Reimagining Group Insolvency: Integrating Planning Proceedings in the Indian Regime

I. Introduction

The world has witnessed the prevalence of enterprise groups with the advent of globalisation and market integration. Particularly in India, as of March 2020, companies which are listed in the NIFTY 50 Index reported having an average of 50 subsidiaries. Despite the Ministry of Corporate Affairs’ restriction on subsidiary layers, complex corporate structures persist, creating challenges like operational linkages, group disintegration, and loss of synergies. These regulatory inconsistencies pose complex challenges in the context of insolvency such as operational and financial linkages, loss of synergies, group disintegration, and sub-optimal outcomes. In the absence of a comprehensive framework for resolution, this results in reduced asset value, inefficient treatment of creditors of solvent entities within the enterprise, and prolonged delays, among others. Therefore, a holistic framework for group insolvency becomes pertinent to prevent inconsistent adjudication and erosion of collective enterprise value.

This blog evaluates the pre-existing international approaches to group insolvency, examines the judicial intervention and the legislative response to the same. This blog argues that India's current insolvency framework is inadequate for group insolvency and that adopting the procedure for planning proceedings as proposed in the United Nations Commission on International Trade Law (hereinafter “UNCITRAL”) will enable coordinated restructuring. Additionally, the author also analyses the implementation of planning procedures in the United Kingdom.

II. International Framework on Group Insolvency

Internationally, two remedies that address complexities arising in group insolvency are procedural coordination and substantive consolidation. Procedural coordination preserves the principle of separate legal existence as laid down in Salomon v. Salomon, while also streamlining procedural elements like filing of cases, submission timeliness, and coordination among key stakeholders like insolvency professionals and creditors. Conversely, substantive consolidation dispenses with the legal principle of separate legal entity and proposes to pool all the assets and liabilities of the entities for insolvency resolution, leading to equitable treatment of creditors, particularly where the management of entities is intertwined to the extent that disentanglement is improbable, unlike the former. However, this approach has drawn significant criticism from scholars worldwide as it undermines corporate autonomy. Consequently, its application is an exceptional remedy, invoked only when a separate legal existence will frustrate the principle of equitable distribution during resolution. While these approaches are developed in other jurisdictions, their legal adoption in India remains limited, necessitating judicial innovation.

III. Legal Framework in India

The Insolvency and Bankruptcy Code, 2016 (hereinafter “IBC”), lacks a legal framework governing group insolvency. Judicial interpretation has played a pertinent role in filling the legislative vacuum. The Hon’ble NCLAT in Giriraj Enterprises V. Regen Powertech Pvt Ltd, acknowledged the jurisdiction of NCLT to consolidate insolvency proceedings of entities that form part of the same corporate group under 60(5) of IBC, 2016. Further, in State Bank of India v. Videocon Industries, the NCLT Mumbai bench evolved the twin test to determine the necessity of consolidation. The test examined certain ingredients, viz, common control, common liabilities, pooling of resources, interlacing of finance, intricate link of subsidiaries, singleness of economic units, and common pooling of resources. The court underscored that consolidation should be only denied if it results in prejudice to the stakeholders or violates the objectives of the code.

The NCLAT in Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Pvt. Ltd initiated group insolvency on the premise of a common developer and prevented allottees from further suffering. Additionally, the court also appointed a common RP for these developing groups, Thereby, through logical conclusion, we can infer that operational challenges in group insolvency, including intertwined assets and liabilities among the entities, lack of coordination between authorities and resolution professional (hereinafter “RP”), often lead to procedural delays which the court tries to prevent in this present case. The Court in the Jet Airways case emphasised that extension of timelines should not be exercised mechanically. While ad hoc measures are employed by the adjudicating authorities, the absence of codification impedes the successful resolution of group insolvency proceedings.

Recognising these challenges, the 2025 Insolvency and Bankruptcy Code (Amendment) Bill 2025 (hereinafter, “Bill”) sought to introduce a robust framework for group insolvency by including Chapter V-A. However, these efforts are not immune to criticism, as the bill does not incorporate planning proceedings introduced by the UNCITRAL Model Law on Enterprise Group Insolvency (hereinafter “MLEGI”) under section 2(g). Against this backdrop, before we delve into the conceptual understanding of the framework, it is imperative to acknowledge that the present discussion is confined to the domestic dimension of group insolvency only.

IV. Group Insolvency and Planning Proceedings

Planning proceedings are a specialised process under group insolvency resolution designed to develop a combined plan for restructuring or liquidation. This concept of planning proceeding is envisaged under MLEGI. Under Article 2(g), for proceedings to qualify as a planning proceeding in a domestic dispute, two conditions must be satisfied:

1. The proceedings must involve the participation of more than one group member for implementing the group insolvency solution

2. A group representative must be appointed, who will facilitate coordination among the group members.

This indicates that the planning proceeding is an insolvency proceeding of one of the group members in which one or more groups of the enterprise voluntarily participate. A group insolvency solution is the objective of these proceedings. It may pertain to the reorganisation, sale or liquidation of assets or operations of the companies to protect and enhance the combined value of the group.

