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The UNCITRAL Guide to Enactment explains that article 6 does not attempt
to define public policy because the notion of public policy is grounded in
national law and may differ from state to state.[7] Further, it recommends
that the interpretation of the term must be narrow.[8] Accordingly, the Model
Law states that the relevant action must be “manifestly” contrary to public
policy for a court to deny recognition under this provision. Several countries
like the United States (US),[9] United Kingdom,[10] and South Africa[11] have
retained the word “manifestly”. However, certain countries such as
Singapore[12] have omitted it. The Committee noted that the Indian law
should also follow a narrow stance and thus recommended retention of the
term.[13]
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How the Indian courts would interpret “public policy” when actually faced
with an application for recognition is yet to be seen. According to the
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In the few cases in the US to date in which attempts have been made to avail
public policy violations and invoke § 1506 of the Bankruptcy Code (Public
Policy Exception), courts have to a great extent respected the intent of the
Congress and almost always rejected the claims, indeed regarding the
provision as a “safety valve”.[15] The District Court for the Eastern District of
Virginia in Qimonda AG[16] has delineated a three-part test to assist courts in
determining whether an action is manifestly contrary to US public policy.
First, the mere existence of a conflict between foreign and US law, in the
absence of other considerations, “is insufficient to support the invocation of
the public policy exception.” Second, a court should refrain from submitting
to a foreign proceeding if “the procedural fairness of the foreign proceeding
is in doubt or cannot be cured by the adoption of additional protections.”
Lastly, “[a]n action should not be taken… where taking such action would
frustrate a US court’s ability to administer the Chapter 15 proceeding and/or
would impinge severely a US constitutional or statutory right.”[17] A District
Court in Ephedra Prods. Liability Litig. held Canadian procedures to not be
contrary to public policy even though they were deficient in certain common
components of a US proceeding, such as a jury trial.[18] Likewise, the fact
that the British Virgin Islands proceeding did not provide unfettered access
to court records did not warrant the conclusion that recognizing the
proceeding would be contrary to public policy.[19]
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On the opposite side of the spectrum, it is observed that an action that would
thwart a US court’s ability to administer the proceeding or encroach upon
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constitutional or statutory rights would violate public policy and merit the
invocation of the exception.[20] In Gold & Honey,[21] recognition of the
foreign proceeding was refused due to violations of US procedural
requirements in the appointment of the representatives. In Toft,[22] the
Bankruptcy Court for the Southern District of New York refused to recognise
a German insolvency proceeding as a foreign main proceeding, on the
ground that the chapter 15 proceeding had been initiated by the foreign
representative solely to gain access to a German debtor’s email accounts
stored on US servers. The Court held that “the relief sought would directly
compromise privacy rights subject to a comprehensive scheme of statutory
protection, available to aliens, built on constitutional safeguards
incorporated in the Fourth Amendment as well as the constitutions of many
States.”
In Vitro, the Court of Appeals for the Fifth Circuit had occasion to decide a
case involving the enforcement of a Mexican plan of reorganisation that
extinguished objecting creditors’ guarantee claims under an indenture
issued in the US against non-debtor subsidiaries of the debtor.[23] In
addressing this issue, the Fifth Circuit first noted that a “central tenet of
Chapter 15 is the importance of comity in cross-border insolvency
proceedings.”[24] However, the Court went on to affirm the decision of the
Bankruptcy Court to enforce the plan, holding that the relief claimed was not
warranted under §§ 1521, 1507 and 1506 of the Bankruptcy Code.[25] The
Court also held that the protection of third-party claims in an insolvency
proceeding is a fundamental public policy of the US, and that because the
Mexican plan does not recognise such rights, the “plan is manifestly
contrary to such policy of the United States and cannot be enforced here”.
Further, in Jaffé, the Court of Appeals for the Fourth Circuit broadly invoked
the public policy defence in a situation where relief under § 1521 would have
imposed relief on other creditors not available within the US law.[26]
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The most recent decision involving this aspect was delivered in 2019 in Zetta
Jet Pte Ltd.[27] Here, the Singapore High Court had initially granted only
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Conclusion
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– Aditi Mozika
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[1] Jet Airways (India) Ltd. v. State Bank of India , CA (AT) (Insolvency) No.
707 of 2019 (NCLAT, 26 September 2019).
[2] Ibid.
of the UNCITRAL Model Law (1st edn, Springer Singapore, 2017), at p. 23.
[8] Ibid.
[14] Ibid.
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[15] Re Basis Yield Alpha Fund (Master) 381 BR 37 (Bankr. SDNY 2008); See
also, Re Ernst & Young, Inc. 383 BR 773, 781 (Bankr. D Colo 2008).
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[20] Re Gold & Honey, Ltd. 410 BR 357, 373 (Bankr. EDNY 2009).
[23] Re Vitro SAB De CV 701 F3d 1031, 1053 (5th Cir 2012).
[24] Ibid.
[25] Ibid.
[26] Jaffé v. Samsung Elecs. Co. 737 F.3d 14 (4th Cir 2013); See also Re OAS
S.A., 533 BR 83, 103 (Bankr. SDNY 2015).
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