Group Insolvency – The Need Of The Hour

Against the backdrop of recent judicial precedent, this article delves into the need for a group insolvency framework in India, and analyses the report published by the CBIRC in 2021.
India Insolvency/Bankruptcy/Re-Structuring
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Against the backdrop of recent judicial precedent, this article delves into the need for a group insolvency framework in India, and analyses the report published by the CBIRC in 2021.

Globalisation has led to a significant increase in the number of enterprises which comprise of several closely connected entities that may operate as a single economic unit.1 As a consequence, difficulties may arise when 1 or more entities in that single economic unit become insolvent as the inability of 1 entity to pay its debts may impact stakeholders in another entity within the group.

To address such issues, the UNCITRAL Model Law on Enterprise Group Insolvency (Model Law) was introduced.2 The Model Law recognises the need for a transparent and predictable regime to facilitate insolvency of entities within an enterprise. It focuses on group insolvency proceedings – i.e., insolvency of some or all entities in a group, either insolvent or nearing insolvency where the assets and liabilities of such entities are clubbed together for the purposes of protecting, preserving, realizing, and enhancing the value of these entities and their assets.

Following liberalisation, there has been a rise in the number of enterprise groups in India. India ranks 3rd globally in terms of the number of family-owned businesses,3 and Indian listed companies in the NIFTY 50 index have approximately 50 subsidiaries on average.4 Interestingly, there are 15 listed companies in India that have over 100 subsidiaries and some have more than 200 subsidiaries.5

The interconnected nature of entities within an enterprise may lead to assets of a business line being scattered across the group. The financing secured by an entity may also be funnelled to other members of the group. Therefore, if an entity within an enterprise is insolvent or nearing insolvency, creditors and, or, insolvency professionals may struggle to take control of the scattered assets and secure the debts, and this could adversely the value of the entity.

The Insolvency and Bankruptcy Code, 2016 (IBC) does not deal with group insolvency but there is a growing consensus that it should be amended to incorporate a framework for group insolvency. Such a framework would streamline the insolvency process for enterprises and would help creditors secure true value. However, the implementation of a group insolvency framework would require substantial amendments to the existing framework for corporate insolvency resolution. The Insolvency and Bankruptcy Board of India (IBBI) – through its Working Group on Group Insolvency (Working Group) – and the Ministry of Corporate Affairs (MCA) – through Cross-Border Insolvency Rules/Regulations Committee (CBIRC) – have both issued reports proposing the implementation of a group insolvency framework in India.

Indian Jurisprudence

Despite the absence of a group insolvency framework, benches of the National Company Law Tribunal (NCLT) have suo motu applied principles of group insolvency on a case-by-case basis to better achieve the objectives of the IBC.6 Illustratively, during the insolvency of Videocon Industries,7 the NCLT, Mumbai, permitted consolidation of the insolvency proceedings of 13 of 15 entities in the Videocon group on grounds that the operations of these entities were inextricably linked and the entitles were also involved in availing loan facilities under a composite agreement.8 The NCLT, Mumbai, relying on precedent from the USA and the UK, held that group insolvency may be permitted where there is evidence of: (i) common control, assets, directors, liabilities; (ii) interdependence of the companies; (iii) interlacing of finance; (iv) pooling of resources; (v) co-existence for survival; (vi) intricate links between the entities; (vii) intertwined accounts; (viii) inter-looping of debts; (ix) singleness of economic of units; and (x) common financial creditors.9

Thereafter, during the insolvency of Lavasa Corporation,10 the NCLT, Mumbai permitted the consolidation of insolvency proceedings of Lavasa Corporation and its 4 wholly-owned subsidiaries, including 2 subsidiaries that were not undergoing insolvency resolution (subject to the approval of their creditors). The NCLT based its decision on the fact that the debts of all 4 subsidiaries were guaranteed by Lavasa Corporation, and the resolution plan was conditional on the consolidation of the insolvency process of all the entities.

The National Company Law Appellate Tribunal (NCLAT) has also permitted a form of group insolvency for 5 entities who jointly owned a plot of land and were operating as a consortium in Edelweiss Asset Reconstruction Co Ltd v. Sachet Infrastructure Pvt Ltd & Ors.11 In that case, the NCLAT directed that the corporate insolvency resolution process (CIRP) of the 5 entities occur simultaneously through a single resolution professional.

