New Paradigms for Group and Cross-Border Insolvency under the IBC Amendment Bill 2025

[Swayam is a student at National Law University Odisha.]

On 12 August 2024, the Government of India introduced the Insolvency and Bankruptcy Code (Amendment) Bill 2025 (Bill). The Bill represents a significant milestone for India's insolvency resolution framework. The inclusion of a comprehensive framework for group insolvency and cross border insolvency can be considered the most important reform brought through the bill. These reforms could act as an important driver for India's shift from a domestic focused insolvency regime to one that recognizes the complexities of modern corporate structures and globalized business operations. 

The Bill emerges as a decisive intervention as a result of years of judicial innovation and policy development. In the absence of specific provisions in the Insolvency and Bankruptcy Code 2016 (Code) for a domestic or cross border mechanism, courts have relied upon creative interpretation of existing provisions of the Code to deal with group insolvency cases. The proposals in the Bill codifying this judicial innovation happen to be an important step in order to position India in alignment with global standards in insolvency and bankruptcy.

The Genesis of Group Insolvency Framework

The basis for India's group insolvency regime was established by judicial pragmatism and existing provisions of the Code. The National Company Law Tribunal (NCLT) in its decision in Venugopal Dhoot v. State Bank of India and Others was the first timid step toward acknowledging the interconnectedness of group companies. The NCLT in its judgement referenced the potential for conflicting orders and the lack of efficiency of having separate proceedings and therefore directed that the insolvency applications for different Videocon group companies be determined by the same adjudicating authority.

This procedural coordination evolved into something far more substantive in State Bank of India v. Videocon Industries Limited and Others. NCLT’s order in the said case represented a paradigm shift, directing the substantive consolidation of assets and liabilities of 13 Videocon companies. The tribunal's reasoning was grounded in commercial reality: common control, common directors, common assets, interdependence of operations, interlacing of finance, and what it termed the “singleness of economics of units”.

The Videocon precedent established what the Supreme Court of India would later describe as the "single economic entity" principle. This judicial doctrine recognized that where corporate groups operate with such integration that their separate legal personalities become commercially meaningless, the law must adapt to economic substance rather than remain bound by legal form.

The National Company Law Appellate Tribunal further refined this approach in Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Private Limited and Others. The appellate authority ordered simultaneous corporate insolvency resolution processes for 5 companies under a single Resolution Professional, explicitly acknowledging that unless all companies were resolved together, the township development project would remain incomplete, and creditors would suffer. 

The IBBI Working Group Recommendations

Recognizing the need for a structured approach, the Insolvency and Bankruptcy Board of India constituted a Working Group on Group Insolvency under the chairmanship of Mr UK Sinha in January 2019. The Working Group's September 2019 report provided a comprehensive framework that would form the intellectual foundation for the 2025 amendments. 

The Working Group identified four critical facets of group insolvency: procedural coordination among stakeholders, substantive consolidation in limited circumstances, rules to address perverse behavior within corporate groups, and clear criteria for determining group interconnection. Significantly, the Working Group was deliberately cautious in its approach acknowledging that substantive consolidation is, in its words, "an extreme form of relief" and should be approved only in limited circumstances. It suggested that substantive consolidation can only be allowed where the companies function as a single economic unit or where separation may significantly increase costs or prejudice creditors. This nuanced understanding of corporate separateness and its connection with economic reality can be influential in shaping the Bill. 

The 2025 Framework: Codifying Innovation

Chapter V-A: Group insolvency

The Bill introduces Chapter V-A, titled “Group Insolvency” which represents the formal codification of years of judicial pragmatism and regulatory reports. Section 59A empowers the Central Government to prescribe rules for conducting coordinated insolvency proceedings where multiple group companies have defaulted. 

The framework's structure reflects the Working Group's phased approach. The primary emphasis is on procedural coordination: common benches for related proceedings, coordination between committees of creditors (CoC) and insolvency professionals, and appointment of common insolvency professionals to facilitate coordination. This approach respects the separate legal personality of group companies while enabling efficient collective resolution. 

The definition of “group” under the new framework is comprehensive, encompassing companies interconnected by control or significant ownership, including holding, subsidiary, and associate companies as defined under Section 2 of the Companies Act 2013. “Control” is broadly defined to include the right to appoint majority directors or key managerial personnel, control of management or policy decisions, and control exercised through shareholding, agreements, or other arrangements. 

Significantly, the framework provides for “significant ownership” at a relatively low threshold of 26 percent voting rights. This reflects an understanding that control in modern corporate structures can be exercised with minority shareholdings, particularly in widely-held companies. The inclusion of control exercised "directly or indirectly, including by virtue of their shareholding, management rights, ownership interest, shareholders agreements, voting agreements" demonstrates sophisticated appreciation of contemporary corporate governance mechanisms. 

Enforcement through binding agreements

One of the distinguishable aspects of the group insolvency framework is the provision for enforceable coordination agreements. The proposed Section 59A(2)(e) gives power for creating agreements that outline measures to coordinate and synchronize different aspects of group insolvency proceedings. These agreements, once approved by participating companies and their CoC, become binding, with adjudicating authorities having the power to issue necessary implementation orders.

This mechanism can help fill a significant gap in international group insolvency practice in India. Unlike the judicial practice of comity and cooperation of court systems, this new framework articulates legally binding coordination mechanisms. In addition, it addresses cost allocation, which is a heavy burden during group insolvency proceedings. The rules may permit for, “the costs incurred for taking measures to coordinate the insolvency proceedings of the corporate debtors that are a part of a group” as “the treatment of costs incurred”. The legislature’s recognition that coordination actions take time and money and there needs to be a legitimate way to allocate these costs indicates the recognition given to practical realities of the implementation challenges involved in the process.

Conclusion

The Bill's establishment of group insolvency and cross-border insolvency frameworks is significant as it illustrates India's evolution as a sophisticated player in the global insolvency sector. The group insolvency framework's recognition that group insolvency is about coordination rather than consolidation reflects a nuanced understanding of the need for creditor protection and a group's internal dynamics. 

Further, it balances efficacy with creditor protection by codifying elements for coordination while allowing for entity separateness as a starting point. Similarly, with respect to the cross-border insolvency framework, India will now be able to pursue genuine participation in a cooperative international insolvency framework while balancing the need for domestic protection. With the international business environment having been normalized to one of complex global business forms, and increasingly diversified cross-border investing, the group insolvency and cross-border insolvency frameworks will provide the framework for an essential infrastructure to facilitate modern corporate insolvency practice. 

Ultimately, the Bill attempts to provide a significant boost to the evolution of insolvency law in India. These two frameworks dealing with the realities of modern corporate structures and internationalized business escapades in particular place Indian insolvency law to take its rightful place in international practice. The challenge ahead now is one of implementation - turning the legislative vision into practical legal mechanisms to further the core objectives of the Code: maximization of value, protection of stakeholders and economic efficiency.