Introduction

In January 2025 , the Supreme Court in the case of Independent Sugar Corporation Ltd. v. Girish Juneja & Ors., held that the proposed acquisition of Hindustan National Glass and Industries Ltd. (HNGIL) by AGI Greenpac was unsustainable as it failed to secure prior approval from the CCI under the relevant provision of the IBC. While this case affirmed an important procedural requirement i.e. obtaining prior CCI approval as per the proviso to Section 31(4) of the IBC, it also exposed a critical gap i.e. when should the doctrine of “failing firm defence" should be permitted under competition law.

A Missed Opportunity

When HNGIL, India's largest glass packaging manufacturer, faced insolvency proceedings initiated by DBS Bank in 2023, two bidders emerged: AGI Greenpac (the second-largest player in the market) and INSCO. The Committee of Creditors approved AGI's resolution plan with 98% approval, despite AGI lacking CCI clearance at that stage. Later, AGI Greenpac filed a revised Form II which was approved by CCI with conditions, including a divestment requirement. In this modification order, a critical question was raised, i.e. AGI gave the failing firm defence, arguing that HNGIL would exit the market absent the acquisition. However, the CCI chose not to address this argument, leaving it open.

The Current Legal Vacuum and International standards

The current position of law in India is that Section 20(4)(k) of the Competition Act 2002 recognises the possibility of a ‘failing business’ as one of the factors while considering whether the combination will have Appreciable Adverse Effect on Competition (AAEC). However, this section is merely theoretical in nature where it doesn’t provide the relevant guidance on how to operationalize this test.

A comparison with mature competition-law jurisdictions, such as the United Kingdom, the European Union and the United States of America, is in place. They have detailed guidelines which clearly outline failing-firm defence test, therefore setting clear criteria and evidentiary standards.

For instance, the European Commission looks at:-

1. Firstly, the allegedly failing firm would in the near future be forced out of the market because of financial difficulties if not taken over by another undertaking.
2. Secondly, there is no less anti-competitive alternative purchaser than the notified merger.
3. Thirdly, in the absence of a merger, the assets of the failing firm would inevitably exit the market.

This test ensures that competition policy accommodates genuine market exits while preventing acquisitions that merely shift assets between competitors without preserving their market participation.

The United Kingdom, after revising its merger assessment guidelines in 2021, simplified this to a two-prong test. As per revised 2021 guidelines, the parties have to fulfil/prove two conditions:

• Likelihood of Exit - the firm is likely to have exited (through failure or otherwise) if merger would not take place;
• Alternative Purchasers - There would not have been an alternative, less anti-competitive purchaser for the firm or its assets to the acquirer in question.

Both frameworks serve the same purpose i.e. to permit acquisitions that would otherwise violate merger control rules when the alternative is market exit and asset loss. This balance prevents competition law from becoming an inadvertent mechanism for destroying value during economic downturns.

India’s proposed approach

Based on the global experience, India should adopt a two pronged approach. To begin with, the statutory text of the Competition Act should be revised to have a specific, dedicated provision to define a clear test of the failing firm defence, either based on the tripartite framework of the European Union or the two-pronged framework of the United Kingdom. Second, the CCI ought to simultaneously publish detailed guidelines on merger-assessment, which elucidates the practical implementation of the failing firm defence, giving examples of qualifying and disqualifying cases.

The mechanism need not be complex. The CCI should develop guidelines that establish: (1) the specific evidence required to demonstrate that a firm faces inevitable exit; (2) the criteria for assessing whether alternative purchasers are available and less anti-competitive; and (3) the procedural timeline for evaluating failing firm claims, particularly in the context of time-sensitive insolvency proceedings.

The failing firm defence should be allowed to be used by the acquirers in their application to CCI under the strict evidentiary conditions and with clearly set deadlines. The Competition Commission review should be done before or at the same time as the creditor approval and thus ensure that competition issues are assessed openly and addressed proactively as opposed to the unresolved situation in the INSCO case.

By establishing clear rules, India can prevent future avoidance and align its competition policy with global best practices. Creditors will have greater confidence in acquisition outcomes. Regulatory decision-making will be transparent and predictable. Most importantly, India's competition framework will have substantive answers, and provide for the legal certainty that efficient market transactions require.