Group Insolvency Under The Insolvency And Bankruptcy Code: From Judicial Innovation To Legislative Codification

The Insolvency and Bankruptcy Code, 2016 ("Code") has always aimed to balance the interests of creditors and debtors while ensuring time-bound resolution of distressed assets. Each corporate debtor is treated as a separate legal entity however, as the Code evolved, new challenges emerged, particularly in cases involving groups of companies operating as single economic entities or where businesses were intertwined and interdependent. In such situations, the insolvency of one company often had cascading effects on its subsidiaries, associates or holding entities. Treating these entities separately under the insolvency framework not only undermined value maximisation but also hindered the prospects of successful revival, leading to a situation where group insolvency appeared to be the only optimal solution.

Although, the group insolvency is a natural extension of the Code's philosophy, but the current framework does not contain any express provisions dealing with group insolvency. Nevertheless, this gap was partially addressed by tribunals and courts, which through various judicial precedents and innovative interpretations, began recognising the interconnected nature of corporate groups. In fact, time and again the expert committees have examined the issue, and produced detailed recommendations advocating a structured mechanism for group insolvency.

Finally, in August 2025, the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 ("2025 Amendment") was introduced to insert a new framework under Chapter VA, formally proposing the codification of the law on group insolvency. Such statutory recognition was the need of an hour to address legal uncertainty and procedural inefficiencies in handling insolvency of corporate groups under the Code, by providing a clear, codified framework for coordinated group insolvency resolution. Once enacted, this amendment is expected to bridge the existing gap in in resolving distress within interconnected corporate entities.

This article traces the journey of group insolvency in India, from the early policy discussions and judicial developments to the proposed 2025 Amendment.

Early Discussions and Reports

The first significant effort to examine the issue emerged in Working Group Report on Group Insolvency in 2019 ("2019 Report"). The 2019 Report acknowledged that several Indian companies operate as a part of corporate groups comprising holding, subsidiary and associate entities structures.

In practice, these entities often share resources, liabilities management and operations. Recognising these realities, the 2019 Report proposed procedural coordination measures including the filing of joint applications, appointment of a common insolvency professional and the possible constitution of a group creditors' committee. Further, the 2019 Report recommended a phased implementation of group insolvency whereby, Phase I, proposed a trial framework limited to domestic corporate groups, focusing on procedural coordination and Phase II, envisaged eventual introduction of cross-border group insolvency and substantive consolidation, under which in appropriate cases, group entities may be treated as a single economic unit. The Working Group, however, carefully restricted the proposed framework only to such entities that had actually defaulted are proceedings for insolvency commencement are pending before the Adjudicating Authority and had expressly excluding solvent group entities from its ambit. It also recognised the risks of misuse and proposed safeguards to prevent perverse conduct, including measures addressing fraudulent trading and the possible subordination of claims in cases involving fraud.

Building upon the above recommendations, the Committee of Experts on Insolvency and Bankruptcy Law (CBIRC-II) in 2021, reaffirmed the need for a voluntary and enabling group insolvency framework. The committee also recommended a phased approach, beginning with domestic groups before extending the framework to cross-border situations. It emphasised that while joint proceedings and procedural coordination should be permitted, substantive consolidation namely, the pooling of assets and liabilities of group entities should remain an exceptional remedy to be exercised at judicial discretion. This reflected a cautious legislative philosophy where the law would first experiment with procedural measures, leaving substantive consolidation to develop gradually through case law.

It is noted that both reports underscored a common theme, which is to ensure efficiency, maximise value and safeguard creditor interests. Indian Insolvency regime must develop a mechanism to effectively deal with group insolvencies. At the same time, they also stressed that such evolution should be careful and incremental, avoiding blanket rules that might erode the foundational principle of separate legal personality of corporate entities.

Judicial Innovation before the Amendment

Even in the absence of any express statutory framework, Indian courts and tribunals stepped in to address the urgent need for meaningful resolution of such interconnected entities. The judiciary acknowledged that several corporate groups were so intricately connected (financially, operationally and administratively) that resolving them separately would frustrate the Code's objectives as separate proceedings in such cases risked value erosion, duplication of processes and inconsistent outcomes.

