confirmed by this Court in Vishal Vijay Kalantari (supra) and Makalu Trading Limited (supra) while referring to the NCLAT judgement in ArcelorMittal (supra). The argument of the appellant is that the confirmation of a view taken by the NCLAT, as above, is either distinguishable or alternatively cannot be treated as a binding precedent for deciding the controversy in these appeals. In reply, it is argued that the NCLAT has considered the crux of the issue in these matters and the Civil Appeal(s) that stood dismissed has the effect of a binding precedent on the question of whether the proviso to sub-section (4) of section 31 of the IBC is mandatory or directory. The absence of a reasoned dismissal order is no reason to re-open an otherwise established position of law. To appreciate the consideration by NCLAT and confirmation by this Court, the narrative is presented as follows: Case Case Reasoning of NCLAT Order of the SC No.

1. ArcelorMittal NCLAT held that proviso to sub- No appeal to section (4) of section 31 of the this Court. NCLAT – 2019 IBC, which relates to obtaining SCC OnLine the approval from CCI under the NCLAT 920 Competition Act, 2002 prior to the

p. 1887

approval of such ‘Resolution Plan’ by the CoC, is directory and not mandatory. It is always open to the CoC, which looks into the viability, feasibility and commercial aspects of a ‘Resolution Plan’ to approve the ‘Resolution Plan’ subject to such approval by CCI, which may be obtained prior to approval of the plan by the Adjudicating Authority under section 31 of the IBC.

2. Vishal Vijay A plain reading of the provision This Court Kalantari makes it clear the Resolution found no reason Applicant is to obtain necessary to interfere with NCLAT – 2020 approval within one year from the the NCLAT SCC OnLine date of approval of the Resolution judgement. NCLAT 1013 Plan by the adjudicating (Division Bench Supreme authority. It is manifestly clear Decision) Court – 2021 that a Resolution Plan containing SCC OnLine provision for combination SC 3243 has been treated as a class apart requiring approval of the Competition Commission of India even prior to such Resolution Plan being approved by the Committee of Creditors. However, treating such requirement as mandatory is fraught with serious consequences. Thus, relying on ArcelorMittal (Supra), the NCLAT held section 31(4) to be directory.

3. Makalu The adjudicating authority was This Court did Trading conscious of the CCI approval, not interfere Limited thus, ignoring the fact that CCI with the NCLAT approval has been obtained post judgement since NCLAT – CoC approval of the Resolution no substantial (2020) SCC Plan is in line with the view taken question of law OnLine NCLAT in ArcelorMittal (Supra). is involved. 643 (Three-judge Supreme bench decision) Court – Civil Appeal No. 3338 of 2020, order Dt. 12 October 2020

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82. The tabular statement takes note of the conclusions stated by the NCLAT. The argument against the view taken by this Court in Vishal Vijay Kalantari (supra) and Makalu Trading Limited (supra) is rejected. 82.1.In matters of trade, industry, and commerce, continuity and consistency in precedents are the foundations on which prudent business decisions are made. The consistent view in case law enables the market players to arrange affairs in compliance with the law and the precedents. In the working of the IBC, it does not appear that the only certainty is that nothing is certain. The resolution applicant is not to be subjected to intolerable uncertainty or not knowing what comes next. While doubt is not a pleasant condition, the adjudicatory process should not multiply it. The object of IBC is to provide the institutional framework for theoretical resolution without considering liquidation as the first option. The buoyant economy needs absorption mechanisms to prevent collateral and cascading impact on the investors, depositors and financial creditors. Therefore, the idea of the IBC is to let the financial markets work.

83. The view taken by the NCLAT on the question of whether the requirement of proviso to sub-section (4) of section 31 of IBC is mandatory or directory is correct. Thus, the appeals fail.

84. On 05.11.2022, the RP moved for approval under section 30(6) of the IBC for the resolution of the CoC Dt. 27.10.2022. INSCO, on 14.11.2022, filed application No. 1497/2022 to reject AGI’s resolution plan for want of CCI approval. Further consideration by the Adjudicating Authority is paused because of an interlocutory application, an appeal to the NCLAT, and the subsequent proceedings in this Court. The resolution plans were submitted with the contemporaneous perspective of the physical state of affairs of men, machinery and matters of the corporate debtor. The delay loses the very sheen in the effort to revive the stressed assets of a corporate debtor. The law provides for availing legal remedies. It may not be understood as laying down that the interlocutory applications are not maintainable before the Adjudicating Authority and NCLAT. Parties are well within their competence to move an application,

