Trade, investment, and cross-border economic activity increased after India's economy was liberalized in the 1990s. The overall result of this was a rise in cross-border insolvency cases. Additionally, more foreign direct investment entered Indian markets as a result of the liberalization measures, and Indian businesses expanded internationally. When an insolvent debtor has assets or creditors in several jurisdictions, it is referred to as cross-border insolvency and requires cross-border insolvency processes to be coordinated. Due to the country's expanding economic integration, which has led to Indian businesses operating abroad and dealing with cross-border insolvency concerns, this phenomenon is becoming more and more significant in India. Due to the growth of international corporations, insolvency proceedings sometimes involve assets and liabilities in multiple nations, making the legal environment more complex for both debtors and creditors.
Over time, India's insolvency rules have undergone tremendous change. One of the first attempts to address insolvency difficulties was the Insolvency Act of 1848. Insolvency was not the primary goal of the Corporations Act of 1956, which created measures for winding up corporations. A significant revision was made to the Insolvency and Bankruptcy Code (IBC), 2016 with the goal of accelerating and streamlining insolvency resolution procedures.[1]
Corporate restructuring, which covers a number of strategies like debt restructuring, mergers, demergers, and spin-offs, is crucial in helping a troubled business return to operational efficiency as opposed to going into liquidation. In India, it is essential for managing non-performing assets and improving the financial health of companies, which preserves jobs and economic worth. Corporate Restructuring is essential for promoting economic growth and stability. Businesses in India with strong restructuring plans will be able to avoid CRI, save jobs, and safeguard creditors' interests. The IBC puts corporate restructuring in a more methodical format and assists in organizing the steps that can prevent total loss while also assisting in the establishment of prosperous businesses. This is particularly important in the international setting of insolvencies, when quick intervention can minimize losses for both domestic and foreign creditors.
Legal Framework for Cross-Border Insolvency in India
Sections 234 and 235 of the IBC contain special provisions pertaining to cross-border insolvency. In order to execute the IBC's rules pertaining to assets situated outside of India, the Central Government may enter into bilateral agreements with foreign nations under Section 234. Indian adjudicating agencies are authorized by Section 235 to send letters to foreign courts requesting assistance with assets located overseas. But despite these clauses, their efficacy is limited by large gaps brought about by the absence of reciprocal agreements with other countries.[2]
These clauses at least shed insight on the problem of cross-border insolvency in IBC, despite the fact that bilateral agreements are a costly, time-consuming, and inconclusive source of reliance because of the numerous levels of negotiation involved. One of the most difficult problems for the adjudicating body to handle may be balancing conflicting provisions of several treaties signed with different jurisdictions because the corporate debtor's assets are spread across several locations. The ILC acknowledged in its March 2018 Report that the current IBC provisions, Sections 234 and 235 do not offer a thorough framework for addressing cross-border concerns. Since the intricacies of the cross-border regime need a thorough analysis in order to adopt the Model law in India as well, adopting the Model law's foundation appears to be a reasonable approach.
Recognizing international insolvency procedures in India will be made possible by the country's cross-border insolvency legislation. Even though India will eventually adopt the Model Law, it is crucial to consider whether there is still a separate foundation for acknowledging and supporting cross-border bankruptcy procedures in India apart from the Model Law.[3] The drafters of the Model Law intended it to serve as an additional pathway to those offered by local laws, as stated in Article 7. Additionally, this principle is not specifically broken by the proposed Indian law under Article 5 of Draft Part Z of the Insolvency and Bankruptcy Code 2016.
India has published a set of draft guidelines including a dedicated chapter on cross-border insolvency, Part Z (the Draft chapter), in an effort to address the shortcomings of the current cross-border insolvency mechanism or the lack thereof. The Draft is based on the Model Law. The Insolvency Law Committee approved the draft recommendations in its report, which was turned in on October 16, 2018. The Cross-border Insolvency Rules/Regulation Committee (CBIRC) approved Draft Part Z subordinate legislation, which was created by combining the Model law's provisions with the Indian framework once the necessity for its adoption became apparent. In order to obtain the proper relief for a foreign case, the Model Law gives foreign representatives the authority to ask a domestic court to recognize the foreign procedure.
