The need for a globally recognised framework for addressing cross-border aspects of insolvency is not a recent phenomenon. Various legislative reforms committees have discussed the possible contours of an Indian cross-border insolvency regime since the 2000s.

More recent developments in India’s insolvency regime, beginning with the near complete overhaul
of Indian insolvency laws in 2016, have only amplified the urgency for introducing a cross-border
insolvency framework.

It is perhaps now time to take a more definitive step towards a firm cross-border insolvency legislation
for several reasons. First, the Insolvency and Bankruptcy Code (Code/ IBC), which was enacted in
2016 has progressively matured into a successful tool for insolvency resolution with a healthy body
of judicial precedent, robust market infrastructure and regulatory governance. While there are still
parts of the Code that remain to be notified, the corporate insolvency resolution process (CIRP) and
the liquidation process provided under the Code for corporate entities have been tested and relied
upon extensively over the last five years. The Code and the apparatus that it has set up are well
equipped to tackle some of the more complex issues around corporate insolvency.

Secondly, the model law on cross-border insolvency introduced by the United Nations Commission
on International Trade Law (Model Law) which was first introduced in 1997 has seen over two
decades of evolution. As with the Code, there are aspects of the Model Law which are still seeing
new jurisprudence develop. That said, the principles outlined in the Model Law have been adopted
by 49 states in a total of 53 jurisdictions with one of the newest entrants being Brazil (which is also
the first of the original BRIC economies to adopt the Model Law). [1]

Lastly, the jurisprudence under the Code has recently grappled with the issue of cross-border
insolvency in some of the big-ticket insolvency cases involving Jet Airways (India) Limited (Jet
Airways), Videocon Industries Limited and entities associated with Gitanjali Gems Limited – all
of which had significant cross-border assets and liabilities. In the case of Jet Airways, the National
Company Law Appellate Tribunal (NCLAT) has approved of a cross-border cooperation protocol
between the Indian Resolution Professional (RP) and the Dutch Administrator (appointed in the
liquidation proceedings of Jet Airways in the Netherlands).[2] This protocol has not only been
implemented in the on-going proceedings in respect of Jet Airways in India and in the Netherlands
but has also been instrumental in facilitating various steps taken by the RP and the Administrator to
maximise value. The order of the NCLAT has been welcomed by practitioners and academicians as
an important innovation under the new insolvency regime in India.

The Insolvency Law Committee (ILC) was constituted by the Ministry of Corporate Affairs under the
Government of India (GoI) to take stock of the functioning and implementation of the Code, identify
issues which may impact the efficiency of the Code and make suitable recommendations to address
such issues and enhance the efficiency and effectiveness of the current insolvency regime in India.[3]
The ILC has been evaluating the next steps in formalising India’s cross-border insolvency regime.
The ILC released its report on cross-border insolvency in October, 2018 (ILC Report) in which it
has provided its recommendations on the adoption of the Model Law with some modifications, and
has even included a draft of the legislation for this purpose (Draft Law).

This article examines the need for a specialised legislation in the form of the Draft Law, in the
backdrop of the existing provisions of the Code on cross-border insolvency. The article then
examines certain core elements of a cross-border insolvency regime, namely, its scope of operation
and exceptions, the provisions relating to access, recognition, reliefs, cooperation, coordination,
and their treatment under the Draft Law. In doing so, it explores the potential need for other tools
to supplement the Draft Law to provide a truly comprehensive cross-border insolvency framework.

CURRENT PROVISIONS OF THE CODE AND JURISPRUDENCE

The provisions of the Code currently include two provisions relating to cross-border insolvency.
Section 234 of the Code enables the GoI to enter into agreements with the governments of other
countries for enforcing the provisions of the Code.

It also enables the GoI to prescribe conditions that will apply to the application of provisions of the
Code to assets or property of a corporate debtor (CD) or debtor (including a personal guarantor of a
CD) situated in a country outside India with which reciprocal arrangements have been made.
Section 235 of the Code provides that if, in the course of an insolvency resolution process, or a
liquidation or bankruptcy proceeding, the RP, Liquidator or Bankruptcy Trustee, is of the opinion
that assets of the CD or debtor (including a personal guarantor of a CD), are situated in a country
outside India, with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority (AA) stating that evidence or action relating to such
assets is required in connection with such process or proceeding, and the AA may issue a letter of
request to a court or an authority of such country which is competent to deal with such a request.
These provisions are premised on the GoI having entered into reciprocal arrangements with other
sovereign nations to give effect to the principles of recognition, cooperation and coordination. In
doing so, the Code recognizes the significance of two nations (which are seeking to cooperate in ongoing insolvency proceedings relating to an entity) agreeing to a common set of rules.