p. 1889

including further statutory remedies under IBC in accordance with law. The outcome must be met with consequences and costs for the unsuccessful parties. The consequences of delay must also be borne in mind. In State Bank of India & Ors. vs. The Consortium of Murari Jalan and Florian Fritsch & Anr.,21 this Court held CIRP cannot be endlessly postponed, including under the garb of litigation. This Court further held that the completion of CIRP is imperative to avoid value erosion. The failure of the resolution process will finally result in the sale of scrap of the assets of the corporate debtor, and again, a scenario experienced under previous regimes is reflected. It is axiomatic, more particularly in commercial matters, that costs and consequences of adjudication follow the event. In corporate and commercial matters, as a corollary, the cost must follow the result. Hence, costs are awarded while dismissing the appeals and are to be credited to the account of the RP. 84.1. INSCO’s C.A. 6071/2023 – dismissed with a cost of Rs.25,00,000 (Indian Rupees twenty-five lakh only). 84.2. UPGMS’s C.A 6055/2023 – dismissed with a cost of Rs.10,00,000/- (Indian Rupees ten lakh only). 84.3. HNG’s Karamchari Union C.A 6123/2023 – dismissed with a cost of INR 10,00,000/- (Indian Rupees ten lakh only). 84.4. Soneko Marketing’s C.A. 6177/2023 – dismissed with a cost of INR 10,00,000/- (Indian Rupees ten lakh only). 84.5. HNG Industries’ C.A. 6847/2023 – dismissed with a cost of INR 50,000/- (Indian Rupees fifty thousand only).

85. It is appropriate to direct the Adjudicating Authority to dispose of the Application filed by the Resolution Professional within 6 weeks from today.

21. Civil Appeal No. 5023-5024 of 2024.

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Judgment‡

S.V.N. Bhatti, J.

1. The civil appeals assail the order Dt. 28.07.2023 of the National Company Law Appellate Tribunal, Principal Bench, New Delhi (“NCLAT”). The appeals arise under the Competition Act, 2002 (“Competition Act”).

I. BACKGROUND

2. On 21.10.2021, the National Company Law Tribunal, Kolkata Bench (“NCLT”) admitted CP (IB) 369/2020, an application filed by DBS Bank under section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against Hindustan National Glass and Industries Limited (“HNGIL”). HNGIL is the corporate debtor engaged in manufacturing and supplying glass containers. HNGIL admittedly has a substantial market presence in the relevant market in India.

3. AGI Greenpac Limited (“AGI”) and Indian Sugar Corporation Limited (“INSCO”) were prospective resolution applicants in the corporate insolvency resolution process (“CIRP”) ordered by the NCLT in Case No. CP (IB) 369/2020. The resolution professional (“RP”) issued the request for resolution plan (“RFRP”) Dt. 24.05.2022. The RFRP stipulates in Clauses 2.6.3(c), 3.3 and 4.1.1(k) that the approval of the combination by the Competition Commission of India (“CCI”) is available before the Committee of Creditors (“CoC”) considers the resolution plan. Considering the financials and market share of HNGIL, the rigour of combination as defined in section 5 of the Competition Act is attracted to the proposal of AGI since it has a substantial presence in the relevant market in India. Sections 5 and 6 of the Competition Act set out the combination and regulation of combinations. To wit, it is noted that the resolution applicants to the RFRP Dt. 24.05.2022 who are in the manufacture and supply of glass containers similar to the activities of HNGIL are informed to have the approval of the combination of the proposed resolution

‡ Ed. Note: Judgment pronounced by Hon’ble Mr. Justice S.V.N. Bhatti in Civil Appeal No(s). 4954, 4937, 5018, 5401, 6771, 7428, 7038 and 7037 of 2023

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plan before the CoC considers the feasibility and viability of the resolution plan.

4. If the proposal of the resolution applicant contributes to horizontal or vertical relationships, then the requirements of sections 5 and 6 of the Competition Act are attracted, and due compliance is necessitated.

5. INSCO is a multinational company headquartered in Bermuda. It is engaged in consulting for agriculture, financial management, and business consultancy. AGI is engaged in manufacturing and supplying glass containers and has a substantial market share in the relevant market in India. The actual percentage of market participation of any of the parties is not noted as part of the narrative on the background circumstances. The parties to the appeal are in agreement that having the combination approval from CCI for the proposed resolution plan is attracted to both AGI and INSCO. The distinction in compliance format is that AGI must follow the Form II process for obtaining the approval of CCI for the proposed resolution plan; on the contrary, INSCO, not being a player in the relevant market in India, is subjected to the simple and straight forward procedure, also known as green channel, contained in Form I.

6. On 18.08.2022, INSCO sought clarification from the RP on the combination approvals and the RP, by reply e-mail Dt. 25.08.2022, informed INSCO that CCI’s approval could be obtained after the approval of the resolution plan by CoC but prior to the filing of the resolution plan before the Adjudicating Authority.

