The time-bound resolution of distressed corporate entities is the most important objective of the Insolvency & Bankruptcy Code, 2016 (“IBC”). The Corporate Insolvency Resolution Process (“CIRP”) introduced by the IBC was supposed to lead the charge in achieving this end. Unfortunately, the average time taken for CIRPs that yielded resolution is more than the statutory timeline of 330 days as provided under the IBC. Keeping in mind the need to expedite this process, it is argued that extending the green channel approval process of the Competition Commission of India (CCI) to IBC-driven acquisitions could help in realizing the timely completion of CIRPs.
Link between Insolvency Law & Competition Law Often, as part of the CIRP, competitor firms propose to acquire an insolvent competitor. This is where CCI comes into the picture. Acquisitions that meet a certain threshold must be notified to the CCI under Section 5 of the Competition Act, 2002. IBC-Driven acquisitions are no different. Accordingly, resolution plans that contain a provision for a combination, specifically, acquisitions as defined in Section 5 must receive an approval that states the combination will not cause an appreciable adverse effect on competition (AAEC).
When to notify CCI- Why it matters When the IBC came into force it did not specify when a resolution applicant would have to seek the CCI’s approval. It was simply implicit that the resolution plan would have to be approved by the CCI and the Committee of Creditors (CoC) within the timeline of the 270-day limit. This changed with the 2018 Amendment, which inserted Section 31(4) into the IBC. The section’s proviso clarified that CCI approval should be obtained prior to CoC approval. Then came the ruling of the National Company Law Appellate Tribunal (NCLAT) in Arcelor Mittal in 2019 December. The NCLAT held that the proviso of Section 31(4) is directory and not mandatory, going on to observe that the CoC may approve the resolution plan before the CCI’s approval.
Affording IBC-driven Combinations the Green Channel Benefit The green channel refers to an automatic system of approval for combinations (which breach the threshold) wherein the combination is deemed to have been approved upon filing the notice in the prescribed format. Under Regulation 5A of the CCI (Procedure with regard to the Transaction of Businesses relating to Combinations) Regulations 2011, parties may avail the benefit of the green channel if they satisfy the conditions prescribed in Schedule III of the regulations.
Essentially, there may not be horizontal or vertical overlaps, nor should the parties be engaged in activities that would cause complementary overlaps. So while there is no express bar that prevents IBC-driven acquisitions from availing the benefit, it is often a competitor that seeks to acquire a failing firm. Therefore, a situation where none of the aforesaid overlaps exist is unlikely to occur.
This is also precisely why none of the 17 IBC-driven acquisitions so far have been able to avail the benefit of the green channel. However, the need for expedited clearance should not be ignored. This was recognized by the Competition Law Review Committee when it recommended that IBC-driven combinations could be notified under the green channel. While the recommendation was not incorporated by the legislature, allowing this could achieve two efficiencies. First, since approval is deemed to be granted on filing, it would nullify the concern that the CCI’s decision-making process could extend past the statutory time limit.
Second, in the event multiple filings are received for the same transaction, the CCI would not be required to expend its time over decisions that would eventually be redundant. Instead, the multiple filings would be granted deemed approval and the Committee of Creditors would choose only the one they find most appropriate.
Conclusion It is important to note that the delayed completion of CIRPs can hardly be attributed to CCI. Notable, CCI has passed orders on 17 IBC acquisitions and the longest it has ever taken is 60 days, averaging approximately 31 days. So really, the problem that needs resolution has little to do with CCI.
However, it is indeed possible for an already efficient approval process to improve on itself by using the tools lying in its own backyard. After all, even a 30-day acceleration could be a difference.
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