Insolvency and Competition Law: Navigating Anti-Competitive Risks in Pre-packaged Processes in India

Abstract

Pre-pack insolvency processes are, therefore, an increasingly dominant tool to allow for a return from financial distress, under which performance of business will only suffer a short time at the same time. They tend to be the consequence of pre-negotiated agreements between debtors and creditors based on the objectives of preserving the value of the going concern, continuity and the avoidance of long-term litigation. their expedited nature raises directly important questions at the intersection of insolvency and competition law. In particular, pre-packaged arrangements can lead to distressed asset undervaluation, collusion, which essentially amounts to the marginalization of certain stakeholders, and market power concentration — all of which are a potential threat to competition.One significant reform in the Indian context, was the introduction of pre-packaged insolvency through the Insolvency and Bankruptcy Code (Amendment) Act, 2021, primarily for the benefit of micro, small and medium enterprises (MSMEs). However, the implementation of this framework has revealed lacunae that could promote anti-competitive behaviour. But the co-existence of weak asset valuation mechanisms and inevitable opacity of stakeholder participation leads to significant risks of undervalued sales and monopolistic epicentres. Such issues indicate the need for a regulatory framework directing a safe balance between efficiency and integrity to the market.This paper ‘tackles these challenges in the Indian context and offers a comparative study of the established frameworks with similar contexts, particularly from jurisdictions like United Kingdom and United States. It identifies five global best practices, from transparency mandates to independent scrutiny and equitable involvement of stakeholders, as critical to limiting anti-competitive risks. Based on these observations, the study conclusively recommends the adoption of competition law principles within the Indian pre-pack insolvency framework through regulatory measures and educating the stakeholders. This research finally establishes the need for harmonizing insolvency and competition law that would protect market fairness, enhance economic sustainability and ensure long-term success to pre-packaged insolvency processes in India.