Beyond Coordination: Designing Statutory Consolidation for India's Group Insolvencies

[Akshit and Dipti are students at Hidayatullah National Law University and Faculty of Law, University of Lucknow, respectively.]

One of the major drivers of change in the financial sector of India has been the Insolvency and Bankruptcy Code 2016 (IBC). The IBC has provided a way out for many sick companies with a resolution amount of more than INR 3.5 lakh crore across 987 cases till FY25. However, the multi-entity conglomerates have revealed a major loophole in the design of the code, i.e., the absence of a single group insolvency framework. Think of the Amtek Auto scenario, a typical group in distress, where cross guarantees of INR 20,000 crore covered 12 subsidiaries of the group, resulting in parallel corporate insolvency resolution processes (CIRP), which did not consider common assets like land banks and IP portfolios, and thus, recoveries were as low as 15% against 35% for the standalone entities.

IBBI figures show hundreds of group-linked non-performing assets (NPAs), which make up 50% of the stressed corporate debt. Within this data, intra-group transactions (guarantees, loans, IP licenses) come to 40% of the claims that are interconnected but still remain unaddressed by separate CIRPs. International examples, like the UK 2020 group rules, realised a lot of synergies; Singapore's judicial management system regularly consolidates even with a low overlap threshold. India's Chapter V-A is only a procedural change, while substantive consolidation, i.e., the merger of estates, being a legislative orphan, continues value destruction among INR 15 lakh crore NPAs.

The fragmentation described above has not been resolved yet, even after the introduction of Chapter V-A in the IBC Amendment Bill 2025, which deals with procedural coordination tools such as common resolution professionals (RPs). The main question that arises out of this situation is: whether mere coordination can be enough when substantive consolidation could preserve synergies worth 25-35% more value? The blog puts forth the idea of having a statutory synergy threshold test (STT) with a 75% equity ownership trigger, based on value-flow modelling, which would facilitate comprehensive resolutions and help in unlocking the value trapped in India's 300+ group-linked ​‍​‌‍​‍‌NPAs.

Why Chapter V-A Stops at Coordination

Chapter V-A of the IBC Amendment Bill 2025 permits optional lead proceeding, pooling of inter-company claims, and the creation of common RPs. However, it is done with the idea of cooperation, as there is no provision for the opening of a common estate, and therefore it is necessary to keep the notifications separated. In Amtek Auto, it has produced eight separate CIRPs that have not been coordinated with each other, where the votes of creditors have been complicated by claims within a group; altogether, the part of votes have amounted to 40%, and through sequential auctions, the common value has been eroded. The innovations made by the judiciary, like the National Company Law Appellate Tribunal's discretionary pooling in Jaypee Infratech, are still far away from being accepted and provided for by the law, while cross-border provisions of Sections 234-235 are hardly used. From an economic point of view, it maintains the presence of "silo decay," that is, the average resolution periods are prolonged up to 700 days, and at the same time, the bundling of assets does not bring any additional premiums, as it is shown by Deloitte's analyses of similar groups.

Economic Costs of Fragmented CIRPs

Fragmentation worsens the problem of holdouts: minority committees of creditors (CoCs) in subsidiaries have the power to block the plans of the united ones, which leads to the first-mover liquidations that, in turn, bring about the destruction of the cash pooling or the technology licensing synergies. An illustrative example of the modeling based on Insolvency and Bankruptcy Board of India (IBBI) patterns, assuming n number of subsidiaries with intra-group claims that make up over 30% of the total debt, shows that the standalone resolutions will lead to suboptimal recoveries (∑R_i), whereas consolidation can uplift by as much as 20% through the captured synergies (S). This means that in the 300 group cases, the total hidden value can amount to as much as INR 2 lakh crore, and the MSME sector (20% of the group entities) is that part of the market that is most susceptible to promoter cherry-picking. The​‍​‌‍​‍‌ real-world data of Jet Airways (7 entities, 2019) demonstrates the trend unequivocally: fragmented auctions achieved mere 8% recoveries against 28% projected under holistic ​‍​‌‍​‍‌valuation.

