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

Held: [per Hrishikesh Roy, J. (for himself and Sudhanshu Dhulia, J.)] 1. Proviso to Section 31(4) IBC was inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2018 – Ed. Note: One judgment was pronounced by Hon’ble Mr. Justice Hrishikesh Roy on behalf of himself and Hon’ble Mr. Justice Sudhanshu Dhulia. Hon’ble Mr. Justice S.V.N. Bhatti pronounced two separate judgments – one for each of the two sets of appeals. An order was also passed by Hon’ble Mr. Justice Hrishikesh Roy on behalf of the Bench. Introduction of a proviso, specifically addressing those Resolution Plans with provisions for combination, and the use of the term ‘prior’ therein, makes it starkly clear that the intent of the legislature was to create an exception – This ensures that in cases containing combination proposals, the approval of the CCI i.e., the regulatory body designated to ensure fair competition in markets and preventing anti-competitive practices, should first be obtained before the same is approved by the CoC – Legislative intent behind inserting the proviso to Section 31(4) IBC would suggest that prior approval of the CCI was specifically mandated and it should not be seen as a flexible provision to be ignored in certain exigencies – Use of the word ‘prior’ at the appropriate place in the proviso besides being direct, clear and unambiguous also does not lead to any absurd consequences – Proviso to Section 31(4) IBC mentions that the approval to the Resolution Plan from CCI shall be obtained ‘prior’ to its approval by the CoC – Therefore, to interpret the specific word to mean that such an approval can be obtained even ‘after’ and not necessarily ‘prior’ to the approval by the CoC would amount to reconstructing a statutory provision, which is not permissible – ‘Commercial wisdom’ accorded to the CoC being paramount, the legislature intentionally provided for a prior approval of the CCI with respect to Resolution Plans, containing combination proposals – Otherwise, an illogical situation may arise since any modifications so directed by the CCI, would be kept out of the scrutiny of the CoC and the CoC would be forced to exercise its commercial wisdom without complete information – When a Resolution Plan containing a provision for a combination that leads to an Appreciable Adverse Effect on Competition (AAEC) is placed before the CoC for approval before securing prior approval from the CCI, the Plan is incapable of being enforced or implemented – Specific consequences in law are provided under the IBC and the Competition Act for the same – Such a major omission cannot be cured at a later stage – Therefore, approval by CoC to such a deficient Resolution Plan can have no legal implications – In the present case, the CCIunapproved Resolution Plan does not pass the muster – The same cannot be approved as it is in violation of Sections 30(2)(e), 30(3), 30(4) and 34(4)(a) of the IBC – It does ‘contravene provisions of the law for the time being in force’ – On the aspect of a possible disharmony between the stipulated timeline to be followed under the IBC and the Competition Act, the NCLAT in the impugned order has held the proviso to Section 31(4) IBC, to be directory in nature since mandatory prior approval of the CoC, would lead to disruption in the CIRP timeline, as stipulated under the IBC – However, the model timelines prescribed under any regulations, i.e., in the current case, Regulation 40A of CIRP Regulations, cannot by any stretch, supersede a statutory provision i.e., the proviso to Section 31(4) of the IBC – In fact, the subordinate legislation must be interpreted in a manner that conforms to the statute, and not the other way around, as was unacceptably rationalised by the NCLAT – As far as the two timelines stipulated under the IBC and the Competition Act are concerned, the same do not usually cause any disharmony or conflict – The only exception could be in the extremely rare circumstances, influenced by external factors – But such extreme and unlikely situations cannot and should not be allowed to influence interpretative exercise on the functioning of the legislative framework which will fit in with most cases. [Paras 32, 34, 53, 65, 79, 80, 86-89].

