At the heart of India’s glassmaking industry lies Firozabad, a town in Uttar Pradesh known as the “Glass City” of India. Firozabad’s micro, small, and medium enterprises (MSMEs) have long been central to the country’s glassware production. However, this tight-knit ecosystem faces an existential threat due to the insolvency resolution of Hindustan National Glass & Industries Ltd (HNG), India’s largest container glass manufacturer. The proposed acquisition of HNG by AGI Greenpac, the second-largest player in the industry, has triggered concerns among smaller manufacturers.

While this acquisition promises to resolve HNG’s financial woes, it has sparked fears of creating a monopolistic market structure, potentially driving smaller businesses out of competition. If the deal proceeds, AGI Greenpac could dominate both supply and distribution channels, leaving Firozabad’s MSMEs vulnerable. The broader issue at stake is the interplay between the Insolvency and Bankruptcy Code (IBC), 2016, and the Competition Act, 2002. Central to the debate is whether the Committee of Creditors (CoC) can approve a resolution plan before securing clearance from the Competition Commission of India (CCI).

This article delves into the HNG case, focusing on its implications for market competition and the MSMEs in Firozabad. Through the lens of Sections 29 of the Competition Act and 31(4) of the IBC, it argues that the current resolution process not only undermines fair competition but also contravenes India’s legal framework. The outcome of this case, now before the Supreme Court, will not only affect HNG, but could set a precedent for future insolvency cases involving market-dominating combinations.

Legal framework overview: An acquisition under scrutiny

The HNG insolvency case hinges on two key legal frameworks: Section 29 of the Competition Act, 2002, and the proviso to Section 31(4) of the IBC, 2016. These laws are designed to ensure that financial recovery and market fairness are preserved during mergers and combinations.

Section 29 of the Competition Act empowers the CCI to scrutinise mergers and acquisitions that may harm competition. The Act ensures that proposed combinations do not lead to monopolies or reduced competition. In the HNG case, under Section 29(1), a show-cause notice should have been issued to both AGI Greenpac and HNG, allowing HNG to present its side. However, only AGI Greenpac received a notice, raising concerns about procedural fairness.

On the other hand, the proviso to Section 31(4) of the IBC mandates that any resolution plan involving a combination must obtain CCI approval before being presented to the CoC. This is designed to prevent creditors from approving a plan that may later be invalidated due to anti-competitive concerns.

In the HNG case, however, the CoC approved AGI Greenpac’s resolution plan before Greenpac obtained the mandatory clearance from the CCI. This sequence of approvals contradicts the statutory requirement laid out in proviso to Section 31(4) of the IBC. By allowing the CoC to approve the plan first, the process essentially bypassed the competition regulator’s critical role in safeguarding the market. While CCI approval was eventually secured in March 2023, the timing of the clearance raised significant procedural and legal concerns.

The National Company Law Tribunal (NCLT) and subsequently the National Company Law Appellate Tribunal (NCLAT) in both the competition and insolvency appeals, dismissed objections raised by the Uttar Pradesh Glass Manufacturers Syndicate (UPGMS), which represents the MSMEs in Firozabad. The tribunals ruled that CCI approval was a directory, not mandatory, requirement based on a prior decision in Arcelormittal India Pvt Ltd v. Abhijit Guhathakurta. However, this interpretation undermines the legislative intent behind Section 31(4), which clearly outlines a mandatory approval sequence to ensure anti-competitive concerns are addressed before financial resolutions.

Impact on MSMEs: Competition and market structure

India’s glass industry, particularly in Firozabad, relies on MSMEs, which contribute significantly to the local and national economy. The acquisition of HNG by AGI Greenpac threatens to disrupt this balance by consolidating market power. Firozabad’s MSMEs fear that the acquisition would create a market-dominating corporate behemoth, with AGI Greenpac controlling production and supply chains. Such consolidation could create a near-monopoly, allowing AGI Greenpac to engage in predatory pricing and drive smaller competitors out of the market.

MSMEs are crucial to India’s economy, contributing 30% to GDP and employing over 110 million people. In the container glass sector, they provide diversity in pricing and innovation. The Herfindahl-Hirschman Index (HHI), a key metric for market concentration, already places India’s container glass industry at 2,919, indicating significant consolidation (uncompetitive). Further mergers/acquisitions could push the market into uncompetitive territory.

As the Supreme Court hears this case, it must balance the need for swift insolvency resolution with the long-term health of the market, ensuring that smaller businesses are not sacrificed in favour of corporate consolidation. Strict adherence to statutory safeguards is critical to preserving competition.

Procedural flaws with substantive underpinnings: Timing of approvals

At the core of the AGI Greenpac-HNG controversy is the reversal of the approval sequence mandated by the IBC. Section 31(4) requires CCI approval before CoC approval, ensuring that anti-competitive risks are assessed before creditors approve a resolution plan. In contrast, the CoC approved AGI Greenpac’s plan before receiving CCI clearance, violating this legal safeguard. Notably though, INSCO – the competing resolution applicant – had received the requisite CCI approval, prior to approval of the Resolution Plan (in favour of AGI Greenpac) being voted by the CoC.

