CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

INTRODUCTION

Globalization has facilitated an increased trade between countries, resulting in

unprecedented economic growth and interconnectedness on a global level. Nevertheless, this
heightened interdependence and interconnectedness has also given rise to a myriad of conflicts
involving different countries. As trade barriers diminish and supply chains span continents,
disputes over trade practices, tariffs, and intellectual property rights have become more frequent.
Moreover, globalization has led to conflicts of laws, particularly in areas such as insolvency,
where varying legal frameworks across jurisdictions can complicate cross-border business
transactions. In the sphere of insolvency, there is a need for uniform guidelines to streamline
proceedings and ensure equitable treatment of creditors and debtors across borders. Harmonizing
insolvency laws on an international scale would not only promote efficiency and transparency but
also mitigate conflicts arising from divergent legal systems, ultimately fostering a more stable
and conducive environment for global commerce.

Without clear and consistent standards to govern cross-border transactions and resolve
disputes, parties involved may find themselves navigating a labyrinth of conflicting regulations
and legal systems, leading to uncertainty and mistrust. This lack of clarity not only complicates
business operations and investment decisions but also fosters misunderstandings and conflicts.
Moreover, without a common framework for addressing grievances and enforcing agreements,
parties may resort to unilateral actions, retaliation, or legal battles, further exacerbating tensions.
In the long run, the failure to establish uniform guidelines undermines confidence in international
cooperation and diminishes opportunities for constructive dialogue and collaboration, ultimately
hindering progress and stability in the global community.

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

CROSS BORDER INSOLVENCY

The economic reality of most businesses in their failure, which can adversely impact the
interests of stakeholders, including creditors, and may have cascading effects on the economy.
However, the impact can be minimized by a proper insolvency law framework. Businesses
operating in a secure regulatory environment will have the least difficulty in resolving
insolvency. It is therefore not surprising that the World Bank 1 looks at regulations for resolving
insolvency as one of the ten areas for measuring and comparing ease of doing business across
economies. Britannica2 defines ‘insolvency’ as not having enough money to pay debts. Cross-
border insolvency, thus, in simple terms, means when an insolvent debtor has credit and/or
debtors in more than one jurisdiction i.e. in many different countries. Such a situation can be
referred to as ‘cross border insolvency’ or ‘international insolvency’.

An effective and efficient insolvency regime should pursue several fundamental

objectives. These include maximizing the value of assets, striking a balance between liquidation
and reorganization, ensuring fair treatment of creditors in similar circumstances, and facilitating
timely, impartial, and efficient resolution of insolvency cases. Moreover, the insolvency law
should promote transparency and predictability, offering incentives for the collection and
dissemination of information. It should also uphold existing creditor rights and establish clear
rules for prioritizing claims. Additionally, a crucial aspect is the establishment of a framework for
handling cross-border insolvency cases. Such a framework facilitates coordination between
jurisdictions and provides mechanisms for aiding in the administration of insolvency proceedings
originating in foreign countries. Therefore, incorporating rules on cross-border insolvency,
including the recognition of foreign proceedings, is essential for a well-functioning insolvency
regime.

In India, the implementation of the Insolvency and Bankruptcy Code, 2016 (IBC) is a
noteworthy stride in the modernization of insolvency laws in India. Nevertheless, the current

1
https://subnational.doingbusiness.org/en/data/exploretopics/resolving-insolvency/score
2
https://www.britannica.com/dictionary/insolvent#:~:text=Britannica%20Dictionary%20definition%20of
%20INSOLVENT,%5B%3Dbankrupt%5D

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

Code lacks a comprehensive structure for addressing cross-border insolvency. While some
sections offer some guidance, their scope and application are inadequate.

