The document discusses the concept of group insolvency in India. It notes that while the Insolvency and Bankruptcy Code 2016 provides a framework for insolvency, it does not address insolvency of groups of interconnected companies. The document examines an emerging concept of group insolvency where companies within the same corporate group undergoing insolvency proceedings can be consolidated. However, it also notes this concept faces regulatory difficulties and challenges, such as violating the principle of separate legal entities and potentially impacting solvent companies within a group. Precedents from some Indian court cases applying a group insolvency approach are discussed, along with remaining uncertainties over how this concept may be formally incorporated within India's insolvency framework.

1. Group Insolvency in India and
the way Ahead
Insolvency and Bankruptcy Code 2016 (hereinafter ‘IBC’) became a
revolutionary step by providing comprehensive, efficient and robust
mechanism in resolving corporate distressed entities. The code not only
focuses on reviving the company but also to pay off the creditors. However,
IBC has still a long road to walk as there are certain areas which are left
wide open and need to be visited by the law framers. Areas like Cross-
border Insolvency which was untouched by the framers prior to Jet Airways
case1
but as the need arose, the legislature adopted UNCITRAL’s model laws
on Cross Border Insolvency (Draft Part Z)2
. One such area which has now
presented itself before the framers is Group Insolvency. In this article the
author would focus primarily upon the concept of Group Insolvency and the
loopholes.
It has been a practice that some companies form other subsidiaries to
expand their business operations thereby forming a group structure or
entities. These entities are connected financially, functionally, or these
companies provide guarantee or collaterals to these subsidiaries. While,
these companies though inter-connected respects separate-entity status of
their subsidiaries, but such inter-linkage still creates challenges when one of
such companies become insolvent. When such cases arise, creditors often
seek to maximize their security interest by consolidating these companies.
1
Rakhi Nargolkar, Cross Border Insolvency- State Bank Of India V. Jet Airways (India) Ltd, Indian Journal Of
Corporate Law And Policy (Jan. 7, 2023), https://ijclp.com/cross-border-insolvency-state-bank-of-india-v-jet-
airways-india-
ltd/#:~:text=The%20landmark%20case%20of%20State,resolution%20plan%20for%20its%20turnaround.
2
Ministry of Corporate Affairs, ‘Overview of Cross-Border Insolvency Framework For Corporate Debtors Under
The Insolvency And Bankruptcy Code, 2016’.

2. Here, comes the concept of group Insolvency, which is simply a concept
where “corporate debtors belonging to same group of companies are
consolidated in a single resolution application to be adjudicated upon by the
Adjudicating Authorities” ("AA").3
However, introduction of this concept in IBC is very unlikely in the near
future as it poses some regulatory difficulties in its inclusion like it goes
against the concept of ‘Separate Legal Entity’, against the principle of
‘Default’, and against ‘Solvent Entities’. Even the Working Group on Group
Insolvency has also shown restrain in suggesting the introduction of group
Insolvency.4
However, NCLTs has already applied this concept in cases by
relying on its inherent power as provided in Rule 11 of the NCLT Rules,
20165
.
NCLT in State Bank of India v Videocon Industries ltd.6
is a landmark
judgment decided by Mumbai bench, where it relied upon US and UK courts
judgment to introduce the concept of Group Insolvency. In this case,
Videocon Industries Ltd. (hereinafter ‘VIL’) established some subsidiaries to
carry on the business activities of oil and natural gas, telecommunication
and electronic goods. The tribunal ordered consolidation of CIRP against 13
out of 15 companies of VIL.
The NCLT here suggested three-step test to ascertain if the Group
Insolvency can be done or not. The first step is where the NCLT took note of
the practice prevalent in US and set out 14 factors (non- exhaustive) to be
considered. Factors are:
3
Tanmay Karmarkar, Group Insolvency In India: Boon To The Creditors Or Bane To The Debtors? (2020),
https://www.livelaw.in/columns/group-insolvency-in-india-boon-to-the-creditors-or-bane-to-the-debtors-156784
(last visited Mar 25, 2021).
4
Report of the Working Group on Group Insolvency, At p. 25, available at https://ibbi.gov.in / uploads /
resources / d2b41342411e65d 9558a8c0d8bb6c666.pdf
5
Rule 11, NCLT rules, 2016.
6
[2020] 115 taxmann.com 104/159 SCL 387 (NCLT-Mum.)

