Misinterpreting Legislative Intent: A Critique of Independent Sugar Corporation

[Saksham Agrawal is a second year law student at National Law School of India University, Bangalore]

Introduction

The Insolvency and Bankruptcy Code, 2016 (‘IBC’) aims to ensure swift resolution of distressed assets while maximizing creditor recovery. However, the Supreme Court’s (‘SC’) ruling in Independent Sugar Corporation v. Girish Sriram Juneja and Others (‘Independent Sugar Corporation’) misinterpreted §31(4), mandating prior approval from the Competition Commission of India (‘CCI’) before the Committee of Creditors (‘CoC’) can consider a resolution plan. Through this piece, I examine the judicial reasoning and its consequences, arguing for a restoration of the IBC’s original framework.

First, I analyse the text of §31(4) of the IBC, highlighting its legislative intent and purpose. Second, I examine the SC’s decision in Independent Sugar Corporation, contrasting it with the established jurisprudence in ArcelorMittal v. Satish Kumar Gupta (‘ArcelorMittal’) to demonstrate the inconsistencies in judicial reasoning.

Third, I discuss the practical implications of the ruling. Lastly, I look at global practices and argue that it is necessary to restore the balance between insolvency and competition law, ensuring that regulatory approvals do not obstruct but instead complement the resolution process.

§31(4) of the IBC and Its Misinterpretation

A. Textual Analysis of §31(4) of IBC

§31(4) of the IBC states:

“The resolution applicant shall obtain the approval of the Competition Commission of India under the Competition Act, 2002, if required, prior to the approval of such resolution plan by the Committee of Creditors.”

This provision was drafted to ensure that transactions resulting in combinations, such as mergers or acquisitions, did not violate the anti-competitive objectives of the Competition Act, 2002. However, the legislature’s clear intent was procedural, not hierarchical. The word “prior” was inserted to enable parallel regulatory processing, not to subordinate the CoC to the CCI.

The legislative history of §31(4) provides clarity. The Bankruptcy Law Reforms Committee, which drafted the IBC, emphasized that the core purpose of the legislation was to ensure time-bound resolution, minimize asset erosion, and maximize creditor recovery. The role of CCI was perceived as ancillary, ensuring that resolution plans did not breach competition norms but without impeding creditor decision-making.

In parliamentary debates, lawmakers emphasized that the resolution process must operate independently, with CCI approvals acting as an adjunct safeguard rather than a pre-approval bottleneck. This understanding was solidified in the Insolvency Law Committee Report of 2018, which stated that creditor autonomy and resolution efficiency must remain under the IBC. However, the SC in Independent Sugar Corporation fundamentally reversed this principle, altering the intended balance of power.

The phrase “prior to the approval of such resolution plan” was never intended to impose a hard procedural sequence; rather, it was inserted to ensure regulatory compliance without delaying resolution. However, the Court's interpretation mandated that no resolution plan could proceed for CoC consideration unless CCI had already granted approval. This misreading created an unnecessary procedural hurdle, in direct conflict with the IBC’s mandate of swift resolution.

Supreme Court’s Interpretation in ArcelorMittal

A stark contrast emerges when examining the Court’s jurisprudence in ArcelorMittal. In ArcelorMittal, the SC upheld that the CoC’s commercial wisdom was supreme under the IBC. The Court clarified that regulatory clearances (including CCI approvals) were not intended to obstruct the resolution process but to ensure market integrity post-facto.

ArcelorMittal explicitly recognized that regulatory approvals were secondary to the CoC’s decision-making. Once the CoC approved a resolution plan, the CCI was to subsequently assess the plan’s compliance with competition law without obstructing resolution timelines. This alignment maintained procedural expediency, protected asset value, and maximized creditor recovery.

However, the Court’s decision in Independent Sugar Corporation deviated from this precedent. The Court interpreted §31(4) literally, mandating that no resolution plan could proceed without prior CCI approval. This single interpretive error restructured the insolvency resolution process by effectively subordinating the CoC to the CCI, significantly compromising resolution speed.

The implications of this shift are multifold. Firstly, this delay undermines market confidence as potential resolution applicants will hesitate to invest in distressed assets, fearing indefinite regulatory hold-ups. Secondly, creditor recovery rates will diminish as asset devaluation increases during prolonged resolution timelines.

Why the Supreme Court’s Interpretation Is Misplaced

The Court’s reliance on a literal interpretation of “prior approval” grossly misinterprets legislative intent. The purpose of §31(4) was to align competition compliance alongside insolvency resolution, not to subjugate creditor powers. By elevating CCI approval to a condition-precedent, the Supreme Court contradicted the very spirit of the IBC.

Moreover, the Court failed to consider the systemic conflict it created. Under the IBC, the CoC's primary objective is value maximization, whereas the CCI’s role is to prevent monopolies. These two objectives often conflict, especially in cases where large market players seek to acquire distressed assets. By prioritizing competition law over insolvency law, the Court fundamentally destabilized the CoC’s power, which could result in delayed resolutions, depreciated assets, and loss of investor confidence.

§31(4) was never intended to erect a sequential hierarchy where CCI approval was a prerequisite for CoC consideration. The decision in Independent Sugar Corporation has set a potentially dangerous precedent, exposing insolvency resolutions to regulatory inertia, thereby frustrating the core objective of the IBC. The next section will examine how the Court’s reasoning is fundamentally flawed.