However, in the five years since the introduction of the Code, India has not entered into any such
reciprocal arrangements. While the order of the NCLAT in Jet Airways[4] has attempted to fill this
gap by setting a precedent on cross-border cooperation protocols, the cross-border protocol adopted
for Jet Airways was fairly case specific – in that, it was limited to the coordination of actions
between two jurisdictions with parallel insolvency proceedings where the respective insolvency
practitioners had voluntarily opted to cooperate with each other. It should be noted that in addition
to the proceedings in the Netherlands (which was covered by the protocol), Jet Airways had assets
and operations spread across various other jurisdictions (including the United Kingdom) – which
were not covered by a similar protocol.

Secondly, the scope of the protocol in Jet Airways was to a large extent, limited to facilitating
interactions between the two processes while recognising each of the Indian and Dutch court as an
independent, sovereign court, with independent jurisdiction and authority with respect to matters
before them, even though the protocol draws upon the principles of the Model Law in recognising
India as the centre of main interest and setting out a framework for cooperation between the
Administrators.

Therefore, the current regime does not provide a comprehensive and consistent framework for
cross-border insolvency resolution. While the protocol agreed between the Indian RP and the Dutch
Administrator was a path breaking development – it does not go as far as to provide a predictable
and certain foundation for administration of cross-border insolvency issues under Indian law. An
ad hoc precedent based regime is likely to inspire less confidence in global investors seeking to
work in or with India Inc., than a comprehensive legislation on cross-border insolvency (which will
provide the requisite level of certainty as to their rights in the event of insolvency).

Further, such a comprehensive legislation is likely to minimise delays that would be inevitable if
RPs were to approach the National Company Law Tribunals for an order to legitimise cooperation
protocols of the kind passed in the case of Jet Airways, in every case where the need arose.

DRAFT LAW: SCOPE AND EXCEPTIONS

The scope of operation of the Draft Law is perhaps one of the most crucial aspects of the discussions
around India’s cross-border insolvency regime. The very first question in this regard is whether
this should extend to persons other than CD under the Code. CDs comprise of Indian incorporated companies and limited liability partnerships. This does not include individuals or partnerships, and
also specifically excludes entities which are ‘financial service providers’.

The arguments against extending the Draft Law to other unincorporated entities/ associations,
individuals and partnerships as articulated in the ILC Report are all well-founded. The provisions
of the Code relating to individuals and partnerships are yet to be fully enacted and it would be
more beneficial to draft a cross-border insolvency framework relating to such persons after
jurisprudence in this area develops. Similarly, the provisions relating to group insolvency are still
under consideration and in view of this, framing a cross-border insolvency law to cater to group
level insolvencies would be premature.

With regard to financial service providers, the insolvency process of such entities would most likely
have wider and unique public interest ramifications. Therefore, the drafters of the Code recognised
the need to have a specialised regime for insolvency of such entities. In the same vein, a cross-border
insolvency regime for such entities would need to be aligned with the policy objectives that will
be reflected in the domestic insolvency regime for such entities. Given that an insolvency law for
financial service providers (barring a very limited class of non-banking financial companies) is yet
to be introduced – it is only fair that the issues around cross-border insolvency of such entities are
legislated upon after there is clarity on the domestic insolvency regime applicable to such entities.
The third class of entities that are not included in the definition of CD under the Code are foreign
companies (i.e. companies which are incorporated outside India but have operations in India). The
ILC rightly recommends that the Draft Law cover the insolvency of such entities. However, since
the Code currently does not provide a framework for resolution or liquidation of such entities or
their business in India – the most immediate requirement is to introduce a comprehensive regime for
the insolvency of such entities under Indian law. It is important to resolve this issue before the Draft
Law is enacted because a cross-border insolvency regime would be incomplete if it fails to address
cases involving the insolvency of corporate entities incorporated outside India with operations in
India (i.e. where the centre of main interest may not be India but where the entities may have an
establishment in India with assets and liabilities owed to Indian creditors whose interests must be
protected).

In addition to the foregoing, it is imperative to address the issue of reciprocity that is imbibed in the
Draft Law. The Draft Law states that its provisions would apply to countries which have adopted
the Model Law (as identified in the Draft Law) and certain other countries that may be notified (and
with which India has entered into reciprocal arrangements).[5]

It is apparent that the intent is to enable the GoI to enter into standalone arrangements with countries
that have not adopted the Model Law and the terms of cooperation with such other countries would
then be subject to the conditions specified in the agreement. That said, the Draft Law sets out some
guiding principles for such cooperation by bringing proceedings in such countries into the fold of
the Draft Law. This offers more certainty on the matter as compared to the existing provisions of the Code, which provide no parameters or guiding principles that would apply to bilateral agreements
that the Indian Government may enter into with other states.

