CROSS BORDER INSOLVENCY ACT

When an insolvent debtor has credit and/or debtors in more than one jurisdiction i.e. in different
countries, this circumstance is referred to as cross-border insolvency or international insolvency.

Cross border insolvency deals with the circumstances where the insolvent debtor has assets and creditors
in multiple countries or when insolvency proceedings have been initiated against the insolvent debtor in
multiple countries

The Insolvency and Bankruptcy Code, 2016 (IBC) was introduced as the primary legislation governing
insolvency and bankruptcy in India.

The Ministry of Corporate Affairs (MCA) through its Insolvency Law Committee on Cross-Border
Insolvency (ILC) assessed the implementation of the Code. Since the current insolvency framework is
not at par with the Global Standards, the ILC in its report suggested re-evaluating the current insolvency
framework and adopting the United Nations Commission on International Trade Law (UNCITRAL)
Model Law on Cross-Border Insolvency, 1997 (Model Law) to resolve the concerns relating to cross-
border insolvency in India.

The following are the aspects involved in cross-border insolvency:

 Protection of interests of the domestic and foreign creditors to be at par;

 Value of the assets of a debtor located in different jurisdictions to be safeguarded;

 Uniformity in the insolvency law and practices of different jurisdictions;

 Coordination and cooperation amongst Courts and other Judicial Authorities in various
jurisdictions and the domestic laws applicable therein.

Section 234 and 235 of IBC

IBC provides two provisions that assist in cross-border insolvency disputes i.e. Section 234 and Section
235.

Section 234 of the IBC empowers the Central Government to enter into bilateral agreements with foreign
jurisdiction in order to resolve the issues of cross-border insolvency.

Section 235 on the other hand, empowers the Adjudicating Authority to issue letters of request on Courts
of the country with which the bilateral agreement has been entered into under Section 234 with an aim to
address the fate of assets of the corporate debtors which are located outside India.

United nation commission on international trade

UNCITRAL MODEL LAW ON CROSS-BORDER INSOLVENCY, 1997

The Model Law stipulates the legislative guidance for states on cross-border insolvency. The UNCITRAL
Model Law has been strongly recommended for providing a wide-ranging solution for resolving cross-
border insolvency issues.

The Model Law is governed by the following four principles:

1. Access

The objective of the Model Law is to provide direct access to domestic courts to the foreign creditors
and/or professionals thereby enabling them to participate in or commence the insolvency proceedings
against any concerned debtor.

2. Recognition

The Model Law provides recognition of foreign proceedings in Domestic Courts of any country and
enables the Domestic Courts to determine the relief to be granted in accordance with the foreign
proceedings.

3. Cooperation

Another objective of the Model Law is to provide for bringing about effective cooperation between
Insolvency Professionals and Courts of various jurisdictions and to ensure coordination so as to
efficiently manage the conduct of concurrent proceedings in different jurisdictions.

4. Coordination

The aim of the Model Law seems to be to assist countries to mold their insolvency laws in a modern,
harmonized and fair framework so as to address the instances of cross-border insolvency more
effectively. However, the Model Law respects the differences in domestic laws and primarily focuses on
improving cooperation and coordination between countries, instead of attempting to unify the domestic
laws.

Jet Airways Case

Recently, in the insolvency proceedings of Jet Airways (India) Private Limited, the National Company
Law Tribunal (“NCLT”) in Mumbai expressly stated that while insolvency proceedings against the
corporate debtor have already been initiated before the NOORD – Holland District Court, “there is no
provision and mechanism in the I&B Code, at this moment, to recognize the judgment of an insolvency
court of any Foreign Nation. Thus, even if the judgment of Foreign Court is verified and found to be true,
still, sans the relevant provision in the I&B Code, we cannot take this order on record.” Earlier in the
year, a Jet Airways flight had been grounded in Amsterdam over nonpayment of dues to a European
Cargo firm. The Jet group has been facing insolvency proceedings in the Netherlands and in India at the
same time. The Dutch court-appointed administrator in charge of the proceedings in Netherlands moved
the NCLT (Mumbai) to have the NCLT recognize the Dutch proceedings. Upon the NCLT rejecting its
plea, the Dutch administrator approached the National Company Law Appellate Tribunal (“NCLAT”) to
recognize Jet Airways’ insolvency proceedings in the Netherlands. On August 21, 2019, the NCLAT
asked the creditors of Jet Airways to file an affidavit on whether they are willing to cooperate with the
Dutch Administrator, pay his fees and accord foreign lenders the same status as the Indian creditors, who
otherwise are also eligible to file their claims before the resolution professional coordinating the
insolvency proceedings. Pursuant to the NCLAT’s directions, the Dutch Court Administrator and the
Resolution Professional agreed upon a ‘Cross Border Insolvency Protocol’ wherein India was recognized
as the ‘centre of main interests’ and the Dutch proceedings were recognized as the ‘non-main insolvency
proceedings’. Through this Protocol, the Resolution Professional and the Dutch Court Administrator have
agreed on terms and conditions on which they will cooperate in the ongoing insolvency process, except
the involvement of the Dutch Administrator in Committee of Creditors meetings. The NCLAT, in
response, allowed the Administrator the right to attend Committee of Creditors meetings but to only
observe, in order to prevent an overlap of powers. In the same order, the NCLAT also set aside the order
of the Mumbai-bench of NCLT, which had said that the Dutch court administrator had no jurisdiction in
India and therefore would not be able to take part in Jet Airways’ CoC meetings or raise claims on the
airlines’ assets in India. The Jet Airways case is only one of many such cases that exemplify the need for
a regime that deals with situations where a corporate debtor may have creditors and assets dispersed
across various jurisdictions. Similarly, in the Videocon Industries insolvency saga, news reports had
indicated that Videocon has requested the NCLT to include its overseas assets in the ongoing corporate
insolvency resolution process. The NCLT, in a recent order, has permitted the inclusion of Videocon’s
foreign businesses in the corporate insolvency resolution process in India. However, for situations such as
these, the tribunals are proceeding on a case-by-case basis as there is no clear cross-border insolvency
framework in India yet.