INDIA AND THE UNCITRAL MODEL LAW: A STEP TOWARDS CROSS-BORDER INSOLVENCY REFORM

Introduction

If the insolvent debtor has assets and creditors spread across several jurisdictions, this is known as cross-border insolvency. This leads to complex coordination issues and overlapping legal proceedings. In today’s interconnected global economy, this situation has become more common as multinational companies locate in more than one country, placing creditors and debtors in different legal systems.[1] The corporate world is getting smaller as global trade and technology rapidly evolve, and more multinational companies form complex cross-border business partnerships.

The importance of having an effective cross-border insolvency regime for India, which has seen a significant increase in outward transactions and FDI, cannot be overemphasized. Given India’s increasing presence in international financial markets and supply chains, Indian companies are more likely to have foreign creditors and assets, while foreign companies operating in India may be required to go into bankruptcy, affecting Indian stakeholders. Currently, India’s legal system is not yet adequate to deal with these complex situations, which depend mainly on costly, time-consuming and often non-existent bilateral agreements.

India’s Current Legal Framework

The Indian primary insolvency law, the Insolvency and Bankruptcy Code (IBC) of 2016,[2] was designed to provide a time-bound and effective mechanism to deal with corporate insolvency. However, the IBC largely follows national law and deals with insolvent entities located in India1. The Code contains only two provisions specifically dealing with cross-border insolvency proceedings: Section 234[3] and Section 235.[4]

Section 234 authorises the central government to conclude agreements with foreign governments to enforce the provisions of the IBC. It provides that the central government may conclude bilateral agreements with any country outside India and may direct, by means of an Official Journal notice, that the application of the IBC provisions to assets and property located in foreign countries is subject to certain conditions, provided that reciprocal arrangements are made.2 On the other hand, Section 235 allows resolution professionals, liquidators or insolvency practitioners to apply to the court if they believe that the assets of the corporate debtor are located in a foreign country with which they have a reciprocal arrangement. Upon finding that evidence or action concerning such property is required, the court may issue a letter of formal notice to the competent court or authority in the country concerned.3

These provisions constitute a fundamental acknowledgement of cross-border insolvency problems, but do not provide a comprehensive framework for dealing with such problems. The main limitations of this approach are manifold. First, bilateral agreements are time-consuming, costly and not a reliable source of leverage because of the multiple layers of negotiations involved. Second, balancing competing clauses in different contracts concluded with different jurisdictions becomes difficult when the assets of the corporate debtor are located in several places. Thirdly, such ad hoc procedures would significantly delay the bankruptcy procedure and would undermine the main objective of the IBC, which is to resolve the situation within a fixed period.

UNCITRAL Model Law on Cross-Border Insolvency

The UNCITRAL Model Act on cross-border insolvency, adopted in 1997,[5] was designed to help countries equip their insolvency laws with a modern, harmonised and fair framework for a more efficient treatment of cross-border insolvencies. The model law deals with cases where the debtor has assets in more than one State or where some creditors are not from the State where the bankruptcy proceedings are ongoing. The framework is based on the principle that the bankruptcy proceedings at the centre of the debtor’s main interests should be the main responsibility for the management of the bankruptcy, irrespective of the number of states in which the debtor has assets and creditors.

The model law contains several key features which distinguish it from bilateral treaty approaches. It provides direct access to national courts for foreign insolvency practitioners, allowing them to apply for recognition of foreign proceedings and to seek appropriate relief. The framework sets out clear criteria for recognition of foreign proceedings, including the requirement that the proceedings must be pending in the country in which the debtor has his centre of main interests (COMI) or his establishment. It also facilitates cooperation and coordination between courts and insolvency practitioners in different jurisdictions, encouraging the sharing of information and coordinated relief actions.

The model law has been successfully adopted by a number of jurisdictions around the world, which demonstrate its practical effectiveness. The United States incorporated it as Chapter 15 of the US Bankruptcy Code,[6] and the UK introduced it in the 2006 Cross-Border Insolvency Rules.[7] Singapore also adopted a model law with appropriate local adaptations.[8] These transpositions have proved effective in providing a universalist, yet practical framework that reconciles the need for international cooperation with respect for local sovereignty and procedural requirements. The success of these adoptions confirms the model law approach of modified universalism, recognising the primacy of the main proceedings while allowing for the necessary local coordination and protection of local interests.

India’s Move Towards Reform

Recognising the limitations of the current framework, the Ministry of Enterprise set up the Insolvency Law Committee on 16 November 2017. The Committee presented its first report in March 2018 and recommended various amendments to the IBC.[9] However, given the complexity of cross-border insolvency and the need for in-depth research in order to adopt a UNCITRAL model law for India, the Committee decided to make a separate recommendation in this area.