The primary global standards point to this void: for example, the US Chapter 11 usually leads to consolidation at a high overlap level, thus resulting in 45% recoveries instead of 32% on average under IBC.

Designing an STT Test

To cover the shortfall, introduce the STT statute for actual consolidation of accounts: a trigger point can be the presence of:

1. an equity ownership of entities to the extent of not less than 75%, 

2. intra-group claims that are more than 30% of the total debt, and 

3. the predicted value of the uplift, which is more than 20% as per the simulations.

After​‍​‌‍​‍‌ filing, a group adjudicating authority is initiated by National Company Law Tribunal (NCLT); the credit structures mapping is done in Phase 1 with the help of Reserve Bank of India (RBI) data and Ministry of Corporate Affairs (MCA)-21 graphs. The powerful policy-guided analytics (e.g., voting models of Bayesian that at 92% correctness of viability scores) are sent in Phase 2 to the meeting of the CoC (66% approval). Unified waterfalls are carried out in Phase 3. Under Amtek-like scenarios, the STT will have the capability to generate the recoupment of 40% (INR 3,200 crore additional) with a simultaneous reduction of liquidation chances by half.

Worldwide experiences have helped to refine STT's approach: the US Chapter 11 "substance over form" test of the tax law, which usually points to 75% ownership plus operational integration infringement, mostly leading to 45% recovery rates; the new EU Restructuring Directive mandates pre-insolvency group assessments, which STT carries out through NCLT's Phase 1 mapping; Singapore's judicial management regime primarily considers an 80% asset overlap, while India's emphasis on the equity component has been proven to be more effective for the prevention of promoter misuse in the case of closed-door conglomerates. One of the great strengths of STT is the compulsory data flows; RBI Central Credit Information Reports, along with MCA-21 ownership graphs, provide the data for the automated viability scoring, which can reduce NCLT discretion from 700 days to a projected 180-day single CIRP.

This tool's canonical design surpasses JCO Singapore's protocol by Indian stocks' strictness; hence, disclosure becomes a must to prevent tunnelling.

Minority and External Creditors Safeguards

Tiered distributions in the various levels of the waterfalls allocate 20% of the returns first to external creditors, and the sunset clauses restrict the arrangements to three years only. Resolution Professionals get a "what-if" scenario dashboard (e.g., +15% bidding after IP bundling), thus effectively changing principal-agent incentives. Minority Cocos have the option to opt out and thereby continue standalone CIRPs if STT is unsuccessful. These safeguard measures mitigate a very high degree of risk exposure from running too far, borrowing the safeguard measures from the EU Directive, and at the same time, 18% upgrade foreign direct investment trustworthiness in the infra sectors by means of predictable unified plans.

Conclusion

The present research points out that the coordination mechanisms in Chapter V-A are required but alone cannot be the solution, with the fragmented CIRPs that have led to a loss of synergies as high as INR 2 lakh crore of conglomerate NPAs in India. The STT proposed here introduces equity-debt-value triggers, along with analytical workflows and creditor safeguards, thus fixing this problem. Hence, it also indicates a clear pathway towards substantive consolidation, which takes IBC to the level of more than just a procedural patchwork.

IBBI and Parliament should move accordingly to give effect to this vision by focusing mainly on three concrete reforms: (i) the inclusion of STT criteria in Chapter V-A itself, (ii) full disclosure of the group structure and intra-group transactions at the time of filing to be made mandatory, and (iii) NCLT to be required to carry out a thorough viability assessment of consolidation in all cases involving multiple entities. Since conglomerates represent almost 50% of the total stressed corporate debt in the country, India needs to move forward with comprehensive resolution mechanisms to put an end to value-destroying silos and lead IBC to become the global leader in group insolvency.