2. To ensure that entities operate with utmost confidence in the sanctity and fairness of India’s legal and regulatory system, the objectives of the IBC and the Competition Act must also necessarily be in harmony with one another. Within that context, while the IBC’s primary objective is the timely resolution of stressed assets with maximised value realisation for the stakeholders, the significant delay seen in the present case is both unfortunate and regrettable – Nevertheless, expeditious resolution cannot come at the cost of disregarding statutory provisions – Providing relief for stressed assets must necessarily align with the statutory framework, as adherence to legal principles is fundamental to a fair and just resolution process – In the present case, the statutory provision and legislative intent unequivocally affirm the mandatory nature of the proviso to Section 31(4) IBC – For a Resolution Plan containing a combination, the CCI’s approval to the Resolution Plan must be obtained before and consequently, the CoC’s examination and approval should be only after the CCI’s decision – This interpretation respects the original legislative intent, and deviation from the same would not only undermine the statute but would also erode the faith posed by the stakeholders in the integrity of our legal and regulatory framework – Where the provisions allow for dilution or departure from the intended scheme of the IBC or the Competition Act, it is the responsibility of the legislature to rectify such inconsistencies through appropriate legislative measures and the judiciary should not normally venture into the legislative domain – Further, indispensability of procedural safeguards as an integral component of a just legal order must be given its due weight, especially as procedural requirements are not mere formalities to be circumvented for expediency but substantive protections designed to ensure fairness and transparency – In that light, the procedural lapses with respect to objections to the proposed combination and the consequent divestiture modification proposed within the framework of the Competition Act, 2002, seriously vitiated the integrity of the process – Adherence to procedural propriety is non-negotiable and the ends cannot justify the means – By upholding the mandatory nature of the statutory provision and emphasising upon the critical importance of procedural safeguards, the principle of rule of law is upheld in alignment with global best practices which underscore fairness, predictability and transparency – Such an approach not only reinforces the integrity and credibility of the legal framework but also highlights India’s commitment to fostering a regulatory environment, which is conducive to both business and innovation – Additionally, it also ensures the protection and enforcement of rights in an equitable manner, free from bias or favouritism – Therefore, a balance between the need for expeditious relief and adherence to the statutory framework must necessarily be maintained, in order to ensure that the objectives of both, the IBC and the Competition Act are met in a manner that supports India’s long-term economic aspirations – The AGI Greenpac’s Resolution Plan is unsustainable as it failed to secure prior approval from the CCI, as mandated under the proviso to Section 31(4) IBC – Consequently, the approval granted by the CoC to the Resolution Plan dated 28.10.2022 without the requisite CCI approval, cannot be sustained and is hereby set aside and quashed – Any action taken pursuant to the Resolution Plan shall stand nullified, and the rights of all stakeholders shall be restored as per status quo ante, prior to the approval of the Resolution Plan by the CoC on 28.10.2022 – Consequently, the CoC shall reconsider the Appellant’s Resolution Plan and any other Resolution Plans which possessed the requisite CCI approval as on 28.10.2022 i.e., the date on which the CoC voted upon the submitted Resolution Plans. [Paras 148-154, 155.1, 155.2, 155.3]. Held: (per S.V.N. Bhatti, J.) 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 – 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 – Interpretation of the word ‘shall’ as directory has been a purposive effort of the court – In determining whether the word ‘shall’ is mandatory or directory, the court examines noscitur a sociis, the operation, functions, duties, and consequences for nonperformance – The rule of literal interpretation with its exceptions is noted, and the grammatical interpretation of 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) IBC is a form or procedure that does not have consequences – 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 – 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

63 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 to be interpreted purposively and it is held that 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 – IBC and the Competition Act have timelines for the discharge of a duty and function – 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 – NCLAT in ArcelorMittal, Vishal Vijay Kalantari and Makalu Trading Limited held that the requirement under proviso to sub-section (4) of section 31 is directory at the stage of CoC approval – View of NCLAT was confirmed by this Court while referring to the NCLAT judgment in ArcelorMittal - Argument against the view taken by this Court in Vishal Vijay Kalantari and Makalu Trading Limited is rejected – Idea of IBC is to let the financial markets work – Adjudicating Authority to dispose of the Application filed by the Resolution Professional. [Paras 75-82, 82.1 and 85 of first judgment]