The second ILC report, presented on 16 October 2018, specifically addressed cross-border insolvency and recommended changes to the Insolvency and Bankruptcy Code (IBC) on the basis of the UNCITRAL model. The Committee has proposed a Part Z of the Code, which would include the key provisions of the model law, adapted to the Indian context. This proposed chapter has been designed to address the limitations of the prevailing cross-border insolvency mechanisms and to provide a comprehensive framework for international cooperation.

The recommendations of the Committee contained several important elements. First, it proposed that the proposal for Part Z should initially apply only to corporate borrowers, with the exclusion of individuals and joint ventures. Second, it recommended that the model law be adopted initially on the basis of reciprocity, which could be diluted at a later stage on review. This approach would ensure that Indian courts recognise and enforce foreign judgments only if the foreign country has adopted similar legislation. Thirdly, the Committee has addressed the concept of the centre of main interest and has provided detailed guidance on how to define it. Under the proposed Section 14 of the proposal for Part Z, the place of residence of the corporate debtor would be presumed to be its COMI, unless evidence to the contrary is provided, unless the place of residence is moved within three months before the opening of the proceedings.

The Committee also recommended specific changes to the existing provisions on the IBC to adapt to the new framework. It proposed to amend sections 234 and 235 to exclude corporate debtors and apply only to individuals and partnerships, as the provisions on corporate debtors would be included in Part Z. It also recommended to amend section 60 to allow for the transfer of domestic proceedings to foreign jurisdictions in appropriate circumstances.[10]

Key Challenges and Concerns

Despite the theoretical advantages of the UNCITRAL model, there are several practical problems and concerns that need to be addressed in order to successfully implement UNCITRAL. The first major problem relates to the capacity and consistency of the judiciary. Indian courts, in particular the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT),[11] are currently facing a heavy workload and will need additional training and resources to manage complex cross-border coordination efficiently.[12]

Institutional preparedness is another concern, as the existing insolvency infrastructure is already stretched thin. Successful implementation of cross-border insolvency provisions would require significant capacity building, including training of insolvency practitioners, judges and court clerks in international cooperation protocols and foreign legal systems. Moreover, the establishment of mechanisms for effective communication and coordination with foreign courts and insolvency practitioners would require considerable administrative and technical investment.

Concerns about sovereignty also represent potential obstacles to implementation. Indian politicians and the judiciary may be reluctant to allow foreign courts to intervene in proceedings affecting Indian property or creditors. The concept of recognising foreign proceedings and granting relief to foreign claimants can be perceived as compromising national sovereignty, especially in cases involving important economic interests or strategic assets.

These problems are exacerbated by the lack of existing bilateral insolvency treaties. Even within the current framework of Sections 234 and 235,2 India has not established reciprocal arrangements with third countries, which indicates institutional reluctance or administrative complexity in negotiating such agreements. This history suggests that similar resistance or delays may arise in the implementation of a more comprehensive framework.

Another major concern is the risk of forum shopping if the COMI concept is not applied with sufficient clarity and consistency. Without clear guidelines and precedents for identifying the main interest of the debtor, disputes over jurisdiction could delay proceedings and create legal uncertainty for creditors and other interested parties.

The Way Forward

To successfully implement cross-border insolvency reform, India should adopt a gradual approach that addresses the identified problems while building institutional capacity in the process. The first priority should be to enact Part Z of the Inter-Community Convention with appropriate safeguards to protect Indian interests while allowing international co-operation. Such legislation should include clear definitions of COMI, strong exemptions from public policies and mechanisms to protect local creditors and employees.

Judicial training is a critical element for successful implementation of the Directive. India should develop specialised training programmes for NCLT and NCLAT members in the areas of cross-border insolvency principles, international cooperation protocols and comparative insolvency law. This training could be developed in cooperation with international organisations such as UNCITRAL and jurisdictions which have successfully implemented a model law.

India should consider adopting a modified universalism approach that recognises the primacy of the main proceedings while ensuring adequate protection of local interests. This approach would balance the benefits of international cooperation with the necessary guarantees of sovereignty and protection of local stakeholders. The framework should include clear criteria for recognition of foreign proceedings, guidelines on the granting of relief to foreign legal entities and mechanisms to ensure coordination between national and foreign proceedings.