THE INSOLVENCY AND BANKRUPTCY CODE, 2016

The Insolvency and Bankruptcy Code, 2016 (IBC) is India's bankruptcy law, aiming to
streamline the existing framework by establishing a unified law for insolvency and bankruptcy.
Introduced in December 2015, it was passed by the Lok Sabha on May 5, 2016. The IBC applies
to companies, limited liability entities, firms, and individuals, addressing issues related to
insolvency and winding up in a time-bound manner.

Presently, the IBC does not have a comprehensive framework related to cross border
insolvency. It merely contains two provisions, viz., Sections 234 and 235 in its Part V titled
'Miscellaneous' touching on this subject.

Section 234: Agreements with foreign countries

(1) The Central Government may enter into an agreement with the Government of any
country outside India for enforcing the provisions of this Code.

(2) The Central Government may, by notification in the Official Gazette, direct that the
application of provisions of this Code in relation to assets or property of corporate debtor or
debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any
place in a country outside India with which reciprocal arrangements have been made, shall be
subject to such conditions as may be specified.

Section 235: (1) Notwithstanding anything contained in this Code or any law for the time
being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy
proceedings, as the case may be, under this Code, the resolution professional, liquidator or
bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or
debtor, including a personal guarantor of a corporate debtor, are situated in a country outside
India with which reciprocal arrangements have been made under section 234, he may make an

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

application to the Adjudicating Authority that evidence or action relating to such assets is
required in connection with such process or proceeding.

(2) The Adjudicating Authority on receipt of an application under sub-section (1) and, on
being satisfied that evidence or action relating to assets under sub-section (1) is required in
connection with insolvency resolution process or liquidation or bankruptcy proceeding, may
issue a letter of request to a court or an authority of such country competent to deal with such
request

Section 234 empowers the central government to enter into an agreement with other
countries to resolve situations pertaining to cross border insolvency. It provides that the Central
Government may enter into an agreement with the Government of any country outside India for
enforcing the provisions of the IBC. Further, the Central Government may direct the application
of provisions of the IBC in relation to assets or property of corporate debtor or debtor, including a
personal guarantor of a corporate debtor, situated at any place in a country outside India with
which reciprocal arrangements have been made.

When evidence or action relating to foreign assets of an Indian corporate debtor is

required in relation to an insolvency resolution process, the resolution professional, liquidator or
bankruptcy trustee, can make an application to the Adjudicating Authority pursuant to Section
235 of the Code. If the Adjudicating Authority deems it fit, it may issue a letter of request to a
foreign court or an authority of a country with whom a reciprocal arrangement has been
established pursuant to Section 234 of the Code.

The IBC’s cross border insolvency framework is dependent on India entering bilateral
agreements with other countries. This process is lengthy and time consuming. Further, every
treaty is distinct and this leads to difficulties for the adjudicating authorities to enforce the
agreements entered with other countries. Where multiple jurisdictions are involved, bilateral
treaties with each country will have to be invoked, which may create legal and procedural
complexities.

The Ministry of Corporate Affairs (MCA) constituted an Insolvency Law Committee

(ILC) on 16th November, 2017 which submitted its first Report in March 2018 which

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

recommended amendments to the Insolvency and Bankruptcy Code, 2016 based on the
experience gained from implementation of the Code. The said committee decided to attempt to
provide a comprehensive framework for the ‘cross-border Insolvency’ purpose based on the
UNCITRAL Model Law on Cross-Border Insolvency, 1997 which could be made a part of IBC
by inserting a separate part for this purpose. Accordingly, the second part of ILC Report was
submitted in October, 2018 to make recommendations to the Government on adoption of the
UNCITRAL Model Law and the modifications necessary in the Indian context.

THE UNCITRAL MODEL

Established by the United Nations General Assembly in 1966, the United Nations
Commission on International Trade Law (UNCITRAL) serves as the primary legal entity within
the United Nations system dedicated to international trade law. It plays a pivotal role in the
development and upkeep of a comprehensive legal framework across borders, fostering the
facilitation of international trade and investment. Aligned with its mandate to advance the
progressive harmonization and modernization of international trade law, UNCITRAL achieves
this objective by formulating and advocating for the adoption of legislative and non-legislative
instruments in various essential domains of commercial law.

