Public International Law Research Paper

Cross Border Insolvency in India, the next big leap in India’s Insolvency regime.

Submitted by:
Syamala Yashwanth Reddy
BBA LLB 2019-24
81021219030

Submitted to:
Sneha Priya Yanappa
Visiting Faculty
School of Law
NMIMS Bangalore
Introduction

The Insolvency and Bankruptcy Code, 2016, has been largely successful in promoting time bound

domestic insolvency regime in India. However, the problems arose when the creditors were foreign or

the assets of the insolvent company were located overseas, when there are multiple insolvency petitions

against the same company in multiple jurisdictions. Establishing a standardised cross border insolvency

regime is a solution to such problems. In furtherance of the same, The GoI has introduced Draft part Z

in IBC, 2016. Recently, during the budget sessions the Finance Minister also spoke about the necessary

changes to be made under the act to enhance the efficacy and facilitate cross border insolvency.1

In this paper we will look into the need for a cross border insolvency regime and also delve into a

comparison between the Draft part Z of IBC, 2016 and the UNCITRAL Model Law on Cross Border

Insolvency, 1997. Further look at some Important definitions in the cross border insolvency regime and

its interpretations by other countries.

1
Para 76 of the Speech of Hon’ble Finance Minister, Smt. Niramala Sitharaman.

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The Need for cross border insolvency regime in India.

We have witnessed first hand during the COVID-19 pandemic, how interdependent and inextricably

intertwined the global trade and commerce is, a change in production strategies of few companies based

out of China and Taiwan has caused a global chip shortage resulting in billions of loss for vehicle

manufacturing companies.2 Due to the penetration of globalization, the increase in transnational

commercial activity has been multi-fold over the past few decades, this presents a problem in case of

MNC’s as it is not uncommon for Multi-National Companies to be structured in a complex web of

Subsidiaries and Holdings across multiple jurisdictions, Involving creditors from various countries and

having assets displaced across the globe. Due the existence of such problems in the modern corporate

world, it is of paramount importance to have a robust cross border insolvency regime, which will in turn

aid in the increase of FDI and boosting investor confidence in our country.

We have also witnessed cases like the Jet Airways3, when it went into insolvency in India in 2019, the

Dutch authorities have also started simultaneous proceedings against Jet. Those proceedings were first

quashed by the NCLT, Mumbai bench as null and void, however, on appeal the NCLAT has provided

the order for first case of cross border insolvency in India by allowing cooperation between the Indian

Resolution Professional and the Dutch Bankruptcy Administrator and Foreign Creditors.4

2
Ramachandran, V., 2022. Way ahead for global automotive industry amid semiconductor chip shortage. [online] Available
at: <https://home.kpmg/in/en/blogs/home/posts/2022/01/semiconductor-chip-shortage-manufacturers-suppliers-
mantra.html> [Accessed 28 March 2022].

3
Jet Airways (India) Ltd. v. State Bank of India, (2019) C.P. (IB)-1968/(MB)/2019.

4
memon, Z., 2022. Cross Border Insolvency Regime In India - Insolvency/Bankruptcy/Re-structuring - India. [online]
Mondaq.com. Available at: <https://www.mondaq.com/india/insolvencybankruptcy/1123982/cross-border-insolvency-

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Despite not having the necessary provisions in place, the NCLAT bench has filled in the gap in

legislation, but this was only limited to the facts and circumstances of this case. In order to have a more

comprehensive and standardised cross border insolvency regime it is necessary that India adopts the

UNCITRAL Model Law on Cross Border Insolvency, 1997.

Why should India adopt the UNCITRAL Model Law on Cross Border Insolvency?

Firstly, because it is the most widely accepted cross border insolvency regime in the world, with over

49 nation states adopting the Model Law, goes without saying that the nation states that have ratified

the Model Law have mostly did so with certain changes to make it amenable to their jurisdiction.

Secondly, because of its relevance to international trade, as we have discussed above the need for a

cross border insolvency, the UNCITRAL Model Law ticks all the boxes when it comes to the

feasibility, ease in enforcement and protection of the financially stressed corporate debtor, it is a lot

more easier than having ad hoc protocols or bilateral or multilateral treaties with multiple countries.5

Thirdly, because of the role UNCITRAL has to play in facilitation of international trade and commerce,

as a subsidiary organ of UNGA and its official mandate is “to promote the progressive harmonization

regime-in-india> [Accessed 28 March 2022].

5
MOHAN, S. Chandra. Cross-border Insolvency Problems: Is the UNCITRAL Model Law the Answer?.
(2012). International Insolvency Review. 21, (3), 199-223.

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and unification of international trade law.”6 It achieves this goal largely by ensuring cooperation

between state actors via conventions, model laws, treaties in key areas of trade and commerce.

State Practice and UNCITRAL Model Law on Insolvency

India’s state practice towards the adoption of Cross Border Insolvency is quite evident, by the function

of its legislature and judiciary, there were numerous committees which were set up by the Ministry of

Corporate Affairs like, The Eradi Balakrishna Committee, Insolvency Law Committee report on cross

border insolvency, 2018. Report on the rules and regulations for cross-border insolvency resolution,

2020. Judicial pronouncements like Jet Airways v. SBI , Macquarie Bank Ltd. V. Shilpi Cable Ltd.

By means of such examples the State Practice of India towards adopting the UNCITRAL Model Law

on

Cross Border insolvency can be proved.

Differences between the Proposed Draft Part Z and UNCITRAL Model Law.

The Draft part Z is predominantly based on the UNCITRAL Model Law, however there are few minute

differences between them:

6
Provisional Agenda of the Sixty-Second Session, UNGA, UN Doc. A/62/100.

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 1. The newly proposed pre-packaged insolvency for MSMEs will be excluded from the ambit of

draft part z, this is being done to protect the interests of MSMEs, as they are a vital backbone

for our country and its economy.