7. INSCO and AGI fall within the purport of Clauses 2.6.3(c), 3.3 and 4.1.1(k) of the RFRP. On 27.09.2022, AGI filed Form I with CCI under regulation 5(2) of the Competition Commission of India (Procedure in regard to transaction of business relating to combinations) Regulations 2011 (“Combination Regulations 2011”) intimating the proposed combination of AGI and HNGIL as part of CIRP. On 30.09.2022, INSCO, a foreign player, applied in Form I for combination approval under the green channel for the proposed combination in the CIRP of HNGIL and received deemed approval vide notice C-2022/09/974. The UP Glass Manufacturers Syndicate (“UPGMS”), Appellant in Civil Appeal No.4054/2023, filed objections before the CCI to the Form I application made by AGI on 27.09.2022. On 13.10.2022, CCI directed AGI to file a notice in

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Form II in terms of Regulation 5(5) of the Combination Regulations

2011. On 27.10.2022, the CoC approved AGI’s resolution plan by 98% vote through e-voting.

8. On 03.11.2022, AGI filed notice in Form II before the CCI for the approval of a combination of the successful resolution plan. On 17.11.2022, CCI sought additional information/documents from AGI. AGI, through the reply Dt. 08.12.2022, responded to the queries raised by the CCI. On 19.12.2022, AGI filed the additional submissions/ material before the CCI.

9. CCI, upon forming a prima facie opinion that the proposed combination of AGI with HNGIL is likely to cause appreciable adverse effect on competition (“AAEC”) in the relevant market in India, decided to issue a show cause notice to AGI. On 10.02.2023, CCI issued a show cause notice under section 29(1) of the Competition Act to AGI to show cause as to why an investigation in respect of the proposed transaction should not be carried out. On 10.03.2023, AGI replied to the show cause notice Dt. 10.02.2023 and voluntarily offered to hive off or divest the Rishikesh Plant upon approval of the resolution plan by the Adjudicating Authority under the IBC. This was followed by further clarifications of AGI on 14.03.2023. CCI, on 15.03.2023, approved, under section 31(1) of the Competition Act, the modified combination of AGI.

10. The combination was approved vide order Dt. 15.03.2023 and was challenged before the NCLAT by a few aggrieved parties. NCLAT, through the order Dt. 28.07.2023, impugned in the civil appeals, dismissed the appeals and confirmed the combination approved by CCI. Hence, the civil appeals.

II. THE GIST OF CCI ORDER DT. 15.03.2023

11. AGI and HNGIL are engaged in the manufacture and supply of glass containers. The activities of HNGIL and AGI involve both horizontal and vertical relationships. The CCI delineated the relevant product market as container glass packaging and noted the operation and existence of both wholesale and retail segments by AGI and HNGIL. The CCI appreciated the combined market share of HNGIL and AGI in the delineated relevant market as – (i) Alco-Beverage (40-50%) and (ii) F&B (80-85%). The combined effect of AGI and HNGIL is

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noted as significant players in the Alco Beverage and F&B Sector. The combination is likely to have significantly increased the level of concentration in the relevant market for container glass. Further, the countervailing power of the buyers is limited in the market, and imports seem to be marginal in the relevant market of the proposed combination. Moreover, the “failing firm” defence that a delay in acquisition would adversely affect the viability of the target was rejected, and a holistic approach to the assessment of the proposed transaction was applied, which involved accepting and balancing structural changes in the combination details. It is contextual to note the following clauses in the modification plan Dt. 10.03.2023 and 14.03.2023. The important features of the modification to the suggested combination are stated thus: 11.1. Clause 4 – 10 years stoppage on any direct or indirect influence over the whole or part of the Rishikesh Plant. 11.2. Clause 8 – AGI shall operate at an arm’s length basis from the Rishikesh Plant. 11.3. Clause 14 – From the effective date until the transfer of the Rishikesh Plant, the Plant is to be kept separate from AGI. 11.4. Clause 29 – As per regulation 27 of the Combination Regulations 2011, there shall be an independent agency to monitor the divestment business.

12. AGI presented that hiving off the Rishikesh Plant – the least loss- making and the plant that had recorded a growth of 24% in 2021- 22 – would efface the risk of AAEC, as noted by CCI. The products manufactured in Rishikesh Plant have a substantial presence in the relevant market segments. For the reasons recorded in the order Dt. 15.03.2023, the voluntary modification of AGI was accepted. It is noted that the power of buyers to countervail is limited. The financial situation of HNGIL with the proposed modification will not result in AAEC. The CCI approved the proposed combination of AGI and HNGIL subject to compliance with regulation 25(1)(a) of Combination Regulations, 2011. The approval further noted that the failure to comply with the modification would deem the violator liable for proceeding under the Competition Act. The order of approval of CCI Dt. 15.03.2023 was assailed before the NCLAT.

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13. The details of the appellants are stated thus:

Sl. NCLAT Case No. Civil Appeal No. Appellant No.

1. (AT) No. 07 of Civil Appeal No. UPGMS 2023 4954/2023

2. (AT) No. 08 of Civil Appeal No. INSCO 2023 4924/2023

3. (AT) No. 09 of Civil Appeal No. M/s Geeta 2023 4937/2023 and Company

4. (AT) No. 10 of Civil Appeal No. HNG Workers 2023 5018/2023 Union

14. In Civil Appeal No. 5401 of 2023, AGI objected to the filing of appeals before NCLAT by the above appellants as they are not aggrieved persons, and the appeals, at their instance, are not maintainable.