From the jurisprudence, it is clear that group insolvency is predicated on the insolvent entities being intricately linked and operating as a single economic unit. In addition, the consolidation of insolvency proceedings must be consistent with the objectives of the IBC.

Interestingly, not all benches of the NCLT are united in the belief that they may effect group insolvency resolution where appropriate. In 2023, the NCLT, Chennai rejected a request to consolidate the insolvency proceedings of a holding company and its subsidiary on the grounds that IBC does not empower the NCLT to entertain such requests.12 While this was subsequently reversed by the NCLAT, the case is presently sub-judice before the Supreme Court.13

Legal Framework

Since the Model Law was only introduced in 2019 – after the publication of the report of the Working Group,14 the CBIRC was tasked with developing a framework for group insolvency in the context of the report of the Working Group and the Model Law. The CBIRC analysed the legal framework for consolidating assets during group insolvency in the USA, the UK and other jurisdictions, and based on its examination, did not recommend adopting the Model Law. Instead, the CBIRC proposed its own framework for group insolvency.

The report issued by the CBIRC (CBIRC Report)15 identified 2 key aspects of group insolvency: (i) substantive consolidation – i.e. the consolidation of assets and liabilities of 2 or more group entities into a single insolvency estate: and (ii) procedural coordination – i.e. coordination and synchronization of concurrent insolvency proceedings of group entities. The CBIRC Report suggests that any framework for group insolvency should be voluntary, flexible and enabling in nature, and, with this objective in mind, the CBIRC Report proposes a draft framework for group insolvency16 incorporating the procedural co-ordination mechanisms, which should be implemented only in phased manner.

Substantive Consolidation

According to the CBIRC, substantive consolidation should be resorted to in exceptional circumstances as it deviates from the settled principles of separate legal identity or incorporated entities and limitation of liability.17 The CBIRC has, therefore, suggested that provisions for substantive consolidation be formulated at a later stage after Indian jurisprudence has evolved further.

Procedural Coordination

The CBIRC was of the view that group insolvency may be initiated by the corporate debtors or their creditors filing a joint application before any NCLT exercising territorial jurisdiction over of any of the corporate debtors to:

  1. Initiate CIRP against entities belonging to the same group; or
  2. Initiate group coordination proceedings between 2 or more corporate debtors undergoing CIRP who belong to the same group.

To facilitate the group insolvency process, the CBIRC Report inter alia recommends:

  1. Defining 'group' on the basis of control18 (as defined under the Companies Act, 2013) and significant ownership19 (in terms of the Competition Act, 2002) vis-à-vis 2 or more corporate debtors.
  2. That the committee of creditors (CoC) for each corporate debtor form a separate CoC in respect of the enterprise called the group CoC. This group CoC would be responsible for communication, cooperation and information between such corporate debtors. However, the participation of a corporate debtor in the group CoC is voluntary which would enable each corporate debtor to opt-out from participating in the group CoC, severely hampering any attempts at group insolvency resolution.
  3. The appointment of a group coordinator in charge of constituting and conducting the group CoC. The group coordinator would be responsible for aiding the resolutions professional or liquidators of the corporate debtors in information sharing, resolution of disagreements, etc.
  4. That the group CoC formulate a strategy which may involve undertaking combined valuation, negotiating resolution plans for some or all participating group members etc. However, the group CoC would not be empowered to approve any resolution plan for any of the corporate debtors.20

The CBIRC Report does not recommend the appointment of a single resolution professional for all group entities at the time commencement of CIRP. Instead, it recommends that the CoCs of the respective corporate debtors appoint a single resolution professional if they deem it necessary. The CBIRC Report also suggests that the solvent members of a group be allowed to participate in the group insolvency process.

The CBIRC Report goes a long way in formulating a legal framework towards group insolvency. It appears to have struck a balance between respecting separate legal personality of the solvent entities and maximising value from the insolvent entities within a group. The recommended definition of 'group' is also consistent with the present statutes.

However, the CBIRC's recommendation that group insolvency be voluntary and flexible may run contrary to the substantive consolidation jurisprudence that has developed thus far by the Indian courts – i.e. where consolidation is directed at the request of the resolution professional. A robust group insolvency framework should, therefore, define strict parameters for the initiation of substantive consolidation.

