RBI’s Das envisages framework for Group Insolvency Mechanism under IBC

RBI governor proposes Group Insolvency Mechanism for better recovery of dues, emphasizes need for legislative changes and a vibrant secondary market for stressed assets.

Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday envisaged a Group Insolvency Mechanism for better recovery of dues of creditors under the Insolvency & Bankruptcy Code (IBC) process. 

“Globally, there are two diverse facets of Group Insolvency. Some jurisdictions have adopted either procedural coordination or substantive consolidation. Substantive consolidation pertains to the consolidation of assets, liabilities, and operations of multiple entities within a group, disregarding their separate legal entity status,” Mr. Das said while speaking at the CAFRAL Conference. 

“On the other hand, under procedural coordination, the approach is limited to aligning procedural aspects like filing requirements, timelines, coordination and not mingling the entities per se,” he said.

He said in the Indian context, in the absence of a specified framework, the group insolvency mechanism had been so far evolving under the guidance of the Courts. 

“Perhaps the time has come for laying down appropriate principles in this regard through legislative changes. There has been quite a bit of brainstorming on this issue in the policy circles for some time now. The task now is to move forward through appropriate legal changes,” he emphasised. 

“While a legal framework cannot envisage all plausible real world scenarios, given the complicated group structures at the ground level including cross border linkages, it may be in the fitness of things to formally conceive a framework to start with,” he added. 

“There would be challenges in this journey like intermingling of assets, devising a definition of a ‘Group’, addressing cross-border aspects, etc. It would still be preferable to see the opportunity here and put in place a workable framework for group insolvency,” he added.