15. To sum up the case before NCLAT, the objections are that the CCI failed to comply with the requirement of section 29(1) of the Competition Act because the CCI has not issued show cause notice to both the parties to combination, i.e., the acquirer and the target entity. Approval of the combination is vitiated and illegal inasmuch as CCI, on forming a prima facie opinion about AAEC through the combination proposed, issued a show cause notice under section 29(1) of the Competition Act to AGI.

16. CCI should have taken the investigation as mandated by section 29(1) of the Competition Act by calling for the opinion of the Director General and directing AGI to cause public notice of the proposed combination. The non-compliance with section 29(2) renders the combination approval Dt. 15.03.2023 illegal and unsustainable. The prima facie opinion formed by the CCI under section 29(1) of the Competition Act steps up consideration to the stage of investigation. The combination approval under section 31 could be granted only after complying with section 29(2) of the Competition Act. Regulation 25(1) (a) of Combination Regulations 2011 has been misinterpreted or misapplied. The NCLAT in the above set of contentions framed the following points for consideration:

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Sl. Points Conclusion No.

1. Whether the Appellant(s) have The NCLAT noted that the locus to challenge the order of the appellants have locus to file Competition Commission of India the appeal. The NCLAT looked dated 15.03.2023 within the meaning at the judgement of Samir of Section 53B of the Competition Agarwal v. CCI1 in coming to Act, 2002? a conclusion. The judgement notes that “person aggrieved” has to be read widely.

2. Whether Section 29, sub-section (1) Section 29(1) of the contemplates that a Show Cause Competition Act contemplates Notice to be issued to the parties to that show cause notice has combination, i.e., both acquirer and to be issued to the parties in the target entity or word ‘parties’ combination. Thus, the notice occurring in Section 29(1) has to be has to be issued to the target read singularly? and the acquirer. In the present case, show cause notice was merely issued to the acquirer – AGI.

3. Whether non-issuance of Show The mere non-issuance of Cause Notice to HNGIL vitiates the notice does not vitiate the CCI order of approval granted by the proceedings. The reasoning Commission under Section 31, sub- adopted by the NCLAT was section (1)? that the RP has no objection and placed the Resolution Plan before the Adjudicating Authority.

4. Whether after formation of prima- The CCI noted that there facie opinion that combination was no occasion to form an is likely to cause an appreciable opinion under Section 29(2) of adverse effect on competition by the Competition Act under the the CCI under Section 29, sub- circumstances of the case. section (1), there was no occasion to form again a prima facie opinion under Section 29(2) after receipt of response to the Show Cause Notice and the CCI was required to complete the further process under Section 29(2) including direction to the parties to the combination to publish details of combination?

1. (2021) 3 SCC 136

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5. Whether the process as The process as contemplated contemplated under Section 29, under Section 29 of the Act was subsection (2) having not been complied with since the opinion completed by the CCI before was given under Section 29(1) passing the order dated 15.03.2023, of the Act, and had not reached the order passed by the CCI is the stage of Section 29(2) of against the procedure prescribed the Act. under Section 29 and deserved to be set aside?

6. Whether in spite of Respondent The CCI, after issuing show No.2 along with response to Show cause notice AGI suggested Cause Notice having offered modification, thereafter CCI modification to address the prima approved the combination. facie concern expressed in the Sections 30 and 29 have to said Show Cause Notice as per be read harmoniously, and it Regulation 25 (1) (a) of 2011 cannot mean that even if, prima Regulations, the CCI was obliged to facie opinion at the second direct the parties to publish details of stage is not formed by the CCI, the combination? the CCI should publish details of combination.

7. Whether the modifications Decisions by expert body suggested by Respondent No.2 in should not be interfered with, its reply to Show Cause Notice, when it has been given after adequately addressed the AAEC following the procedure under as expressed in the Show Cause the Act and the Regulations. Notice under Section 29, sub- section (1)?

8. Whether the Commission in the There is application of impugned order has examined the mind, and the requirements relevant aspects as contained in under Section 20(4) of the Section 20, sub-section (4) of the Competition Act have been Act or the impugned order suffers followed. from non-application of mind?

9. Whether order of the Commission Natural justice principles are dated 15.3.2023 can be said to followed when there are civil have been passed in violation consequences. There is no of principles of natural just since entitlement given to other the objections filed by Appellant persons other than those the U.P. Glass Manufacturers given notice to participate in Syndicate even after the order the proceedings. The filing dated 22.02.2024 were not duly of objections happens under considered? Section 29(2), and since the stage had not arisen, UPGMS cannot claim violation of natural justice.

