Table of Contents
Over three long years and multiple courtroom battles later, the fight for Hindustan National Glass Ltd.’s acquisition is still raging fiercely, now before the highest court of the land.
In determining whether HNG's acquisition was lawful or not, the top court will rule on a critical question concerning the interplay between the competition law and the insolvency law of India.
HNG, India's oldest name in container glass market, was admitted into insolvency in October 2021 and its resolution has since then been marred by various controversies.
Post its admittance into the corporate insolvency resolution process, two primary bidders surfaced for HNG’s acquisition. Independent Sugar Corporation Ltd. or INSCO and AGI Greenpac Ltd.
Attention must now be drawn to a particular provision under the Insolvency and Bankruptcy Code that lies at the heart of the matter.
Section 31(4) was inserted in the IBC in 2018 and it states that in cases of combination, the Competition Commission of India ‘shall’ approve the acquirer's resolution plan before it can be put to vote by the committee of creditors or CoC.
A combination, under the Competition Act, refers to the acquisition of control, shares, voting rights, or assets in an enterprise engaged in a competing business, or when mergers and amalgamations between or amongst enterprises exceed certain thresholds set out in the Act.
Both potential acquirers submitted their respective bids in April 2022.
INSCO got the competition regulator’s nod in September 2022, however, it was AGI’s plan that received a go ahead from the CoC in October 2022. It is crucial to note that AGI did not have the competition regulator’s nod at this point in time.
Likeliness Of An Adverse Effect On Competition
The CCI observed that AGI’s acquisition of HNG is likely to have an appreciable adverse effect on competition, and therefore it issued a show cause notice to AGI, questioning why an investigation in respect of the proposed transaction should not be conducted.
The commission observed that the combined share of the parties in the market for manufacture and supply of container glass in India in terms of value is estimated to be in the range of 35-40%, and in terms of volume it is estimated to be in the range 40-45%.
The commission remarked that the competitive structure of the market is expected to change significantly with the proposed transaction resulting in the merger of the top 2 players in the market.
Two particular sub-segments were highlighted by the commission, namely, the alco-beverage segment and the food & beverage segment. As per the commission, the market share of the merged entity by volume in the former would be around 45-50% and in the latter it would be around 80-85%, which is a significant share by any reasonable estimate.
Competition Commission of IndiaIt can be reasonably concluded that AGI and HNG are the only significant organised players in both the alco-beverage and F&B sub-segments.
To alleviate the regulator’s concerns, AGI offered a divestiture of HNG’s Rishikesh plant to ease the prima facie concerns identified by the commission. The Rishikesh plant was offered for divestment because it was the least loss making plant out of all the other HNG plants.
In addition, the Rishikesh plant had the highest utilisation by percentage as compared to other plants.
All these aspects were necessary to convince the commission that the divestiture would have an actual on ground impact in reducing competition concerns.
As a result of the proposed modification to its resolution plan, the regulator accepted it in March 2023 and gave AGI a conditional nod, the condition being that the commitment to complete the divestment must be adhered to.
AGI’s Acquisition Receives Nod Of Approval
Since the commission gave an in-principle approval to AGI, the National Company Law Tribunal followed suit and approved the acquisition in April 2023. The tribunal noted that the commission had granted the approval for the purpose of HNG’s acquisition, and rejected the argument that the approval was a ‘conditional’ one and therefore was liable to be set aside.
It was observed that the CCI approval was in line with section 31(4) of the IBC.
The National Company Law Appellate Tribunal, too, gave its nod to the acquisition by stating that the competition regulator considered all relevant aspects and the materials on record in its order and did not commit any error in approving the combination.
The primary question which propped up before the tribunal was whether a prior approval from the CCI is mandatory before the resolution plan is put to vote by the CoC.
NCLAT held that though approval by the CCI is ‘mandatory’, it doesn’t necessarily have to be prior to the approval from the CoC. It said that this condition is only ‘directory’ in nature.
NCLATIf we hold that approval of the CCI is mandatory prior to the approval of plan by the CoC, it will lead to incongruous result, the CIRP cannot be frozen or cannot be put at halt because an application is submitted before the CCI.
The tribunal said that the question of obtaining an approval from the CCI only arises when the resolution plan contains a combination and requires approval from the CCI. However, when the regulator will grant the approval is entirely in the CCI’s hand, it said.
Harmonious Construction & The Right Way Forward
In an appeal against the NCLAT order, INSCO challenged AGI’s acquisition before the top court last year. The court, in turn, was pleased to issue notice in the matter and the case is finally reaching finality with arguments set to conclude in the coming days.
NDTV Profit spoke to experts to get their views on how the entire controversy has unfolded and what should be its logical conclusion.
The NCLT and the NCLAT have done justice in holding that the provision is directory in nature and not mandatory. There are twofold reasons for the same; the first being that in the Indian context, timelines are generally directory since things hardly ever complete their course on time, said Bishwajit Dubey, an insolvency expert practising at the Supreme Court.
More importantly, reconciling timelines between two statutes is a challenging task. Therefore, as long as the CCI approval is obtained before the plan is approved by the NCLT, the provision will practically be complied with, Dubey said.
In the context of a resolution plan submitted by a resolution applicant, the plan is essentially an offer under the Contract Act, said Mukesh Chand, partner at Economic Laws Practice.
Chand added that this offer only becomes a binding transaction after it is approved by the CoC and subsequently by the NCLT. Thus, the requirement for CCI approval should be triggered only after CoC approval. Prior to CoC approval, the resolution plan remains non-binding and subject to further negotiation or rejection, he remarked.
Moreover, Chand said that there are time and cost factors too.
Mukesh Chand, Partner, Economic Laws PracticeOne needs to pay filing fees for seeking CCI approval, which alone can cost somewhere between Rs 20 lakhs and Rs 65 lakhs. Additionally, the time factor would compel the CoC to delay its evaluation and voting on resolution plans until CCI approval is secured.
This could lead to wasteful and unnecessary costs and delays in the process, if the plan is eventually rejected by the CoC.
Even logically, it would be extremely taxing on the regulator if say 10 applicants submit a plan and a combination is taking place in 5 out of them, then the CCI will essentially be spending time adjudicating combinations which might eventually be rejected by the CoC, Dubey added.
Advocate Bishwajit Dubey, Insolvency Expert Practising At The Supreme CourtIt makes no sense for the regulator to tirelessly spend time considering combinations which, at the end, may not even be approved by the CoC.
Chand said that given the two-stage approval process under the IBC, first by the CoC and then by the NCLT, the most practical and harmonious interpretation is that the CCI approval requirement should be triggered after CoC approval.
Issue Of Input Tax Credit On Immovable Properties — NDTV Profit Explains. Read more on Law & Policy by NDTV Profit.