This unfortunately leaves out those countries that have neither adopted the Model Law nor entered
into a bilateral agreement with the Indian Government. In such cases, the Jet Airways experience
may be leveraged to enable case specific cross-border cooperation protocols which are guided by
the principles set out in the Draft Law.

CORE ELEMENTS OF CROSS-BORDER INSOLVENCY FRAMEWORK UNDER THE DRAFT LAW

In this section, the authors examine the treatment accorded to each of the core elements of the Model
Law, as incorporated in the Draft Law.

Access

The Model Law has fairly liberal provisions as to access – in that, it allows direct access to both
foreign administrators and creditors to the courts of the enacting country. Access would include the
ability to commence domestic insolvency proceedings and also to participate in on-going domestic
proceedings.

In this regard, as observed by the ILC, the Code already allows foreign creditors full access rights,
at par with the rights of domestic creditors, to initiate insolvency proceedings and to participate in
such proceedings. When it comes to the rights of foreign administrators or Insolvency Professionals
(IPs), the initiation rights available to foreign creditors obviates the need to provide separate rights
to foreign administrators to initiate local proceedings.

Other rights as to participation of foreign representatives in insolvency proceedings should further
the cause of a holistic resolution process. Allowing foreign representatives to attend proceedings/
meetings of creditors would serve the dual purpose of facilitating a free flow of information
between the Indian and foreign administrators and also enable the Indian administrator to rely on
the assistance of the foreign administrator in disseminating information to foreign creditors (who
may otherwise have logistical constraints in accessing information published in India). This in turn
will reduce the burden on the Indian RP/ Liquidator while also ensuring a steady and reliable flow
of information to creditors thus aiding the cooperation between the two proceedings.

In assessing the bona fides and qualifications of the foreign representatives, while the ILC Report
explores the option of requiring such foreign representatives to register in India and/or follow a
code of conduct prescribed under Indian law [6] – the requirement to separately register with Indian
authorities might be excessive. Instead, since foreign representatives are also likely to be subject to
the laws under which they were appointed, such foreign representatives may be required to provide
an undertaking to the Indian court and the Insolvency and Bankruptcy Board of India, confirming that they will observe the more stringent of the code of conduct prescribed under Indian law and the
rules of conduct prescribed in their jurisdiction. This, coupled with the foreign representative’s right
to participate being predicated on the recognition of the foreign proceedings by an Indian court,[7]
should serve the purpose of ensuring that the foreign representatives follow standard good practices
and rules of conduct.

In view of this, the Draft Law may also consider codifying certain specific obligations of a foreign
representative – for instance, confidentiality obligations, obligations to disseminate information
to foreign creditors and to generally refrain from acts which are in contravention of the Indian
proceedings (unless required by their local laws), while stopping short of imposing onerous
procedural obligations on foreign representatives which may impinge on the efficiency of the
process.

Recognition and Relief

Like the Model Law, the Draft Law includes provisions allowing the AA to recognise foreign
proceedings and foreign representatives based on a list of documents that may be provided as
evidence of the foregoing.[8]

The Draft Law also recognises the concept of the Centre of Main Interest (COMI) as described in
the Model Law. As noted in the ILC Report, assessment of the COMI is ‘central to operation of
the Model Law’, because proceedings in the COMI are given primacy over other proceedings and
benefit from immediate and automatic relief.[9]

The Draft Law includes a rebuttable presumption as to the COMI being the jurisdiction in which the
CD’s registered office is located. There are safeguards against this presumption being used for forum
shopping – in the form of a look back period of three months which applies to the determination of
COMI. The AA must also consider other factors such as where the CD’s central administration takes
place in making its determination. Lastly, if these factors are not sufficient to establish the COMI,
the Draft Law provides for other parameters to be introduced by subordinate legislation.[10]

Given the importance of establishing COMI and the impact that this would have on reliefs available
to parties, it would be preferable to have the parameters for assessing COMI included in the principal
legislation to the extent possible. This would also serve to provide a clearer legislative mandate
to judicial authorities – and indeed experience in more evolved jurisdictions. The United States
suggests that a clear legislation on such a crucial element of cross-border insolvency laws would go
a long way in reducing the burden on courts.[11]

