IBC -Principle of taking over Corporate Debtor under Resolution Plan, will also apply to taking over by way of acquisition plan as per 'clean slate' principle of IBC: HC (See 'Legal Desk') FEMA -Every Adjudicating Authority shall have same powers of Civil Court which are conferred on Appellate Tribunal under Section 28 (2): TRIBUNAL (See 'Legal Desk') Ministry of Health celebrates two years of Tele MANAS (See 'Corp Brief') Arbitration -Court has limited jurisdiction under section 34 of 1996 Act and cannot scrutinize decision of Arbitrator: HC (See 'Legal Desk') MoS calls for synergy in Science Ministries to maximize impact (See 'Corp Brief') Competition Act-Intervention of High Court at stage of order under Section 26(1) is pre-mature and ought to have waited for CCI to come to conclusion: HC (See 'Legal Desk') CCI approves acquisition of 43% of JM Financial Credit Solutions' shares by JM Financial Ltd (See 'Corp Brief') Trademarks Act- Tribunal can cancel registration of trade mark on ground of contravention, or failure to observe condition under Act: HC (See 'Legal Desk') TCIL pays dividend to Govt (See 'Corp Brief') IBC, 2016- Non- cooperation with board and becoming non-responsive to communications made by board without any plausible reasons is held as contravention of provisions of IBC: IBBI (See 'Legal Desk') CCI okays acquisition of Personal Care division of Patanjali by Patanjali Foods (See 'Corp Brief') IBC- Presence of arbitration clause in contract does not bar an operational creditor from filing application under Section 9: NCLT (See 'Legal Desk') PMLA- Attaching movable and immovable property not part of proceeds of crime or of equal value is illegal: TRIBUNAL (See 'Legal Desk') 'Accord and satisfaction' & Arbitration (See 'CORP EINSICHT') BHP, SAIL sign MOU to accelerate potential pathways to steel decarbonisation (See 'Corp Brief') FSSAI convenes meeting of Rice Millers and Fortified Rice Kernel manufacturers (See 'Corp Brief') IBC - Disciplinary committee can be comprised and equated with one whole time member: HC (See 'Legal Desk') CCI conducts Workshop on Competition Law in Collaboration with NALSAR (See 'Corp Brief') Minister lays foundation stone of two projects of CCL (See 'Corp Brief') IBC - Failure to include specific agenda of withdrawal of Corporate Insolvency Resolution Process in Committee of Creditors meetings attracts penalization u/s 208 of Code: IBBI (See 'Legal Desk') RM to inaugurate DefConnect 4.0 (See 'Corp Brief') Arbitration - Referral court should limit its enquiry to examining whether Sec 11(6) application has been filed within period of limitation of three years or not: SC LB (See 'Legal Desk') IIPA should work in sync with Karmayogi program for training officers: Minister (See 'Corp Brief') PMLA - Stringent bail provisions and delay in trial can't go together: SC (See 'Legal Desk') Milk production is up by 57.62% in last 9 years: Union Minister (See 'Corp Brief') Cr P C-Precedent of another case alone shall not be basis for either grant or refusal of bail irrespective of nature and gravity of charge, though it may have bearing on principle: HC (See 'Legal Desk') Minister inaugurates HCL's Surda Mine Operations (See 'Corp Brief') PMLA, 2002 - Sezied documents which are relied upon documents in police case cannot be released by Court: Tribunal (See 'Legal Desk')

Group insolvency in Indian insolvency regime

Published: Jun 16, 2023

By Yogendra Aldak, Partner, Pranav Mundra, Senior Associate and Bhavya Shukla, Associate, Lakshmikumaran and Sridharan, Attorneys

 THE law on corporate insolvency resolution process ('CIRP') in India, is majorly focused on the resolution of single entity rather than a group of entities. The Insolvency and Bankruptcy Code ('Code') provides for initiation of CIRP by creditors when the debt of an entity reaches the threshold. Even if the entities are interconnected, there is no provision in the Code to consolidate the CIRP of all of them. Where group entities are significantly interlinked, it could be value destructive to not recognize such interlinkage. Where the business of different entities is dependent on each other, or various entities have common assets, or where there are common liabilities and related party transactions among entities, carrying of CIRP for each distinct entity in isolation may raise distinct problems, which may not exist otherwise.

