Defining the ‘Group’ in ‘Group Insolvency’ : A Critical Analysis of the IBC Amendment Bill 2025

[Piyush is a student at National Law University Jodhpur.]

Almost a decade after the introduction of the Insolvency and Bankruptcy Code 2016 (IBC), it has been generally lauded to be a far more successful method of debt resolution compared to the earlier systems. However, procedural hiccups and substantive ambiguities do remain in the framework, affecting successful and timely debt resolution. The Insolvency and Bankruptcy Amendment Bill 2025 (Amendment Bill) aims to fill in some of those gaps, with one of the most significant introductions being a framework for group insolvency. Simply put, group insolvency proceedings envisage a framework wherein there is a singular insolvency proceeding is initiated against a group of companies upon default of one or more of them. This involves two aspects – procedural co-ordination, wherein the insolvency proceedings against a group of entities is handled by one common bench of the tribunal, there is a single resolution professional for all of them, a common committee of creditors, etc. It also involves a substantive consolidation – wherein the assets of the group entities are pooled together so as to maximize the a creditor recovery. While this may seem contrary to the principle of separate legal personality of companies, the underlying logic here is that there are usually significant financial linkages and economic interdependence between entities within the corporate group. Thus, even if only one of them is ex facie insolvent, it becomes pertinent to conduct insolvency proceedings against all of them in a unified manner for both procedural efficiency and maximum asset recovery.

The Working Group on Group Insolvency (2019) (Working Group) had recommended the group insolvency framework to be implemented in stages, with procedural consolidation first and substantive consolidation being the next step. The Amendment Bill aims to introduce Chapter VA in the IBC, laying down the procedural framework for group insolvency under Section 59A, including provisions such as a common bench for hearings, co-ordination between the committee of creditors and resolution professionals, formation of a committee comprising of the committee creditors of the corporate debtors, etc. The aim of this article is to scrutinize the definition of ‘corporate group’ under this section and assess its feasibility. It examines whether the definition is broad enough to include all the instances where group insolvency might be appropriate, in light of the recommendations of the working group on insolvency and the judicial decisions on down on group insolvency so far. While Section 59A only aims to lay down a framework for procedural consolidation, the article also probes into whether the definition of corporate group would be appropriate for the next step for substantive consolidation. The also article probes into how some other jurisdictions define corporate groups within their framework for group insolvency, and the learnings we can draw from them in India. 

A Critical Look at the Definition of ‘Corporate Group’ Under Section 59A

The explanation to Section 59A defines ‘group’ as two or more corporate debtors that are interconnected by control or significant ownership, and include a subsidiary, holding, and associate company as defined in the Companies Act 2013. This definition is drawn from the recommendations of the Working Group’s Report. The Working Group had recommended the same keeping in mind that the definition must take into account horizontal integration between companies (situations of cross ownership) and vertical integrations (layers of parents and subsidiaries), and felt that the definitions under the Companies Act 2013 were broad enough to encompass the same. The explanation also refers to the definition of control under the companies act, whereas significant ownership refers to right to exercise 26% or more of the voting rights. However, criticisms can be advanced against this definition on multiple grounds. 

First, the definition can be criticized for not being broad enough and lacking inclusivity. While the definition advanced by the Working Group as reflected in the Amendment Bill aims to harmonize the IBC with the Companies Act 2013, it fails to take into account or at least specify explicitly the financial linkages and economic interdependence between the corporate debtors – which becomes the rationale for going for group insolvency in the first place. Take the order of the National Company Law Appellate Tribunal (NCLAT) in the Edelweiss Asset Reconstruction Limited v. Sachet Infrastructure Private Limited for instance. The logic behind ordering a group insolvency for five corporate debtors was not because of them being in parent – subsidiary structures or having control or significant ownership of each other, but because they were in a joint consortium arrangement to develop a particular piece of land, and the project would not be completed in a timely manner if common insolvency proceedings were not initiated. Similarly, the NCLAT in Mrs Mamatha v. AMB Infrabuild Private Limited ordered two corporate debtors to be ‘treated as one’ for the purpose of insolvency proceedings due to the existence of a joint collaboration agreement between them for land development. In both cases, the focus was on joint economic action between the companies, not the holding- subsidiary or control relationships in the Companies Act 2013 nor any significant ownership. 

