CROSS-BORDER INSOLVENCY IN INDIA: ANALYSIS OF THE LAW COMMITTEE

REPORT

-BY PRATIK SAINII

INTRODUCTION:
India has taken ample steps to strengthen the corporate governance and subsequently bring
about foreign investments into the country which would ultimately result in an economic
boost. One such reform includes the passing of the Insolvency and Bankruptcy Code
(hereinafter, referred to as “IBC”), in the year 2016. This set of codes was passed to protect
the interests and rights of foreign investors. Because, when a company is declared insolvent
or bankrupt, certain steps are to be followed to secure the interests of both the creditor and the
debtor. However, the Insolvency and Bankruptcy Bill, 2015 as proposed by the Bankruptcy
Law Reforms Committee (BLRC) Report did not contain provisions to address cross-border
insolvency issues.

To fill the lacunae, the joint parliamentary committee introduced two new provisions in the
IBC, section 234, which allowed the government to enter into a bilateral agreement with the
Government of any country outside India for enforcing the provisions of this Code and
section 235, which provides any tribunal or the court in India to issue a letter of request to the
courts of other jurisdictions for their assistance in the cases where the debtor has assets that
are located abroad. However, they are simply insufficient and there are many drawbacks
attached to these provisions, while entering into a bilateral agreement with a country might be
a way to deal with cross-border insolvency, at the same time materializing a bilateral
agreement requires time. Subsequently, the insolvency regimes and rules relating to
assistance and recognition may vary from country to country.

STATUS OF CROSS-BORDER INSOLVENCY IN INDIA:

The IBC in India is at a nascent stage and is frequently getting amended and tuned as per the
requirements and there is a long road ahead for IBC to become the so-called “Perfect
Legislation”.

There have been many cases that have amplified the need of the regime that deals with the
situation where the debtor has assets and creditors distributed in different jurisdictions. One
such landmark case was the insolvency proceedings of Jet Airways (India) Private Limited
[ii], where the Mumbai bench of NCLT noted that the judgment of the Dutch insolvency court
cannot be recognized in India as there are no provisions in the IBC to recognise a judgment
of any foreign insolvency court. Earlier in the year, a Jet Airways plane was grounded in the
Netherlands for non-payment of dues to a European firm which further triggered the
insolvency proceedings against Jet Airways (India) Private limited in the Dutch insolvency
court. After NCLT, Mumbai rejected the plea filed by the administrator appointed by Dutch
court; an appeal was made to the NCLAT, where the appellate tribunal stayed the order
passed by NCLT, Mumbai[iii], and further NCLAT ordered to co-operate with the Dutch
insolvency court, pursuant to NCLAT’s order the administrator appointed and the resolution
professional agreed upon a cross-border insolvency protocol.

In one such case of Videocon’s Industries Insolvency [iv], it was indicated that Videocon had
requested the NCLT to include the overseas assets of the company in the resolution process,
later the NCLT passed an order allowing the overseas assets to be attached as well and in one
case of Macquarie Bank Limited v. Shilpi Cable Technologies Ltd [ v], the Hon’ble apex court
set a precedent that foreign creditors will have the same rights as the domestic creditors to
initiate and participate in the insolvency resolution process under the IBC. However, in these
situations tribunals and courts are proceeding on a case to case basis with the support of
section 234 (Agreements with foreign countries) & 235 (Letter of request) of the IBC as there
is no proper and clear legal framework on cross-border insolvency. In order to address the
cross-border insolvency legislation, the Government of India had set up an Insolvency law
committee (Hereinafter, referred to as ILC) to propose recommendations on the adoption of
the Model Law.

CROSS-BORDER INSOLVENCY & UNCITRAL MODEL LAW:

Cross-Border Insolvency denotes a situation where the assets of the insolvent debtor are
located in other jurisdictions or where some of the creditors of the insolvent debtor are not
from the jurisdiction where the insolvency proceedings have been filed. It can also be
denoted by a situation where an insolvency proceeding has commenced against the debtor in
the courts or tribunal of two different jurisdictions.