Rules of interpretation – Literal or Purposive – Whether rule of purposive interpretation should be adopted in order to interpret the proviso to s.31(4) of IBC and not the principles of literal interpretation – Insolvency and Bankruptcy Code, 2016: Held: [per Hrishikesh Roy, J. (for himself and Sudhanshu Dhulia, J.)] To understand the legislative intent, the Rule of Plain Reading or literal interpretation should find favour rather than the rule of purposive interpretation – When the language of the provision is clear and unambiguous, literal interpretation is the best way to understand the legislative intention behind enacting the particular provision – Statutory enactments like the IBC demand strict adherence to legislative intent, guarding against procedural overreach that may upset the framework envisioned by the Parliament – Where the language is clear, plain and unambiguous, the courts are duty-bound to give effect to the meaning that can be inferred from a statute, irrespective of the consequences – Mere inconvenience being caused to a party, by virtue of the plain and literal interpretation accorded to a statute, cannot be reason enough to forego such interpretation – When the language is unambiguous, as in the present matter, the courts must respect its ordinary and natural meaning instead of wandering into the realm of speculation and unintended overreach invoking the so-called ‘spirit of the law’ – Language of the proviso to Section 31(4) IBC appears to be clear with no ambiguity and in those situations, all words finding place in the provision must be given their due meaning – Efforts must be to construe any text, phrase and/or proviso in a reasonable manner without going beyond the limited range of permissibility within which the legislative meaning can be captured – Use of the word ‘prior’ in the proviso, must be given some meaning as by virtue of the same, the statute requires that the act of obtaining CoC approval for the Resolution Plan must be done in a particular manner i.e., the necessary CCI approval for Resolution Plans containing combination proposals must be obtained prior to such Plan, being granted the CoC’s approval. [Paras 35, 36, 38, 42, 45, 55, 56]

Held: (per S.V.N. Bhatti, J.) To arrive at which one of the interpretations is applicable, the summary of the idea, roadmap, implementation, and conclusion of the IBC, as well as the extent needed, is considered – Literal interpretation satisfies the application of exact meaning to the words used in the proviso, but whether such application is consistent with other provisions in section 31 is to be determined – If literal interpretation leads to inconsistency with the text and tense used in section 31, then the Court attempts to resolve it to make the section consistent in text and tense – The IBC was enacted with the intention of improving the ease of doing business in India – In line with this thinking, one of the legislative measures is the amendment to the proviso to sub-section (4) of section 31 of the IBC – 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 – 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 – 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 to lose sight of expressions which are in the present tense, such as “meets”, “does not”, and “satisfies” in section 31 of the IBC – To keep section 31 uniform in all perspectives, 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. [Paras 46, 52, 59, 67, 68, 78 of the first judgment]. Competition Act, 2002 – s.29 – Competition Commission of India (Procedure in Regard to Transaction of Business relating to Combination) Regulations, 2011 – Regulation 2(f) – Show cause notice to the Parties to combination – Term ‘Parties’ – Meaning of:

