Future of Consolidated Resolution of Insolvent Group Companies in India

[By Divya Mann and Anubhav Chaudhary ]

The authors are students at the National Law University, Lucknow.


Today, it is a common business practice in India for companies to establish their subsidiaries and associate companies. While some of these big conglomerates’ companies may establish them for commercial interest,[i] Others are established to supplement the sister concerns. The assets and liabilities of these group companies are so intricately intertwined[ii] that once they are declared insolvent and the Corporate Insolvency Resolution Process (“CIRP”) under Insolvency and Bankruptcy Code (“Code”) is initiated, the stand-alone resolution is neither cost and time effective nor an idol solution for the creditors. Therefore, in order to have a feasible insolvent group insolvency, the CIRP should be initiated against all the companies operating under a group as subsidiaries and associate companies in front of a common adjudicating authority and by clubbing the assets and liabilities of the group companies. This is where the need for the consolidation of CIRP of the group companies’ rules in.

Indian Jurisprudence with Regard to Consolidation 

CIRP Consolidation of the Videocon group is a landmark ruling by National Company Law Tribunal (“NCLT”), Mumbai on group consolidation in India. Even though consolidation is not provided in the Code either expressly or impliedly, the NCLT stemmed its power to order for consolidation by relying on the United States case of Re Vecco construction industries[iii] wherein it was held that bankruptcy courts may order for consolidation while exercising its equitable powers. In addition, US Bankruptcy Code provides the court with the power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provision.” [iv]

However, the Hon’ble Supreme Court in the case K. Sashidhar v Indian Overseas bank[v] categorically held that NCLT and National Company Law Appellate Tribunal (“NCLAT”) are not Courts of Equity, thereby the basis on which Videocon judgment was passed by NCLT Mumbai lacked merit as it does not have the power to order for Consolidation claiming it is a court of equity.

In addition, on the conjoint reading of section 196 (Power and Functions of the Board) and section 240 (Power to make regulations) of the Code, it is quite evident that the Insolvency and Bankruptcy Board of India (“IBBI”) is permitted to merely “carry out the provisions of this Code” and “not to carry out the purpose of this Code”. Therefore, such an explicit distinction in the provisions is to be noted and conclusively, it can be said that the IBBI cannot supplant its authority by bringing any amendment in the regulations.[vi]

Other Relevant Provisions

Section 60(5)(c) of the Code (Adjudicating Authority for Corporate Persons) allows the NCLT to deliberate on questions of law arising out of insolvency proceedings while Rule 11 of NCLT Rules[vii] entrust them with the inherent powers to pass any order as may be deemed necessary to meet the ends of justice. The above-mentioned provisions empower the NCLT with a certain degree of flexibility while adjudging insolvency cases, however, the NCLT and NCLAT being a statutory authority[viii] it cannot read something which is not already present in the statute.[ix] Further, an application filed under section 60(5)(c) of the Code is only maintainable in the situation when the CIRP has been initiated against the Company or when the Company is under liquidation.

Working Group on Insolvency

The Working group on Group Insolvency[x] constituted on the recommendations of the IBBI reported that at this stage India lacks the required technical know-how and infrastructure to carry out the consolidated resolution of group companies and the working group stems its view from the parliamentary debates on group insolvency. Thus, the NCLT cannot supersede the legislature and make something a law while exercising delegated legislation when that is expressly against the legislature’s opinion.

Benefits of Consolidation

The consolidation automatically results in extinguishing the inter-corporate claims[xi], subsidiary equity ownership interests[xii] and duplicative creditor claims[xiii] thereby maximising the assets of the company. Additionally, as was highlighted during the Lavasa corporations’[xiv] insolvency resolution, a consolidated resolution plan is an attractive proposition for the resolution applicant as opposed to a stand-alone resolution plan. Further, the consolidation among the group entities brings together information relating to the assets, creditors, obligations and business of the companies on one table[xv] and allows the courts the bigger picture in one glace therefore, putting aside multiple negotiations and making a feasible purchase option for the potential purchasers.