In order to formulate an effective method to handle the cases involving cross-border

insolvency, the United Nations Commission on International Trade Law proposed the
UNCITRAL Model Law on Cross Border Insolvency, 1997 (hereinafter, referred to as
“Model Law”). As of today, 44 regimes have adopted the model law into their legal system.
It advances four elements to facilitate the cross-border insolvency resolution process, they are
namely; Access to courts in an enacting state, recognition of foreign proceedings, relief
(assistance) and cooperation and coordination between the courts of different jurisdictions.
The Model Law provides for 2 kinds of proceedings i.e. foreign main proceeding, which
takes place in the state where the debtor has the centre of its main interests (Hereinafter
referred to as “COMI”, and foreign non-main proceeding, which is a foreign proceeding other
than the foreign main proceeding, where the debtor has an establishment. It also provides
with mechanisms to identify the COMI.
ANALYSIS OF THE PROPOSALS OF THE INSOLVENCY LAW COMMITTEE, DATED- 22
OCTOBER 2018:

The Report by the ‘ILC’ that was instituted by the Ministry of Corporate Affairs (MCA) has
recommended adopting the Model Law on Cross-Border Insolvency by the UNCITRAL with
some necessary modifications to strengthen the cross-border insolvency regime. Some of the
glaring points from the proposals are as follows:-

 According to Section 1(1) of the draft chapter, the goal of enacting this legislation is
to provide a mechanism to deal with cases of cross-border insolvency with the
objective of co-operation between courts of various jurisdiction
 The Chapter-2 (Section 7 to 11) of the draft talks about providing assistance to the
foreign creditors and the representatives, the provisions where the foreign creditors
would be treated the same as the domestic creditors and would not require any
permission to initiate a proceeding against a debtor under this code. Under section 11,
if notice is being issued to any Indian creditor then, a similar notice shall also be
issued to the foreign representatives and the creditors.
 In order to get a foreign proceeding recognised in India, the representative has to
submit a set of documents to NCLT as mentioned under section 12 of the draft
chapter and have to satisfy certain guidelines mentioned in section 15.
 As per the Draft Chapter, any order passed by an Indian court will be recognized in a
foreign country which has adopted the UNCITRAL Model Law (including countries
such as the USA and the UK).
 Section 21 of the draft chapter says that, the central government with consultation
from the NCLT notify rules as to how they will proceed with the communication and
the co-operation, and also notify guidelines to conduct joint hearing. This proposal
came out as a modification to the model law which says that there should be direct
communication and cooperation between courts of various jurisdictions [vi].
 According to section 22 of the draft chapter, the insolvency professional or the
liquidator can be in the direct contact with the foreign court or their representatives,
subject to the supervision of the NCLT.
 If the domestic courts determine that the debtor has its COMI in a foreign country,
such foreign proceedings will be recognised as the main proceedings. This recognition
will end in certain automatic relief, like allowing foreign representatives greater
powers in handling the debtor’s estate. For non-main proceedings, such relief is at the
discretion of the domestic court. The Committee recommended that an inventory of
indicative factors comprising COMI could also be inserted through rule-making
powers. Such factors may include the location of the debtor’s books and records and
location of financing.
CONCLUSION:

The introduction of cross-border legislation guidelines into the Indian regime is a welcome
step and better as compared to the laborious alternative of having to enter into bilateral
agreements with various jurisdictions. Also, the adoption of the model law will help in the
ease of doing business and will significantly increase the FDI and subsequently it would
become easy for India to communicate and coordinate with various jurisdictions that have
adopted the Model Law.

However, there are certain shortcomings in the draft chapter where certain terms are not
clearly defined, such as “Public Policy”, under the provision which says that, the NCLT may
refuse to take any action under the draft provisions if it is considered manifestly contrary to
the public policy [vii]. Currently, the legislation in India do not provide for
concurrent/simultaneous proceedings with courts of other jurisdictions and in order to give
effect to the same a series of amendments would be required. Further, there are challenges
that the countries adopting the model law are facing and the most pervasive challenge is that
of defining the COMI.

Despite the presence of certain procedural and legal challenges, the provisions suggested by
the Draft Chapter Z could go a long way in ensuring communication and co-operation among
various jurisdictions to address the cross-border insolvency cases.
i
The author is a 4th Year student at Government Law College, Mumbai.
ii
State Bank of India v. Jet Airways (India) Ltd., CP 2205 (IB)/ MB/2019, CP 1968(IB)/MB/2019, CP
1938(IB)/MB/2019, Order dated 20 June 2019.
iii
Jet Airways (India) Ltd v. State Bank of India, Company Appeal (AT) (Insolvency) No. 707 of 2019, Order dated 12
August 2019.
iv
State Bank of India v. Videocon Industries Limited and Ors., MA 2385-2019 in C.P.(IB)-02- MB-2018, Order dated
February 12, 2020
v
Macquarie Bank Limited v. Shilpi Cable Technologies Ltd, CA No.15135 OF 2017.
vi
Article-25, UNCITRAL Model Law
vii
Section 4, Draft Part Z, Insolvency Law Committee Report-2018