The report also suggests that Article 27 of the Model Law, which offers examples of different types of collaboration between domestic and foreign courts and insolvency professionals, and Article 26 of the Model Law, which permits communication and cooperation between insolvency professionals and foreign courts and foreign representatives under the supervision of the domestic courts, be adopted with no significant changes.[4]
Judicial Proceedings and Case Analysis
A significant turning point in the legal landscape of India is the case of Jet Airways (India) Ltd. v. State Bank of India and Anr., which strives to understand the intricate dynamics in a country's legal engagement with cross-border insolvency. It explains the early struggles in aligning domestic insolvency laws to international standards, given the absence of a codified cross-border insolvency regime under the Insolvency and Bankruptcy Code, 2016 (IBC). Thus, this case is central to some very vital concerns-that of ascertaining the center of main interests (COMI), judicial comity, and national sovereignty vis-a-vis transnational insolvency.[5]
The origin of the dispute lay in the commencement of parallel insolvency proceedings in India and the Netherlands against Jet Airways. While the National Company Law Tribunal, Mumbai, was dealing with the proceedings as per Section 7 of the Insolvency and Bankruptcy Code (IBC) on the state's petition by State Bank of India (SBI), the bankruptcy proceedings commenced in the Netherlands and had appointed a trustee to manage the debtor-s assets in the Netherlands. The experiment by approaching the Indian courts made by the Dutch trustee requesting recognition of the Dutch proceedings and such a moratorium on the Indian process tested India's readiness to address cross-border insolvency disputes (protocol).[6]
The NCLT's declaring these Dutch proceedings null and void, in the name of Sections 234 and 235 of the IBC, demonstrates the inadequacy of the existing framework in a comprehensive manner with respect to the cross-border insolvency. Section 234 envisages bilateral contracts with foreign jurisdictions for cooperation in insolvency cases, and Section 235 empowers domestic courts to make letters of request to foreign courts. But neither of these provisions was viable due to the lack of any actual bilateral agreement for the operation. That leaves really effective action dependent on such narrowly set-out procedural rigidity.
This was thus flagged for review by the National Company Law Appellate Tribunal (NCLAT), which took on a much more progressive approach to the creation of a cross-border insolvency protocol. It drew from the provisions of the UNCITRAL Model Law on Cross-Border Insolvencies in between the Resolution Professional in India and the Dutch trustee. Recognizing the COMI of Jet Airways as being India because it has been incorporated and is doing most of its business operations within the territories of India, the NCLAT affirmed the lex loci incorporationis (the law of the place of incorporation) as the determinant for COMI. This would have clarity for the jurisdiction by determining the base of operations from which it fulfills its existence.[7]
Therefore, it becomes as right or wrong an assertion of a spirit of applicability coalescing across jurisdictions in cross-border insolvency through the maxim comitas gentium within the case, but on the other hand, it also conveys some severe deficiencies. Above all, it shows how ad hoc the protocol is, given the need for more institutionalized channels in the IBC to handle transnational insolvency issues coherently. This time lost in the legislative import of the UNCITRAL Model Law will simply not recover the effects of this lack of opportunity for providing certainty and predictability on all such questions.
Recognition of COMI raises some serious challenges as to possible forum shopping and related conflicts of jurisdictions. The void of clear statutory legislation on the issue in India renders an interpretative flexibility, which can lead to varied results in future cases. While the Model Law seeks to minimize such conflicts through the principle of universality, its non-codification in India perpetuates a territorialist approach, risking inefficiencies and inequities in cross-border insolvency.
Internationally, the case from corporate restructuring puts emphasis on the alignment of global efforts toward maintaining enterprise value. Parallel proceedings, such as in Jet Airways, can easily lead to fragmentation of assets and duplication of efforts towards conflicting creditor claims, thus defeating the principle "cessante ratione legis, cessat ipsa lex." This cross-border insolvency protocol is capable of better coordination but cannot, unfortunately, eradicate delay and costs always attached to both dual processes.
This case also brings to the fore the critical role of the judiciary in filling the gap left by the legislature with respect to judicial innovation. This, however, shows a slight inclination towards the incorporation of international best practices even within the limits of domestic law in an NCLAT, which has holistic reliance on principles of international comity. This judicial activism may be hailed mostly, but it, however, demands urgent legislative action to institutionalize cross-border insolvency mechanisms within the IBC.
