Content

1. A start for North-South carbon market cooperation
2. Group Insolvency under IBC

A start for North-South carbon market cooperation

Context and Background

• Event: On 17 September 2025, India and the European Union (EU) unveiled the New Strategic EU–India Agenda, outlining five key pillars:
  • Prosperity & Sustainability
  • Technology & Innovation
  • Security & Defence
  • Connectivity & Global Issues
  • Enablers across pillars
• Breakthrough Clause: The EU agreed to link the Indian Carbon Market (ICM) with the Carbon Border Adjustment Mechanism (CBAM) — a potential game-changer for India–EU trade and climate cooperation.

Relevance:

• GS-3 (Environment & Economy): Carbon pricing, market-based mitigation, green trade mechanisms, industrial decarbonisation.
• GS-2 (International Relations): India–EU cooperation, climate diplomacy, WTO negotiations.
• GS-2 (Governance): Institutional architecture of carbon markets and regulatory integration.

Practice Question :

• “The linkage between India’s Carbon Market and the EU’s CBAM represents a new phase in climate diplomacy.” Discuss the potential benefits and challenges of integrating India’s carbon pricing mechanism with global systems.(250 Words)

The Linkage: What It Means

• Mechanism: Carbon prices paid by Indian exporters will be deducted from the CBAM levy at the EU border.
• Purpose: Prevents double taxation on carbon emissions and rewards early decarbonisation by Indian industries.
• Significance:
  • Aligns India’s Carbon Credit Trading Scheme (CCTS) with global carbon pricing systems.
  • Enhances trade competitiveness for Indian exporters under EU’s climate trade regime.

Understanding the Two Systems

A. EU’s Carbon Border Adjustment Mechanism (CBAM)

• Operational Since: 2023 (transition phase till 2026).
• Objective: Level the playing field by taxing imports based on embedded carbon emissions.
• Carbon Price: €60–€80/tonne CO₂ (EU ETS average).
• Sectors Covered: Steel, cement, aluminium, fertilisers, electricity, hydrogen (expansion planned post-2026).

B. India’s Carbon Market (CCTS/ICM)

• Launched: 2023 under Energy Conservation (Amendment) Act, 2022.
• Administered by: Bureau of Energy Efficiency (BEE) & Ministry of Power.
• Carbon Price: Currently €5–€10/tonne.
• Nature: Based on intensity-based reductions (project-level offsets), not absolute emission caps yet.
• Regulatory Gap: No equivalent to EU’s independent emissions registry or compliance-grade cap system.

Key Benefits of Linkage

• Trade Shield: Protects Indian exporters from double carbon taxation.
• Incentivises Decarbonisation: Encourages industries to reduce emissions early for global credit recognition.
• Market Integration: Positions India within global carbon markets worth >$850 billion (World Bank, 2024).
• North–South Cooperation Model: First-of-its-kind linkage between a developing and a developed economy’s carbon markets.

Core Challenges and Barriers

Structural Weaknesses in ICM

• No Absolute Caps: EU’s ETS is cap-and-trade; India’s is intensity-based, making tonne-to-tonne verification difficult.
• Verification Deficit: India lacks independent regulators and emission registries akin to EU’s European Environment Agency (EEA).
• Market Fragmentation: Multiple voluntary offset registries dilute credit quality.

Price Disparity

• EU carbon price: €60–€80/tonne
• India: €5–€10/tonne
• Result: EU may refuse full deduction, deeming Indian carbon prices “insufficient,” leading to partial CBAM charges.

Political–Economic Tensions

• Industry Pushback: Domestic firms may resist higher compliance costs → risk of policy dilution.
• Sovereignty Issue: CBAM gives EU implicit oversight over India’s climate policy credibility.
• WTO Frictions: India has formally opposed CBAM as a “green protectionist” and unilateral trade barrier at COP and WTO.
• Trust Gap: EU’s recognition of Indian credits contingent on data transparency and regulatory parity.

Strategic and Legal Implications

Pathways to Resolution

Technical & Regulatory Upgrades

• Develop Compliance-Grade Cap System: Move from project-based credits → legally binding emission caps per sector.
• Establish Independent Emissions Registry: Ensure third-party verification of carbon credits.
• Set a Floor Carbon Price: Align with EU CBAM levels via sectoral carbon contracts or price corridors.

Bilateral Cooperation

• EU can extend technical assistance under CBAM linkage for:
  • MRV (Monitoring, Reporting, Verification) frameworks.
  • Carbon pricing methodologies.
  • Emission data transparency systems.
• India–EU Joint Working Group on Carbon Markets (proposed) could harmonize methodologies.

WTO-Compatible Design

• Ensure linkage respects “Common but Differentiated Responsibilities (CBDR)” under UNFCCC.
• Negotiate CBAM credits as mutual recognition instruments, not unilateral deductions.

Data Snapshot: Comparative Overview

Strategic Significance

• For India:
  • Boosts export competitiveness in EU (India–EU trade: €150 billion in 2024).
  • Accelerates green industrial transformation and carbon pricing discipline.
  • Provides carbon finance access for Indian industries (~USD 10B annual potential).
• For EU:
  • Strengthens climate diplomacy with Global South.
  • Validates CBAM as a globally integrative tool rather than protectionist.
• For Global Climate Governance:
  • Establishes precedent for cross-border carbon credit recognition between developed and developing economies.