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17. CCI filed four appeals against the findings recorded by the NCLAT on the legal obligation to issue notice to both parties to the combination and not just the acquirer under section 29(1) of the Competition Act. Hence, the batch of civil appeals against the order Dt. 28.07.2023.

Sl. Civil Appeal No. Respondent No.

1. Civil Appeal 6771/2023 UPGMS

2. Civil Appeal 7428/2023 INSCO

3. Civil Appeal 7038/2023 M/s Geeta and Company

4. Civil Appeal 7037/2023 HNG Workers Union

III. ARGUMENTS OF COUNSEL

18. We have heard learned Senior Counsel Shri Rajshekhar Rao, Dr. Abhishek Manu Singhvi, Shri Dushyant Dave and Shri Balbir Singh for the appellants.

19. The arguments are summed up as follows: 19.1. HNGIL is a brownfield business enterprise with a good market presence in the manufacture and supply of glass containers. AGI has a substantial market presence and has a market share of more than 70% of the identified products. AGI, through the proposed resolution process, if approved by the Adjudicating Authority, would take over HNGIL as a going concern. 19.2. The business of AGI, with the coming into force the implementation of the resolution plan, would have substantial AAEC on the relevant product market in India. The Competition Act prohibits combination, leading to the monopolistic presence of a business entity and dominance over the market, the product, the price, etc., in the relevant product market. 19.3. The RP, therefore, incorporated clauses in the RFRP on the necessity of approval of combination from CCI under the Competition Act before the resolution plan is considered by the CoC.

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19.4. The admitted position of the shortlisted resolution applicants is that the proposed takeover of the business entity (HNGIL) would attract a combination, and thus, the approval of the combination is required under the Competition Act. In this factual matrix, the CCI, as a regulatory statutory body, conforms to all the prescriptions of law under sections 20, 29, and 31 of the Competition Act and regulation 19 of Combination Regulations 2011. The CCI examined the details of the acquirer and the target in a perfunctory manner. 19.5. The assessment of AAEC by CCI ignored the manufacturing capacity of AGI or HNGIL in the relevant product market. The data relied on by CCI is not accurate, and the AAEC is arrived on the TPD of relevant products but not on the installed capacity of the respective units or consented capacity of AGI or HNGIL under various enactments. Looking from such a perspective, the hiving off the Rishikesh Plant through a voluntary modification of the combination plan is illegal and assuming without admitting the Rishikesh Plant could be hived off as part of the modification, the resultant diminishing effect on AAEC within the relevant product market would be negligible. 19.6. In other words, the prima facie opinion formed by CCI under section 29(1) remains intact warranting investigation. CCI, by accepting the modification and issuing conditional approval, failed to discharge the regulatory obligation under the Competition Act, particularly section 20. 19.7. Section 29 of the Competition Act prescribes the procedures not only for issuing show cause notice for investigation but also mandates issuing directions for investigation into the proposed combination. Approval of the combination vide order Dt. 15.03.2023, without investigating the proposal under section 29(2) of the Competition Act is illegal and contrary to the mandate of section 29. 19.8. The non-publishing of the details of the proposed combination under section 29(2) denied the opportunity to the affected public to file written objections as required under section 29(3) of the Competition Act. Therefore, the conditional approval of combination under section 31 of the Competition Act is vitiated.

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19.9. Shri Balbir Singh, appearing for CCI, argued against the findings recorded on the need to issue notice to parties, i.e., the acquirer and the target. He also argued to sustain the orders of CCI and NCLAT in so far as the approval of the combination is concerned.

20. Shri Mukul Rohatgi, the learned Senior Counsel appearing for AGI, principally made his submissions to sustain the orders of CCI and NCLAT, particularly by relying on the relevant portions of the respective orders. He argued on the locus standi of appellants to challenge the order Dt. 15.03.2023 of CCI. The arguments are summed up as follows: 20.1. The CCI performs regulatory and enforcement obligations fastened by the Competition Act. Combination as per the Act takes in its fold instances of acquisitions, mergers and amalgamations 20.2. The three different assimilated business ventures that come within the meaning of combination, and the inter se difference would be the extent of integration in substance. The expression ‘parties to combination’ used in section 29 is used in its general sense. Regulation 9 of the Combination Regulation 2011 stipulates the obligation to file notice. 20.3. CCI, on receipt of notice in Form I, called upon AGI to file a notice in Form II as the requirements attached to green channel clearance envisaged through Form I were not available to AGI. On 03.11.2022, AGI filed a notice in Form II before the CCI. 20.4. The CCI is an expert body, and the case study of a proposed combination or investigation into any breach of the provisions is examined or investigated depending upon the intricacies recorded by the CCI. In the case on hand, the examination of data by CCI conforms to the requirements of section 20 of the Competition Act. Therefore, there was no occasion to investigate the proposed combination. 20.5. The CCI issued a show cause notice Dt. 10.02.2023 to AGI to show cause why an investigation shall not be ordered. AGI filed a response Dt. 10.03.2023 and also a modification plan

