Part I in this series is available here]
In this two-part series, the authors argue that the provision under section 31(4) of the IBC must not be watered down and that approval from the CCI must be obtained prior to the approval of the resolution plan by the adjudicating authority. In part-I, the authors delineated the raison d’etre for the differential treatment of CCI approval in comparison to other statutory approvals This is followed by a discussion of the judicial precedents which led to the eventual watering down of section 31(4) of the IBC. In part-II, the authors counter the argument that requirement of approval from the CCI cannot be reconciled with the timelines prescribed under the IBC. This argument has ostensibly been used by the courts to water down the effect of section 31(4) of the IBC. The authors, with the help of empirical data, endeavour to establish that such an argument falls foul of the ground reality.
Reconciling the Timelines under CIRP with the Requirement under Section 31(4)
In Makalu Trading v. Rajiv Chakraborty, in order to prove the directory nature of section 31(4) of the IBC, it was contended that section 31(11) of the Competition Act gives 210 days to the CCI to approve a resolution plan, after which a combination is deemed to be approved. It was contended that since the timelines under the Competition Act cannot be reconciled with the 180-day time limit prescribed for the completion of the CIRP, the requirement under section 31(4) of the IBC should be treated as directory in nature (at para 5.a). This is a legitimate problem. However, it does not warrant dilution of the mandatory requirement of the proviso to section 31(4). The issue with respect to timelines can be resolved by adopting the green channel route, or the expedited approval route.
Green Channel Route
It has been suggested by the Report of the Competition Law Review Committee, 2019 that the plans requiring approval under the IBC could be routed under the green channel to ensure timely completion of the CIRP (at para 4.16). The green channel route provides for an automatic approval of certain type of combinations. It was introduced vide the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2019. Under the green channel route, a combination is deemed to be approved as soon as the request for approval of the proposed combination has been acknowledged by the CCI.
In the opinion of the authors, the suitability of the green channel route to acquisitions or combinations under the IBC is doubtful for two reasons. Firstly, the green channel route is permitted for mergers where there are no horizontal or vertical overlaps. Such conglomerate mergers are not observed under the IBC (take the acquisition of Monnet Ispat and Essar Steel, for instance). Secondly, if the firms voluntarily decide that they meet the criteria for meeting the requirements of the green channel route and later it is discovered that the criteria are not met, the merger is deemed to be void ab initio. This means that it will be treated as though it never occurred and the costs associated with untangling the assets when actions have already been taken under it will be stupendous. Such problems were highlighted in the IBBI Research Paper 01/2020 as well.
Expedited Approval Route
The authors suggest that instead of the green channel route, an expedited approval route for IBC-related acquisitions should be introduced by way of a legislative amendment. This expedited approval can be formalised through an understanding with the CCI such that plans under the IBC would receive expedited consideration. The Insolvency Law Committee Report, 2018 had also pointed towards such an understanding. It had noted that the CCI had agreed that resolution plans under the IBC would be considered by the CCI within a period of 30 working days. In case no approval or rejection was provided within the said period, the combination would be deemed to have been approved (at para 16.4). Such an understanding for the smooth working of the processes under the IBC can be worked out through legislative amendment to the provisions as well. This would reconcile the timeline under the CIRP with the requirement under the proviso to section 31(4) of the IBC.
At this juncture, it must be highlighted that even without the proposed legislative amendment, the CCI has been granting approval to combinations under the IBC on an expedited basis. The table below shows the data on the time taken by the CCI to approve a combination under the IBC.
|S.No.||Proposed Combination under the IBC||Date of filing||Date of approval by CCI||No. of days|
|1.||Acquisition of Kwality by Haldiram||October 15, 2019||October 24, 2019||9|
|2.||Acquisition of EPC Constructions by Arcelor Mittal||December 17, 2018||January 10, 2019||24|
|3.||Acquisition of Bhushan Power and Steel Limited by JSW||August 23, 2018||September 18, 2018||26|
|4.||Acquisition of Bhushan Steel Limited by Tata Steel||March 26. 2018||April 25, 2018||30|
|5.||Acquisition of Binani by Ultratech||February 22, 2018||March 27, 2018||33|
|6.||Acquisition of Monnet Ispat by Vedanta||April 6, 2018||May 11, 2018||35|
|7.||Acquisition of Bhushan Power and Steel Limited by Tata Steel||July 2, 2018||August 6, 2018||35|
|8.||Acquisition of Alok Industries by Reliance||March 11, 2019||April 15, 2019||35|
|9.||Acquisition of Essar Steel by Arcelor Mittal||August 13, 2018||September 18, 2018||36|
The above table clearly shows that even though the expedited approval route has yet to receive a legislative acknowledgement, the CCI has been quick to grant approval to combinations arising out of the participation of an acquirer in the CIRP. The approval for most of the ‘dirty dozen’ companies was granted in around 30 days from the date the CCI was notified of the proposed combination. For some acquisitions, the CCI had granted an approval in less than 30 days. Therefore, any argument on the failure of conciliation of timelines under the IBC and the Competition Act falls foul of the ground reality.
It is possible to recover from the consequences of a plan that is rejected by the CCI prior to the approval by the adjudicating authority but not from a plan that is rejected afterwards. Thus, it is essential that the mandatory requirement of the proviso to section 31(4) of the IBC is not watered down to such an extent that the adjudicating authority approves such plans even without the necessary approval from the CCI. Furthermore, an expedited approval arrangement must be arrived at for the CCI to approve resolution plans under the IBC. Such an arrangement already exists in principle. Formalising the arrangement through an official notification or a legislative amendment could go a long way in allaying fears about the CCI causing a delay in the completion of the CIRP.
– Mayank Udhwani & Ragini Agarwal