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[Editorial Note: Justice is an indivisible concept. We cannot, therefore, discuss contemporary Supreme Court judgments without also acknowledging the Court’s failure – at an institutional level – to do justice in the case involving sexual harassment allegations against a former Chief Justice. This editorial caveat will remain in place for all future posts on this blog dealing with the Supreme Court, until there is a material change in circumstances.]


[This is a guest post by Arti Gupta.]


In a previous post, Dhruva Gandhi and Sahil Raveen analyzed the invocation of the doctrine of manifest arbitrariness with respect to Section 12 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) in the case of Committee of Creditors of Essar Steel v. Satish Kumar Gupta. Out of the three broad arguments put forward by Gandhi and Raveen, I shall be responding primarily to the third one which says that there was little basis for the court to read down ‘mandatorily’ from the proviso to S. 12 on grounds of it being ‘manifestly arbitrary’. The duo relies on some precedents to reiterate that a statutory provision would be manifestly arbitrary if it “lacked a clear determinative principle or encapsulated a capricious or irrational measure”.

S. 12, as rightly pointed out, has an underlying determinative principle, which is to ensure a time-bound resolution of a corporate debtor under IBC. However, a pertinent question I want to raise is whether the Section’s fixing of the time-limit to this specific number of three hundred and thirty days, mandatorily binding us to effect the resolution of a corporate debtor within it, would amount to an irrational measure. The answer might be in the affirmative when we look at corporate insolvency resolution process (‘CIRP’) not simply as an application of only IBC, but as an application of a matrix of different statutes. It is one such matrix, created by the intersection of IBC and Competition Act, 2002, which I am concerned with.

Role of the Competition Commission of India in CIRP

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, inserted Section 31(4) in IBC, the proviso to which stipulates that if a resolution plan envisages a ‘combination’, as defined under Section 5 of Competition Act, approval of the committee of creditors (‘CoC’) has to be obtained after obtaining the approval of the Competition Commission of India (‘CCI’). Under Section 6 of the Competition Act, the obligation to notify the CCI of the potential combination is triggered when a ‘document’ is executed in favour of the combination. The dilemma, then, is over the meaning of the word ‘document’. In some earlier decisions, the Courts have interpreted the term to mean either of the two things- the submission of a resolution plan by a resolution application, or the grant of approval of the plan by CoC. With the addition of S. 31(4), the submission of the resolution plan has to be the ‘document’ in contemplation because approval by CoC has to come after CCI’s approval and, hence, cannot be the document triggering the CCI approval.

A combined reading of Sections 16 to 22 of IBC shows that even before the submission of resolution plans by resolution applicants, the CIRP can validly take up to fifty one days out of the stipulated period of three hundred and thirty days. Further, after the submission of the resolution plans under S. 6 of the Competition Act, the resolution applicants can take up to thirty days to give a notice to CCI. After receiving notice, the CCI, under S. 31 of Competition Act, can take up to two hundred and seventy days (when it recommends modifications) to grant approval to the potential combination transaction. Therefore, from the insolvency commencement date till the grant of approval by CCI, the CIRP can statutorily extend to beyond three hundred and thirty days. Under such a situation, by the end of the deadline of three hundred and thirty days, no resolution plan has been received by the Adjudicating Authority (‘AA’). And as Gandhi and Raveen’s harmonious construction of Sections 12 and 33 itself shows, automatic liquidation of the corporate debtor will ensue when AA receives no plan.

Comparative v. Transcendental

One anticipated counter to this line of reasoning is that what is being taken into account here is the maximum possible time that can be taken up till CCI grants its approval, and that it might be effected much before the deadline, leaving sufficient time for AA to approve of one resolution plan. Another response has been that retaining the word ‘mandatorily’ can have the effect of coercing CCI into granting a quick approval. However, as Ronald Dworkin would have argued, such counters overlook the primary distinction between what may happen and what will happen. If a right under Article 19(1)(g) can be abridged in the face of speculation or some speculative benefit, then it is equivalent to granting no right at all.

Enough opinions have also been expressed over amending S. 12- either by putting a revised outer cap (as suggested by Gandhi and Raveen), or by excluding the time consumed by CCI from the maximum permissible time for CIRP. Such an amendment, it is argued, would address the inconsistencies between the two statutes, prevent AA from taking its own sweet time and everybody would go home happy. Yet as Amartya Sen has said elsewhere, “…if we are trying to choose between a Picasso and a Dali, it is of no help to invoke a diagnosis (even if such a transcendental diagnosis could be made) that the ideal picture in the world is the Mona Lisa”. Drawing further on that analogy, if Nariman J. can only choose between retaining ‘mandatorily’ or striking it down (an amendment is a prerogative of the legislature), then he can only pick one of them even if both are imperfect solutions in themselves. This is where we take the comparative rather than the transcendental route, to ask how justice would be advanced instead of asking what a perfectly just course of action would be. So, here is the choice- between considering the time-period of three hundred and thirty days as an irrational measure, which fails to take into account the discrepancies between two statutes, and retaining the term ‘mandatorily’ on the speculation that the statutory authority might not utilize the whole of the statutorily permissible time. To say the least, I am glad we did not choose the latter.