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Dt. 14.03.2023 for consideration by CCI. CCI, after being satisfied with the reply and the modification suggested by AGI. Consequently, the combination was approved by CCI under section 31 of the Competition Act. The argument of alleged violation of section 29(2) of the Act is misconceived. 20.6. Section 29(1) of the Competition Act is compartmentalized into two stages – to begin with, CCI forms prima facie opinion, issues show cause notice and grants thirty days’ time to respond to show cause why an investigation should not be conducted. Section 29(1A) provides for receipt of the response of the parties to the combination and the CCI may call for a report from the Director General, and such report shall be submitted by the Director General within such time as the CCI may direct. The steps envisaged in section 29(1A) are triggered only if the response is not satisfactory. Section 29(1A) uses the word ‘may call for a report from the DG, and the DG shall submit the report within the time granted. Therefore, if the response of the parties is satisfactory, then the other stages do not arise. Explained further, if the CCI is satisfied with the response or modification of the combination already suggested, then the CCI is not under an obligation to order notice to the Director General or order parties to advertise the details of the proposed combination. The information and its veracity, as part of the regulatory mechanisms, is one of trust, and the information is relied upon to conform to the timelines stipulated by the Competition Act. The examination of a combination proposal and approval is not tantamount to deciding a lis. CCI undertakes an inquisitorial regulatory process. 20.7. The findings recorded by NCLAT are sustainable, and the concurrent findings of the competent authority are tenable and no valid or legal ground is made out to entertain the appeal. 20.8. CCI is an expert body and has the advice and assistance of experts from different domains of trade, commerce and industry. The combination approval has been granted upon the inquisitorial enquiry, and the insistence upon investigation under section 29(2) of the Competition Act is wholly misconceived.

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21. Even though contentions have been stated in a broad spectrum, the scope for consideration of the appeals can be limited to the mandate of section 29 of the Competition Act. Whether the show cause notice is to be issued to the acquirer and also the target company in a case falling under IBC read with Competition Act; and if answered in the affirmative, whether the rival contenders can raise a ground of non-service of show cause notice to the target company; and lastly, whether the approval of combination by CCI based on expert advice warrants interference?

IV. DISCUSSION

22. Before proceeding with the discussion, it is important to note that the Judgement does not take into account or consider the Amendments that have been made to the Competition Act which were not notified during the applicable period.

23. Section 29 of the Competition Act2 is taken up for consideration. Section 29(1) prescribes the investigation of the proposed combination by taking up the steps in the following sequence.

2. 29(1)Where the Commission is of the [prima facie] opinion that a combination is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in India, it shall issue a notice to show cause to the parties to combination calling upon them to respond [within fifteen days] of the receipt of the notice, as to why investigation in respect of such combination should not be conducted. [(1-A) After receipt of the response of the parties to the combination under sub-section (1), the Commission may call for a report from the Director General and such report shall be submitted by the Director General within such time as the Commission may direct.] [(1B) The Commission shall, within thirty days of receipt of notice under sub-section (2) of section 6, form its prima facie opinion referred to in sub-section (1).] (2)The Commission, if it is prima facie of the opinion that the combination has, or is likely to have, an appreciable adverse effect on competition, it shall, [within seven days] from the date of receipt of the response of the parties to the combination or the receipt of the report from Director General called under sub-section (1-A), whichever is later, direct the parties to the said combination to publish details of the combination [within seven days] of such direction, in such manner, as it thinks appropriate, for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected by such combination. (3)The Commission may invite any person or member of the public, affected or likely to be affected by the said combination, to file his written objections, if any, before the Commission [within ten days] from the date on which the details of the combination were published under sub-section (2). (4)The Commission may, [within seven days] from the expiry of the period specified in sub-section (3), call for such additional or other information as it may deem fit from the parties to the said combination. (5)The additional or other information called for by the Commission shall be furnished by the parties referred to in sub-section (4) [within ten days] from the expiry of the period specified in sub-section (4). (6) After receipt of all information and within a period of forty-five working days from the expiry of the period specified in sub-section (5), the Commission shall proceed to deal with the case in accordance with the provisions contained in section 31.

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23.1. The commission is of the prima facie opinion that the combination is likely to cause or has caused AAEC within the relevant market in India. 23.2. The commission shall issue a notice to show cause to the parties to the combination, calling upon them to respond within thirty days of receipt of the notice. 23.3. Show cause notice is issued expecting a reply on why an investigation in respect of such a combination should not be conducted. 23.4. A show cause notice in legal parlance means the opportunity given to the addressee to say what his case is, on the prima facie opinion formed for further steps under section 29 are warranted or not. As part of the inquisitorial exercise, the CCI verifies and applies the threshold of precautionary principle to understand whether AAEC in the proposed combination would arise or not. If section 29 is worded such that in all the cases where prima facie opinion is formed, the corollary of forming such opinion leads to calling for the DG’s report, directing parties to publish details, then the expression as contained in section 29 would have been different. Section 29(1) of the Competition Act, as worded by the parliament, provides for formation of prima facie opinion, issuance of show cause notice and receiving a reply from the party. The intermediary step of show cause notice and reply provides an opportunity to satisfactorily explain the doubts entertained by CCI while forming the prima facie opinion on AAEC. In other words, the argument that the issuance of show cause notice is preceded by prima facie opinion and other steps of section 29 are followed such course would go contrary to the plain language of section 29(1) of the Competition Act.

