Cross-Border Insolvency in India: A Scenario on Anvil
By Anchal Jindal (Insolvency Professional Agency of The Institute of Cost Accountants of India)
The promulgation of the 2016 Insolvency and Bankruptcy Code (“Code”) in India is a revolutionary step taken by the Indian legislature in the domain of resolving issues in insolvency and bankruptcy law. It is a dynamic piece of economic legislation that proactively works towards reviving and restructuring debt ridden companies in an effective and efficient manner. Within a short period of three years, the Code has passed many litmus tests justifying its very purpose of enactment and paving a way towards an endless hope for the plethora of stakeholders.
The Code provides for the provisions pertaining to the corporate insolvency resolution process, fast track insolvency resolution process, liquidation, voluntary liquidation, personal guarantor’s insolvency and bankruptcy process under one umbrella. However, after crossing various milestones, the Code is akin to a half-baked cake as it has yet to bring onboard the provisions pertaining to cross-border insolvency. With the advent of landmark cases like the insolvency of Jet Airways and Videocon Group, the introduction of a robust framework dealing with cross-border insolvency is required in this hour of need.
India’s existing framework on cross-border insolvency
Hailing back to 2000, the first report was put forward by the Justice Eradi Committee taking into the account the reality of globalisation in India’s trade and businesses which in turns mandates the adoption of the UNCITRAL Model Law on Cross-Border Insolvency (“UNCITRAL Model Law”). Thereafter in 2002, it was the Professor Mitra Committee that bought to light a need to have in place a law in India to deal with cross-border insolvency. In 2005, the JJ Irani Committee expressed a need for the Indian economy to articulate a comprehensive framework that addresses global insolvency issues.
In 2015, when the Bankruptcy Law Reforms Committee recommended the Insolvency and Bankruptcy Bill, 2015, the provisions addressing cross-border insolvency were not recommended on account of a lack of institutional backup in India in terms of judicial infrastructure, experienced insolvency practitioners and strong structure ensuring flawless communication between the bankruptcy courts of different countries. To cover this interstice, the Joint Parliamentary Committee recommended for Section 234 and Section 235 in the Code. However, both sections at present do not provide for a comprehensive framework to deal with the cross-border insolvency issues.
Section 234 of the Code provides for entering into the agreements with the foreign countries/reciprocal arrangements by the Central Government in relation to the assets or property of the corporate debtor situated in a country outside India for the purpose of enforcing the provisions of the Code with regard to the cross-border insolvency. Whereas Section 235 of the Code provides that wherein the insolvency practitioner is of the opinion that the assets of the corporate debtor are situated in a country outside India with which reciprocal arrangements have been entered into pursuant to Section 234 of the Code, then such insolvency practitioner can make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding. Upon being satisfied, the Adjudicating Authority may issue a Letter of Request to a court or an authority of such country outside India to deal with such request.
In 2018, the Insolvency Law Committee submitted its report to the Ministry of Corporate Affairs recommending amendments to the Code with respect to cross-border insolvency. The Committee proposed a draft ‘Part Z’ in the Code, based on an analysis of the UNCITRAL Model Law. In January 2020, the Ministry of Corporate Affairs has constituted a special committee to recommend new rules and regulatory framework for the smooth implementation of some proposed cross-border insolvency provisions in the Code and the committee has submitted its report on the proposed framework of cross-border insolvency in India to the Ministry of Corporate Affairs in the last week of May 2020.
Challenges in existing Indian framework
Since the Code is in its nascent stage and every maiden legislative framework take its own time to settle down and in order to have a fair arrangement to deal with cross-border insolvency issues in India, various domains need to be catered well in advance by the upcoming law on the subject. For example, mechanism to ensure judicial cooperation between the bankruptcy courts of different jurisdictions, developed theory on the concept of Centre of Main Interest (“COMI”), time frame to deal with issues pertaining to international insolvency, alignment and standardisation of framework with best international practices, provisions to deal with situation where conflicting provisions exists in bi-lateral arrangements, entering into reciprocal arrangements with different countries to safeguard the interest of domestic parties, procedure to deal with cross border insolvency issues in the situation where the assets and creditors of the debtor are in the country with which there is no reciprocal arrangement and a situation wherein the assets and creditors of debtor lies in different countries where a reciprocal arrangement exists with only a few of such countries.
In order to emerge as a global leader in the area of turnaround and restructuring and as a staunch restructuring hub, it is now apt that the insolvency practitioners in India work rigorously towards familiarising themselves with this subject in terms of knowledge, practices and expertise. Huge amounts of international literature and landmark judgements are available on the subject to keep oneself equipped with the knowledge of this dimension of insolvency. Legislative work in India on this front is well in progress and it is firmly believed that on the basis of the experience with different jurisdictions and learning from their practices on dealing with the issues pertaining to international insolvency, India will be successful in coming out with an exhaustive framework on the referred theme.