It shows both the promise and the perils of the Indian approach to cross-border insolvency through the Jet Airways case. It is a clarion call to a legislative overhaul on such grounds to advocate adopting the UNCITRAL Model Law in establishing a comprehensive, predictable, and equitable framework for trans-transnational insolvency proceedings. The principles of salus populi suprema lex and jus gentium must shape India's policy direction in ensuring that corporate restructuring within a globalized economy considers the essentials of efficiency, equity, and judicial harmony.
State Bank of India v. SEL Manufacturing Co. Ltd.[8] posed a formidable question about the status of foreign creditors during CIRP. In its dispute resolution, NCLT adhered to the principle nemo debet esse judex in propria causa (no one should be a judge in their own cause) to ensure independent adjudication for creditor claims under CIRP. Proceedings concluded on characteristics of fiat justitia ruat caelum ("let justice be done though the heavens fall") thereby framing normal treatment for foreign creditors. However, there were and remain procedural inefficiencies as there are no explicit provisions on cross-border insolvency, which delay resolution time.
Kingfisher Airlines' bankruptcy[9] exposed critical problems arising from foreign creditors and properties abroad. While proceedings to effect resolution in India under the IBC concerned domestic claims, international creditors could not use the redress mechanisms without hitting procedural walls. The courts, however, invoked the maxim actus curiae neminem gravabit which, if put to work, meant that procedural gaps should not cause any injustice to foreign creditors. That, however, could not help consolidate all international claims under one umbrella, and thus weakened the resolution process.
Impact on Stakeholders
The introduction of the Insolvency and Bankruptcy Code, 2016 (IBC) is seen as a disruptive event in the overall insolvency mechanism of India. This code has addressed many long-standing inefficiencies and uncertainties that have plagued processes for resolving debts. While continuing India's efforts at closer integration into the global economy, the IBC has also worked far-reaching changes on the domestic scene-and among foreign investors-given the array of benefits associated with such a structured, time-bound inclusive approach towards distressed asset resolutions. It suggests a clear passage in legislative evolution to reveal the emerging face of India that is committed to having an equitable but friendly business environment, especially for those foreign creditors considered to be the realization of economic globalization.[10]
That which was considered as the milestone case by the Supreme Court of India in cases like Macquarie Bank v. Shilpi Cable Technologies Ltd.[11] was the doctrine of inclusion in relation to IBC. It was a matter concerning a foreign petitioner who made an application for initiation of corporate insolvency resolution process, but the national company law tribunal and later on the national company law appellate tribunal declined to accept such petition due to lack of compliance with procedural requirement of having such application supported with certificate from financial institution regarding unpaid operational debt. The Supreme Court, through a landmark judgment, stated that the procedural provisions are only directory and not mandatory and thus produced an emphasis on substance rather than process. This progressive interpretation dissolved procedural obstacles for foreign creditors in consonance with the spirit behind the IBC to promote ease of doing business.
The Stanbic Bank Ghana v. Rajkumar Impex Private Limited case[12] is not an exception with respect to showing that the IBC is inclusive. The NCLT allowed CIRP proceedings against an Indian corporate debtor at the behest of foreign creditor through a guarantee extended by debtor for its subsidiary in Ghana. This exemplifies the extraterritoriality of the IBC and capacity to tackle contemporary problems associated with needs of global financing.
The proactive approach of the judiciary towards virtual hearings has made it a convenient setting for foreign creditors in the insolvency scenario. NCLT and NCLAT have already gone online, so foreign creditors can be a party to the proceedings, mostly through Indian legal representatives. The case in point is of Netherlands bankruptcy administrators who participated in Jet Airways (India) Limited proceedings in insolvency. It demonstrates how courts are investing time into removing barriers of access. This makes it easy for foreign stakeholders and projects India as a progressive, investor-friendly insolvency regime.
Unlike all other recovery frameworks in India, India's IBC approach has been one that getting through an expedited and inclusive resolution distinguishes it. For instance, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, provides relief to only certain creditors, banks in this case. It is not because of the relatively specific application, but also the time-consuming procedures under this Act render it less immediate than the IBC. There are recovery suits having a long duration and tedious course within the Civil Procedure Code of 1908 where trials are based on the old form of proceeding. The conventional framework of the IBC is thus termed as the best option to avail for domestic and foreign creditors insolvency issues resolution in speedier yet more comprehensive processes than other laws.