A significant judicial development in this regard began with State Bank of India and Another vs. Videocon Industries Limited and Others ¹ ("Videocon Judgment"), wherein the National Company Law Tribunal ("NCLT"), Mumbai Bench, allowed substantive consolidation of thirteen out of fifteen Videocon group companies. NCLT noted that certain essential ingredients must be examined before arriving at a determination on consolidation. These factors are as follows:-

• Common control
• Common directors
• Common assets
• Common liabilities
• Inter- dependence
• Inter-lacing of finance
• Pooling of resources
• Co-existence for survival
• intricate link of subsidiaries
• inter-twined of accounts
• inter-looping of debts
• singleness of economics of units
• cross shareholding
• Inter dependence due to intertwined consolidated accounts
• Common pooling of resources, etc.

The above judgment marked the first instance in which a structured detailed test for substantive consolidation was mentioned. The Videocon Judgment laid down guiding parameters for determining when consolidation of group entities would be legally justified and commercially expedient.

Pursuant to the evolving jurisprudence, the National Company Law Appellate Tribunal ("NCLAT"/ "Appellate Tribunal") in Edelweiss Asset Reconstruction Co. vs. Sachet Infrastructure Pvt. Ltd.² ("Edelweiss Judgment"), directed simultaneous resolution of five companies forming part of a real estate group. The Appellate Tribunal appointed a common resolution professional and mandated preparation of a consolidated resolution plan to ensure that the township project was completed as a whole. This decision was one of the earliest judicial recognitions that a coordinated group insolvency approach was necessary to safeguard the interests of the homebuyers and creditors., particularly in large scale real estate developments, where projects were structured through multiple special purpose entities.

Another significant decision was rendered in the case Axis Bank v. Lavasa Corporation Ltd.³ ("Axis Bank Judgement"), wherein NCLT ordered consolidated the Corporate Insolvency Resolution Process ("CIRP") of Lavasa Corporation and its subsidiaries. it was observed by the NCLT that conducting separate proceedings would undermine value maximisation, particularly when the solvency of the subsidiaries was dependent on the parent company.

Further, NCLAT in Radio Khaitan Ltd. vs. BT and FC Pvt. Ltd. and Ors.⁴ allowed consolidation of CIRP on the ground that the business of the Corporate Debtors i.e. BT & FC Pvt. Ltd. and Bangalore Dehydration & Drying Equipment Company Pvt. Ltd. were inextricably interlinked and intertwined. The Appellate Tribunal relied on the parameters laid down in Videocon Judgment (supra) while ordering for consolidation of CIRP.

Similarly in Administrator of Srei Infrastructure Finance Limited vs. Srei Equipment Finance Ltd.,⁵ NCLT, Kolkata Bench, allowed consolidation of Srei Infrastructure Finance Limited and its wholly-owned subsidiary i.e. Srei Equipment Finance Limited.

In Giriraj Enterprises vs. Regen Powertech Pvt. Ltd.,⁶ NCLAT after recognising the functional and financial interdependence of both the entities, allowed consolidation of Regen Powertech Private Limited (RPPL) and Regen Infrastructure and Services Private Limited (RISPL) wherein RISPL being wholly owned subsidiary of RPPL.

In Mamatha vs, AMB Infrabuild Pvt. Ltd.,⁷ NCLAT held that if two corporate debtors collaborate and form an independent corporate unit entity for developing the land and allotting the premises to its allottee, then the application under Section 7 will be maintainable against both of them jointly and not individually against one or other.

In fact, Hon'ble Supreme Court in Bikram Chatterji v. Union of India ⁸, treated forty companies of the Amrapali Group as a single unit after finding evidence of diversion of funds, and consequently froze their assets and bank accounts. Recently, in Satindra Singh Bhasin vs. Col Gautam Mullick and Ors.,⁹ the Supreme Court upheld orders passed by NCLT & NCLAT allowing a joint section 7 application filed against two real-estate entities.

These judicial pronouncements demonstrate a consistent pattern, where corporate groups functioned as single economic unit, the courts and tribunals were willing to pierce the corporate veil and allow coordinated or consolidated insolvency processes in order to preserve value and protect stakeholder interests.

