INDIA Trends and Developments Contributed by: Shardul Shroff, Misha, Aishwarya Satija and Kritika Poddar, Shardul Amarchand Mangaldas & Co
Therefore, the IBC in its current form is unequipped to deal with the complications that arise when compa - nies belonging to the same group, or those connected through guarantees, are undergoing parallel proceed - ings. It lacks mechanisms to bring all proceedings before a single forum (except in cases of guarantors), appoint a common resolution professional or con - stitute a group level CoC to facilitate co-ordinated decision-making. Consequently, the absence of such provisions impedes the possibility of developing an integrated resolution plan for financial or operationally interlinked group companies. Evolution of group insolvency principles through judge-made law under the IBC In the absence of a formal framework for group insol - vency, the NCLTs have sought guidance from interna - tional practices and guiding principles to fill the gaps. Broadly, two conceptual approaches have emerged in resolving the insolvency of group companies. The first is substantive consolidation where the assets and liabilities of different companies are consolidated so that they are treated as part of a single estate for the purposes of resolution or liquidation. The second is procedural co-ordination where separate insolvency proceedings are conducted in a synchronised manner without merging the assets and liabilities of the group members. The NCLTs and the stakeholders have experimented with both these approaches, applying them where deemed appropriate. For instance, in the insolvency resolution of Videocon Group , a common court was designated to hear all the proceedings related to the group companies. The NCLT further adopted sub - stantive consolidation, drawing guidance from judi - cial precedents in the United States and the United Kingdom and consolidated 13 out of 15 group entities into a single insolvency estate, citing the existence of common assets and common liabilities among the companies. Following the Videocon case, substantive consolidation has been applied in a few subsequent cases as well. In addition to such efforts, procedural co-ordina - tion mechanisms have also been permitted. In Adel Landmarks Limited , the NCLT permitted the filing of joint applications and admitted the CIRPs of differ -
ent group companies simultaneously. The CoCs have also voluntarily appointed the same insolvency pro - fessional for group companies as seen in the cases of Amtek Auto Group , Adhunik Group and Reliance Communications . In other cases, such as the insol - vency proceedings of Regen Powertech Private Lim- ited and its wholly owned subsidiary and KSK Maha- nadi Power Company Limited and its subsidiaries, the NCLT encouraged joint meetings with the resolution professionals and CoCs to explore the possibility of common resolution applicants, respectively. While these efforts were largely experimental and did not yield the desired outcome in every case, they dem - onstrate a consistent willingness amongst the NCLTs and other stakeholders to co-ordinate approaches in cases involving group companies. Recommendations to adopt a formal group insolvency framework Although the NCLTs have developed principles to deal with issues arising in group insolvencies, the applica - tion of the same has been ad hoc. In wake thereof, the need for a structured framework has been acknowl - edged in various government reports including the Report of the Working Group on Group Insolvency (September 2019) and the Report of Cross-Border Insolvency Rules/Regulations Committee on Group Insolvency (December 2021) (CBIRC-II). The CBIRC- II was constituted to provide recommendations on group insolvency based on a review of the recommen - dations of the UNCITRAL Model Law on Enterprise Group Insolvency (MLEGI) and the IBC. The CBIRC-II recommended inter alia that the group insolvency framework may be introduced in phases. The first phase should be confined to a domestic framework and exclude the adoption of the MLEGI. It should also be limited to procedural co-ordination without providing for substantive consolidation. The committee noted that jurisprudence on substantive consolidation is already developing through case law. Therefore, it suggested that the inclusion of such provisions may be considered at a later stage once sufficient practice and jurisprudence have evolved in this area.
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