BY KRITI MEHTA, THIRD- YEAR STUDENT AT NIRMA UNIVERSITY, AHMEDABAD
INTRODCUTION
The world has witnessed the prevalence of enterprise groups with the advent of globalisation and market integration. Particularly in India, as of March 2020, companies which are listed in the NIFTY 50 Index reported having an average of 50 subsidiaries. Despite restrictions by the Ministry of Corporate Affairs on subsidiary layers, complex corporate structures persist, creating challenges like operational linkages, group disintegration, and loss of synergies. In the absence of a comprehensive framework for resolution, it results in reduced value of the asset, inefficient treatment of creditors of solvent entities within the enterprises, prolonged delays, among others. Therefore, a holistic framework for group insolvency becomes pertinent to prevent inconsistent adjudication and erosion of collective enterprise value.
Firstly, the blog evaluates the pre-existing international approaches to group insolvency and examines the legislative response of the UK to the same. Secondly, the blog argues that India’s current insolvency framework is inadequate for group insolvency and adopting the procedure for planning proceedings as proposed in the United Nations Commission on International Trade Law (‘UNCITRAL’) will enable coordinated restructuring. Against this backdrop, it is imperative to acknowledge that the present discussion is confined to the domestic dimension of group insolvency only
INTERNATIONAL FRAMEWORK ON GROUP INSOLVENCY
Internationally, two remedies address complexities arising in group insolvency. These are procedural coordination and substantive consolidation. Procedural coordination preserves the principle of separate legal existence as laid down in Salomon v. Salomon. Additionally, it also streamlines procedural elements like the filing of cases, timelines of submissions, and coordination among key stakeholders like insolvency professionals and creditors. Conversely, substantive consolidation dispenses with the legal principle of separate legal entity by pooling all the assets and liabilities of the entities for insolvency resolution. This approach leads to the equitable treatment of creditors, particularly where the management of corporate entities is intertwined and meaningful disentanglement is not probable.
However, this approach has drawn significant criticism from scholars worldwide as it undermines corporate autonomy. These companies have separate legal existence, but they are a single economic unit; therefore, the court has to lift the corporate veil and give precedence to the single economic entity principle. Consequently, its application is an exceptional remedy, invoked only when a separate legal existence will frustrate the principle of equitable distribution during resolution. While these approaches are developed in other jurisdictions, their legal adoption in India remains limited, necessitating judicial innovation. In the Indian insolvency regime, the doctrine of a separate legal entity is deeply rooted. This necessitates the adoption of procedural coordination between the corporate entities, since the substantive coordination will lead to pooling of assets and liabilities. This undermines the principle of separate legal existence. Thereby, procedural co-ordination aligns with the Indian jurisprudential analysis without unsettling the settled doctrines of separate legal existence and single economic entity principle.
LEGAL FRAMEWORK IN INDIA
The Insolvency and Bankruptcy Code, 2016 (‘IBC’), lacks a legal framework governing group insolvency. Judicial interpretation has played a pertinent role in filling the legislative vacuum. In Embassy Property Developments Private Ltd v. State of Karnataka, the Court acknowledged the jurisdiction of the National Company Law Tribunal (‘NCLT’) to consolidate insolvency proceedings of entities that form part of the same corporate group under 60(5)(c) of IBC, 2016. Further, in State Bank of India v. Videocon Industries, the NCLT Mumbai bench evolved the twin test to determine the necessity of consolidation. The test examined certain ingredients, viz, common control, common liabilities, pooling of resources, interlacing of finance, intricate link of subsidiaries, singleness of economic units, and common pooling of resources. The court underscored that consolidation should be denied only if it is prejudicial to the stakeholders or violates the objectives of the code.
The judiciary further shed light on the operational difficulties inherent in the group insolvency process through the Jet Airways case. The Apex court highlighted operational challenges in group insolvency, including intertwined assets and liabilities among the entities, a lack of coordination between authorities and the resolution professional (‘RP’), which leads to procedural delays. While the ad hoc measures are employed by the adjudicating authorities, the absence of codification impedes the successful resolution of group insolvency proceedings.
Recognising these challenges, the 2025 Insolvency and Bankruptcy Code (Amendment) Bill 2025 (‘Bill’) attempted to introduce a robust framework for group insolvency by including Chapter V-A. However, these efforts are not immune to criticism as the Bill does not incorporate planning proceedings, as introduced by the UNCITRAL on Enterprise Group Insolvency (‘MLEGI’) under section 2(g).
GROUP INSOLVENCY AND PLANNING PROCEEDINGS
Planning proceedings are a specialised process under group insolvency resolution designed to develop a combined plan for restructuring or liquidation. This concept of planning proceeding is envisaged under MLEGI. Under Article 2(g), for proceedings to qualify as a planning proceeding in a domestic dispute, two conditions must be satisfied:
- The proceedings must involve the participation of more than one group member for implementing the group insolvency solution; and
- A group representative must be appointed, who will facilitate coordination among the group members.
