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Synopsis

The National Company Law Appellate Tribunal (NCLAT) in New Delhi has ruled that while obtaining approval for a resolution plan from the Competition Commission of India (CCI) is a mandatory requirement, securing CCI approval before obtaining approval from the committee of creditors is directory.

“We thus are of the view that Section 31, sub-section (4) proviso has to be read to mean that though the approval by the CCI is ‘mandatory’, the approval by the CCI prior to approval of CoC is ‘directory’,” the NCLAT said. 

The division bench of the National Company Law Appellate Tribunal (NCLAT), consisting of Chairperson Ashok Bhushan and Technical Member Barun Mitra, was hearing an appeal challenging the NCLT Kolkata's order accepting the Competition Commission of India's (CCI) approval of the resolution plan. 

The appellant argued that approving the resolution plan in the Corporate Insolvency Resolution Process (CIRP) for the corporate debtor would violate the provisons Competition Commission of India Act, 2002. 

The appellant also raised objections to the resolution professional's application for CIRP of the corporate debtor before the CCI.

The Competition Commission of India (CCI) allowed the application filed by the resolution professional which was subsequently filed with the NCLT.

The NCLT took on record the approval of CCI. Aggrieved with the order of NCLT, the appellant approached the National Company Law Appellate Tribunal (NCLAT).

The NCLAT, while rejecting the appeal said that if it held that prior approval from the CCI was mandatory before approval from the CoC, it would effectively freeze the CIRP

“If, we hold that prior 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. Looking to the timeline provided in the Code and that of the Competition Act and to hold that prior approval of CCI is required prior to approval of Plan by the CoC, mandatorily will lead to adverse effect on the CIRP,” the order states. 

The NCLAT also emphasized that Section 31(4) proviso does not specify any consequences for non-compliance. Therefore, it concluded that the proviso should be considered as directory rather than mandatory. 

“It cannot be held that since provision is there, approval by CCI has to be obtained prior to approval of Plan by the Adjudicating Authority. We have noticed above the judgments of this Tribunal where it has been laid down that approval by CCI, prior to approval by the CoC is ‘directory’ because there is no consequences provided for non-compliance of Section 31(4) proviso,” the order stated.

Case title: Soneko Marketing Private Limited vs Girish Sriram Juneja & Ors