Rav Singh

Competition Law and the IBC: An Alternate Perspective on the Supreme Court’s Balancing Act

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Introduction

Recently, the Supreme Court (‘Court’) in Independent Sugar Corporation Ltd v Girish Sriram Juneja & Ors resolved an interpretive uncertainty involving the interface of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) with the Competition Act, 2002. The narrow question before the Court was whether the approval of a resolution plan by the Competition Commission of India (‘CCI’) must mandatorily precede the approval of the Committee of Creditors (‘CoC’) under the proviso to Section 31(4), IBC. The proviso states that:

 Provided that where the resolution plan contains a provision for combination as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.

The majority opinion, relying on a plain and literal interpretation, held that prior approval by the CCI was mandatory and not directory. The interpretive disagreement did not arise due to any ambiguity in the provision per se, but due to anxiety about delays in the resolution process. It was argued that mandating the prior approval of the CCI for all resolution applicants, instead of only the successful resolution applicant, would delay the completion of the resolution process under the IBC, and time is of the essence in a resolution process to protect and maximise the value of the corporate debtor’s assets. The issue – before, and even after the Court’s judgment – has been largely looked at from the prism of efficacy of the resolution process under the IBC and the need to respect timelines. Even the resolution professional in the impugned case seems to have interpreted the requirement of prior approval as directory to preserve time.  

I suggest that there are alternative ways to examine the issue. First, the prior approval of the CCI ensures respect for the commercial wisdom of the CoC as it prevents an ex-post alteration of the latter’s decision. The above sequence will help preserve the design of the IBC, which entrusts the CoC with the final say on commercial decisions in the resolution process. Second, I propose that insistence on prior approval of the CCI should be viewed as an eligibility requirement for resolution applicants instead of a procedural hurdle. The requirement of the prior approval of the CCI may dissuade insincere resolution applicants, and prevent submission of resolution plans that may crumble at the implementation stage. Cumulatively, both arguments cohere with the framework of the IBC and provide us a better understanding of its aims and procedures.  

Respect For Commercial Wisdom Of The CoC 

In most cases where petitioners have challenged the CoC’s approval of a resolution plan, courts have invoked the supremacy of the commercial wisdom of the CoC. The policy design of the IBC confers powers on the CoC to take commercial decisions, and courts can only intervene in limited and specific instances. The narrow window for judicial interference with decisions of the CoC has been rightly justified by courts by invoking limited grounds for appeal under the IBC. Courts have, thus, termed decisions of the CoC as being of paramount importance. How does the CoC’s supremacy translate into, and become relevant, in the context of the interface of the IBC and the Competition Act, 2002?

The Court in the impugned case relied on the commercial wisdom of the CoC to observe that the lack of prior approval will dilute the aforesaid design of the IBC. For example, if the CoC approves a resolution plan before it receives approval by the CCI, it would leave open the possibility of the latter suggesting modifications to the resolution plan. Permitting ex-post changes by the CCI would also strike at the finality of the CoC’s decision, and, more pertinently, alter the CoC’s position as the final arbiter of corporate debtors’ destiny. The Court underlined the paramount importance of the commercial wisdom of the CoC and reasoned that it can only be exercised assiduously if the CCI’s approval precedes the CoC’s approval. Otherwise, the CoC would be forced to exercise its commercial wisdom without complete information.   

Providing the CoC with the final say on commercial aspects of the resolution plan has remained a core idea since the initial stages of discussion on the IBC. The Bankruptcy Law Reforms Committee (‘BLRC’) had noted that one of the flaws of the pre-IBC regime was to have entrusted business and financial decisions to judicial forums. The BLRC opined that it was not ideal to let adjudicatory bodies take commercial decisions as they may not possess the relevant expertise. To overcome the flaws of the pre-IBC regime, the IBC was designed to empower only the CoC to take business decisions, as it comprises of financial creditors who may bear the loss in the resolution process. The bifurcation of roles was clear, the legislature and courts were to control and supervise the resolution process, however, all business decisions were the remit of the CoC, though it would arrive at the decision after consultation and negotiations with the corporate debtor. In a similar vein, the Court in Swiss Ribbons v Union of India noted that the financial creditors, comprising mainly of banks and financial institutions, are from the beginning involved in assessing the viability of the corporate debtor, and are best positioned to take decisions on restructuring the loan and reorganisation of the corporate debtor’s business when there is financial stress.         

The resolution applicant also suggested that the CCI’s approval could be sought by the successful applicant after the CoC’s approval but before the NCLT’s approval. First, the suggestion contravenes the plain language of the proviso. Second, the suggestion, if accepted, would still leave open the window of the CCI suggesting amendments to the CoC-approved resolution plan and strike at the IBC’s aim to give the CoC the final say on commercial aspects of the resolution plan.

