IBC treatment of subsidiaries during group resolution: The Supreme Court’s 2026 discussion of corporate separateness and subsidiaries in CIRP

Introduction : A company incorporated and registered under the Companies Act, 2013, acquires the status of a separate legal entity. In the eyes of the law, it is an artificial person having a separate legal personality from its shareholders, meaning a company has the power to sue and be sued in its own name. When a company defaults, the members are not personally liable for the injury caused. However, in certain circumstances, the law holds its members personally liable, where the director or manager will be personally liable. This is known as lifting of the ‘corporate veil’. 

The concept and exception of lifting the corporate veil were established in the case of Salomon v. Salomon & Co. Ltd, which established that an incorporated company possesses a separate legal personality from its shareholders. By overruling the lower court rulings that held Mr. Salomon personally liable for company debts. While this decision laid the foundation for corporate veil protection, subsequent legal decisions have created many exceptions where courts may not take into consideration of this status to hold individuals liable. 

Under Section 2(87) of the Companies Act, 2013, a subsidiary company is an enterprise controlled by a parent or holding company through board management control or by holding more than 50% of its total voting power or share capital. This means a parent company and subsidiary company are not equal to/are not a single unit. They both are separate entities. 

When a parent company goes into insolvency, it has its own assets like land, buildings, contracts, etc., but these assets are in the names of wholly owned subsidiaries. So, the subsidiary merely held the asset on paper title. The shareholders are not the owners of subsidiary assets. Now, when the parent company collapses, the customers are stuck because they made a contract with this parent company. The company that took their money owns nothing, it's all in subsidiaries’ names. The companies that own these assets owe the customers nothing because the contract is between the parent company and customers, not with these subsidiaries. 

The problem is important to analyse when a parent runs the business but its core assets are legally held by subsidiaries. The questions that arise are: can those assets be considered in the parent’s insolvency process; can a resolution applicant take over a project operated by the parent but legally owned by a subsidiary; and if a subsidiary has guaranteed the debt of another group company, how does that liability affect its own insolvency. The supreme court’s decision in Alpha Corp. Development Authority (2026) tries to answer these questions. The court did not hold that every parent and subsidiary must be treated as one. But, instead, it found the particular corporate structure before it to be so closely connected that the corporate veil could be lifted. 

Insolvency & Bankruptcy Code position

The IBC generally follows the principle of separate corporate personality. During the corporate insolvency resolution procedure (CIRP), the resolution professional (RP) takes control and custody of the assets and affairs of the corporate debtor, as under section 18 of IBC.

This distinction is made even more clear under section 36(4)(d). In liquidation, the liquidation estate does not include assets owned by a subsidiary of the corporate debtor. The NCLAT has expressly recognised many times that subsidiary assets cannot simply be brought into the liquidation estate of the parent company. So, the usual position is that the parent company entering CIRP does not automatically bring the subsidiary company’s assets into the parent company’s insolvency estate.

The purpose of a resolution plan is meant to resolve the corporate debtor’s insolvency. It cannot ordinarily transfer property belonging to an independent third party merely because that third party is a subsidiary. This exact position was taken in cases like the Jaypee Kensington judgement and MCMG v. Abhilash Lal. The Supreme Court's earlier approach was that the resolution process could not simply deal with assets belonging to a separate entity.

Before the Alpha Corp case

Three main case laws are important to understand on the position before the Alpha Corp case:

Firstly, the Vodafone case. Vodafone strongly protected a separate corporate personality. A parent company’s ownership of shares did not make the subsidiary’s assets as its own. A subsidiary was not simply a player of the parent.

Secondly, the Jaypee Kensington case. The court dealt with a resolution plan concerning leasehold property and made an important distinction between the assets of the corporate debtor and assets belonging to its subsidiaries. The resolution plan could not simply treat subsidiary assets as assets of the parent company.

Thirdly, the MCGM v. Abhilash (2020) case. The court held the importance of the rights of the authority that owned the relevant property. A resolution plan could not override the legal rights attached to property merely because doing so would help resolve the corporate debtor.

All these cases point to one simple established principle: corporate separateness matters, and a resolution plan cannot erase the property rights belonging to another separate legal entity.

The Alpha Corp Development Pvt. Ltd. v. GNIDA (2026) case

The case arose from the CIRP of Earth Infrastructures Ltd (EIL), a real-estate developer.

• EIL was developing several projects in Greater Noida. However, the land for three of the projects was legally held by separate entities (subsidiaries).

• Earth Towne: land held by Earth Towne Infrastructures Pvt. Ltd. (ETIPL)

• Earth TechOne: land held by Neo Multimedia Ltd.

• Earth Sapphire Court: land held by Nishtha Software Pvt. Ltd.

EIL controlled these companies and undertook the actual development of the projects. In the case of ETIPL, EIL eventually held 98% of the shareholding. The subsidiaries had very limited independent substance, while EIL was the actual developer. The projects had also attracted thousands of homebuyers' contracts. EIL collected substantial amounts from buyers and undertook the development. EIL entered CIRP in 2018.

