Group insolvency: IBC’s next frontier or flaw?
IN NEWS
Group Insolvency under IBC: Next Frontier or Flaw?
(Source: The Hindu BusinessLine | October 28, 2025
The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, introduced in the Monsoon Session of Parliament, proposes to add a new Chapter VA on Group Insolvency. The move aims to address the long-standing gap in India’s insolvency framework where corporate groups with interconnected entities face fragmented and inconsistent proceedings.
KEY HIGHLIGHTS
- Objective:
To create a coordinated framework for insolvency resolution of corporate groups, ensuring consistency and preservation of enterprise value. - Problem with Current Framework:
- Present IBC proceedings are entity-specific, leading to conflicting outcomes, value erosion, and delayed resolutions in cases involving subsidiaries, holding companies, and associate firms.
- Example: Groups like IL&FS, Videocon, and Amtek Auto faced fragmented resolution processes across multiple NCLT benches.
- Proposed Reform:
- The Bill introduces Section 59A, empowering the Central Government to specify the conditions and procedures for Group Insolvency.
- It allows for:
- Common NCLT bench hearings,
- Coordinated functioning of Committee of Creditors (CoCs),
- Appointment of a common Resolution Professional (RP).
- The Government can also modify IBC provisions to suit group insolvency cases.
ISSUES AND CONCERNS
- Excessive Delegation of Power:
- Section 59A(3) authorises the executive to alter core IBC provisions — a “Henry VIII clause”-type delegation (allowing modification of primary law through subordinate legislation).
- This may undermine Parliamentary supremacy and judicial oversight.
- Constitutional Implications:
- As per In Re Delhi Laws Act (1951) and Ajoy Kumar Banerjee v. Union of India (1984), essential legislative functions — policy formulation, rights, and obligations — must remain with Parliament.
- Excessive delegation violates the doctrine of separation of powers.
SIGNIFICANCE OF GROUP INSOLVENCY
- Promotes efficient resolution for business groups with interlinked finances.
- Prevents asset-stripping and duplication of claims.
- Aims to maximise value and protect creditor interests.
- Aligns India’s insolvency law with global practices (EU, UK, Singapore frameworks).
CHALLENGES AHEAD
- Defining “group” in a legally enforceable way (holding–subsidiary, associate, joint ventures).
- Preventing misuse or forum shopping under broad executive discretion.
- Ensuring transparency and judicial consistency across NCLT benches.
- Balancing creditor rights and group-level coordination.
WAY FORWARD
- Parliament must clearly define policy intent and limit executive discretion in rule-making.
- Establish uniform procedural rules through the Insolvency and Bankruptcy Board of India (IBBI).
- Create specialised NCLT benches for complex group insolvency cases.
- Incorporate judicial safeguards to ensure fairness and prevent arbitrary interventions.
Updated - October 28, 2025 ; 07:00 AM | Business Line
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