Moreover, such operational inefficiencies as capacity constraints within NCLT and NCLAT may lead to delays in resolution timelines and, therefore, defeat the core purpose of the IBC with time-bound insolvency resolution. Nevertheless, even in this great cause, procedural flexibility to foreign creditors must go hand-in-hand with very stringent safeguards against misuse.
Bankruptcy jurisprudence and corporate restructuring speak about Indian and foreign Multinational Corporations at times. They include principles like salus populi suprema lex and cessante ratione legis, cessat ipsa lex. Globalization conditions a world with an urgent need for convergence in the insolvency laws so as to be predictable, efficient, and fair. The evolution of legal frameworks must now be commensurate with the demands of modern commerce and their complexities and immune systems resilient enough to endure the interest of all stakeholders.
Insolvency and the Bankruptcy Code of 2016 about this culture are perhaps, using a latter-day, India stepped forward from where its insolvency law stood. It has instituted a transparent, systemic, and resourceful spending convert for distressed assets. Its cardinal strength lies in equal treatment of foreign creditors as this measure promotes cross-border investments and agrees with global best practices. While the framework of the code is the thinking product of India's ingenuity both in legislation and judiciary, continuous efforts are required to address its weaknesses and adapt to the growing.
Authors: Sourav Ghosh (Managing Partner) and Samrat Sengupta (Equity Partner) At S Jalan & Co. Views are personal.
Principles for Effective Insolvency and Creditor/Debtor Regimes, World Bank (2015)
Also see, UNCITRAL, UNCITRAL Model Law on Cross Border Insolvency, Guide to Enactment (January 2014) ('Guide to Enactment'), 53, available at: <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/1997-model-law-insol-2013-guide-enactment-e.pdf> ↑
Aditi Rathore, Navigating Cross-border Insolvency: Evaluating India's Legal Framework and the Uncitral Model Law 2014 - NLIU Law Review, NLIU Law Review (Oct. 25, 2024), https://nliulawreview.nliu.ac.in/blog/navigating-cross-border-insolvency-evaluating-indias-legal-framework-and-the-uncitral-model-law-2014/ ↑
Cross Border Insolvency Rules/Regulations Committee ('CBIRC'), Report on the rules and regulations for cross-border insolvency resolution (15 June 2020), 32. ↑
Guide to Enactment (above note 110), paragraph 212; Jenny Clift, 'UNCITRAL Model Law on Cross-Border Insolvency - A Legislative Framework to Facilitate Coordination and Cooperation in Cross-Border Insolvency' (2004) 12 Tulane Journal of International and Comparative Law 324.
Also see, Brendan Driscoll, 'International Comity After Chapter 15: A Residual Right to Recognition?' [2008] Submission for III Prize in International Insolvency Studies ↑
State Bank of India and Ors v Jet Airways (India) Limited (NCLT Mumbai) CP 2205 (IB)/MB/2019; CP 1968(IB)/MB/2019 & CP 1938(IB)/MB/2019. ↑
An insolvency protocol is an agreement between the local insolvency resolution professional and the foreign representative that sets out the modes and methods of cooperation and communication. Such a protocol must ultimately be approved by the courts in accordance with the law and practice of each local jurisdiction, as it is unenforceable without judicial backing. ↑
Jet Airways (India) Ltd v State Bank of India and Ors (NCLAT) Company Appeal (AT) (Insolvency) No 707 of 2019. ↑
State Bank of India v. SEL Manufacturing Co. Ltd., [2019] SCC Online NCLT 567 ↑
Proceedings were under United Bank of India v. Kingfisher Airlines Limited & Vijay Mallya [2016] SCC Online SC 103. ↑
Draft Part Z of the Insolvency and Bankruptcy Code 2016, s 7(2); 'Code of Conduct of Foreign Representatives',in Cross Border Insolvency Rules/Regulation Committee (n 33) 113, First Schedule. ↑
Macquarie Bank Limited v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674. ↑
Stanbic Bank Ghana Ltd. v. Rajkumar Impex Private Limited, [2018] SCC Online NCLT 1106 ↑