The Resolution Professional invited resolution plans for the projects. Resolution applicants submitted plans covering the projects, including the projects standing on land legally leased to EIL’s subsidiaries. The NCLT approved these plans.

GNIDA challenged the orders before the NCLAT, arguing that “the land does not belong to EIL. It belongs to the subsidiaries. Therefore, EIL’s resolution plan cannot deal with it.”

The NCLAT accepted this argument and relied on the earlier line of cases, including Vodafone and Jaypee Kensington. The matter then reached the Supreme Court, where it looked beyond the shareholding structure and examined how the companies actually functioned and found that:

• EIL was the main driving force behind the projects;

• EIL undertook development;

• EIL had dominant shareholding in the relevant companies;

• The companies had common directors or related persons as directors;

• The subsidiaries’ principal assets were the project lands;

• EIL was involved in payment of GNIDA dues;

• GNIDA itself knew that EIL was developing the projects.

The Court held that this was a case for lifting the corporate veil. The reasoning was that where associated or group companies are “inextricably connected” and form “one concern”, the Court may look at the economic entity of the group as a whole.

The Court ultimately restored the resolution plans. The Court did not say that a subsidiary's assets automatically become the parent's assets during CIRP. Instead, the Court said, in essence, that where the corporate structure is so closely integrated that the subsidiary is effectively functioning as part of the same economic concern, the corporate veil may be lifted.

What the case changed

The judgement created an important exception to the ordinary rule. The question is no longer only just about who legally owns the asset, but the Court may also ask and examine “who actually developed, controlled and operated the project, and what was the real relationship between the entities?”

The Court itself emphasised that veil-lifting is fact-specific or on a case-to-case basis. In Alpha Corp, the subsidiaries were effectively being a front face, while EIL was the real controller behind the projects. This therefore means that the veil lifting does not mean automatic group consolidation. Rather, it means the Court disregards the separate legal structure for a particular legal purpose on a case basis. 

The substantive consolidation is broader. It effectively treats the assets, liabilities and affairs of different companies as one insolvency estate, i.e., for the purpose of insolvency only. Alpha Corp should not be read as saying that every corporate group can be substantively consolidated whenever one company enters CIRP. That distinction protects genuine subsidiaries that have their own business, management, assets and creditors.

Asset tracing and avoidance provision 

The IBC contains separate mechanisms that deal with transactions that may have been improperly moved out of the corporate debtor. These include:

• Section 43: preferential transactions;

• Sections 45 to 51: undervalued transactions and related relief;

• Section 66: fraudulent or wrongful trading.

Now, for example, suppose Parent Co. is approaching insolvency and transfers a valuable property to its subsidiary for a ridiculously lower price. The question is not simply whether the subsidiary is part of the same group, but the RP examines as to whether value was improperly moved from Parent Co. to Subsidiary Co. 

So, the important questions are: Where did the asset originate; who transferred it; and for what consideration; where did the value ultimately go? 

A group structure should not and cannot be used to hide a transaction that would be vulnerable under the avoidance provisions of IBC. 

Corporate guarantees 

Group exposure can also arise through guarantees. Suppose, say, subsidiary Co. (S Co.)  borrows ₹100 crore from a bank.

• Parent Co. (P Co.) gives a corporate guarantee.

• S Co. defaults.

• The bank invokes the guarantee against P Co.

The liability of P Co. becomes relevant to its own insolvency process if P Co. is in CIRP. This issue was considered by the Supreme Court in State Bank of India v. Doha Bank Q.P.S.C., 2026 INSC 423. The Court considered whether liabilities arising from corporate guarantees constituted financial debt under Section 5(8) of the IBC.  The Court stressed that the financial debt must have its foundation in payment against the time value of money and examined the corporate guarantees in that context.

For corporate groups, the practical lesson is that a guarantee given for another group company is not merely an internal group arrangement. It can create a real insolvency claim against the guarantor. Therefore, group company due diligence must identify every corporate guarantee, security provided for another group company, inter-company loan; and contingent liability.

Group insolvency under the new amendment 

The 2026 amendment is important because the IBC now expressly recognises the need for group insolvency coordination. A newly added Chapter VA under Section 59A, empowers the Central Government (CG) to prescribe how the insolvency proceedings involving two or more corporate debtors belonging to the same group may be coordinated. The proposed framework can provide for a: 

• a common NCLT Bench;

• coordination between different CIRPs;

• coordination between Committees of Creditors (CoCs);

• appointment of a common insolvency professional;

• a committee comprising the CoCs of different group companies; and

• a coordination agreement between the proceedings.

This becomes important because it addresses a problem that Alpha Corp could not solve by itself. However, there is a distinction, coordination is not consolidation.

Under coordinated group insolvency, P Co. and S Co. can remain separate legal entities with separate assets and creditors, while their insolvency proceedings are managed and merged together where appropriate. Substantive consolidation would be much further along by treating the entities and their estates as one for the purpose of insolvency. The 2026 amendment provides a procedural way of cooperation, rather than generalizing and simply declaring that every group is one insolvency estate. 

