Insolvency Beyond Rescue: Engineering Opacity at the Intersection of Competition and Resolution Law

The discourse relating to the interface between the Competition Commission of India (CCI) and the Insolvency and Bankruptcy Code (IBC) has been plagued mainly by procedural impediments, long timelines, sequential clearance requirements and lapses in corporate defence mechanisms. Practitioners look forward to legislative harmonisation. However, a major shift has occurred: strategic buyers are now using gaps in the law not just to work around unclear rules, but to turn legal disputes into opportunities that benefit them. This structural innovation avoids procedural delay, thereby creating a perverse incentive structure in the system, allowing  for opacity. This blog focuses on  the  important yet underexplored phenomenon of systematic manipulation of financial intermediaries and contractual control mechanisms under the Competition Act, 2002 (Competition Act) and IBC, which is  used to facilitate de facto strategic acquisitions under the pretext of financial resolutions. 

Regulatory Sequencing as Incentive Design: Concealment and Strategic Bidding in Insolvency

Sequential approval processes as prescribed by the IBC and the Competition Act have completely changed the strategic framework for bidding strategies on distressed assets. Under Section 31 of the IBC, the National Company Law Tribunal (NCLT) is expected to grant final approval to the resolution plan in order to establish a binding financial commitment. On the other hand, the resolution plan may be further reviewed by CCI for any anti-competitive implications under Section 6 of the Competition Act, 2002.  Consequently, this sequence creates a substantial asymmetry, in which the acquirers assume full risk and obligation involved in the plan before the competitor regulator assesses its permissibility. To address this untenable commercial risk, market parties tend to use structural camouflage as a rational strategy. A strategic entity, a major pharmaceutical incumbent for example, can thus prevent itself from being identified as the named resolution applicant under Regulation 2A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Instead, it anchors a consortium where its equity stake is meticulously held below the de facto 25% ‘control’ threshold which is often used in CCI’s substantive assessment, as was seen in its analysis in Delhi Jal Board v. Grasim Industries Ltd. The vehicle presented before the CoC is classified as a ‘Financial’ special purpose vehicle  purporting to deliver a clean and timely resolution. In the consortium-led acquisition of Asian Colour Coated Ispat Ltd., the design was observable, strategically decoupling the identity of the ultimate economic beneficiary from the legal entity subject to regulatory scrutiny. The NCLT, bound by the commercial jurisprudence of CoC as laid down by the Supreme Court in case of K. Sashidhar vs. Indian Overseas Bank & Ors., sanctioned the highest financial offer from such a concealed corporate structure, effectively legitimizing opacity engineered at the inception  of the corporate entity. 

Formal Ownership, Contractual Control: How Resolution Plans Displace Merger Review

The competitive implications often implicit in distressed acquisitions are frequently overlooked during the CCI’s merger review under Section 6 of the Competition Act. These materialise in the post transactional period through contractual mechanisms that act as the fundamental instruments of control. Consequently, this marks a shift between the assessment of equity-based control to a regime which is based on contractually defined dominance, an area that is usually scrutinised under Section 3(4) of the Act, which deals with vertical restraints. In this architecture, a financial special purpose vehicle confirms formal title, while operational command is exercised by the strategic acquirer through long term operations and maintenance, toll manufacturing and exclusive licensing agreements. These provisions are not ancillary but form the strategic core of the transaction, controlling production, price and research and development. As a result, a vertical relationship is established which is potentially capable of causing an Appreciable Adverse Effect on Competition (AEEC), akin to anti-competitive “Shackles” as observed by CCI in DLF Ltd. v. Belaire Owners Association (2011) with regards to Section 4. The crucial difference in this context of IBC is that such restrictive terms are explicitly included in the resolution plan under Section 30(2), which makes the considerations related to competition a part of the restructuring framework itself. A critical procedural gap is exposed by a change in the shares or assets (Section 5) which further triggers the CCI’s combination review, focusing on the concerned SPV’s standalone market position. The present combination review does not consider the consequential commercial agreements that transfer operational control, thereby creating a regulatory blind spot. CCI’s approval is often limited to legal formalization of the transaction, while substantive competitive effects are deferred to downstream contractual arrangements that remain unexamined - a dynamic clearly reflected in the post-resolution integration of Sintex Industries Ltd. 

