IT’S time for India to look at a group insolvency framework under the Insolvency and Bankruptcy Code (IBC)—one that would allow entire corporate groups to undergo a unified resolution process. On the face of it, the logic is hard to fault. The current company-to-company approach often erodes value, prolongs timelines, and frustrates recovery. A consolidated process, in contrast, promises efficiencies, synergies, and better outcomes.
What lends credence to the possibility of a framework for group insolvency is that, just a few months ago, the Insolvency and Bankruptcy Board of India (IBBI) floated a discussion paper acknowledging the issue and sketching out a possible solution. Notably, it did not recommend amending the IBC itself. Instead, the IBBI suggested this structural shift be introduced by tweaking the Corporate Insolvency Resolution Process (CIRP) regulations. Among the proposed changes are joint hearings, appointment of a common resolution professional, information-sharing protocols, and synchronised timelines.
Sensible as these fixes may seem, they raise a foundational legal question: can delegated legislation be used to recast one of corporate law’s oldest tenets—that each company, no matter how intertwined with others, stands as a separate legal entity?
The principle of separateness is no minor technicality. It lies at the heart of company law. The landmark 1896 ruling by the British House of Lords, in Salomon vs Salomon & Co, established that once incorporated, a company acquires its own legal identity, distinct from its shareholders, directors, or affiliates. This was more than a formalism; it unleashed the modern economy, shielding personal assets from business risks and allowing capital to move freely. India’s Supreme Court has affirmed this on many instances, underscoring that corporate separateness is not a legal fiction to be set aside for convenience, but a deliberate construct governing credit, liability, and risk.
The IBC reflects this. It treats companies as distinct legal persons, with debts, defaults, and proceedings that are all individually determined. Section 3(7) defines a ‘corporate person’ in individual terms—one corporation at a time. Section 5(8), which defines ‘financial debt,’ presupposes a direct relationship between debtor and creditor, not a complex web of inter-corporate obligations. And from Section 6 onwards, the entire resolution mechanism is built around initiating proceedings against ‘a corporate debtor’—not a group, conglomerate, or an economic cluster.
Of course, the notion that each company is a sealed legal island has its exceptions. Courts in India and abroad have occasionally ‘pierced’ the corporate veil—especially when the structure is used to commit fraud or evade the law. As early as 1933, Lord Denning remarked that courts could “pull aside the corporate veil” to see the true actors behind it (Gilford Motor Co vs Horne). Indian courts have likewise reaffirmed that corporate identity is not a shield for misconduct. But these are the exceptions to the rule, triggered by fact-specific abuse, not tools for convenience or policy innovation.
The call for a group insolvency framework stems from real-world frictions, not just theory. Consider the Srei Group, where both the parent and its subsidiary were forced into parallel insolvency proceedings, despite shared cash flows, cross-guarantees, and overlapping liabilities. This created a procedural quagmire: creditors filed claims in both forums, there was confusion over ownership of assets, and value was steadily lost. The Videocon case posed an even starker dilemma. Thirteen companies, all functionally run as one business, were admitted into distinct CIRPs—only to be later resolved collectively by judicial innovation, not legislative design.
What these cases expose is the tension between economic substance and legal form. In practice, many companies operate as part of an integrated group. But in law, they remain separate entities. Bridging this gap is tempting—but doing so through regulatory back channels is problematic.
Section 240 of the IBC allows the IBBI to frame regulations, but only insofar as those regulations are consistent with the parent statute. That is not a technicality; it is a constitutional check. It is a settled principle of administrative law that while regulators may fill in the details, they cannot redraw the legislative map. Moving from individual debtors to group-wide proceedings would mark a fundamental shift in the IBC’s structure—a change that demands parliamentary scrutiny.
A more appropriate route would be introducing a dedicated chapter in the IBC entitled ‘Group Corporate Insolvency’. This could clearly define what constitutes a ‘group’—based on factors like common control, shared financial reporting, or cross-holdings. It could empower the Adjudicating Authority (NCLT) to permit coordination processes, such as appointing a common resolution professional or joint hearings, but with safeguards.
These safeguards should include opt-outs for loosely integrated entities, rights for dissenting creditors, and protections to ensure that group treatment does not trample legitimate claims or override priority rankings. Without such checks, group insolvency could morph into group liability. Imagine a solvent logistics firm dragged into insolvency because its debt-ridden real estate sibling shares a promoter and a logo.
That kind of ‘guilt by association’ would deter investment and destroy value, much like what economist George Akerlof warned of in the ‘market of lemons’ theory. When markets cannot tell sound businesses from shaky ones, they discount all alike. While group insolvency may well be necessary, the route it takes matters just as much as the destination.
Debarshi Chakraborty,
Advocate, Delhi High Court
(Views are personal)