3. “(i) common control; (ii) common directors; (iii) common assets; (iv)
common liabilities; (v) inter-dependence; (vi) interlacing of finance; (vii)
pooling of resources; (viii) co-existence for survival; (ix) intricate link of
subsidiaries; (x) intertwined accounts; (xi) inter-looping of debts; (xii)
singleness of economics of units; (xiii) common financial creditors: (xiv)
cross-shareholding”.7
The second step is to analyze the status of the assets and liabilities of the
companies, and if the assets and liabilities are so inter-connected that if
separate CIRP initiates or CIRP initiates only against one then the “possibility
of restructuring or the option of maximisation of value of assets become so
bleak which shall overweigh the consolidation.”8
Lastly, if the companies
even though separated can still be able to kept as going concern and pay-off
the common liability, then they need not pulled in Group Insolvency.
This trend was further followed in other judgments, naming Edelweiss
Asset Reconstruction9
case where NCLAT initiated CIRP parallel against 5
companies and in Lavasa Corp10
where the insolvency of subsidiaries were
depended upon the insolvency of the parent company, thus the tribunal
allowed group insolvency of Lavasa group.
LOOPHOLES
This concept does seem a next step towards settling the claims of the
creditors, however, it is also filled with some loopholes which will put it on
target of multiple litigations challenging its validity. Some of the challenges
while dealing with group insolvency are:
1. No fault of Solvent Entities: As aforesaid we have seen how group
insolvency stretches towards not only insolvent companies but also
companies which are not insolvent but shares assets and liabilities with
other insolvent companies. Doing this would be a violation of the right
of those solvent companies which are paying off their debt and will
also affect their business activities as no other company would like to
deal with them.
2. Does not Follow the principle of ‘Default’: The standard principle
to file an application for CIRP (as provided in Sections 7, 8 and 9 of
IBC) is to first see whether the corporate debtor has defaulted, and
then only CIRP will be initiated (this is also became discretionary
7
Id., at 78.
8
Id.
9
Edelweiss Asset Reconstruction Co Ltd v. Sachet Infrastructure Pvt Ltd & Ors, (Company Appeal (AT)
(Insolvency) No. 377 of 2019).
10
Axis Bank Ltd & Ors v. Lavasa Corp Ltd, MA 3664/2019.

4. because of Vidarbha Industries v. Axis Bank11
). However, group
insolvency does not seem to follow the ‘default’ principle as it allows
roping in those companies also which are not insolvent.
3. Does not follow Solomon judgment: Solomon case, a landmark
judgment on the principle of ‘Separate legal entity’ provided that a
company has its own entity and is separate from its founder. This
principle also provides that shareholders are not liable for the
company’s liabilities. Thus, some solvent inter-connected companies
are also a shareholder in one-another and because of group
insolvency, the question can be raised that how the creditors can claim
from shareholders.
CONCLUSION
IBC has proven to be potent tool in restructuring and resolving a company
and paying off the creditors. But as it is still in its nascent stage, it has a
long road ahead to cover which entails many new challenges such as Group
Insolvency. This concept is certainly beneficial for creditors though
detrimental to companies who are solvent but are interlinked with an
insolvent company.
The position on Group Insolvency is not yet clear as the working group on
group insolvency has still not given a green flag to it. However, there are
some precedence from US and UK which provides a possibility of it becoming
a part of IBC but the fate of Group Insolvency is still in the hands of Indian
Law Framers.
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11
2022 SCC OnLine SC 841.