In fact, the CoC approving a resolution plan which has not received the CCI’s approval would also be in contravention of other provisions of the IBC. The Court specifically mentioned that a resolution plan which contains a provision for combination is incapable of being enforced if it has not secured prior approval of the CCI. Such a plan cannot be approved by the Court as it would violate Sections 30(2)(e), 30(3), and 34(4)(a) of the IBC on grounds of being in contravention of the laws in force. Apart from the above provisions, it may be worth mentioning Section 30(4), which obligates the CoC to approve a resolution plan after considering its feasibility and viability. Clearly, evaluation of the feasibility and viability of a resolution plan must precede the CoC’s approval. The CoC should not be put in a position where it approves a resolution plan and only subsequently considers its feasibility and viability based on the CCI’s opinion, as that would disregard the IBC’s mandate.   

 Proviso To Section 31(4) As An ‘Eligibility Requirement’

 I suggest that the proviso to Section 31(4) should be viewed as an eligibility requirement for the resolution applicant. My suggestion is predicated on an analogy with Section 29A(c). Briefly put, Section 29A(c) declares that a person is ineligible to submit a resolution plan if such person or any other person acting jointly, or in concert with, it has an account classified as a non-performing asset for one year. The proviso removes the ineligibility if the person makes payment of all overdue amounts before the submission of the resolution plan. One of the resolution applicants in Arcelor Mittal India Pvt Ltd v Satish Kumar Gupta & Ors had argued that insistence on the prior payment of overdue amounts would reduce the pool of resolution applicants as their plan may not be eventually approved by the CoC, and that the proviso should be interpreted in a ‘commercially sensible’ manner wherein overdue amounts should be allowed to be paid as part of the resolution plan and not before the submission of the resolution plan.

Justice S.V.M Bhatti, in his dissenting opinion in the impugned case, has attempted to interpret proviso to Section 31(4) in a similar fashion. He has observed that insistence on prior approval by the CCI would limit the number of eligible resolution applicants. Further, he noted that the requirement of prior approval by the CCI raises a question of prudence since the resolution applicant would seek approval of its plan, which may eventually not be acceptable to the CoC.    

 In Arcelor Mittal, the Court dismissed the above line of arguments and held that the plain language of the proviso to Section 29A(c) makes it clear that the ineligibility is removed if overdue payments are made before the submission of the resolution plan. Making the overdue payments may be worth the while of the applicant as the dues may be insignificant compared to the possibility of gaining control of the corporate debtor. The Court added that it would not disregard the plain language of the proviso to avoid hardship to the resolution applicant. The above reasoning squarely applies to the proviso to Section 31(4) and is more persuasive than the dissenting opinion in the impugned case.  

 In fact, one could further engage with the argument about the proviso limiting the number of eligible resolution applicants by stating that the mandate of prior approval of the CCI may act as a filtering mechanism and attract only sincere applicants with concrete resolution plans. The receipt of the CCI approval may diminish the possibility of the resolution plan crumbling at the implementation stage due to the inability or disinclination of the resolution applicants to comply with the subsequent conditions that the CCI may impose. Knowledge of the CCI’s stance prior to the approval of the resolution plan will help in setting realistic timelines and conditions for the successful resolution applicant. 

 Section 31(4) permits the successful resolution applicant to obtain the necessary approvals required under any law for the time being in force, within one year from the date of approval by the adjudicating authority.  The proviso to Section 31(4) carves out one exception and states that if the resolution plan contains a provision for combination, the resolution applicant shall obtain the approval of the CCI prior to the approval of such resolution plan by the CoC. The language of the proviso is clear, unambiguous, and the legislative intent is unmistakable. As the Court noted in its majority opinion, courts must respect the ordinary and plain meaning of the language instead of wandering into the realm of speculation. An exception has been made in the proviso wherein resolution applicants need the prior approval of the CCI. To interpret ‘prior’ to mean ‘after’ would amount to the judicial reconstruction of a statutory provision. There is also no room to interpret the requirement of prior approval as being directory and not mandatory. Analogous to the proviso to Section 29A(c), obtaining the prior approval of the CCI may be ‘worth the while’ of the resolution applicants and this would be a  minor hardship compared to the possibility of controlling the corporate debtor.  

 Prior approval by the CCI should be viewed as an eligibility requirement for resolution applicants instead of a procedural burden. Typically, resolution professionals prescribe requirements of net worth, expertise, etc. for resolution applicants. If compliance with such conditions is not viewed as a hurdle, why view a regulatory approval only through the lens of time, as a procedural hurdle? Instead, it is better viewed as a safeguard to prevent future legal hurdles, smoothen the implementation of approved resolution plan, and to preserve the IBC’s design.  