Adopted in 1997, the UNCITRAL Model Law3 on Cross-Border Insolvency (Model Law)
is crafted to assist nations in modernizing their insolvency laws with a cohesive and equitable
framework. This framework aims to efficiently address cross-border proceedings involving
debtors facing severe financial distress or insolvency. 4 The Model Law operates on the principle
that the proceeding in the debtor's primary center of main interests should bear the principal
responsibility for managing the debtor's insolvency, irrespective of the number of states in which
the debtor holds assets and has creditors.

3
UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation, (Model Law
with Guide) U E.14.V.2, 19.

4
Fernandes, Dwayne Leonardo, and Devahuti Pathak. “Harmonizing UNCITRAL Model Law: A TWAIL Analysis
of Cross Border Insolvency Law.” Asian Yearbook of International Law, Volume 24 (2018), edited by Seokwoo Lee
and Hee Eun Lee, Brill, 2020, pp. 80–105. JSTOR, http://www.jstor.org/stable/10.1163/j.ctv1sr6j7f.8. Accessed 28
Feb. 2024.

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

Accompanying the Model Law, the Guide to Enactment and Use of the UNCITRAL
Model Law on International Commercial Mediation and International Settlement Agreements
Resulting from Mediation was adopted by the Commission in 2002. The Guide to Enactment and
Use is a tool that provides background and explanatory information that States can use in the
process of modernizing legislation in the area of mediation. The Guide to Enactment and Use
also provide other users of the text with useful insight into the Model Law.5

Its other objectives are as follows:

 Enhanced cooperation among courts and relevant authorities in both domestic and foreign
jurisdictions in cross-border insolvency cases.

 Augmented legal certainty for trade and investment activities.

 Ensured fair and efficient administration of cross-border insolvencies, safeguarding the

interests of creditors, debtors, and other stakeholders.

 Focus on the protection and optimization of the value of the debtor's assets.

 Streamlined facilitation of the rescue of financially distressed businesses, aiming to

protect investments and maintain employment opportunities

THE JET AIRWAYS CASE, SBI V. JET AIRWAYS (INDIA) LTD., CP 2205
(IB)/MB/2019

Facts of the case

5
UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements
Resulting from Mediation, 2018, available at
https://uncitral.un.org/en/texts/mediation/modellaw/commercial_conciliation#:~:text=The%20Model%20Law%20is
%20designed,was%20initially%20adopted%20in%202002.

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

Recently, in 2019, Jet Airways became the first Indian company to undergo cross-border
insolvency as a result of the ruling of the National Company Law Appellate Tribunal (NCLAT)
directing a “Joint Corporate Insolvency Resolution Process” under IBC.

The case centered around the defunct Mumbai-based Indian-international airline, Jet
Airways, facing substantial debts totaling over Rs 36,000 crores to both domestic and foreign
lenders, including operational creditors. In early June 2019, a consortium of creditors led by the
State Bank of India (SBI) approached the National Company Law Tribunal (NCLT), seeking an
official declaration of Jet as bankrupt and the initiation of Corporate Insolvency Resolution
Process (CIRP) proceedings. This move aimed to prevent the transfer of assets under Section 14
of the IBC. On June 20, Jet Airways was admitted to CIRP, and during the proceedings, it was
revealed that two months earlier, a bankruptcy petition had been filed against the airline in the
Noord-Holland District Court of the Netherlands. This petition, asserting claims of unpaid dues
amounting to nearly Rs 280 crores, was filed by two European creditors of the group. They
sought the seizure of one of Jet Airways' Boeing 777 aircraft parked at Schiphol Airport in
Amsterdam. A month later, the Dutch Court appointed a Netherlands-based bankruptcy
administrator to take charge of Jet's assets located in the Netherlands.