The distinction between planning and the main group insolvency proceeding is both conceptual and functional. A main group insolvency proceeding is initiated in the jurisdiction where the debtor has its centre of main interest, and its scope is confined to the default of a corporate debtor only. Under the Indian insolvency regime, there is no parallel regulatory framework like Article 2(g) of MLEGI that addresses procedural coordination during insolvency. Recently, through judicial intervention, there have been group insolvency proceedings, but the efforts remain constrained. Under the Indian insolvency regime, the rigid distinction between the parent and the subsidiaries, coupled with the exclusion of the related entities from participation in the insolvency process, undermines the revival of the corporate debtor. Through the incorporation of planning proceedings within the domestic framework, the insolvency process can become more proficient. Such coordination facilitates the revival of the CD owing to the efficient management of the assets between subsidiaries and the parent company.

V. Analysis

In contrast to the Indian framework, planning proceedings operate as a coordinated framework that envisages the restructuring of the multiple entities in the enterprise group, which may or may not be going through the insolvency process. The court is also authorised to approve inter-company financing, grant injunctions, or order the central administration of actions. This preserves the going-concern value of not only the insolvent entities but also curbs the domino effect of structural and functional complications post-insolvency on the related entities of the group. The model law also proposed a single RP that serves multiple affiliates, which ensures better coordination and long-term profit generation of the related entities, which may be solvent but are related to the insolvent entity.

The MLEGI states that planning proceedings generally transform into a main proceeding, but it may also exist as a separate but related proceeding. In contrast to the existing Indian IBC framework, which restricts the participation of insolvent entities, thereby excluding related group entities which could contribute to the resources for a collective recovery. The adoption of planning proceedings offers several potential benefits within the domestic insolvency framework. The Insolvency and Bankruptcy Board of India constituted a working group on Group Insolvency vide office order No. IBBI/CIRP/GI/2018-19/001 observed that the separate insolvency of the group enterprise reduces credit value. Thus, it is recommended to plan proceedings to maximise assets. Further, the proceeding also reduces duplication as it coordinates multiple CIRPs through a single proceeding. This avoids separate hearings, conflicting resolutions and promotes better coordination among the related entities. It also incentivises stakeholders such as creditors to lend more if they know that intercompany claims can be filed. Adopting the planning model would therefore mitigate the domino effect of the group distress.

Hence, the Indian legislature should consider incorporating a tailored framework by adopting planning proceedings within the domestic insolvency framework, consistent with Indian standards, and by enlisting the factors for commencing the proceedings, taking the model law as the reference point. However, authorities must avoid the verbatim adoption of the MLEGI. The law must also authorise the NCLT to grant relief under the planning proceeding. The legislature may refer to Article 26 MLEGI by requiring separate approval from a member of the CoC. Any plan approved under the planning proceeding should be binding on all the participants only upon sanction by the NCLT. Specifically, the legislature must recognise the MLEGI. The logical sequitur is that it will align Indian law with international standards, leading to better adjudication, cross-border insolvency cooperation, coordinated restructuring, and prevent value erosion from fragmented proceedings.

VI. Planning Proceedings in the UK

The United Kingdom is among the few jurisdictions actively moving to implement MLEGI, particularly in planning proceedings. The proposed framework authorises a group representative empowered to seek relief, for instance, injunctions, etc. to protect the value of the group. Pertinently, the framework allows participation of foreign creditors without requiring a parallel proceeding.

The mechanism makes international group insolvency efficient by reducing the time required for adjudication. Coordinated planning proceedings impede parallel adjudication, which otherwise consumes significant time to deliver justice. Such delays also undermine one of the core objectives of the code, namely the maximisation of assets. The applicable law for creditors will be the one that would have applied if the insolvency proceedings had been commenced. The UK also considered examining the interaction between MLEGI and Section 26A of the Companies Act 2006, which provides for restructuring plans. The government remarks that, although the definition of the planning proceeding is broad, the model did not expressly commit to adding restructuring plans, which may be integral to the successful implementation of the proceeding.

Despite the proactive stance, the proposed implementation reflects anomalies. A primary concern arises in relation to Article 5 of MLEGI, which requires the designation of a competent authority. The UK consultation ‘The future of insolvency regulation: Government Response’ suggested that an Accountant in bankruptcy could potentially act as an authority. However, they have clarified that they don’t intend to create new institutional bodies for this purpose. To date, it is ambiguous which institution or court will be entrusted with the statutory function under Article 5. Further planning proceedings generate inconsistencies in creditor treatment across jurisdictions. While the model law leaves it to the domestic court to manage the conflict. There have been no guidelines from the appropriate authority.

VII. Conclusion

The growing pertinence of group insolvency has exposed the limitations of the code in addressing the challenges to financial distress. Judicial interventions have tried to fill the vacuum, with little success owing to the problems of value erosion and loss of operational synergies, among others. In this context, the UNCITRAL model law provides a unique solution through the introduction of planning proceedings. It preserves the dominant legal principle of separate legal existence while also facilitating collective restructuring without adopting substantive consolidation. Therefore, it necessitates the statutory introduction of planning proceedings with tailored domestic safeguards. Additionally, the court should be empowered to grant interim relief, including appointing a group representative, to ensure information symmetry across group entities. A calibrated implementation of the planning process will enhance value maximisation and strengthen creditors' confidence in the Indian insolvency regime.

About the Author

Kriti Mehta is a third-year law student at Institute of Law, Nirma University.

Editors

Abhimanyu Vyas, Senior Editor

Megha Chhari, Assistant Editor