2. Exclusion of important financial institutions like banks and insurance companies is also being

sought as a protective measure.

3. A suggestion has been made by the Insolvency Law Committee, to include Legislative

Reciprocity7 in the Indian adoption of Model law, the term reciprocity is absent in the Model

law and it is touted that the reason for the same is to ensure wider adoption of the model law by

giving the nation states the lenience to choose which kind of reciprocity they would prefer either

legislative or substantive. The Insolvency Law Committee report8 suggests that Legislative

Reciprocity must be adopted in furtherance of the objectives under the code, however, it might

have a detrimental effect on the foreign creditors from the countries who are yet to adopt the

model law, In the example of Jet Airways itself, Netherland hasn’t adopted the Model law yet,

hence it wouldn’t recognize the Dutch proceedings as foreign non-main proceedings under the

provisions of draft part z.

Important concepts in the Cross Border Insolvency

Few important concepts under the cross border insolvency include:

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It means that courts will recognize the foreign proceedings only if that country has adopted the Model law or a similar law
as theirs.
8
Report of the Insolvency Law Committee, 2018

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 1. Access: It means access to the proceedings for foreign creditors, representatives like the

Insolvency Professionals, Bankruptcy administrator, etc. right to seek

2. Recognition: It gives insolvency proceedings of the various jurisdictions automatic recognition

under the model law, provided they must either qualify as one of the two proceedings, foreign

main and foreign non main proceedings. This will also ensure, ease of conducting the cross

border insolvency proceedings rather than having bilateral treaties which accord such

recognition. This also has many other benefits like having procedural coordination, substantial

consolidation of assets, etc, between the jurisdictions conducting the insolvency process.

3. Relief: The model law provides for various types of reliefs including interim and final, reliefs

for recognition of proceedings which will automatically help in enacting a moratorium and a

fair conduct of proceedings, as reliefs generally do not constitute a difference in law and

jurisprudence between two territories it can also be deemed to be universal in nature, this helps

in creating an broadly acceptable law as a state which would adopt to this wouldn’t import any

foreign law.

4. Cooperation and coordination: This is probably the backbone of the cross border insolvency in

as it is pertinent to have cooperation and coordination among the states where the proceedings

are taking place. To ensure the security of the debtors assets located in foreign jurisdiction and

aid in maximization of assets of the debtor.

5. Centre of Main Interest: also called as COMI is probably the most important provision under

the Model law as this will determine if the proceedings are main or non-main proceedings, In

simpler words if the insolvency proceedings are started in a jurisdiction where the companies

centre of main interest is located, then those proceedings would be recognized as main

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 proceedings, if the proceedings are started in any other jurisdiction than its centre of main

interest, it will be recognized as non-main proceedings. The importance of getting the main

proceedings status cannot be understated for the creditors, as this will ensure the creditors a

predictable and trusted resolution process.

6. Determination of COMI: The COMI is determined by factors like registered office, place of

administration of most recognizable to third parties, domicile of directors and other key

managerial persons, location of administrative and accounting departments of the company.

Role of UNCITRAL in International Law

The United Nations Commission on International Trade Law, the UNCITRAL is constituted to promote

and harmonize a robust cross border legal framework for trade and commerce, the Model Law on

Insolvency rightly does that. It promotes FDI because the foreign investors will have a level of inherent

confidence in the framework adopted by that country, and will be able to analyse better as to what

would be their options if the Investment goes south.

Strictly speaking, The UNCITRAL Model Laws cannot be termed as part of international law, because

it is not a treaty but rather a Model law, and the states that have adopted it have made some changes to

suit their municipal legal frameworks. However, its role cannot be undermined in bringing nations

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together and making their laws uniform, this can be a part of universalism. Few advocates of this

school of thought portray this as the ultimate goal of International law to bring in unity and uniformity

of law across all nations.

Conclusion

The Insolvency and Bankruptcy code, 2016 in itself was a giant leap for the Insolvency regime in India

as it has consolidated the laws which deal with winding up of companies and Insolvency in India, and it

is largely successful in promoting time bound insolvency and creating an effective framework by

establishing Insolvency Professionals, Insolvency and Bankruptcy Board of India, Comprehensive

Insolvency Resolution Process (CIRP), Moratorium Period, Distinguishing between Financial and

Operational Creditors. This legislation was welcomed by the Industry and Banks, it has seen some of

the most successful cases of Insolvency Resolution like the Essar Steels, Bhushan Steels, etc. But the

success of the legislation cannot be simply ascertained by the rate or amount of recovery, as bad loans

or bad business cases which doesn’t make any sense cannot be absorbed by the resolution applicants at

full price. The reason for success of Essar steels and Bhushan steels is simply because of them being in

an Industry which is heavily profitable and the rise in demand for steel.

Looking at the success of IBC, 2016 in India, the foreign creditors and the Industry itself has advocated

for enabling the cross border insolvency under IBC, 2016. As this would further strengthen the

legislative framework and International Trade and Commerce cooperation in India.

Apart from the provisions on reciprocity, the draft part z, looks promising and sufficient to address the

needs of cross border Insolvency in India. The essential principals of Model law were retained, which is

a welcome move, however, it is yet the be seen what would India’s take on the centre of main interest

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would be, there is no one right way to do it as this is a highly debated topic and different counties have

different approaches to it. There are a few critics of the draft part z, who say that India is not yet ready

for it as the Insolvency is still in its nascency in India, but the critics have failed to understand that

despite being in its nascency it is also one of the most dynamic and fast paced economic legislations in

India.

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