Held: [per Hrishikesh Roy, J. (for himself and Sudhanshu Dhulia, J.)] Section 29(1) of the Competition Act and Regulation 2(f) of the Competition Regulations, 2011 mandate the issuance of a Show Cause Notice [‘SCN’] to the ‘parties to the combination’ if and when the CCI forms a prima facie opinion that a combination is likely to cause or has caused Appreciable Adverse Effect on Competition (AAEC), within the relevant market – The term ‘parties to the combination’ as explicitly defined under Regulation 2(f) includes both entities entering into the combination and the combined entity, if the combination has come into effect – The term ‘to the parties to the combination’ cannot be restricted to the proposed acquirer alone – The term ‘parties’ may appear broad and/or encompassing all related entities associated with the combination, such an interpretation cannot dilute the inherent plurality attached to the word ‘parties – The use of the plural form signifies a clear legislative intent to address not just one entity but multiple parties directly involved in the combination process, including but not limited to the acquirer, the target, and, where applicable, the combined entity, if the combination has come into effect – The term ‘parties’ must be understood to cover both entities participating in and directly affected by the combination, ensuring the integrity of competition assessment and compliance with statutory provisions under Sections 29(1) and 29(2) – To argue otherwise would not only mutilate the term ‘parties’ but would also result in procedural lapses and incomplete analysis, defeating the very purpose of the regulatory oversight. [Paras 124, 126, 133, 134].

Held: (per S.V.N. Bhatti, J.) 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. [Para 33 of the second judgment]

Words and Phrases – Term ‘any person aggrieved’ appearing in s.62 of IBC and s.53T of the Competition Act – Meaning of – Held: [per Hrishikesh Roy, J. (for himself and Sudhanshu Dhulia, J.)] Term ‘any person aggrieved’ appearing in s.62 of IBC and s.53T of the Competition Act must be understood widely and not in a restricted fashion – Appellant as an unsuccessful resolution applicant whose Resolution Plan could have otherwise been approved by the CoC, satisfies the requirement of being aggrieved. [Paras 26, 27]

Interpretation of Statutes – Proviso – Purpose of – Held: [per Hrishikesh Roy, J. (for himself and Sudhanshu Dhulia, J.)] A proviso in a given statute may be introduced to serve various purposes, like qualifying or excepting certain provisions from the main enactment or insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable or as an optional addenda to explain the real intendment of the statutory provision – Ordinarily, however, the function of a proviso is to except something out of the enactment or to qualify something enacted therein. [Para 33]

Rules of interpretation – Whether permits courts to read a certain word, term or phrase in the statute differently from its plain meaning:

Held: [per Hrishikesh Roy, J. (for himself and Sudhanshu Dhulia, J.)] Rules of interpretation permit courts to read a certain word, term or phrase in the statute differently from its plain meaning if it leads to absurdity but the courts must always remain conscious of the fine dividing line, separating adjudication and legislation, which must not be crossed. [Para 64]

Rules of interpretation – Literal interpretation vis-a-vis legislative debates, committee reports and/or historical contexts – Held: [per Hrishikesh Roy, J.) (for himself and Sudhanshu Dhulia, J.)] While literal interpretation must remain the judiciary’s guiding light, insights gained from legislative debates, committee reports and/or historical contexts may be looked at with a degree of caution. [Para 67]

Rules of interpretation – Notes on Clauses vis-à-vis Memorandum explaining particular clauses – Held: [per Hrishikesh Roy, J. (for himself and Sudhanshu Dhulia, J.)] Memorandum explaining a particular proviso stands at a lower footing when compared with Notes on Clauses, explaining the entire amendment, especially in cases where the language in the statute is definite and straightforward. [Para 76] Insolvency and Bankruptcy Code, 2016 – Corporate Insolvency Resolution Process (CIRP) – Locus standi of unsuccessful resolution applicant – Term ‘any person aggrieved’ appearing in Section 62 of the IBC and Section 53T of the Competition Act – Meaning of:

Held: [per Hrishikesh Roy, J. (for himself and for Sudhanshu Dhulia, J.)] Once the CIRP is initiated, the nature of proceedings are no longer in personam but rather become in rem – Term ‘any person aggrieved’ appearing in Section 62 of the IBC and Section 53T of the Competition Act must be understood widely and not in a restricted fashion – Appellant as an unsuccessful resolution applicant whose Resolution Plan could have otherwise been approved by the CoC, satisfies the requirement of being aggrieved – Preliminary locus standi objection vis-à-vis the Appellant, therefore, does not merit acceptance. [Paras 26, 27]