This indicates that the planning proceeding is an insolvency proceeding of one of the group members in which one or more groups of the enterprise voluntarily participate. A group insolvency solution is the objective of these proceedings. It may pertain to the reorganisation, sale or liquidation of assets or operations of the companies to protect and enhance the combined value of the group.
The distinction between planning and the main group insolvency proceeding is conceptual as well as functional. A main group insolvency proceeding is initiated in the jurisdiction where the debtor has its Centre of Main Interest, and its scope is confined to the default of a corporate debtor only. Under the Indian insolvency regime, there is no parallel regulatory framework like Article 2(g) of MLEGI that addresses procedural coordination during insolvency. Recently, through judicial intervention, there have been group insolvency proceedings, but the efforts remain constrained.
ANALYSIS
Under the Indian insolvency regime, the rigid distinction between the parent and the subsidiaries, coupled with the exclusion of the related entities from participation in the insolvency process, undermines the revival of the corporate debtor. Through the incorporation of planning proceedings within the domestic framework, the insolvency process can become more proficient. Such coordination facilitates the revival of the CD owing to the efficient management of the assets between subsidiaries and the parent company.
In contrast to the Indian framework, planning proceedings operate as a coordinated framework which envisages the restructuring of the multiple entities in the enterprise group. The court is authorised to approve inter-company financing, stay of actions or central administrative actions within a group. This preserves the going concern value of the insolvent entities, and also curbs the domino effect of structural and functional complications post-insolvency on the related entities of the group.
The model law states that planning proceedings generally warrant the participation of related solvent entities through the appointment of a single RP that serves multiple affiliates, and ensures better coordination and long-term profit. This is in contrast to existing Indian insolvency framework, which restricts participation to insolvent entities only, foreclosing the possibility of contribution of resources for a collective recovery. The adoption of planning proceedings offers several potential benefits for the domestic insolvency framework. The Insolvency and Bankruptcy Board of India working group observed that the separate insolvency of the group enterprise reduces credit value. The consolidation of multiple Corporate Insolvency Resolution Processes (‘CIRP’) into one planning proceeding leads to maximisation of assets, reduction in duplication, prevents conflicting resolutions and leads to better coordination. It also incentivises stakeholders, like the creditors, to lend more finance as they can file inter-company claims.The planning model would therefore mitigate the domino effect of the group distress.
Hence, the Indian legislature may warrant examination of a tailored framework by defining planning proceedings within the domestic insolvency framework, consistent with Indian standards. The authorities must avoid verbatim adoption of the model law as evidenced by the conundrum of interpretive debates on Section 34, Arbitration and Conciliation Act 1996, that arose during Gayatry Balwaswamy’s judgment.
To incorporate domestic needs, the law must also authorise the NCLT to grant relief under the planning proceeding. The legislature may take reference to MLEGI, Article 26, which requires separate approval from a member of the CoC. Any plan approved under the planning proceeding should be binding on all the participants, upon sanction by the NCLT. When the international model law is calibrated to align with domestic needs, it will lead to better adjudication, coordinated restructuring, and the prevention of value erosion from fragmented proceedings.
PLANNING PROCEEDINGS IN THE UK
The United Kingdom is among the few jurisdictions which actively implemented MLEGI, particularly planning proceedings. The proposed framework authorises a group representative to seek relief, for instance, injunctions, stays on the order, etc, to protect the value of the group. Pertinently, the framework allows participation of foreign creditors without necessitating parallel proceedings. The applicable law for creditors will be the one that would have applied if the insolvency proceedings had been commenced. The UK also considered examining the interaction between MLEGI and 26A of the (UK) Companies Act 2006, which provides for restructuring plans. The government remarks that despite the broad definition of planning, the model did not incorporate restructuring plans, which may be pertinent for the successful implementation.
Notwithstanding the proactive stance, the proposed implementation by the UK parliament reflects anomalies. A primary concern arises under Article 5 of MLEGI, which mandates the designation of a competent authority. Although the UK consultation suggested that an accountant in bankruptcy could potentially act as an authority, they have clarified that they don’t intend to create new institutional bodies. Hence, it is ambiguous which institution or court will be entrusted with the statutory function under Article 5. This institutional indeterminacy has direct repercussions on the creditor treatment, as fragmented adjudicatory treatment creates divergent approaches that undermine the efficiency of the proposed law. While the model law leaves it to the domestic court to manage the conflict, there have been no guidelines from the appropriate authority.
CONCLUSION
The growing pertinence of group insolvency has exposed the limitations of the IBC in addressing the challenges to financial distress. Judicial interventions have tried to fill the vacuum, with little success owing to the problems of value erosion and loss of operational synergies, among others. In this context, the MLEGI provides a unique solution through the introduction of planning proceedings. It preserves the dominant legal principle of separate legal existence while also facilitating collective restructuring without adopting substantive consolidation. Therefore, it necessitates the statutory introduction of planning proceedings with tailored domestic safeguards. Additionally, the appellate court should be empowered to grant interim reliefs including appointing a group representative, to ensure information symmetry across group entities. A calibrated implementation of the planning process will enhance value maximisation and strengthen creditors’ confidence in the Indian insolvency regime.
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