Understanding The Anxiety About Delay

The Court, in the impugned case, has cited statistics to blunt the argument on delay. The statistics about the speed of decision-making by the CCI reveal that delays may not be significant. The Court cited the Annual General Report of the CCI for 2022-23, as per which, the average time taken by the CCI to dispose of combination applications was 21 days, and there was no recorded instance of the CCI taking more than 120 days to approve a combination application. The track record of the CCI partly convinced the Court that arguments about delays were exaggerated.

While there is merit in arguing that the insistence on prior approval by the CCI may delay the resolution process, it is important to add two caveats: first, even in cases not requiring the approval of the CCI, timelines of the IBC are not frequently respected for various reasons. This is not to suggest that additional delays would do no harm, but that delays are par for the course even when the CCI’s approval is not required. So, it is not accurate to ascribe the possible delay only to the requirement of the CCI’s prior approval. Second, prior approval by the CCI will be needed in relatively few instances, and thus there is good reason to adopt a relaxed view of timelines in such cases to avoid competition law issues after the CoC has approved the resolution plan. The additional time consumed in seeking the CCI’s approval will be for a valid reason, i.e., to address the interface of the IBC with competition law. The IBC cannot be implemented in a sealed bubble. where no extraneous factor  ever influences the speed and progress of the resolution process.  

Conclusion

I have tried to establish that once we take a step back from the time-centric arguments, we can cast a different lens on the issue of the interface of competition law and the IBC.  We can understand that the decision-making of the CoC, and other procedural requirements also need to be respected to maintain the integrity of the resolution process. Time, despite being vital, cannot solely dictate the entire resolution process. When the resolution process implicates other areas of law, such as competition law, adopting a relatively relaxed approach to the time limits of the IBC may ensure smooth approval and implementation of the resolution plan. In fact, the prior approval of the CCI aligns with the key design of the IBC, which strives to reserve final decisions on the resolution process to the CoC, subject to minimal judicial supervision. If the CCI unpacks and modifies the CoC-approved resolution plans ex-post, it will in fact, undermine the sanctity of the resolution process.

[This post was first published at NLSIR Online in May 2025.]

e-Commerce Operators Constitute a Distinct Category Under GST

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In a notable judgment[1] delivered on 12 April 2023, a Division Bench of the Delhi High Court opined that e-commerce operators (‘ECOs’) are a distinct category under CGST Act, 2017, opening interesting possibilities for future of e-commerce under the aegis of GST. The subject of challenge were two Notifications issued by the Union of India which withdrew GST exemption for passenger transportation services provided by auto-rickshaws mediated by ECOs. However, the same services provided by auto-rickshaws without mediation of ECOs continued to be exempt from GST.  

Arguments

The petitioners – which included Uber India and Pragatisheel Auto Rickshaw Driver Union – based their challenge on the following grounds:

first, the petitioners argued that the impugned Notifications were discriminatory as equally placed service providers were put in an unequal position in contravention of Article 14 of the Constitution. The petitioners argued that giving differential tax treatment to the same services based on the mode through which they were availed – offline versus online – lacked an intelligible differentia and was discriminatory against ECOs; second, the petitioners developed the Article 14 argument indirectly to state that the levy of GST must be based on the service and not on the medium used to avail the service; third, the petitioners argued that merely because ECOs had the (financial) ability to comply with GST obligations could not be a ground to levy tax on services offered via them; fourth, the petitioners argued that levy of GST would increase cost of transportation services provided through ECOs, which in turn would threaten the livelihood of auto rickshaw drivers which violated Article 19(1(g) and Article 21 of the Constitution.

The State argued that the distinction between services mediated by ECOs and without ECOs was valid since the ECOs were able to deploy their technology to provide value-added services to consumers which were not available if a person hailed auto-rickshaws on the roadside. Further, the State emphasised that both service providers were not equally placed: the tax exemption was given to auto-rickshaw drivers was because they possessed limited means to meet GST compliance requirements, while ECOs had the resources to meet such burdens. The State further defended the Notifications on the ground that it possessed wide leeway in enacting tax laws, and it could validly exercise its discretion to levy tax on certain transactions while providing tax exemption to others.   

Decision

The Delhi High Court agreed with the State and upheld the Notifications as valid and held that they were in consonance with Article 14 of the Constitution. The five core observations of the Delhi High Court are below:

First, based on a combined reading of Section 9(5), Section 24(ix) and Section 52, the Delhi High Court opined that the CGST Act, 2017 itself treats ECOs as a separate category. Section 9(5) provides that:

The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:   

Section 24(ix) requires that it shall be compulsory for every person to register under GST if he supplies goods or services or both through an ECO who is required to collect tax at source under Section 52. And Section 52 in turn provides that every ECO shall collect an amount not exceeding one per cent, of net value of taxable supplies made through it by other suppliers.