The risks 

The Alpha Corp case raises some important questions regarding the following:

1. Position of subsidiary creditors: if a subsidiary’s assets are brought into the resolution structure of the parent, its own creditors may ask whether their interests are being affected.

2. Third-party security: an asset may be held by a subsidiary but also secured in favour of an independent lender. Corporate veil lifting cannot simply mean that the security disappears.

3. How far does this “inextricably connected” actually extend: The Supreme Court deliberately made the inquiry fact-specific and on a case-by-case basis. This protects against a rigid rule, but it can also mean that companies cannot easily predict when the veil will be lifted.

4. Question of genuinely independent subsidiaries: a subsidiary may have its own employees, contracts, assets, customers and creditors. But treating such a company as part of its parent merely because the parent owns 100% of it would definitely conflict with the basic principle of separate legal personality.

5. How much can a resolution plan actually control: The Alpha Corp case does not mean that a resolution applicant can acquire whatever group asset it wants. Property rights, contractual restrictions, third-party rights and statutory permissions continue to matter and be taken into consideration. The real challenge for courts will be to balance value maximization and practical resolution against corporate personality and creditor rights.

Group insolvency checklist

1. Corporate structure

• Who owns each company

• Which entities are subsidiaries, associates

• Are the companies genuinely operating independently

2. Assets

• Who legally owns each major asset

• Who actually uses and controls it

• Are assets held by subsidiaries but operated by the parent

• Are there third-party security interests

3. Operations

• Are management and directors shared

• Are finances mixed

• Are employees, offices and accounts shared

• Who contracts with customers and collects money

4. Transactions

• Have assets moved between group companies

• Were transfers made at arm's length

• Could Sections 43–51 or Section 66 be attracted

5. Guarantees

• Which group companies have guaranteed whose loans

• What security has been provided for another group company

• What contingent liabilities may become actual claims

6. CIRP / resolution

• Are multiple group companies in insolvency

• Should their proceedings be coordinated

• Could Alpha Corp’s veil-lifting reasoning realistically apply

• Does the proposed resolution plan affect assets or rights belonging to another group company

• The final question is whether these companies are genuinely separate businesses or are they legally separate entities functioning as one business

Conclusion

The IBC starts with corporate separateness. A subsidiary is not automatically part of the parent company's insolvency estate merely because the parent owns its shares. The recent Supreme Court judgement in Alpha Corp does not change the rule of corporate separateness, it creates an exception where group companies are so closely related that they function as one unit. The SC may lift the corporate veil and look at the actual arrangement of the companies. The 2026 amendment creates a statutory basis for coordinated group insolvency proceedings. This is about managing connected insolvencies together, which is not the same as automatically pooling assets and liabilities. 

For corporate groups, the point to keep in mind is not that corporate separateness has been removed. It is that the separate personality must be justified by genuine separation. Where assets, management, and operations are deeply connected, courts may look beyond that mechanical structure. And where group companies have guaranteed each other's debts or moved assets between themselves, those arrangements must be examined before insolvency arrives.

Author: Akshatha K Manashivanagi in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

References

1. Alpha Corp Development Pvt. Ltd. v. Greater Noida Industrial Development Authority, 2026 INSC 449.

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

3. State Bank of India v. Doha Bank Q.P.S.C., 2026 INSC 423. Available at:  https://www.livelawbiz.com/pdf_upload/2026/04/27/sbi-vs-doha-bank-nclat-670306.pdf  (Pg. No. 5, 10, 12-14).

4. Jaypee Kensington Boulevard Apartments Welfare Association and Ors. Vs. NBCC (India) Ltd. and Ors. 8 September, 2020 Available at: https://nclt.gov.in/gen_pdf.php?filepath=/Efile_Document/ncltdoc/casedoc/0902109020232023/04/Order-Challenge/04_order-Challange_004_1713540594163306258266228df2bc099.pdf (Pg. No. 22 of 26).

5. Bacha F. Guzdar vs The Commissioner Of Income-Tax, Bombay (1953) AIR1953BOM1. P. 16. 

6. Abhulash v. MCGM (2024 Order), referred to MCGM v. Abhilash (2020). https://nclt.gov.in/gen_pdf.php?filepath=/Efile_Document/ncltdoc/casedoc/2812129004332023/04/Order-Challenge/04_order-Challange_004_171819852416478887216669a0fc28de4.pdf 

7. Municipal Corporation of Greater Mumbai v. Abhilash Lal, (2020) 13 SCC 234. https://nclt.gov.in/gen_pdf.php?filepath=/Efile_Document/ncltdoc/casedoc/2812129004332023/04/Order-Challenge/04_order-Challange_004_171819852416478887216669a0fc28de4.pdf

8. Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 18, 36(4)(d), 43-51, 66, 5(8).

9. Insolvency and Bankruptcy Code (Amendment) Act, 2026, No. 06 of 2026, Chapter VA, § 59A.