Soon after the admission of the Jet Airways to CIRP in India, the administrator appointed
by the Dutch Court approached NCLT, Mumbai Bench requesting it to recognise the insolvency
proceedings in the Netherlands and to withhold the CIRP proceedings taking place in India. As
the bankruptcy proceedings were already taking place against the airline in the competent court
claiming its jurisdiction under Article 2(4) of the Dutch Bankruptcy Act, the two parallel
proceedings would vitiate the restructuring process and have an adverse impact on the creditors.
However, the NCLT refused to withhold the Indian proceedings on the rationale that the twin
provisions, they being, Sections 234 and 235 dealing with cross-border insolvency under the IBC
had not yet been notified by the Government, and in the absence of such a law, the Tribunal
outrightly barred the Administrator so appointed by the Dutch Court from participating in the
proceedings going on under the IBC and, further, declared the overseas proceedings null and
void.6

6
Chakrabarti, Ran. “KEY ISSUES IN CROSS-BORDER INSOLVENCY.” National Law School of India Review,
vol. 30, no. 2, 2018, pp. 119–35. JSTOR, https://www.jstor.org/stable/26743940. Accessed 20 Feb. 2024.

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

The Appeal

Aggrieved by the decision of the adjudicating authority, the Dutch Court appointed
administrator appealed against the NCLT’s order. The Appellate Tribunal, on the assurance that
the administrator would not alienate any offshore assets of the airline, set aside the order of the
NCLT. The NCLAT sought an agreement between the Indian resolution professional and the
Dutch trustee to ensure cooperation and coordination of the two proceedings to achieve value
maximisation of the insolvent company while the proceedings continued in parallel. This led to
the emergence of a cross-border insolvency protocol between the two court appointed officials,
which was subsequently approved by the NCLAT through its order dated 26 September 2019.

Cross Border Insolvency Protocol

Hence, the intriguing situation surrounding Jet Airways witnessed a noteworthy judicial
effort to integrate the Model Law framework into Indian insolvency law and practice, pending the
enactment of a specific law. In alignment with the directives of the Appellate Tribunal, the
Resolution Professional and the Administrator appointed by the Dutch Court mutually established
a "cross-border insolvency protocol." This protocol was formulated based on the principles of the
Model Law framework, designating India as the "centre of main interest." Consequently, the
proceedings in the Netherlands were recognized as "non-main insolvency proceedings".

The Protocol served as an expression of intentions and guidelines aimed at reducing costs
and optimizing asset recoveries for all creditors involved in the proceedings. It encourages the
sharing of pertinent information among the parties and the international coordination of related
activities, all while preserving the distinct interests of creditors and other involved parties.
Additionally, it respects the independence, sovereignty, and authority of the NCLT/NCLAT and
the Dutch Bankruptcy Court.

The protocol was entered into between Ashish Chhawchharia, the Resolution Professional
of Jet Airways (India) Limited and Rocco Mulder (the Dutch trustee), in his capacity as the
administrator in bankruptcy of the Company appointed by Noord-Holland District Court, Trade,
Sub-district and Insolvency in the Netherlands.

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

In this protocol, the parties acknowledged that while the Indian Proceedings were focused
on the revival/resolution of insolvency of the Company and the maximization of the value of its
assets for the benefit of all its stakeholders, the main objective of the Dutch Proceedings was to
deal with the liquidation of the assets of the Company located in the Netherlands.