Conclusion

• The CBAM–ICM linkage is a symbolic and strategic breakthrough—a potential bridge between global trade and climate finance.
• Yet, institutional gaps, price disparities, and sovereignty concerns threaten operational success.
• For real impact, India must upgrade its carbon market architecture and negotiate fair recognition within CBAM.
• If implemented effectively, it could protect exporters, drive industrial decarbonisation, and position India as a leader in equitable carbon market diplomacy.

Group Insolvency under IBC

Background and Context

• India’s Insolvency and Bankruptcy Code (IBC), 2016 revolutionized debt resolution by ensuring time-bound and creditor-driven insolvency processes.
• However, it lacked a framework for “group insolvency” — cases involving interconnected companies within a business group.
• Fragmented proceedings for each entity led to conflicts, duplication, and value erosion (e.g., Jet Airways Group, Videocon Group).

Relevance

• GS-2 (Governance): Delegated legislation, institutional accountability, and executive overreach.
• GS-3 (Economy): Corporate insolvency, ease of doing business, financial stability, and legal reforms.

Practice Question :

• Discuss the significance of introducing a “Group Insolvency” framework under the IBC (Amendment) Bill, 2025, in strengthening India’s corporate insolvency ecosystem.(250 Words)

The IBC (Amendment) Bill, 2025

• Introduced during the Monsoon Session, 2025, it adds a new Chapter VA to address Group Insolvency.
• Aim: Coordinate insolvency resolution among holding companies, subsidiaries, and associates.
• Empowers the Central Government to define:
  • Procedures for joint resolution.
  • Rules for coordination and communication between companies under insolvency.
  • Composition of a Common National Company Law Tribunal (NCLT) bench.

Key Provisions Proposed

• Section 59A(1): Authorises the Government to prescribe manner and conditions for conducting group insolvency.
• Subsection (2): Lists measures that may be prescribed, such as:
  • Common NCLT bench for related entities.
  • Coordination and communication committee among creditors.
  • Common resolution professional (RP) or committee of creditors (CoC).
• Subsection (3): Allows government to apply IBC provisions with modifications to group insolvency cases.

Structural Concerns

• Delegation of legislative power:
  • Excessive delegation to the Executive under “Henry VIII clause” (ability to amend primary law via subordinate rules).
  • Violates legislative principle of non-delegation of essential functions, reaffirmed in Ajay Kumar Banerjee v. Union of India (1984).
• Skeletal framework: Key definitions (e.g., “group”, “coordination”) left vague — risks inconsistent application.

Definition of “Group” – The Core Issue

• Borrowed from Companies Act, 2013 (≥26% cross-shareholding).
• Critics argue this threshold is too narrow; should also consider:
  • Operational interdependence,
  • Common management,
  • Financial linkages, and
  • Cross-guarantees between entities.
• In EU and Singapore models, functional integration and inter-company guarantees are considered.

Procedural and Legal Gaps

• No clear procedural architecture:
  • Does not specify whether proceedings will be consolidated or coordinated.
  • Ambiguity in roles of multiple CoCs or RPs.
• Democratic deficit:
  • Common CoC may dilute individual creditor rights under Sections 21–24 of IBC.
  • Raises questions about voting thresholds and conflict resolution between entities.

Comparative Insights

India’s Bill borrows coordination elements but lacks clarity on when consolidation is allowed.

Data and Practical Rationale

• As per IBBI (2024):
  • 40% of corporate insolvencies involve entities within a larger group.
  • Fragmented proceedings cause 20–30% value erosion of total group assets.
  • Average IBC resolution time: 468 days, often extended by inter-company litigations.
• Group Insolvency could reduce delays by 30–40%, if effectively implemented.

Risk Factors and Criticisms

• Creditor Prejudice:
  • Consolidating unrelated or weak entities may dilute creditor recoveries.
• Regulatory Overreach:
  • Government’s power to modify IBC provisions via notifications bypasses Parliamentary scrutiny.
• Corporate Governance Concerns:
  • May impact independent directors’ fiduciary duties if group liabilities are merged.
• Judicial Burden:
  • NCLT already faces backlog of 25,000+ cases (2025) — group insolvency will increase complexity.

Recommendations for Robust Implementation

• Legislative Clarity:
  • Explicitly define “group,” “coordination,” and “consolidation.”
  • Specify triggers for common proceedings (e.g., >50% revenue interdependence).
• Institutional Strengthening:
  • Dedicated Group Insolvency Benches in NCLT with financial experts.
• Protection Mechanisms:
  • Safeguard standalone creditors through ring-fencing provisions.
• Transparency:
  • Mandatory disclosure of intra-group guarantees and loans.
• Pilot Phase:
  • Test model on select large groups (e.g., PSUs, infrastructure conglomerates).

Broader Implications

• Economic: Enhances enterprise value preservation and investor confidence.
• Legal: Aligns Indian insolvency jurisprudence with global best practices.
• Institutional: Strengthens IBBI and NCLT capacity for multi-entity resolution.
• Policy: Reflects India’s transition from “entity-centric” to “group-centric” insolvency framework.

Conclusion

• The IBC (Amendment) Bill, 2025 marks a crucial evolution in India’s insolvency law — a frontier with potential, but fraught with design flaws.
• Without clear legislative definitions, procedural safeguards, and checks on executive power, the “group insolvency” regime risks becoming a flaw rather than a frontier.