24. Reverting to the circumstances of the case, AGI, in its response to the show cause notice Dt. 10.02.2023, replied and suggested modification to the combination vide communication Dt. 10.03.2023 and 14.03.2023. The case of both AGI and CCI is that CCI’s regulatory jurisdiction for deciding on the approval of a combination was satisfied with the reply/modification suggested, resulting in the combination approval Dt. 15.03.2023. The argument of the appellants is that once a show cause notice is issued under section 29(1),

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CCI should have called for a report from the Director General. This argument is untenable and rejected accordingly. Therefore, passing an order of approval to the proposed combination without further steps of investigation on the proposed combination of section 29 of the Competition Act is legal.

25. The admitted case of all parties is that the CCI accepted a reply and modified proposal on 10.03.2023, determining no further investigation was necessary. The core legal dispute centers on section 29(1) of the Competition Act and its procedure, specifically the phrase “is likely to cause or has caused appreciable adverse effect on competition within the relevant market in India”. The CCI initially issued a show cause notice, a preliminary investigative step requiring parties to justify why an in-depth examination of the proposed combination should not be conducted. The jurisdictional nuance lies in the Commission’s requirement to form a prima facie opinion before compelling a response, which involves carefully assessing whether the proposed combination might substantially impact competitive dynamics.

26. The procedural violation pointed out is that on the receipt of the response from AGI, the report of the Director General is not called for and no investigation is ordered by CCI. As part of statutory regulation, if it were to be the object and intention of the Parliament to call for a report from the Director General in every case where the prima facie opinion is formed, then the further steps, namely, issuing show cause notice and receiving response would not have been contemplated.

27. The show cause notice under section 29(1) is intended to get a response or clarification from the acquirer on the combination which is likely to cause or has caused AAEC within the relevant market in India. The prima facie opinion is required in law to set in motion the show cause notice. The CCI has jurisdiction upon being satisfied with the response as per the scheme of the section to not proceed further. The argument of the appellants would result in the show cause notice being treated as a decision to investigate the Form II application filed for approval of a combination. Under sub-section (2) of section 29, the Commission is of the prima facie opinion that the combination has or is likely to have AAEC. The distinction on the prima facie opinion being formed under sections 29(1) and 29(2) is emphasised thus:

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Section 29(1) of the Section 29(2) of the Competition Act Competition Act Where the Commission is of The Commission, if it is prima the [prima facie] opinion that a facie of the opinion that the combination is likely to cause, combination has, or is likely to or has caused an appreciable have, an appreciable adverse adverse effect on competition effect on competition, it shall, within the relevant market in [within seven days] from the date India, it shall issue a notice to of receipt of the response of the show cause to the parties to parties to the combination or the combination calling upon them receipt of the report from Director to respond within thirty days General called under sub- of the receipt of the notice, section (1-A), whichever is later, as to why investigation in direct the parties to the said respect of such combination combination to publish details should not be conducted. of the combination [within seven [(1-A) After receipt of the days] of such direction, in such response of the parties to the manner, as it thinks appropriate, combination under sub-section for bringing the combination to (1), the Commission may call the knowledge or information of for a report from the Director the public and persons affected General and such report shall or likely to be affected by such be submitted by the Director combination. General within such time as the Commission may direct.] [(1B) The Commission shall, within thirty days of receipt of notice under sub-section (2) of section 6, form its prima facie opinion referred to in sub- section (1).]

28. It may be noted that to form a prima facie opinion under sub-section (2) of section 29 of the Competition Act, the CCI in sequence has: 28.1. The details furnished in Form II. 28.2. Prima facie opinion formed by the CCI resulting in the issuance of show cause notice. 28.3. Reply of parties.

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28.4. Further, if the CCI is not satisfied with the reply, the CCI may call for a report from the Director General.

29. The prima facie opinion formed under section 29(2) is that the CCI leaves little discretion than to order parties to the said combination to publish details of the combination and undertake further investigation.

30. On the contrary, the CCI, with the response to a show cause notice given by the parties under section 29(1) of the Competition Act, does not deem it necessary to call for a report of the Director General, and the same cannot be held as violative of procedure for investigation under section 29 of the Competition Act.

