India must go in for a specific ‘group insolvency’ framework as part of the Insolvency and Bankruptcy Code (IBC), said Ravi Mital, Chairperson, Insolvency and Bankruptcy Board of India (IBBI).

“There is a need to introduce group insolvency. This is despite NCLT doing several cases based on powers they have,” Mital said at an international conclave jointly organised by INSOL India and IBBI in the capital on Saturday.

Group insolvency refers to the insolvency resolution process dealing with a group of companies that are interconnected through ownership, control, or shared business operations. It aims to address situations where financial distress in one entity impacts the entire group, requiring a coordinated approach for resolution.

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Currently, group insolvency is not explicitly provided for in the initial framework of IBC. However, as India’s corporate landscape often involves complex conglomerate structures, the need for a mechanism to handle group insolvencies has become increasingly apparent.

While the IBC currently lacks explicit provisions for group insolvency, efforts are underway to integrate a framework through recommendations, judicial interpretations, and evolving practices.

Judicial Precedents

Indian courts, especially the National Company Law Tribunal (NCLT), have recognised the need for group insolvency in certain cases. In cases like Videocon Group Insolvency, the NCLT allowed the substantive consolidation of 13 Videocon group companies into a single process. The tribunal acknowledged the interlinked financial and operational structures, deeming it necessary for effective resolution.

The Insolvency Law Committee (ILC) report (2020) recognised the importance of addressing group insolvency. It suggested the introduction of a framework for procedural coordination among group entities and developing rules for voluntary and involuntary consolidation where appropriate.

The IBC is also looking to aligning its framework with international practices, such as the UNCITRAL Model Law on Enterprise Group Insolvency, to address global groups with entities in multiple jurisdictions.

Meanwhile, Mital lauded the work being done by the NCLT, noting that last year the Tribunal had approved as many as 270 resolution plans. He said IBBI was keen to reduce the workload of the NCLTs and is also trying to introduce creditor-led resolution process in the country. 

IBC Admission Delays 

Mital highlighted that all borrowers want to repay and they don’t want admission in IBC. This is because admission in IBC takes time, sometimes over a year, he added.

“We are definitely taking time for admission process, but that is because admission process in India is 99 per cent adversarial, while in developed economies it is 99 per cent non adversarial”, he said.

He also noted that admission in IBC does not involve admission in IBC alone. “It involves removing promoters from a company. Admission is not just admission. Admission is appointing Resolution Professional (RP), empowering him to take over the company,” Mital said.

IBBI chief said that in the last two years, IBBI had made regulations that will reduce litigation or clarify things. “We are a regulator and we do understand that we need to simplify things. Only if we simplify things, it will it be easy for everybody to function,” Mital added.

Mital also said that IBBI has shortlisted 18 suggestions from it’s last month colloquium. In the next few months it will be taken to logical conclusions, he said.