Authored By: Urishita Gadhok
I. Introduction
In an increasingly interconnected global economy, corporate insolvencies rarely remain confined within national borders. Companies often maintain assets, creditors, and operations across jurisdictions, raising complex questions of how insolvency proceedings in one country interact with those in another. This phenomenon, broadly referred to as cross-border insolvency, poses pressing challenges for both domestic legal systems and international commercial transactions.
India, one of the world’s fastest-growing economies, has experienced several such cases, most notably the Jet Airways insolvency[1] in 2019, which exposed significant gaps in the existing legal regime. Although the Insolvency and Bankruptcy Code, 2016 (IBC) revolutionised India’s domestic insolvency framework, its provisions for cross-border cases remain rudimentary and largely untested.
This article examines India’s current framework on cross-border insolvency, explores global best practices, especially under the UNCITRAL Model Law on Cross-Border Insolvency (1997), and critically analyses India’s gradual move towards adopting global insolvency norms. It argues that while alignment with international standards is necessary to bolster investor confidence and ensure predictability, India must adopt a cautious, context-specific approach that balances sovereignty with global cooperation.
II. Cross-Border Insolvency: Global Context
Cross-border insolvency refers to situations where an insolvent debtor has assets or creditors spread across more than one jurisdiction. This typically raises conflicts concerning jurisdiction, applicable law, recognition of foreign proceedings, and the priority of creditors.
The most significant international instrument in this area is the UNCITRAL Model Law[2] on Cross-Border Insolvency (1997), which provides a flexible framework that countries may adopt into domestic law. Its key features include:
1. Access: Allowing foreign representatives and creditors direct access to domestic courts.
2. Recognition: Distinguishing between “foreign main proceedings” (based on the debtor’s centre of main interests, or COMI) and “foreign non-main proceedings.”
3. Relief: Granting relief such as stays on proceedings and preservation of assets upon recognition of foreign proceedings.
4. Cooperation and Coordination: Encouraging cooperation between courts and insolvency practitioners across jurisdictions.
More than 50 jurisdictions, including the United States [3](Chapter 15 of the US Bankruptcy Code), the United Kingdom,[4] Singapore[5], and South Korea, have adopted the Model Law with country-specific adaptations. These jurisdictions report significant benefits, including predictability, increased foreign investment, and smoother resolution of multinational insolvencies.
In contrast, India’s insolvency regime still operates largely on a territorialist approach, meaning proceedings are limited to domestic assets and creditors, often leaving foreign creditors disadvantaged.
III. India’s Current Legal Framework
The IBC, 2016, which consolidated and modernised India’s insolvency law, provides only minimal provisions for cross-border insolvency through Sections 234 and 235[6].
– Section 234 empowers the Government of India to enter into bilateral agreements with other countries for enforcing provisions of the IBC in cross-border cases.
– Section 235 allows Indian resolution professionals to apply to domestic courts for issuing letters of request to foreign courts for assistance.
Despite their inclusion, these provisions have never been operationalised, as no bilateral agreements have been signed so far. Consequently, foreign creditors often face uncertainty, and Indian courts lack clear guidance when dealing with assets or proceedings abroad.
The Jet Airways case[7] illustrated these shortcomings. While the National Company Law Tribunal (NCLT) commenced insolvency proceedings in India, a Dutch court simultaneously initiated bankruptcy proceedings against the company’s overseas assets. The lack of a comprehensive framework forced the National Company Law Appellate Tribunal (NCLAT) to improvise, allowing parallel proceedings in both jurisdictions through ad hoc cooperation. While this was seen as a progressive step, it underscored the urgent need for a formal legal mechanism.
IV. India’s Shift Towards Global Insolvency Norms
Recognising these gaps, the Insolvency Law Committee (ILC)[8], in its reports of 2018, 2020, and 2023, strongly recommended adopting the UNCITRAL Model Law on Cross-Border Insolvency, with modifications suited to Indian conditions.
The proposed framework includes:
1. Modified Reciprocity: Recognition of foreign insolvency proceedings only from jurisdictions that have adopted similar standards.
2. Centre of Main Interests (COMI): Determining the debtor’s COMI to classify foreign proceedings as “main” or “non-main.”
3. Public Policy Exception: Empowering Indian courts to refuse recognition if it violates India’s public policy.
4. Relief Mechanisms: Allowing automatic moratoriums upon recognition of foreign main proceedings.
These recommendations reflect India’s intention to gradually shift from a territorialist approach to a more universalist approach, aligning with global practices while safeguarding domestic interests.
India’s adoption of such a framework would have several benefits:
– Boosting Investor Confidence: By ensuring foreign creditors equitable treatment.
– Reducing Uncertainty: Offering predictable outcomes in cross-border cases.