Consolidated insolvency resolution law in India will not only make the resolution process expeditious and profitable for the group companies but it will also allow the adjudicating authorities to pierce the corporate veil[xvi] and hold these group companies working as a single- economic unit[xvii] accountable for the manoeuvre of its subsidiaries and associate companies. However, at present, the NCLT is incapacitated in passing an order for consolidation until the same is incorporated in the Code along with a detailed procedure as to the formation of the consolidated committee of creditors, the appointment of a common resolution professional.

Till the time amendment is brought to the legislation, procedural coordination can be practiced under rule 11[xviii], which bestows the NCLT with the power to issue an order for procedural coordination, while keeping the assets and liabilities of each individual

entity distinct, thus preserving the substantive rights of all the creditors.[xix] This can be done by creating a two layer of COC[xx]. Analogous provisions can also be found in the Chapter 11[xxi]of the US Code that permits the Trustee to appoint such additional COC as it deems appropriate, and the German legislation statutorily highlights the role of group COC in assisting the individual COC while facilitating coordinated handling of proceedings.[xxii]


[i] Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613.

[ii] State Bank of India v. Videocon Industries Ltd., (2018) SCC Online NCLT 13182.

[iii] In Re Vecco Const. Industries, Inc., 4 B.R. 407 (Bankr. E.D. Va. 1980).

[iv] United States Bankruptcy Code, 11 U.S.C. § 105 (1978)..

[v] K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150.

[vi] Invest Asset Securitisation & Reconstruction Pvt. Ltd. v. Mohan Gems & Jewels Pvt. Ltd., [2020] 120 taxmann.com 35.

[vii] National Company Law Tribunal Rules, 2016, Gen. S. R. 716(E).

[viii] Embassy Property Development Pvt. Ltd. v State of Karnataka (2019) SCC Online SC 1542.

[ix] Nasiruddin v. Sita Ram Agarwal, (2003) 2 SCC 577..

[x]Report of the Working Group on Group Insolvency, (Sept. 23, 2019), https://ibbi.gov.in/uploads/whatsnew/2019-10-12-004043-ep0vq-d2b41342411e65d9558a8c0d8bb6c666.pdf .

[xi] In re Augie/Restivo Baking Co., 860 F.2d 515 (2d Cir. 1988).

[xii] In re Murray Industries, Inc., 119 B.R. 820 (Bankr.M.D. Fla. 1990).

[xiii] Practical Business Guidelines for Dealing with Substantive Consolidation, AMERICAN BANKRUPTCY INSTITUTE (Dec. 1, 1997), https://www.abi.org/abi-journal/practical-business-guidelines-for-dealing-with-substantive-consolidation.

[xiv]Axis Bank Ltd. v. Lavasa Corporation Ltd., MA 3664/2019.

[xv] Neil Hooper, Insolvency proceedings in case of groups of companies: Prospects of harmonisation at EU level, EUROPEAN PARLIAMENT THINK TANK (March 15, 2011),


[xvi] Aron Salomon v. A. Salomon & Co. Ltd., [1896] UKHL 1.

[xvii] The CS Family 1000 in 2018, CREDIT SUISSE (Sept., 2018), https://webcache.googleusercontent.com/search?q=cache:kNYM89_btssJ:https://www.creditsuisse.com/media/assets/corporate/docs/about-us/research/publications/the-cs-family1000.pdf+&cd=2&hl=en&ct=clnk&gl=in.

[xviii] Companies Act § 424, No. 18 of 2013, INDIA CODE, https://indiacode.nic.in/handle/123456789/2114?locale=en; National Company Law Tribunal Rules, 2016, Gen.S. R. 716(E).

[xix]Report of the Working Group on Group Insolvency, (Sept. 23, 2019), https://ibbi.gov.in/uploads/whatsnew/2019-10-12-004043-ep0vq-d2b41342411e65d9558a8c0d8bb6c666.pdf.

[xx]   Neil Hooper, Insolvency proceedings in case of groups of companies: Prospects of harmonisation at EU level, EUROPEAN PARLIAMENT THINK TANK (March 15, 2011),


[xxi] United States Bankruptcy Code, 11 U.S.C. § 1102(a)(1) (1988).

[xxii] GERMAN INSOLVENCY CODE: ARTICLE-BY-ARTICLE COMMENTARY 1 (Eberhard Braun ed., 2d ed. C.H. Beck 2019)


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