This article on ‘Cross-Border Insolvency in India‘ was written by Harshit Yadav, an intern at Legal Upanishad.
Introduction
Cross-border bankruptcy refers to the scenario in which a debtor (an individual or a firm) is insolvent in numerous jurisdictions, raising problems regarding how the debtor’s assets should be allocated among creditors in different nations. The major goal of cross-border insolvency is to offer a framework for fair and efficient resolution of such circumstances.
It has a broad reach and includes a wide range of scenarios. It may occur, for example, when a firm has subsidiaries or assets in numerous nations, or when a debtor has creditors in multiple jurisdictions. In such circumstances, a framework must be in place to ensure that insolvency proceedings are coordinated across borders and that assets are allocated in a fair and equitable manner to all parties.
The IBC establishes a cross-border insolvency procedure based on the concepts of collaboration and coordination among different jurisdictions. The IBC allows for the recognition of overseas insolvency proceedings and the appointment of a representative in India for the foreign debtor. It also enables the coordination of processes in India with those in other jurisdictions in order to guarantee a fair and efficient resolution of the bankruptcy issue. Overall, India’s legal framework for cross-border insolvency is focused on supporting the interests of all parties and guaranteeing a level playing field for cross-border firms.
Legal Framework for Cross-Border Insolvency in India
The Bankruptcy and Bankruptcy Code, 2016 (IBC) provides the primary legal framework for cross-border bankruptcy in India. The IBC is a comprehensive piece of law that establishes a unified framework for insolvency and bankruptcy procedures in India, encompassing both corporate and individual debtors. The IBC establishes the rules and procedures for starting and carrying out insolvency proceedings, including the liquidation and reorganisation of the debtor’s assets.
India has also accepted the UNCITRAL Model Law on Cross-Border Insolvency in addition to the IBC. The UNCITRAL Model Law provides for the recognition and enforcement of international insolvency procedures and is a worldwide recognised framework for handling cross-border insolvency difficulties. The United Nations General Assembly adopted the Model Law in 1997, and it has since been adopted by over 50 countries.
In India, the Model Law was incorporated into the IBC in 2018 through an amendment to the legislation. The adoption of the Model Law has provided a more robust framework for addressing cross-border insolvency issues in India and has helped to facilitate cooperation and coordination between different jurisdictions.
Aside from the Model Law, India is a signatory to a number of international treaties and accords concerning cross-border bankruptcy. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Hague Convention on Choice of Court Agreements are two examples. These treaties address the acceptance and enforcement of foreign judgements and arbitral awards, which might be useful in cross-border insolvency processes.
Cross-Border Insolvency Proceedings in India
In India, cross-border insolvency proceedings can take different forms, depending on the circumstances of the case. The two main types of cross-border insolvency proceedings in India are:
- Outbound Proceedings: This refers to the situation where an Indian insolvency proceeding is initiated by an Indian court in respect of a debtor who has assets or creditors located outside of India.
- Inbound Proceedings: This refers to the situation where a foreign insolvency proceeding is initiated in respect of a debtor who has assets or creditors located in India.
Jurisdictional concerns can develop in cross-border insolvency proceedings, especially when many jurisdictions are involved. The concepts of territoriality and universality govern jurisdictional concerns in cross-border insolvency procedures in India. The principle of territoriality states that each jurisdiction has jurisdiction over the debtor’s assets and affairs located within its own area. Universality refers to the notion that there should be a single, coordinated action that resolves the debtor’s whole insolvency, regardless of where the assets and creditors are located.
In order to address jurisdictional issues, the IBC provides for the recognition and enforcement of foreign insolvency proceedings in India. Under the IBC, a foreign insolvency proceeding can be recognized if it meets certain criteria, such as being initiated in a country where the debtor has its center of main interests (COMI). Once recognized, the foreign insolvency proceeding can be given effect in India, subject to certain conditions and limitations.
Foreign insolvency proceedings are recognised and enforced in India under the principles of comity and reciprocity. Comity refers to the notion of respect for other countries legal systems, whereas reciprocity refers to the principle of mutual acceptance and enforcement of judgements and decrees. Foreign insolvency procedures in India are also subject to the terms of any relevant international treaties or agreements, such as the UNCITRAL Model Law on Cross-Border Insolvency or the New York Convention.
Landmark Case
Jet Airways: One of India’s leading airlines, Jet Airways, halted all operations in April 2019 due to financial issues. Following that, the company filed for insolvency under the IBC, and the National Company Law Tribunal (NCLT) commenced insolvency proceedings against it.
