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, transformative structural development has arisen where strategic acquirers confront their own legal structure, not only to fill existing gaps in regulation, but exploiting them in order to turn procedural disputes into strategic advantages. This structural innovation avoids a procedural delay, thereby creating a perverse incentive structure in the system, providing for opacity. This blog explores an important yet underexplored phenomenon of systematic manipulation of financial intermediaries and contractual control mechanisms, which are used to facilitate de facto strategic acquisitions under the pretext of financial resolutions.
Regulatory Sequencing as Incentive Design: Concealment and Strategic Bidding in Insolvency
The sequential approval processes as prescribed by the Insolvency and Bankruptcy Code (IBC) and the Competition Act has completely changed the strategic framework for bidding strategies on distressed assets. Under Section 31 of the IBC, the National Company Law Tribunal 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 the Competition Commission of India (CCI) for any anti-competitive implications under the provisions of Section 6 of the Competition Act, 2002. Consequently, this sequence creates a substantial asymmetry, how can an incumbent player acquire a distressed rival without triggering a messy and uncertain competition review? The answer lies in the structure of the resolution applicant itself. 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 the CCIs substantive assessment. The vehicle presented before the CoC is classified as a ‘Financial’ SPV purporting to deliver a clean and timely resolution. 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 an engineered opacity at the origination of the corporate entity.
Formal Ownership, Contractual Control: How Resolution Plans Displace Merger Review
The competitive implications often implicit in distressed acquisitions are frequently not considered during the CCIs merger review under Section 6 of the Competition Act. These materialises 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 the vertical restraints. In this architecture a financial special purpose vehicle confirms formal title, while an 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 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 Insolvency and Bankruptcy Code (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 restructuring framework itself. A critical procedural gap is exposed by a change in the shares or assets (Section 5) which further trigger the CCIs combination review, focusing on SPVs standalone market position. The present combination review does not consider the consequential commercial agreements that transfer operational control, thereby creating a regulatory blind spot. The CCI 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 Insolvency and Bankruptcy Code (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, 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 the control under Section 5 and 6 of the Competition Act, through markers of ownership and governance, which can be identified at fixed transactional point in time. 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 the 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 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 scheme 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. Where post-resolution viability is achieved, through extensive operational supply chain, commercial dependence on third parties, formal continuity may coexist with the substantive weakening of strategic autonomy. 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 incrementally 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 and the commercial direction is becoming centralized. 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 becomes increasingly one of the structural determinants of market organization rather than a neutral mechanism of rescue, which is insufficiently addressed in current CCI-IBC discourse.
From Control to Market Autonomy: Reorienting Competition Law in Insolvency Constructed Markets
When insolvency becomes more of the place 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 the markets whose organization 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 single juridical actor. Insolvency resolutions 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 constraint on the independent conduct of the market, regardless of the existence 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 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.
(This post has been authored by Devesh Sharma, a 2nd-year B.B.A., LL.B. student at Chanakya National Law University, Patna)
CITE AS: Devesh Sharma ‘Markets Constructed Through Insolvency: Deferred Control, Finality, and the Structural Limits Of Competition Law’ (The Contemporary Law Forum, 7 March 2026) <https://tclf.in/2026/03/07/markets-constructed-through-insolvency-deferred-control-finality-and-the-structural-limits-of-competition-law/> date of access