– Aligning with Global Standards: Enhancing India’s reputation as a safe investment destination.
– Facilitating Corporate Rescues: Enabling multinational corporations to restructure effectively.
The move also complements India’s broader engagement with global commercial law instruments, such as the Singapore Convention on Mediation (2019),[9] signalling its willingness to harmonise domestic law with international norms.
V. Challenges in Adopting Global Norms
While alignment with the UNCITRAL Model Law appears promising, several challenges remain.
1. Judicial Capacity: Indian insolvency tribunals (NCLTs and NCLAT) already face significant backlogs[10]. Adding complex cross-border cases will require specialised training and resources.
2. Sovereignty Concerns: Allowing foreign courts’ decisions to influence Indian insolvency proceedings may raise political and constitutional concerns.
3. Public Policy Exception: The vague scope of “public policy” [11]risks overuse, potentially undermining the spirit of international cooperation.
4. Coordination Difficulties: Effective cooperation between Indian courts and foreign courts requires robust procedural mechanisms, which are currently absent.
5. Creditor Protection: Striking a balance between protecting domestic creditors and ensuring fairness to foreign creditors will be a delicate task.
The Jet Airways precedent demonstrates that ad hoc cooperation is possible, but institutionalising such cooperation will require careful legislative drafting and judicial adaptation.
VI. Way Forward
India’s path towards a modern cross-border insolvency regime must be cautious yet decisive. The following steps are essential:
1. Enactment of a Model Law-based Framework: India should legislate on cross-border insolvency, incorporating reciprocity and COMI principles.
2. Judicial Training: Specialised training for judges and insolvency professionals to handle international cooperation effectively.
3. Institutional Capacity Building: Strengthening the NCLT and NCLAT with resources to handle complex, multi-jurisdictional disputes.
4. Bilateral Treaties: Alongside adopting the Model Law, India should pursue bilateral agreements with key trading partners to provide certainty.
5. Learning from Global Jurisdictions: India can draw lessons from Singapore[12] and the UK,[13] which have successfully integrated the Model Law into domestic practice.
VII. Conclusion
India’s emergence as a global economic power necessitates a modern, predictable, and investor-friendly cross-border insolvency regime. The limitations of the current IBC framework and experiences such as the Jet Airways case highlight the urgency of reform.
Adopting a framework based on the UNCITRAL Model Law on Cross-Border Insolvency would represent a significant step towards harmonisation with international standards, enhancing India’s credibility in global markets. However, successful implementation will depend on balancing the competing interests of sovereignty, judicial efficiency, and creditor protection.
India thus stands at a critical juncture. By carefully tailoring international best practices to its domestic context, it can move towards a universalist model of cross-border insolvency that strengthens its financial architecture and positions it as a secure destination for global investment in the coming decade.
Suggested Reference(S):
– Insolvency and Bankruptcy Code, 2016, §§ 234–235.
– Report of the Insolvency Law Committee, Ministry of Corporate Affairs (2018, 2020, 2023).
– Jet Airways (India) Ltd. v. State Bank of India, NCLAT, 2019.
– UNCITRAL Model Law on Cross-Border Insolvency, 1997.
– M.S. Sahoo, “Cross-Border Insolvency in India: The Road Ahead,” Journal of NLU Delhi (2021).
– World Bank, Principles for Effective Insolvency and Creditor/Debtor Regimes (2021).
[1] Jet Airways (India) Ltd. v. State Bank of India, Company Appeal (AT) (Insolvency) No. 707 of 2019 (NCLAT)
[2] UNCITRAL Model Law on Cross-Border Insolvency, U.N. Doc. A/RES/52/158 (1997)
[3] 11 U.S.C. §§ 1501–1532 (U.S. Bankruptcy Code, Chapter 15).
[4] Cross-Border Insolvency Regulations, 2006, SI 2006/1030 (U.K.).
[5] Insolvency, Restructuring and Dissolution Act 2018 (Singapore).
[6] Insolvency and Bankruptcy Code, No. 31 of 2016, §§ 234–235.
[7] Jet Airways (India) Ltd. v. State Bank of India, Company Appeal (AT) (Insolvency) No. 707 of 2019 (NCLAT).
[8]Ministry of Corporate Affairs, Report of the Insolvency Law Committee (2018,2020,2023)
[9] United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention), Dec. 20, 2018, 58 I.L.M. 1 (2019).
[10] Vidhi Centre for Legal Policy, Report on Pendency in NCLTs and NCLAT (2022).
[11] UNCITRAL Model Law on Cross-Border Insolvency, art. 6 (Public Policy Exception).
[12] Insolvency, Restructuring and Dissolution Act 2018 (Singapore).
[13] Cross-Border Insolvency Regulations, 2006, SI 2006/1030 (U.K.).
