CROSS-BORDER INSOLVENCY: AN INDIAN PERSPECTIVE

INTRODUCTION

With global economies and businesses transcending boundaries, national laws limited by territorial borders find themselves engulfed in constant strife when it comes to cross-border disputes. Insolvency disputes are not an exception. Cross-border insolvency disputes involve insolvency procedures initiated in one or more countries against an entity having debts and assets scattered across various jurisdictions.

With multi-national entities getting embroiled in insolvency procedures frequently, the need for a unified approach towards cross-border insolvency proceedings has intensified through the years. Despite the adoption by UNCITRAL of the Model Law on Cross-Border Insolvency ("UNCITRAL Model Law") way back in 1997, States have failed to implement the same domestically, leading to an unfortunate multiplicity of applicable insolvency laws in cases where disputes are not territorially limited. To add to this, the inconsistent approach of States in treating the insolvent debtors has resulted in an unclear legal position.

CROSS-BORDER INSOLVENCY DISPUTES: THE LEGAL FRAMEWORK

Cross-border insolvency disputes are particularly problematic and lengthy in nature. With assets and debts of the debtor positioned across several territories, the situation gives birth to an inherent conflict of laws situation. There are two primary approaches to such a situation under the insolvency framework, i.e., territorialism and universalism1. While the concept of territorialism obligates States to apply its own substantive insolvency law to the assets of a debtor located in its own jurisdiction, universalism on the other hand refers to the insolvency law of the jurisdiction where the debtor has its 'Centre of Main Interest' ("COMI")2.

Taking into consideration the distinct approaches that States might resort to for resolving cross-border insolvency disputes, various international organisations have enacted their own cross-border insolvency frameworks that States may incorporate within their domestic laws.

UNCITRAL Model Law on Cross- Border Insolvency

The cross-border insolvency framework as propounded by the UNCITRAL Model Law rests on four primary pillars viz., access to local courts3, recognition of certain orders issued by foreign courts4, relief to assist foreign proceedings5 and cooperation and co-ordination among the courts of States where the debtor's assets are located6. States possess the option of modifying the provisions of the UNCITRAL Model Law while incorporating it within their jurisdiction.

European Commission Regulation on Insolvency Proceedings, 2000 ("EC Regulation")

Article 3 of the EC Regulation delineates the courts that shall possess jurisdiction in cases of cross-border insolvency disputes within the European Union member States. As per the provision, the primary jurisdiction vests with the courts of the member States where the debtor has its COMI, while secondary jurisdiction vests with any other States where the debtor has an establishment. Article 4 of the EC Regulation provides that the law to be applied to the proceedings shall be that of the member State within the territory of which such proceedings are invoked.

CROSS-BORDER INSOLVENCY DISPUTES – LEGAL FRAMEWORK IN INDIA

The Indian insolvency regime, in its present state, does not address the varied concerns that may arise from cross-border insolvency disputes. India has not adopted the UNCITRAL Model Law as of date. The regime regulating such disputes is limited to Sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016 ("IBC"). The provisions are limited in their scope in the present form and leave out various significant issues that may crop up in such a dispute.

Cross-Border Insolvency Framework under the IBC

Duty of a Resolution Professional/Liquidator/Bankruptcy Trustee (Section 235 (1)) If the Resolution Professional ("RP")/Liquidator/Bankruptcy Trustee is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India, the RP may make an application to the National Company Law Tribunal ("NCLT") that evidence or action relating to such assets is required in connection with such process or proceeding.

The following pre-requisites are to be fulfilled:

  • The resolution or bankruptcy process must have been initiated under the IBC; and
  • There must be a reciprocal arrangement with the said country under Section 234 of the IBC. Under the said provision, the Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of the IBC. The Central Government may further specify conditions for the application of IBC provisions to such disputes. The following pre-requisites are to be fulfilled:

Duty of the Adjudicating Authority (Section 235 (2)) On receiving an application from the RP/ Liquidator / Bankruptcy Trustee, the adjudicating authority on being satisfied that such evidence or action is required, may issue a letter of request to a court or an authority of such country competent to deal with such request.

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Footnotes

1. Sefa M. Franken, 'Cross-Border Insolvency Law: A Comparative Institutional Analysis', 34, Oxf. JLS, 98, (2014).

2. As per the EC Regulation on Insolvency Proceedings, the concept of 'Centre of Main Interest' (also commonly referred to as COMI) refers to the place where the debtor conducts the administration of his business on a regular basis and is ascertainable by third parties. In case of a corporate entity, the COMI is usually where the registered office is situated.

3. Chapter II, UNCITRAL Model Law.

4. Chapter III, UNCITRAL Model Law.

5. Ibid.

6. Chapter IV and Chapter V, UNCITRAL Model Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.