Competition Commission Must Issue Notice to Both Parties in a Combination Approval: Supreme Court

In a landmark ruling the Supreme Court of India upheld the Competition Commission of India’s (CCI) approval of AGI Greenpac Limited’s acquisition of Hindustan National Glass and Industries Limited (HNGIL) while clarifying key procedural requirements under the Competition Act, 2002. The Court ruled that the CCI must issue a show-cause notice to both the acquirer and the target entity before determining the impact of a proposed combination.

“The words ‘parties to the combination’ in Section 29(1) of the Competition Act cannot be read in a restrictive manner to exclude the target entity. The target company, particularly in insolvency proceedings, must also be given an opportunity to respond,” the Court observed.

Despite agreeing with the appellants on this procedural lapse, the three-judge bench comprising Justices Hrishikesh Roy, Sudhanshu Dhulia, and S.V.N. Bhatti ultimately upheld the merger, holding that CCI’s decision was based on expert economic analysis and should not be lightly interfered with.

The case arose from the corporate insolvency resolution process (CIRP) of HNGIL, which was admitted into insolvency proceedings by the National Company Law Tribunal (NCLT), Kolkata Bench, following a petition by DBS Bank under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.

Two entities—AGI Greenpac Limited (AGI) and Independent Sugar Corporation Limited (INSCO)—submitted competing resolution plans to acquire HNGIL. Given AGI’s significant market share in the glass container industry, the acquisition triggered competition law scrutiny under Sections 5 and 6 of the Competition Act, which prohibit anti-competitive mergers.

On March 15, 2023, the CCI approved the AGI-HNGIL merger, but imposed a modification requiring AGI to divest its Rishikesh Plant to mitigate any appreciable adverse effect on competition (AAEC). The approval was subsequently challenged before the National Company Law Appellate Tribunal (NCLAT), which dismissed the appeals on July 28, 2023. This led to multiple appeals before the Supreme Court.

Supreme Court’s Key Findings

CCI Must Issue Show-Cause Notice to Both Acquirer and Target

A significant procedural question in the case was whether CCI must issue a notice under Section 29(1) of the Competition Act to both the acquirer (AGI) and the target (HNGIL). The Supreme Court affirmed the NCLAT’s ruling that the target entity—represented by the Resolution Professional (RP) in insolvency proceedings—must be given a hearing.

“The issuance of a show-cause notice is not a mere formality but an essential requirement of procedural fairness,” the Court held. “In cases involving insolvency resolution, the corporate debtor, through its Resolution Professional, has a vital stake in the process and must be heard.”

While CCI had only issued a notice to AGI, the Court did not find this procedural lapse sufficient to overturn the merger approval, particularly because the RP had already supported the acquisition before the Adjudicating Authority under the IBC.

CCI Has Discretion to Avoid Full Investigation Under Section 29(2) If Satisfied with Acquirer’s Modifications

The appellants argued that once CCI forms a prima facie opinion under Section 29(1), it must conduct a full investigation under Section 29(2), including seeking a report from the Director General and requiring public disclosures. The Supreme Court rejected this argument, ruling that CCI has discretion to avoid a full investigation if the acquirer satisfactorily addresses competition concerns.

“Section 29(1) provides an intermediary step where the acquirer has the opportunity to explain its position or suggest modifications. If CCI is satisfied with the response, there is no automatic requirement to escalate to a full-fledged investigation under Section 29(2),” the Court explained.

AGI had voluntarily offered to divest its Rishikesh Plant, and the CCI found that this modification adequately addressed AAEC concerns. The Supreme Court endorsed this approach, ruling that CCI had acted within its regulatory discretion.

Judicial Deference to Economic Regulatory Bodies

Emphasizing the importance of judicial restraint in competition law matters, the Court stated that CCI’s economic determinations should not be interfered with unless they are manifestly arbitrary or irrational.

“Decisions by expert regulatory bodies should not be second-guessed unless there is a glaring procedural or substantive error,” the Court observed, citing Union of India v. Cipla Ltd. and Brahm Dutt v. Union of India.

“The role of courts is not to substitute their own economic analysis for that of specialized agencies. The Competition Commission, composed of industry experts, is best suited to assess market dynamics and competitive impact.”

The Supreme Court dismissed the argument that CCI had relied on inaccurate data, stating that competition assessments must be based on actual market impact rather than theoretical installed capacities.

Dissenting Opinion by Justice S.V.N. Bhatti

Justice S.V.N. Bhatti dissented, adopting a stricter view of CCI’s procedural obligations. He held that:

CCI’s failure to issue a notice to the target company (HNGIL) vitiated the approval.

CCI should have mandatorily conducted an independent investigation before approving the merger.

The divestment of the Rishikesh Plant was an inadequate remedy for addressing AAEC concerns.

Despite this dissent, the majority ruling by Justice Hrishikesh Roy and Justice Sudhanshu Dhulia upheld the merger approval.

The Supreme Court’s ruling in Independent Sugar Corporation Ltd. v. CCI and related appeals provides significant clarity on competition law enforcement in insolvency proceedings.

The judgment establishes that CCI must issue show-cause notices to both the acquirer and the target entity, ensuring a fair hearing for all parties. However, it also affirms that CCI has discretion to avoid a full-fledged investigation if the acquirer satisfactorily modifies the transaction to mitigate competitive concerns.

By striking a balance between procedural fairness and regulatory efficiency, the Supreme Court has fortified the legal framework governing mergers under the Competition Act, 2002, while ensuring smooth integration with the Insolvency and Bankruptcy Code, 2016.

Date of Decision: January 29, 2025