The Delhi High Court noted that Section 9(5) gives effect to a deeming fiction that an ECO is considered a supplier even when it is not making the supply, and under Section 52 an ECO is required to collect tax at source ‘even when the individual supplier itself is otherwise exempt from taxation as is evident from Section 24(ix) of the Act of 2017.’ (para 15.2) Though it would have been apposite to make a reference to Section 24(x) too, which prescribes compulsory registration for every ECO required to collect tax at source under Section 52. Based on the above, the High Court concluded that ECOs are a class distinct from individual suppliers. The High Court also referred to other Notifications under which supplies – such as those relating to hotel accommodation – made through ECOs were made taxable while they continued to be exempt if provided without mediation of ECOs.  

Second, as a corollary to the above observation, the Delhi High Court held that ECOs seeking parity with individual auto-rickshaw drivers were seeking equality amongst unequals. The High Court noted that rides booked through ECOs provided value added services such as: auto-rickshaw picking the consumer from his/her doorstep, ability to track the ride, multiple payment options, etc. The High Court highlighted the ability of ECOs to deploy technological and logistical capabilities to conclude that they were not similarly placed as individual suppliers. The High Court observed that while the quality of the physical ride does not differ if an auto-rickshaw is booked through ECO, the latter offered additional services which was a distinguishing factor.   

Third, the Delhi High Court found that the differentiation had a rational nexus with the object of CGST Act, 2017. The High Court endorsed the State’s argument that the object of CGST Act, 2017 was to levy tax on ‘every’ transaction of supply of goods and services. The Delhi High Court interpreting the objective of GST in such wide terms is not based on sound analysis and in fact it unjustly endorses GST as solely a revenue generating legislative instrument, not leaving room for any other policy objective. While a tax law is primarily a revenue generating mechanism, a welfare state does not and should not use it only for the said purpose, as various other policy objectives are also sought to be accomplished via tax laws.     

Fourth, the Delhi High Court rejected the petitioner’s argument that the differentiation was only based on ‘mode’ of booking. The High Court observed, and correctly so, that the ECOs were not merely offering a ‘mode’ of booking. The High Court observed that the relationship of ECOs with both consumers and vendors/drivers was on a principal-to-principal basis. ECOs were charging commission from registered vendors and convenience charges from consumers. And in case of cancellation of rides, refunds, etc. ECOs were in fact stepping into shoes of a service provider and not just acting as an agent of service provider nor were they merely providing a ‘mode’ or a platform for booking the services.  

Fifth, the Delhi High Court negatived petitioner’s argument for continued GST exemption on the ground that the petitioner had no continued right to tax exemption. This was an endorsement of the States’ argument that it had wide leeway to enact tax laws. Also, as per the High Court, there was no constitutional guarantee or statutory entitlement to a continued exemption from payment of tax. While the High Court justified its conclusion by referring to the State’s right to levy tax, it was an inevitable conclusion once the High Court had endorsed the State’s argument that the purpose of CGST Act, 2017 was to levy tax on ‘every’ transaction of supply of goods and services. 

Conclusion

The Delhi High Court’s judgment is on defensible ground in so far as it reasons that ECOs constitute a separate category under CGST Act, 2017, though it could have been better articulated. Nonetheless, the Delhi High Court’s views could be used by the Revenue Department for various purposes: to prevent tax evasion, ensure greater transparency in e-commerce transactions, and otherwise collect revenue on transactions that may not be exigible to GST when undertaken solely via physical mode. See, for example, the following observation of the Delhi High Court:

The intent of Section 9(5) is to plug leaks in collection of GST and therefore, the Respondent is empowered under the said section to consolidate the liability to collect and pay tax for the services supplied through ECO. This is also evident from the provision of Section 52 of the Act of 2017. (para 17.6)

The Delhi High Court’s view that Section 9(5) of CGST Act, 2017 is an anti-tax evasion provision, will further empower the Revenue Department to impose additional obligations on ECOs. Not to mention, it is also helpful to the Revenue Department that the Delhi High Court has noted that ECOs are not comparable with individual suppliers, limiting the success of Article 14-based challenges to such measures.

Lastly, a vital sub-text of the Delhi High Court’s decision is that a taxable person possessing the financial ability to comply with GST obligations can be a valid ground of differentiation in certain circumstances. The State expressly argued that ECOs were subject to GST because they possessed the financial ability to adhere to additional obligations, which was impliedly endorsed by the Court. This opens the possibility for imposing additional GST compliance obligations on certain taxpayers and differentiating them from other taxpayers based on their ability to comply, though the validity and scope of this dictum will be tested in varied fact situations.      

[1] Uber India Systems Private Limited v Union of India 2023 SCC OnLine Del 2216.

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