The significance of this sequence cannot be overstated. The Competition Act empowers the CCI to assess whether a proposed combination may adversely affect competition. In industries like glass manufacturing, where mergers can concentrate market power, this evaluation is critical. The IBC’s proviso to Section 31(4) was introduced to ensure that combinations are vetted for anti-competitive risks before creditors approve a resolution plan.

The procedural anachronism in the HNG case is not merely a technical slip; it represents a violation of the legislative intent behind both the IBC and the Competition Act, which are designed to work in tandem to ensure that corporate restructuring does not come at the cost of fair market competition or elimination of underdogs. By allowing the CoC to approve a plan before CCI clearance, the decision undermines the CCI’s role in protecting market competition. This could set a dangerous precedent where financial expediency overrides proper regulatory oversight, drawing criticism from legal scholars and industry stakeholders alike.

Judicial precedents have varied on this issue. In Bank of Maharashtra v. Videocon Industries, the NCLAT ruled that failure to obtain CCI approval before CoC consent rendered the resolution plan invalid. However, more lenient interpretations in Makalu Trading Ltd v. Rajiv Chakraborty & Ors, and Vishal Vijay Kalantri v. Shailen Shah, have allowed CoC approval before CCI clearance, as long as approval was secured before the final decision by the NCLT. This flexibility weakens the procedural safeguards necessary to prevent anti-competitive outcomes.

In the AGI Greenpac-HNG case, both the NCLT and NCLAT took a lenient view, ruling that the requirement for CCI approval before CoC consent was directory, not mandatory. This contradicts the clear language of Section 31(4), which mandates a specific sequence of approvals to ensure competition is protected. The proviso in Section 31(4) of the IBC is framed in mandatory terms. It uses the word “shall”, which indicates that compliance with the prescribed sequence - CCI approval first, CoC approval second - is not optional. The legislature clearly intended for the competition regulator’s approval to be a prerequisite for the creditors’ vote, as the CCI is best positioned to assess the broader market implications of a merger. The creditors, on the other hand, are primarily focused on financial recovery, and without the CCI’s input, they may approve a plan that harms long-term market competition.

By explicitly stating that CCI approval must precede CoC consent, the IBC deliberately excluded any flexibility in the order of these approvals. Had the legislature intended to allow the CoC to approve plans before CCI clearance, it would have omitted the specific proviso mandating the opposite.

The IBC’s general goal of facilitating timely corporate resolution cannot override the specific statutory requirement that protects market competition through prior CCI approval. Any other interpretation risks opening the door to future abuses where creditors prioritise short-term financial gain over long-term market health.

Thus, the legal framework at issue here is not merely procedural; it has substantive underpinnings. The IBC seeks to facilitate the swift resolution of distressed companies, but not at the expense of market competition. The Competition Act provides the necessary guardrails to ensure that restructuring efforts do not lead to monopolistic outcomes, particularly in industries where smaller players are vital to maintaining a competitive balance. The bypassing of these legal safeguards in the HNG insolvency case could set a dangerous precedent for future insolvency resolutions, where financial expediency trumps market fairness. The ball is now in Supreme Court’s court and it must utilise the opportunity.

Harmonising Competition and Insolvency Law

The AGI Greenpac-HNG case presents a key opportunity for the Supreme Court to clarify the intersection of competition and insolvency law, especially the requirement for CCI approval before creditor consent. Upholding this mandatory sequence ensures that regulatory oversight isn't bypassed, safeguarding market fairness and protecting smaller manufacturers, like those in Firozabad’s glass industry, from potential monopolistic domination.

A ruling enforcing this process would set a clear standard for future insolvency cases, promoting transparency, certainty and ensuring creditors don’t approve mergers without proper CCI assessment. This would prevent large firms from unfairly controlling markets, maintaining accessibility for smaller players. It could also lead to broader reforms, particularly in concentrated sectors like container glass, reinforcing the CCI’s regulatory role in protecting competition.

The decision will influence not only the glass industry, but also how insolvency and competition laws interact across India’s economy. It ensures that financial recovery does not come at the cost of market health, protecting both small businesses and consumers from unfair market consolidation.

The Court’s decision in the AGI Greenpac-HNG case will determine how the IBC and the Competition Act interact in cases where corporate restructuring risks creating monopolies.

By reaffirming the mandatory nature of prior CCI clearance, the Court can protect market fairness and ensure that smaller businesses, such as the MSMEs in Firozabad, are not sidelined in favour of corporate expediency. Ultimately, the AGI Greenpac-HNG case will shape the direction of Indian jurisprudence, reaffirming that the preservation of fair competition is essential to a healthy economy.

Bhuvanyaa Vijay is a dual licensed attorney (India/New York) and routinely advises a global clientele as a freelancing legal consultant. She can be contacted at bvijay@alumni.harvard.edu.