31. The word “may” used in section 29(1A) gives discretion to CCI to avoid investigation, calling for a report from the Director General, order publishing of details, etc. The literal construction of section 29(1) of the Competition Act does not mean that calling for a report is mandatory, even when the CCI is satisfied with a reply/modification suggested by the parties. The CCI, at the stage of section 29(1), having issued a show cause notice, is entitled to objectively consider the reply given by the parties and, if not satisfied, then take the enquiry into the stage of investigation under section 29(1) to (3) of the Competition Act. The findings of NCLAT are taken note of and do not warrant interference.

32. On whether notice to parties to the combination is required or if sufficient notice is given to the acquirer/AGI, NCLAT referred to Regulation 2(f) of Combination Regulations, 2011. CCI, assailing the said finding, contends that the statutory obligation to issue notice to CCI arises under section 6(2) on the acquirer in the case of acquisition and all parties to the combination. Section 6(2) read with regulation 9(1) and (2) of the Combination Regulations 2011, stipulates the obligation to file notice on the parties to the combination. The statutory Forms I and II of Schedule II throw light on the obligation to file notice under section 6(2). According to CCI, notice to the acquirer in a combination case arising through CIRP is sufficient. Consequently, When the CCI forms its prima facie opinion under section 29(1) read with regulation 19(1) of Combination Regulations 2011, the CCI is required to issue notice only to the acquirer. Moreover, the CCI contends that issuing notice to the corporate debtor in the resolution process is not provided for under the Act and the Regulations. CCI

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refers to and relies on sections 43(a), 44 and 45 of the Competition Act to provide apposite context for its decision to issue notice only to the acquirer and not to the target company.

33. After perusing the findings recorded by the NCLAT, we are of the view that in cases such as the present, the CCI must issue notice to the acquirer and also the target, i.e., the corporate debtor subjected to the resolution process represented by an RP. Irrespective of different statutory schemes in the sections relied on by CCI, it can be said that the words “it shall issue notice to the parties to show cause” cannot be restricted only to the proposed acquirer. If the plural expression on a case-to-case basis is understood as singular, then it would restrict the meaning of the language. Hence, the findings recorded by the NCLAT are affirmed. It is a matter of record that the RP, taking note of the approval of the combination proposed by AGI, filed an application before the Adjudicating Authority on 08.04.2024 for taking on file the approval of the combination and in the pending issues under section 31 of IBC. Whether the non-issuance of notice to the RP is a ground available to the appellants to challenge the approval of the combination is yet another question which is not considered and decided by the NCLAT. In the circumstances of the case, the findings recorded on this behalf, particularly, at the instance of the appellants herein.

34. In Union of India v. Cipla Ltd,3 this Court, at paragraph 104 of the judgement, held on the judicial treatment of opinions rendered by expert bodies: “The burden for demonstrating the application of completely erroneous principles is heavy as it is and it is heavier still if the antecedent material is prepared by experts. The onus of discharging the heavy burden must necessarily fall on the challenger, and Cipla has not been able to sustain the challenge. There can be and are differences of opinion but we cannot and will not reconsider the opinion of experts, particularly in matters of economic affairs or other economy-related issues unless there is extremely strong reason to do so.”

3. (2017) 5 SCC 262.

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35. Further, in Brahm Dutt v. Union of India,4 this Court held that: “[W]hile considering the constitutional validity of Section 8 of the Act observed that the Commission is an expert body which had been created in consonance with international practice. The Court observed that it might be appropriate if two bodies are created for performing two kinds of functions, one advisory and regulatory, and the other adjudicatory. Though the Tribunal has been constituted by the Competition (Amendment) Act, 2007, the Commission continues to perform both the functions stated by this Court in that case. Cumulative effect of the above reasoning is that the Commission would be a necessary and/or a proper party in the proceedings before the Tribunal.”

36. The appellants argue that CCI’s consideration of AGI’s data is inaccurate or lopsided. CCI consists of experts and specialists in different branches of trade, commerce and technology. The consideration by the experts, as rightly noted by NCLAT, must be given due weightage. In an appeal under section 53T of the Competition Act, the data details need not be reconsidered, and findings need not be recorded on whether the proposed combination has AAEC in the relevant market in India. The counsel appearing for the objectors tried to point out the TPD taken note of by CCI and the capacity of HNGIL and AGI. AAEC, as determined by the CCI, considers the product outflow from the acquirer and the target. These factors determined the market share and AAEC in the relevant market in India. Established, installed or consented capacities are permissions held by a business entity. From the permission granted for higher capacity, AAEC is not appreciated until the capacity is used to the maximum by the enterprise. There is no ground to re-examine the issues in fact. The consideration and conclusion recorded by CCI, as confirmed by NCLAT, are affirmed; consequently, the appeals are dismissed.

4. (2005) 2 SCC 431.

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Order §

Hrishikesh Roy, J.

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”.

Result of the case: Appeals disposed of.

§ Ed. Note: Order passed by Hon’ble Mr. Justice Hrishikesh Roy on behalf of the Bench.