The establishment of bilateral cooperation frameworks could serve as a transitional measure until multilateral recognition becomes possible. India could start by negotiating bilateral bankruptcy agreements with key trading partners and jurisdictions where Indian businesses are strongly based. Such agreements could serve as pilot schemes to test cooperation mechanisms and build institutional experience in cross-border coordination.

In addition, India should actively participate in the UNCITRAL working groups and other international fora dealing with cross-border insolvency issues. Such engagement would help India to keep up-to-date with international best practice and to contribute to developing global standards for cross-border insolvency cooperation.

Conclusion

India’s growing integration into the global economy requires a strong cross-border insolvency mechanism that can effectively address the complexity of multinational corporate insolvency. [13]The current framework of the Internal Border Crossing Convention, limited to sections 234 and 235, is rudimentary and largely non-functional without bilateral agreements1. The absence of any bilateral agreements on insolvency further undermines the effectiveness of these provisions and leaves India poorly equipped to deal with cross-border insolvency situations, which are increasingly common.

The adoption of the UNCITRAL Model Law, as recommended by the Insolvency Committee in its draft Part Z, is an important opportunity for modernising the Indian insolvency process4. Such a framework would allow foreign proceedings to be recognised, facilitate cooperation between courts and legal practitioners in different jurisdictions, and give international lenders and investors more certainty. The successful implementation of similar frameworks in other major jurisdictions demonstrates the practical feasibility of this approach.[14]

However, successful implementation will require careful attention to institutional capacity building, training of judges and the development of adequate safeguards to address the issue of sovereignty. With careful implementation that balances international cooperation with the protection of national interests, India can create a cross-border insolvency framework that makes it more attractive as an investment destination, while providing efficient mechanisms to deal with complex cross-border insolvencies. Such a reform would position India as a world leader in international trade law and would contribute to greater stability and predictability in global financial markets.

[1] Manasi Lad Gudhate, Cross-Border Insolvency in India: A New Regime in the Making, THE ICSI, https://www.icsi.edu/media/webmodules/CSJ/April/15ArticleManasiLadGudhate.pdf.

[2] The Insolvency and Bankruptcy Code, No. 31 of 2016, Acts of Parliament, 2016 (India).

[3] The Insolvency and Bankruptcy Code, No. 31 of 2016, § 234, Acts of Parliament, 2016 (India), https://ibclaw.in/section-234-agreements-with-foreign-countries/?print-posts=print&print=pdf.

[4] The Insolvency and Bankruptcy Code, No. 31 of 2016, § 235, Acts of Parliament, 2016 (India), https://ibclaw.in/section-235-letter-of-request-to-a-country-outside-india-in-certain-cases/.

[5] UNCITRAL, Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation, U.N. Doc. A/CN.9/442 (1997), https://digitallibrary.un.org/record/1487896/files/1997-model-law-insol-2013-guide-enactment-e.pdf.

[6] U.S. Courts, Chapter 15 – Bankruptcy Basics, https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-15-bankruptcy-basics.

[7] Mayer Brown LLP, Overview of the English Legal Framework for Cross-Border Insolvency, https://www.mayerbrown.com/public_docs/Overview_English_Legal_Framework.pdf.

[8] Abdullah, Singapore and the Model Law on Cross-Border Insolvency, INSOL INT’L (2022), https://www.iiiglobal.org/file.cfm/46/docs/panel%203.%20abdullah%20singapore%20and%20the%20model%20law.pdf.

[9] Insolvency Law Committee, Report on Cross-Border Insolvency, MINISTRY OF CORPORATE AFFAIRS (Oct. 2018), https://prsindia.org/policy/report-summaries/insolvency-law-committee-cross-border-insolvency.

[10] The Insolvency and Bankruptcy Code, No. 31 of 2016, § 60, Acts of Parliament, 2016 (India).

[11] The Insolvency and Bankruptcy Code, No. 31 of 2016, §§ 60–61, Acts of Parliament, 2016 (India).

[12] HPNLU, UNCITRAL Model Law and India’s Preparedness for Cross-Border Insolvency, HPNLU J. (2024), https://www.hpnlu.ac.in/PDF/91fc2473-f106-48e8-bd4f-a3d0efeae78e.pdf.

[13] Reserve Bank of India, Annual Report 2022–23, ch. III: Foreign Investments and External Sector Developments (2023), https://www.rbi.org.in.
See also World Bank, India Trade Summary 2023, https://wits.worldbank.org/CountryProfile/en/Country/IND (last visited May 25, 2025).

[14] Chan Ho, Cross-Border Insolvency: A Commentary on the UNCITRAL Model Law (2d ed. 2016).