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[2019] 107 taxmann.com 234 (Article)

[2019] 107 taxmann.com 234 (Article)

Date of Publishing: June 27, 2019

Dutch Order on Jet Airways a nullity ab-initio: UNCITRAL ML the need of the
hour?
SYAMANTAK SEN

VIVEK BADKUR

Introduction

1. State Bank of India, Gaggar Enterprises and Shaman Wheels, a few of the many creditors of the
grounded Jet Airways ("debtor"), filed petitions before NCLT's Mumbai bench ("Tribunal") under
Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") seeking initiation of the Corporate
Insolvency Resolution Process against the debtor. No one appeared on behalf of the debtor. All such
petitions were clubbed together for hearing.

During the hearing on 20.06.2019, the Tribunal was informed that insolvency proceedings against the
debtor had already been initiated through an order of the Noord-Holland District Court ("Court"), dated
21.05.20191. The Court appointed Mr R. Mulder, who filed an application as an intervenor in the
petitions being heard by the Tribunal, to administer the bankruptcy process through such order.

Tribunals rulings

2. The Tribunal declared the Dutch Order a nullity ab-initio for various reasons through its order dated
20.06.2019. The Tribunal also initiated the insolvency process in India and appointed an Interim
Resolution Professional ("IRP"). The debtor owed around 8,700 crore rupees to banks, 10,000 crore
rupees to operational creditors and 4,000 crore rupees in salary and statutory dues. The IRP would be
submitting a status report every two weeks starting from 05.07.2019.

The Tribunal made observations regarding the inapplicability of Section 13, Section 14 and Section 44-A
of the Code of Civil Procedure, 1908. The inapplicability of these provisions, which relate to the
enforcement and recognition of a foreign judgment, has to do with the nature of the proceedings. An
order initiating insolvency proceedings is not a money decree which requires recognition and
enforcement.

The Tribunal instead relied upon the substantive provisions of the IBC. This process would ultimately
lead them to Section 234 and Section 235 of the IBC. The intervenor contended that, even though Section
234 and Section 235 have not been notified by the Government of India, there is no bar under the IBC for
the Tribunal to recognise the insolvency proceedings in a foreign jurisdiction, i.e., the Netherlands.
Section 234 and Section 235 deal with agreements with foreign countries and letter of requests to a
foreign country during the insolvency proceedings, where the assets of the debtor exist outside India. The
Tribunal, however, held that since Section 234 and Section 235 have not been notified, they are not
enforceable and, as such, it could not recognize the Dutch Order initiating insolvency proceedings
against the debtor.

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Comments

3. Such a decision seems to be legally sound. Even if Section 234 was enforceable, it is applicable only
when the assets of a debtor are situated in a foreign country with which reciprocal arrangements exist.
The Indian Government has no such reciprocal arrangement with the Dutch Government. Therefore,
Section 234 would be inapplicable regardless of its enforceability.

The intervenor also contended that two parallel proceedings were likely to obstruct smooth and
uninterrupted proceedings since they would stand in the way of expeditious outcome of the process.
However, such an argument was without merit as the Dutch Order was for a company registered in India
and the sole jurisdiction to pass such an order lay with the NCLT.

It is pertinent to note that the Tribunal had its hands tied. It could not recognize the Dutch Order as it
was not empowered to do so. Moreover, it could not stay the present proceedings against the debtor as
the same would mean jeopardizing the recovery of dues of multiple Indian creditors. Time is of the
essence in any insolvency resolution process, especially the ones where the sums involved are very high,
such as this one. The ruling was a result of the Indian Government not adopting the UNCITRAL Model
Law on Cross-Border Insolvency ("UNCITRAL ML").

The UNCITRAL ML is the key to recognition of any foreign judgment concerning insolvency law in the
Indian Courts. The UNCITRAL ML facilitates adequate flexibility for seamless integration with domestic
insolvency law and a robust mechanism for international co-operation. The latter is especially important
when insolvency orders are passed by Indian Courts against Foreign Multinational Companies. The
Indian Government has been treading the conservative path by not opening the doors to insolvency
judgments of foreign courts. However, it has recently sought to adopt the UNCITRAL ML, necessitated
by the need to improve the ease of doing business in India. The present controversy could have been
entirely avoided had the UNCITRAL ML already been implemented in India as then both the Indian and
the Dutch creditors could be parties to a synchronized insolvency resolution process. It would be in the
best interest of the Indian Government to expedite the adoption of the UNCITRAL ML.

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1. Hon'ble Noord Holland District Court, Trade, Sub-district and Insolvency, Petition Number:
C/15/288017/FT RK 19/540R.

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