The Insolvency and Bankruptcy Code (IBC) of 2016 was established in 2016. The aim is to amend the things related to insolvency and resolve them. The term “cross-border” refers to a situation in which an insolvent debtor has assets and liabilities in more than one jurisdiction, or we could even say that the term “cross-border insolvency” can also be used to refer to international insolvency, with the only distinction being that the creditors are from various nations or jurisdictions.
Although the IBC Code of 2016 doesn’t explicitly address cross-border issues, two sections—sections 234 and 235—were added in response to a joint parliamentary committee report.
Section 235 deals with the requirement that a letter of request is sent to a nation outside of India, and Section 234 deals with the provisions for agreements with foreign states. “But as there is a significant increase in the case of cross-border insolvency, there is a crucial need to add provisions related to cross-border insolvency in the Insolvency and Bankruptcy Code (IBC), 2016,” says the author.
The two sections “do not provide a comprehensive framework for cross-border insolvency,” according to the Insolvency Law Committee (ILC), which was established by the Ministry of Corporate Affairs to suggest changes to the Code, and the “framework is susceptible to delay and uncertainty” for creditors, debtors, and courts.
It has been suggested that India adopt the Model Law of the UNCITRAL on Cross-Border Insolvency (Model Law) with a few changes. The Model Law is a well-recognized legal framework for cross-border bankruptcy difficulties that has been adopted by nations like Singapore, the UK, Japan, and the US.
The Context of India’s Adoption of The Uncitral Model Law
Before the introduction of IBC, The United Nations and many international legal institutions throughout the world created model laws during the early 1990s recession “to produce a model legislation that would be advantageous to resolving the conflicts connected to cross-border insolvency.” Due to the difficulties in international trade brought on by the various jurisdictions, it was necessary to create a model law to bring order, uniformity, and harmony among multinational corporations.
This would help them avoid having to deal with multiple insolvency administrations and would enable creditors in one state to access the assets of the insolvent entity in another.
The model law covers four key concepts of cross-border insolvency: direct access to foreign insolvency practitioners and foreign creditors to participate in or initiate domestic insolvency proceedings against a defaulting debtor; recognition of foreign proceedings and provision of remedies; collaboration between domestic and foreign courts; and coordination between two or more concurrent insolvency proceedings in domestic courts. 44 nations have ratified the Model Law, including the US, the UK, and Singapore.
Despite the fact that the Indian ILC had provided a draught advocating the integration of a Model Law that would be tailored to Indian domestic legislation, it was not adopted. However, the number of cases being handled by the adjudicating authorities is increasing.
It’s interesting to note that when addressing cross-border insolvency matters, courts have simply skimmed the Model Law structure’s rules and applied them not IBC. For instance, the National Company Law Appellate Tribunal (NCLAT) “set aside the judgment of the lower adjudicating body to allow a Dutch administrator to be a part of, and attend, the meeting of the committee of creditors” in the case of Jet Airways India Private Limited.
Indian Resolution Professional and the Foreign Administrator decided on a “Cross Border Insolvency Protocol” in accordance with the NCLAT’s “judgment”. The overseas procedures were accepted as “non-main insolvency proceedings” in accordance with the Model Law, and India was acknowledged as the “center of major interests.” Additionally, “the NCLAT even asked the Indian Resolution Professional, in collaboration with the committee of creditors, to evaluate the prospect of engaging with the foreign trustee,” bearing the interests of the company and its stakeholders in mind. The Model Law’s example of modified universalism was taken into consideration by the NCLAT.
The term “person” was broadened by the Apex Court to encompass those living outside of India. The Indian Constitution guarantees everyone the right to equality, including foreigners, and the Court “remarked that discriminating interpretation would violate the right to equality inherent in the Constitution.”
The international oil and gas business of the diverse firm was ordered to be included in the insolvency proceedings in the case of Videocon Industries, as another illustration. According to the Tribunal, “all lenders have cross-created security interests in various commercial assets of the Videocon Group, seeing it as a single economic” entity. For upcoming cross-border insolvency issues, these rulings “act as precedents.” Aside from that, they “show the necessity for mechanisms to cope with cross-border insolvency difficulties, including creditors and assets situated throughout the world.”
The Purpose of the Model Law –
The Indian government and Parliament should incorporate model law into their own legal systems for a number of reasons. These are the causes:
1. “This will make it easier for Indian bureaucrats to collect foreign assets from foreign jurisdictions.”
2. “International insolvency affecting Indian firms and companies would be effectively treated.”
3. Adopting the model law will contribute to the consistency and uniformity of the administration of cross-border insolvencies.
4. The foreign directors and administrators would have direct access to the courts and other appropriate authorities, according to paragraph.
5.”It would aid in the swift and unambiguous conclusion of the cross-border insolvency cases,”.
6. It would contribute to achieving an adequate level of harmony, consistency, and assurance.
Reasons against Implementing the Model Law
The model law should not be adopted due to a number of disadvantages, and India must consider alternatives. Which are:
1. “If the model law is adopted in India, there may be contradictions in the domestic legislation.”
2. There is a chance that disputes over the goals of the legislation and legal conflicts will arise.
3. “There should be a suitable law on cross-border insolvency before the model law is incorporated into Indian laws or IBC.”
The Insolvency and Bankruptcy Code (IBC) will be amended by the government, and a chapter on cross-border insolvency will be included.
The “comfort of international investors in India and vice versa” would result from this. A source in the government said, “We plan to get a Cabinet nod for this soon.” The Ordinance will be based on the UNCITRAL model law for cross-border insolvency.
Press release – 25 years of the #UNCITRAL Model Law on Cross-Border Insolvency – more here ➡ https://t.co/uiUuRLZ1DN pic.twitter.com/en58NUDIw6
— UN Vienna (@UN_Vienna) May 30, 2022
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