During the insolvency proceedings, it was revealed that Jet Airways had substantial assets and operations outside of India, including aircraft and other assets in foreign jurisdictions. This posed significant jurisdictional difficulties, and there was discussion about whether international creditors should be allowed to participate in Indian insolvency proceedings.
Finally, the NCLT decided to accept the company’s bankruptcy petition and appoint an insolvency resolution professional (IRP) to manage the company’s affairs. The IRP was tasked with establishing a resolution strategy for the corporation, and there were talks about selling the company’s assets to foreign purchasers.
The Jet Airways case exemplifies the difficulties of administering cross-border insolvency proceedings, particularly when significant assets and operations are located outside of the home state. It also emphasises the significance of having appropriate procedures for coordination and collaboration among various jurisdictions in order to promote a smooth and efficient settlement of bankruptcy proceedings.
Challenges facing cross-border Insolvency in India
The absence of a global insolvency law and different legal systems across jurisdictions create significant jurisdictional issues that can impede the resolution of cross-border insolvency issues.
Cross-border insolvency proceedings require extensive coordination and cooperation between different jurisdictions, which can be challenging to achieve due to differences in legal systems and cultural norms.
Cross-border insolvency proceedings often involve multiple stakeholders, languages, and legal systems, which can lead to delays and inefficiencies in case administration.
The recognition and enforcement of foreign insolvency proceedings can be a challenging issue, particularly in the absence of clear legal frameworks and mechanisms for cooperation between different jurisdictions.
Proposed solutions and recommendations for improving the cross-border insolvency framework in India:
India has already adopted the UNCITRAL Model Law on Cross-Border Insolvency. However, there is a need for continued efforts to promote its implementation and harmonization with other legal systems.
Domestic insolvency laws across different jurisdictions need to be harmonized to provide greater consistency and predictability in cross-border insolvency proceedings.
There is a need for improved mechanisms for coordination and cooperation between different jurisdictions in cross-border insolvency proceedings. This can be achieved through the establishment of formal communication channels and the adoption of standardized processes.
There is a need for increased training and capacity building for insolvency practitioners and judges to ensure that they have the necessary skills and expertise to handle cross-border insolvency proceedings.
The future outlook for cross-border insolvency in India
India is expected to continue to play a significant role in global trade and investment, which will result in an increasing number of cross-border insolvency cases. Therefore, there is a need for continued efforts to improve the legal framework and mechanisms for cross-border insolvency in India.
The future of cross-border insolvency in India is also likely to be impacted by emerging issues such as the digital economy and environmental sustainability. Policymakers and stakeholders need to be aware of these trends and develop effective mechanisms to address them in the context of cross-border insolvency proceedings
Conclusion
To summarise, cross-border insolvency is a complicated and difficult topic with huge repercussions for the Indian economy and world trade. India has a strong legal framework in place for cross-border insolvency, which includes the adoption of the UNCITRAL Model Law on Cross-Border Insolvency. Recent examples in India, however, have underlined the importance of robust systems for coordination and collaboration between different jurisdictions to guarantee the seamless resolution of cross-border bankruptcy matters.
Policymakers and stakeholders must collaborate to build effective systems for coordination and cooperation between different jurisdictions in order to overcome these problems and promote better certainty and predictability in cross-border bankruptcy processes. More research is also required to investigate the challenges and opportunities associated with cross-border insolvency, particularly in the context of developing issues such as the digital economy and environmental sustainability.
Cross-border insolvency has serious repercussions for India’s economy and global trade. Cross-border insolvency resolution that is effective can serve to protect the interests of creditors, investors, and other stakeholders, as well as stimulate investment and trade by giving greater certainty and predictability.
However, there are also risks associated with cross-border insolvency, particularly in cases where there are conflicting or inconsistent decisions between different jurisdictions. It is therefore important for policymakers and stakeholders to continue to work towards the development of effective mechanisms for coordination and cooperation between different jurisdictions.
BIBLIOGRAPHY
- Simran Singh, Comparative Study of Cross border Insolvency in India and UK, 4(4) IJLMH (2021)
- Zulfiquar Memon , Abhishek Gupta and Aakansha Luhach, Cross Border Insolvency Regime In India, Mondaq, 31 October 2021, available at: https://www.mondaq.com/india/insolvencybankruptcy/1123982/cross-border-insolvency-regime-in-india
- Rohit Lalwani and Aditi Tiwari, An overview of Cross-Border Insolvency in India, Lexology, available at: https://www.lexology.com/library/detail.aspx?g=83c36e66-e1e2-4804-a2ca-329ddb9d8fc1#:~:text=When%20an%20insolvent%20debtor%20has,border%20insolvency%20or%20international%20insolvency.