To bridge this gap, the company tribunals have attempted to resolve debts of entities that are inextricably linked or are part of a group and where it is necessary for a few or all of them to go through CIRP. In the case of State Bank of India v. Videocon Industries Limited 1, CIRP was initiated by the Bank against 15 companies of Videocon group across various National Company Law Tribunal ('NCLT'). The NCLT Mumbai Bench ordered for consolidation of 13 CIRPs, thereby introducing the concept of group insolvency in India. While considering the law on group insolvency as developed in UK and US, the Mumbai Bench prescribed certain yardstick to ascertain consolidation - Common control, Common directors, Common assets, Common liabilities, Inter-dependence, Inter lacing of finance, Pooling of resources, Co-existence for survival, intricate link of subsidiaries, inter-twined of accounts, inter-looping of debts, singleness of economics of units, cross shareholding, Inter dependence due to intertwined consolidated accounts, Common pooling of resources, etc. The bench clarified that the list was not exhaustive but only prima-facie governing factors to activate the process of 'consolidation'.

The yardstick prescribed in the Videocon Case was followed in Axis Bank Ltd. & Ors. v. Lavasa Corp. Ltd 2 wherein, the financial creditors of the holding company filed for consolidation of its CIRP along with two of its subsidiaries to settle the debts of the entire Lavasa group. The CIRP of Lavasa group was ordered to be consolidated. Even in Radico Khaitan Ltd. v. BT & FC Pvt. Ltd.3, the operational creditor-Radico Khaitan moved the appellate tribunal challenging the order of the NCLT rejecting the request for consolidation. Applying the principles developed in Videocon Case , the appellate tribunal directed for consolidation of two entities.

The need for a holistic framework for group insolvency was recognized by the Insolvency and Bankruptcy Board of India ('IBBI') which constituted a Working Group to consider the elements coordination and consolidation in a corporate group. The Working Group addressed key aspects of identification of a group, extent of grouping and mechanism involved. It recommended implementation of group insolvency in two phases – first phase to apply only to domestic companies and second phase to introduce the group insolvency mechanism in cross-border entities. The first phase provided for adoption of rules to coordinate different CIRPs of group entities without disturbing the division of assets and substantive claims of creditors of each of the group entities. The mechanism aimed at lowering costs and reducing time associated with different CIRPs. It consists of elements such as joint application, information sharing between insolvency resolution professionals /NCLTs /Committee of Creditors, consolidation of CIRPs before a single NCLT, creation of group creditor's committees etc. Depending on the implementation of the first phase, the second phase was suggested to be introduced. The second phase provided for mechanism of group insolvency in cross-border CIRPs with substantial consolidation, that is, consolidating the assets and liabilities of group companies so that they are considered to be a single economic unit.

The report of the Working Group has also been considered by the Cross-Border Insolvency Rules/Regulations Committee ('CBIRC') which was constituted by the Ministry of Corporate Affairs ('MCA') to provide recommendations on group insolvency based on a review of recommendations of UNCITRAL Model Law on Enterprise Group Insolvency ('MLEGI') and the Code. The CBIRC in its report inter-alia recommended that MLEGI may not be adopted in India till the time the law on single entity cross-border insolvency is enacted. However, it emphasized on the need for the Code to provide for the manner of undertaking CIRP of group entities that is distinct from the current single-entity approach.

The NCLTs in India have recently been facing special issues arising out of interconnection of CIRP of an entity with its other group companies. Such issues have caught the attention of

IBBI and MCA as well, who have constituted committees seeking recommendations for implementation of group insolvency framework in India. With the recommendations being affirmative, the time is ripe for the Parliament to consider the recommendations and put in place a statutory framework for group insolvency in India. This would not only ensure a timely and effective resolution of insolvency among group entities, but also maximize the value of their assets and balance the interest of all stakeholders of each of the group entities.

(The views expressed are strictly personal.)

12019 SCC OnLine NCLT 745.

2Order dated February 26, 2020 in MA 3664/2019 in C.P.(IB)-1765, 1757 & 574/MB/2018

3Order dated March 26, 2021 in CA(AT) (INS) No. 919/2020 .

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