The many errors in Independent Sugar Corporation

The Court’s interpretation in Independent Sugar Corporation fundamentally undermines the statutorily entrenched power of the CoC under §30(4) of the IBC. The IBC explicitly grants the CoC exclusive authority to accept or reject resolution plans based on commercial viability. However, by mandating prior CCI approval, the Court has elevated competition law over insolvency law — allowing the CCI to essentially veto a resolution plan before creditors can deliberate on its merits.

This judicial restructuring is doctrinally flawed for three key reasons. First, it contravenes the doctrine of commercial wisdom. The SC in ArcelorMittal unequivocally held that the CoC’s decision-making is sacrosanct and cannot be interfered with except on grounds of illegality. The Independent Sugar Corporation judgment now places the CCI in a position where it can effectively obstruct a resolution plan before creditors have even considered it — subverting the established principle of creditor primacy.

Second, it creates a jurisdictional conflict. The IBC was enacted to maximize the value of distressed assets through time-bound resolutions. The Competition Act, on the other hand, seeks to prevent monopolies and preserve market competition. These objectives, while complementary in theory, often conflict in practice. For example, when a large market player like Tata Steel seeks to acquire a distressed company like Bhushan Steel, CCI’s primary concern would be preventing market concentration, whereas the CoC’s primary concern is value maximization. By prioritizing CCI’s objectives over CoC’s commercial wisdom, the Court has created an irreconcilable statutory conflict. This leads to effectively allowing competition law to obstruct the primary goal of insolvency resolution.

Third, the judgment imposes huge economic inefficiencies. Time is of the essence in insolvency resolution. Under the IBC’s framework, swift resolution within 330 days is crucial to preserving asset value and maximizing creditor recovery. However, if CCI approval becomes a mandatory precondition, it introduces a parallel regulatory track that could prolong resolution by 120-180 days. This delay erodes asset value, deters bidders, and plunges distressed companies deeper into financial collapse — precisely the mischief that the IBC sought to remedy.

The economic impact of this delay is severe. Empirical studies show that prolonged insolvency proceedings reduce asset value hugely. One such study shows that delays leading to the insolvency process lasting between 468-650 days have eroded asset values. This was when the old 330 days period applied. With the new 510 days period such erosion of assets will become commonplace. If large bidders anticipate prolonged regulatory delays, they may withdraw from the bidding process, allowing distressed assets to collapse entirely. This inadvertently accelerates market concentration — a result diametrically opposed to the CCI’s own mandate.

The Court’s reasoning in Independent Sugar Corporation is also legally untenable from a jurisprudential standpoint. Under Heydon’s rule, courts are required to interpret statutory provisions in a manner that furthers the legislative intent to correct whatever problem it was enacted to resolve. The IBC’s core legislative purpose was speedy resolution of distressed assets. By elevating regulatory clearance over creditor decision-making, the Court has resurrected the very delays the IBC sought to eliminate.

Impact on Future Resolutions

The broader consequence of this judgment is that it sets a dangerous precedent for future insolvency resolutions. Under the new mandate, resolution applicants acquiring distressed companies that may raise competition concerns (such as mergers) will now face mandatory regulatory clearance before creditor consideration. This creates several potentially disastrous outcomes.

Every distressed asset requiring merger clearance will now face prolonged regulatory delay, exacerbating asset devaluation and discouraging bidders. Moreover, the CCI, already overburdened, will now face an avalanche of merger-clearance requests from distressed asset acquirers, slowing down the regulatory process and paralyzing the resolution ecosystem.

Globally, several jurisdictions have developed sophisticated frameworks for balancing competition and insolvency concerns. In the United States, the Chapter 11 bankruptcy process allows creditor committees to approve reorganization plans before Hart-Scott-Rodino antitrust review, with competition authorities retaining post-approval intervention rights. This sequencing preserves both creditor autonomy and competitive oversight while minimizing delays.

Similarly, the European Union's approach under the Preventive Restructuring Directive prioritizes swift resolution while allowing competition authorities to review transactions after creditor approval but before final court sanction. This model has successfully reduced average resolution times by 40% while maintaining robust competitive market structures.

By contrast, the UK's Enterprise Act employs a concurrent review process where competition assessment occurs alongside (not before) creditor deliberation. This parallel approach has proven effective in balancing time-sensitivity with regulatory diligence. These international models demonstrate that requiring pre-approval from competition authorities before creditor consideration is an outlier approach not supported by global best practices.

Conclusion

The SC’s interpretation of §31(4) in Independent Sugar Corporation represents a significant deviation from the legislative objectives of the IBC. By imposing a rigid procedural sequence that subordinates the CoC’s commercial wisdom to the CCI’s regulatory mandate, the ruling undermines the very purpose of insolvency resolution: speed, efficiency, and creditor recovery. The decision creates a jurisdictional conflict between insolvency and competition law, ultimately leading to prolonged delays, asset devaluation, and market inefficiencies. If left unaddressed, this shift risks deterring investors from participating in the resolution process, further exacerbating financial distress in the economy. To restore the original intent of the IBC, legislative or judicial intervention is essential to clarify that regulatory approvals should operate in parallel with creditor decision-making, rather than acting as a preliminary bottleneck. Only then can the IBC continue to function as an effective tool for insolvency resolution, preserving asset value while maintaining market integrity.