The CBIRC has recommended that exclusive jurisdiction be conferred on a NCLT having territorial jurisdiction over any 1 of the corporate debtors. However, the recommendations are silent on how the relevant NCLT will enforce its orders outside its territorial jurisdiction on non-cooperating corporate debtors, particularly in cases where the resolution professional has sought assistance21 or is pursuing applications for avoidance or preferential transactions. This is a missed opportunity, particularly considering the fact that the particular issue of NCLTs enforcing orders outside their jurisdiction has been addressed in respect of schemes of arrangement under Sections 230-232 of the Companies Act, 2013 where the registered offices of the entities are in different jurisdictions. In such cases, the NCLT is empowered to transfer the proceeding from 1 NCLT to another.22

Although group insolvency will require co-ordination between multiple creditors, corporate debtors, resolution professionals, etc., and applications will have to be filed before the NCLT for initiation of group coordination proceedings and approval of the group strategy, the CBIRC has not recommended extending the timeline for completion of CIRP provided under the IBC.

Looking Ahead

While the CBIRC Report takes a step towards formulating a framework for procedural coordination in the event of group insolvency, it passes the baton to the judiciary to develop the law on substantive consolidation. This is likely to be problematic given that different courts and tribunals may have differing views on substantive consolidation.

Reports indicate that the Central Government is planning to amend the IBC to provide for insolvency and resolution of group entities.23 There is an urgent need to create a statutory framework for group insolvency to address the economic realities and once enacted, it will go a long way to protect the creditors ensuring efficient and timely resolution of the insolvent entities in a group. However, a group insolvency framework that does not fully address substantive consolidation and, or, does not address the issue of tribunals enforcing orders outside their jurisdiction may create further confusion between the stakeholders.


1. Illustratively, Lehman Brothers, the 4th largest investment bank in United States (at the time) had multiple entities across jurisdictions but essentially functioned as a single unit.

2. UNCITRAL Model Law on Enterprise Group Insolvency with Guide to Enactment – available at ( and last accessed on 16 January 2024 at 1222 hours.

3. Page 33 of the CS Family 1000 in 2018, Credit Suisse AG, Research Institute.

4. Para 1, page 9, OECD (2022), Company Groups in India – available at ( and last accessed on 30 January 2024 at 1705 hours.

5. Ibid.

6. i.e. to facilitate insolvency resolution in a timebound manner, maximise value and promote entrepreneurship while balancing the interests of stakeholders.

7. State Bank of India v. Videocon Industries Limited, 2019 SCC OnLine NCLT 745

8. The 2 entities from the Videocon Group were not consolidated in this process as they were able to run their operations separately and as going concerns.

9. Ibid.

10. Axis Bank Limited, In re, 2020 SCC OnLine NCLT 3484

11. Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Pvt. Ltd., 2019 SCC OnLine NCLAT 592

12. In the matter of Regen Powertech Pvt. Ltd. & M/s. Regen Infrastructure & Services Pvt. Ltd. IBA/1099/2019 & IBA 1424/2019, order dated 1 November 2021

13. Committee of Creditors of Regen Powertech Private Limited. v. Echanda Urja Private Limited, Civil Appeal No. 6690-6706/2023.

14. Report of the Working Group on Insolvency, prepared by the Working Group on Group Insolvency dated 23 September 2019 - available at ( and last accessed on 19 March 2024 at 1200 hours.

15. Report of CBIRC-II on Group Insolvency, prepared by the CBIRC, 10 December 2021 - available at ( and last accessed on 19 March 2024 at 1200 hours.

16. Ibid.

17. Ibid.

18. Section 2 (27) of the Companies Act, 2013 defines control as including "...the right to appoint majority of the Directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner..."

19. The CBIRC Report recommends defining significant ownership " the ability to exercise twenty-six per cent or more of the voting rights..." in the other entity, which is similar to Explanation (b) to Section 5 of the Competition Act, 2002.

See page 26 of Report of CBIRC-II on Group Insolvency, prepared by the CBIRC, 10 December 2021 - available at ( and last accessed on 19 March 2024 at 1200 hours.

20. Resolution plans will be placed before the respective CoCs of each corporate debtor

21. Under Section 19 of the IBC

22. JAK Builders Pvt. Ltd., In re, 2018 SCC OnLine NCLAT 631

23. For conglomerates going into bankruptcy, a clearer path is emerging, Mint, 22 December 2023 - available at ( and last accessed on 9 January 2024 at 1605 hours.

Originally published 1 April 2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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