Control Latency in Insolvency-Led Acquisitions: Competitive Control as a Process

The interplay between the IBC and the Competition Act has produced a regulatory phenomenon, which has not received adequate theoretical attention and could be referred to as ‘Control Latency’. Unlike conventional merger transactions, acquisitions by insolvency proceedings do not lead to instantaneous and examinable consolidation of control. Rather, they give rise to a temporally deferred exercise of market power economically active but legally in abeyance that falls outside the effective reach of both ex-ante oversight of merger activity and ex-post enforcement of competition policy. This latency is built right into the structure of statutory design. Insolvency adjudication under Section 30(2) of the IBC, as reiterated in K. Sashidhar, Essar Steel and Ebix Singapore, is limited to an assessment of financial viability and feasibility of implementation, expressly excluding the broader market structure inquiry. Competition law, on the other hand, operationalises control under Section 5 and 6 of the Competition Act through markers of ownership and governance which can be identified at a  fixed transactional point in time, as in Aditya Birla Chemicals Ltd./Anchor Group and Ultratech Cement Ltd./Century Textiles. Insolvency-led acquisitions bypass this temporal presumption by breaking up the acquisitions in phases, each of which alone seems competitively benign. The result is a regulatory vacuum wherein control exists in what is known as latency which is too diffuse and premature to trigger merger review, but too institutionally final to allow meaningful post-resolution intervention. CCI v. Bharti Airtel Ltd. acknowledges that regulators work within circumscribed statutory moments, insolvency restructures such moments without violating formal jurisdictional limitations. This phenomenon challenges one of the basic assumptions of merger control: that competitive harm is identifiable at the point of acquisition. Insolvency is the demonstration of the limitations of this premise where the control becomes a process rather than an event. Generally, it is perceived as a  failure in coordination, but it is the result of incompatibility between the finality of insolvency and the temporal logic of merger regulation, something which is not yet addressed in the Indian Competition law jurisprudence. 

Structural Consolidation Without Concentration: How Insolvency Finality Centralises Competitive Decision-Making

The long-term consequences of insolvency-based consolidation outweigh the consequences of specific schemes of resolutions, thus having a consequential effect on the competitive fabric of the respective market. Section 31 of the IBC, upheld by the Supreme Court in Swiss Ribbons Pvt Ltd. v. UOI, states that finality approach is that the resolution of the insolvency must be clear and timely. Nevertheless, this same emphasis on finality limits the room to provide substantive ex-post review exploring how revitalized entities function through product and factor markets. Even after a successful resolution, a company may remain heavily dependent on external suppliers and partners and while it continues to operate on paper, its ability to make independent strategic decisions may quietly erode. Competition law has, in this context, limited corrective powers. Section 3 and 4 of the Competition Act are designed to deal with explicit restraints or demonstrable dominance whereas the forms of structural dependency are brought about with increasing frequency  through restructuring. As acknowledged by CCI in DLF Ltd. v. Belaire Owners Association, competitive harm can be caused by relational asymmetries even if there are no traditional signs of concentrations. Insolvency driven restructuring replicates such asymmetries on a grander scale (where control is scattered, again, through legally differentiated entities and layers of contract). The cumulative result is a market dominated by formally independent businesses that are competitively constricted. While there is still a degree of fragmentation in ownership, the decision-making authority as well as the commercial direction is becoming centralised. This form of consolidation does not appear as a combination of notifiable significance, nor as an abuse subject to action, but in any event alters the nature of competition in the long term. The main danger therefore is not immediate foreclosure, but rather the progressive erosion of rivalry and innovative incentives and the effectiveness of entering a market. In this light, we can say that insolvency increasingly becomes a structural determinant of market organization rather than a neutral mechanism of rescue, which is insufficiently addressed in the current CCI-IBC discourse. 

From Control to Market Autonomy: Reorienting Competition Law in Insolvency-Constructed Markets

When insolvency becomes a stage where competitive power is accumulated rather than merely subsumed, the parameters of traditional competition analysis become structural, not incidental. Consequently, the relevant question is not how competition law could reintegrate itself in insolvency proceedings, but how it will respond to markets whose organisation is intentionally constructed through insolvency architecture.

A first analytical move therefore is to dispense with the notion that competitive authority needs to be ascribed to a single juridical actor.  Insolvency resolution processes often lead to scattered resolutions in which strategic influence is exercised through well calibrated interdependence rather than direct command. Accordingly, competition assessment must explore the extent to which the post-resolution ecosystem imposes constraints on the independent conduct of the market, regardless of the existence of a dominant player in the market. The relevant question, thus, is not the locus of control but the perpetuity of autonomy.

Secondly, competition law needs to adjust its understanding of legal finality. Insolvency produces results that are financially conclusive but have economic elements of uncertainty because their market effects become apparent only when the contractual arrangements come into force in practice. Conflation of resolution approval with the end of competitive inquiry is dangerous because it risks taking legal closure for stability of the market. Accordingly, competition analysis needs to consider insolvency outcomes as dynamic economic configurations and not as immovable facts.

Finally, accepting insolvency as a mechanism for frequent market reallocation requires a normative reappraisal. When productive capacity and strategic direction are reorganized through a restructuring  process, driven mainly by creditor i.e. private design, the role of competition law as a guarantor of market openness, is thus thrown into displacement rather than nullification. Reasserting these functions requires that competition law should orient itself w.r.t the conditions of the market independence engendered by insolvency, instead of merely endorsing the transactions it formally sanctions. About the Author Devesh Sharma is a student at Chanakya National Law University, Patna. He would like to give credit to my beloved seniors for helping me out with this piece.