Second, the current definition would not be appropriate for the purposes of substantive consolidation, which is the next logical step in the group insolvency framework once the procedural consolidation setup is in place as per the Working Group’s recommendation. The NCLAT laid down the factors for ordering substantive consolidation in group insolvency proceedings in the State Bank of India v. Videocon Industries Limited and Others. Those factors focused on economic interdependence and financial linkages between the corporate debtors – ranging from common assets, common liabilities, interlacing of financial agreements, common financial creditors etc., in addition to common control and common directors. If pooling of the assets so as to maximize creditor recovery is the goal, such economic linkages become as important factors as opposed to the parent -subsidiary relationships, control, and significant ownership aspects the current definition of the group focuses on. 

Further, the silver lining of the Working Group’s recommendation at least was that parties had the option to apply before the Adjudicating Authority to determine if they form part of a group, in case of any ambiguity. Although this could have led to more litigation, at least the option before the parties to resolve ambiguities existed. However, the Amendment Bill does not include any such provision. Ideally, the definition should be drafted in such a manner that parties can ex ante decide the applicability of the same on their case. However, even though the definition under Section 59A states the word ‘include,’ what we have at present is an inclusive definition with no idea of where that inclusivity ends and no authority to determine the same.  In conclusion, the current definition of a ‘group’ is wholly inadequate due to its ambiguity, lack of inclusivity, and inappropriateness for substantive consolidation. In the next section of this paper, the approach adopted by some other jurisdictions in defining corporate groups for the purposes of group insolvency is probed into and compared to the current Indian approach. 

The Approach Adopted by Brazil, Germany, and the USA

A cursory look at the definition of ‘corporate group’ in the group insolvency frameworks of some other jurisdictions reveals that they tend to adopt a much broader approach compared to India. Brazil has a unique approach in this regard – it has different definitions for a corporate group for the purpose of procedural and substantive consolidation. For the procedural consolidation, the Brazilian Bankruptcy and Judicial Reorganization Law imports the definition of corporate group from the Brazilian Corporate Law, which defines the same as a controlling corporation and its controlled corporations, by an agreement to combine resources or efforts to achieve their respective corporate purposes or to participate in common activities or undertakings. The control can be directly or indirectly exercised by virtue of being the controlling shareholder or by an agreement. For the purposes of substantive consolidation, Article 69J of the Brazilian Bankruptcy and Judicial Reorganization Law allows the judge to order the same in a situation of confusion and difficulty to identify the assets and liabilities of the debtors. This can be done when either two out of the four following factors are met in the case – a relationship of control and dependence, the existence of cross guarantees, total or partial identity of the corporate structure, and joint action in the market between the applicants. Both these definitions focus on economic realities, financial linkages, and co-ordinated market actions between the companies in addition to just control and shareholding patterns. Further, the Brazilian approach is characterised by a great degree of flexibility – the factors for substantive consolidation are different from the procedural one and are tailored to the situations where it is appropriate, and only two of them need to be met. 

The approach by Germany is also broader. Section 3e(1) of the Insolvency Code defines a corporate group consists of legally independent enterprises that have their centre of their main interests on domestic territory and are directly or indirectly affiliated with one another due to the ability to exercise a dominant influence or a consolidation under common management. Dominant influence is broad enough to include not just majority shareholding and control, but also financial dependence, organisational integration, contractual arrangements, etc. In the USA, group companies is referred to as ‘affiliated companies’ in the U.S Bankruptcy Code. The definition of the same in Section 101 includes in addition to direct or indirect ownership of 20% or more of the voting power, and factors such as ownership or operation of the business of the debtor under a lease or agreement, or the debtor’s ownership or operation of the company’s business under a lease or agreement. The focus is not just on the shareholding, but on the actual economic reality of the business. 

Conclusion

The approaches adopted by all the jurisdictions described above would make it amply clear that all of them adopt a much broader approach than India when it comes to defining a corporate group for the purposes of group insolvencies. In addition to mere control and shareholding patterns, they are inclusive enough to consider economic factors and financial linkages – something that is completely lacking in the definition of a group under the Amendment Bill. As demonstrated by the case laws described above, group insolvency is often appropriate in situations where the focus is not on parent-subsidiary relationships, control, and significant ownership but on common business ventures and collaboration agreements. Further, the definition also remains inappropriate for situations where substantive consolidations may be warranted, again due to its omission of economic factors. Thus, the lack of inclusivity in the current definition is problematic from multiple angles, and definitely needs a legislative rethink if the overarching goal of maximizing creditor recovery inherent in the IBC is to be met via the group insolvency route.