Additional notable aspects of the protocol include:

a) Centre of Main Interest (COMI): The protocol designates India as the Centre of
Main Interest (COMI) for Jet Airways, establishing it as the jurisdiction for primary proceedings.
This classification, subject to approval from the NCLAT and the Dutch court as outlined in the
Jet Protocol, enhances the judicial legitimacy of categorizing concurrent proceedings into main
and non-main proceedings.

b) Guidelines for the Dutch trustee: The protocol outlines the Dutch trustee's intentions,
emphasizing their commitment to decisions that support value maximization and the obligation to
notify the Indian resolution professional of any decisions impacting value. It encourages the
Dutch trustee to facilitate a reorganization plan consistent with an approved bid in the IBC
proceedings and calls for consideration of the ongoing Indian proceedings before making
significant decisions. Notably, the language in these clauses maintains a non-binding tone,
relying on a mutual understanding for cooperation in the two proceedings.

c) Preserving company assets: The protocol explicitly lists the company's assets in the
Netherlands, urging their preservation to the best of the Dutch trustee's abilities. In the event of
asset sales by the Dutch trustee, the proceeds are mandated to be deposited in a bankruptcy
account, with distribution coordinated in consultation with the Indian resolution professional.

d) Right to appear in and attend proceedings: Both officials, under the protocol,
possess the right to participate in proceedings in both jurisdictions, free from legal obligations
imposed by any jurisdiction other than their own.

e) Information sharing and communication: The protocol mandates both officials to

keep each other informed of significant developments and information relevant to the other's
interests. It encourages regular liaison and the sharing of both public and non-public information,
subject to appropriate non-disclosure requirements.

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

CONCLUSION

In conclusion, the realm of cross-border insolvency presents a dynamic and evolving

landscape, exemplified by cases such as Jet Airways. As demonstrated by the incorporation of the
Model Law framework into Indian insolvency practices and protocols, jurisdictions are actively
seeking mechanisms to enhance cooperation, minimize costs, and optimize asset recoveries for
all involved parties. As legal frameworks continue to adapt, the pursuit of efficient, transparent,
and cooperative cross-border insolvency proceedings remains a pivotal aspect of contemporary
insolvency law.

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CROSS BORDER INSOLVENCY : THE CASE OF J ET AIRWAYS

BIBLIOGRAPHY

1. https://cbcl.nliu.ac.in/insolvency-law/dealing-with-cross-border-insolvencies-an-
analysis-of-the-jet-airways-saga/#:~:text=The%20recent%20order%20of%20the,
(hereinafter%20%E2%80%9CCode%E2%80%9D).
2. Finch, Vanessa. “The Measures of Insolvency Law.” Oxford Journal of Legal Studies,
vol. 17, no. 2, 1997, pp. 227–51. JSTOR, http://www.jstor.org/stable/764590.
Accessed 20 Feb. 2024.
3. Chakrabarti, Ran. “KEY ISSUES IN CROSS-BORDER INSOLVENCY.” National
Law School of India Review, vol. 30, no. 2, 2018, pp. 119–35. JSTOR,
https://www.jstor.org/stable/26743940. Accessed 21 Feb. 2024.
4. McCormack, Gerard. “Universalism in Insolvency Proceedings and the Common
Law.” Oxford Journal of Legal Studies, vol. 32, no. 2, 2012, pp. 325–47. JSTOR,
http://www.jstor.org/stable/41682781. Accessed 21 Feb. 2024.
5. Fernandes, Dwayne Leonardo, and Devahuti Pathak. “Harmonizing UNCITRAL
Model Law: A TWAIL Analysis of Cross Border Insolvency Law.” Asian Yearbook
of International Law, Volume 24 (2018), edited by Seokwoo Lee and Hee Eun Lee,
Brill, 2020, pp. 80–105. JSTOR, http://www.jstor.org/stable/10.1163/j.ctv1sr6j7f.8.
Accessed 20 Feb. 2024.
6. Townsend, John. “International Co-Operation in Cross-Border Insolvency: HIH
Insurance.” The Modern Law Review, vol. 71, no. 5, 2008, pp. 811–22. JSTOR,
http://www.jstor.org/stable/25151240. Accessed 28 Feb. 2024.

Websites

1. scconline.com
2. manupatrafast.com
3. livelaw.in
4. heinonline.org
5. www.merriam-webster.com

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