The 2025 Proposed Amendment: Codification of Group Insolvency

After years of judicial experimentation and successive expert committee reports, the 2025 Amendment finally proposes to codify the framework for group insolvency. The proposed amendment seeks to insert Chapter VA, dealing with group insolvency, under which Section 59A is proposed to be introduced. This shall empower the Central Government to prescribe rules for initiating proceedings related to coordination and cooperation among corporate debtors forming part of a group under the provisions of the Code. The provision, inter alia contemplates:

• Creation of a common bench for related proceedings and transfer of all matters to that bench.
• Appointment of a common insolvency professional to coordinate the processes.
• Formation of a committee of creditors comprising representatives from the CoCs of the group members.
• Binding agreements for coordination among debtors and creditors, with enforcement through the adjudicating authority.
• Rules for allocation of costs incurred in such coordination.

The 2025 Amendment adopts a broad definition of "group", encompassing holding, subsidiary and associate companies as well as entities connected through control or significant ownership. Importantly, the term "significant ownership" is defined as holding twenty-six per cent or more voting rights.

The proposed amendment also clarifies that framework is procedural and voluntary in nature and it does not mandate. substantive consolidation i.e. the pooling of assets and liabilities. In essence, statutory scheme facilitates structured coordination. without going so far as to merge the entities into one. The rational underlying group insolvency is that enhanced coordination among group entities will improve efficiency, reduce costs and maximise value for stakeholders. The framework also envisages the appointment of a group coordinator to facilitate communication and information sharing. By institutionalising what courts were already doing on an ad hoc basis, the 2025 Amendment introduces clarity, uniformity, and greater predictability into the insolvency regime governing corporate groups.

Indian Jurisprudence has laid down a strong foundation

The trajectory of Indian jurisprudence indicates that the courts were often ahead of the legislature, in addressing the complexities of group insolvency. The judgments discussed clearly demonstrate how substantive consolidation and coordinated proceedings could save value in group insolvencies. A consistent theme emerging from these decisions is the recognition that the economic reality of group structures frequently diverges from their formal legal character. While the Companies Act preserves the separate legal identity of each company, insolvency jurisprudence evolved to address situations where such separation was artificial and value-destructive. The 2025 Amendment seeks to accord statutory recognition to these judicial principles, albeit in a calibrated and procedurally limited form under the Code.

Way Forward

The evolution of group insolvency under the Code, reflects a gradual yet, decisive progression. What began as judicial innovation in cases such as Videocon Judgment (supra) and Edelweiss Judgment (supra) has now culminated in legislative recognition through the 2025 Amendment. Expert committee reports laid the intellectual foundation by emphasising efficiency, value maximisation and creditor protection, while cautioning against overreach. In the interregnum, courts and tribunals bridged the statutory vacuum by permitting coordinated and, in appropriate cases, consolidated proceedings.

Thus, in many ways, the 2025 Amendment now provides for a formal procedural framework for such coordination, thereby reducing uncertainty and enhancing predictability. However, certain challenges remain unresolved. The operational effectiveness of Chapter VA will depend significantly on the rules which will be notified, particularly with respect to joint applications, conflict resolution and cost allocation. Secondly, substantive consolidation has not been proposed in the 2025 Amendment and continues to rest within judicial discretion, which may lead to divergent outcomes unless guided by clearer statutory principles. Lastly, cross-border group insolvency remains outside the present framework, which is significant in an increasingly globalised economy where many Indian corporate groups have subsidiaries abroad. Addressing such cross-border complexities will require India to adopt an appropriate legal framework.

It is also important that creditor interests are carefully balanced. While coordination may maximise overall value, it could potentially prejudice creditors of financially stronger group entities if they are compelled to participate in joint proceedings with weaker entities. Accordingly, adequate safeguards will be essential to prevent such outcomes.

In essence, the 2025 Amendment marks both the end of legislative silence and the beginning of a structured regime for group insolvency. Its long term success will depend upon careful rule making, balanced judicial interpretation and continued sensitivity to creditor interests, so that efficiency and value maximisation are achieved without undermining the principle of separate corporate personality.

Footnotes

1. 2019 SCC OnLine NCLT 745

2. 2019 SCC OnLine NCLAT 592

3. MA 3664/2019 in C.P.(IB)-1765, 1757 & 574/MB/2018

4. Company Appeal (AT)(Insolvency) No.919/2020

5. IA (IB) No.1100/KB/2021 in CP (IB) No.295/KB/2021

6. Company Appeal (AT) (CH) (Ins) No. 323/2021

7. Company Appeal (AT) (Insolvency) No. 155 of 2018

8. Writ Petition(s)(Civil) No(s).940/2017

9. Civil Appeal No. 13628 of 2025

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.