Recognition of a foreign proceeding as a foreign main proceeding will, as per the Draft Law result
in an automatic moratorium in the nature of the moratorium described in section 14 of the Code. The
automatic moratorium is not, however, applicable where the proceedings in India under the Code
have commenced before an application for recognition of the foreign proceedings is fled in India.[12]

This moratorium does not restrict parties from initiating proceedings under the Code or fling claims
in such a proceeding. Such proceedings may be initiated only if the CD has assets in India and the
effect of such proceedings must be limited to assets located in India and to other assets but only,
in case of the latter, to the extent of furthering the cause of cooperation and coordination between
Indian and foreign proceedings.[13]

The payments that a creditor may receive in corporate insolvency resolution proceedings or
liquidation proceedings in India also take into account the payments that such creditor has received
in foreign proceedings (to ensure that a creditor does not receive payments in excess of pay-outs
to other creditors in the same class on a proportionate basis, by pursuing claims in two or more
proceedings).[14]

However, the Draft Law will need to consider whether proceedings initiated under the Code in case
of corporates having a COMI outside India will follow the ‘CIRP’ under the Code or will be referred
to liquidation or whether an altogether distinct process for resolution shall be suggested for such
companies – keeping in mind the general principle of the deference to the foreign main proceedings.
In case of a foreign proceeding being recognised as a foreign non-main proceeding (i.e. a proceeding
in a place that is not the COMI of the CD), the AA has been granted wide latitude in the nature of
relief that can be granted, subject to the AA ensuring that the interest of the creditors in India are
not compromised and reliefs granted with regard to representatives in foreign non-main proceedings
relate only to assets which would have been administered in the foreign non-main proceedings (to
ensure minimum leakage from the Indian pool of assets). [15]

Cooperation

While the Model Law sets out the framework for cooperation between domestic and foreign courts
– the ILC Report observes that it may be premature to impose such obligations of cooperation on
Indian AAs at this stage.[16] While these concerns are not unfounded, the value of such cooperation
cannot be understated and a mechanism to support such cooperation would be crucial to give full
effect to the intent of the Draft Law.

Cooperation between Indian IPs/ Liquidators and their foreign counterparts has been provided for
and even encouraged in the Draft Law.[17] This could be supplemented with subordinate legislation
which outlines the steps that an Indian IP/ Liquidator may need to take and the timelines within
which these should be explored to maximise the chances of cooperation, while noting that whether
the Indian IP’s attempts to so cooperate are fruitful or not will also depend on the actions of its
foreign counterparts.

The Draft Law should also provide for similar provisions for proceedings in jurisdictions to which
the Draft Law does not apply (i.e. those that have neither adopted the Model Law nor entered into
reciprocal arrangements in India) – since cooperation in such cases would be all the more crucial

CONCLUSION

Global experiences in implementation of the Model Law have indicated that the Model Law may
not be sufficient to offer absolute certainty and predictability for creditors and debtors.[18] That said,
the Draft Law (and the Model Law on which it is based) is an excellent starting point to formulate
a set of guiding principles that is not only aligned with globally recognised best practices but also
adapted to uphold the key policy objectives on which the Code was based.

It is inevitable that even after the introduction of a cross-border insolvency law, the jurisprudence
around the same will continue to evolve and develop – as has been witnessed in other jurisdictions.
It is also inevitable that the law introduced will only provide a framework within which courts
and participants across various jurisdictions will operate. The granularities of each case and each
experience with another jurisdiction may differ – but this is inimical to any legislation dealing
with cross-border issues. As global best practices and policies develop in the area of cross-border
insolvency, India if armed with its Draft Law will not only benefit from the experience it gathers but
also gain an opportunity to participate in the evolution of an international cross-border insolvency
framework. Given the wealth of India’s experience in framing, interpreting, and developing
jurisprudence in insolvency laws, India should have as much to offer as it is likely to gain in doing so.

Footnotes:

[1] UNCITRAL Model Law on Cross Border Insolvency (1997).
[2]Jet Airways (India) Limited (Offshore Regional Hub/Offces Through its Administrator Mr. Rocco Mulder) v. State Bank of India and Anr., Company Appeal (AT) (Insolvency) No. 707 of 2019.
[3] MCA (2017), Notifcation no. 35/14/2017, Insolvency Section.
[4] Supra Note 2.
[5] Clause 1 (4), Draft Law.
[6] Clause 7, Draft Law and paragraphs 6.3 and 6.4, ILC report.
[7] Clause 9, Draft Law.
[8] Clause 12, Draft Law.
[9] Paragraph 11.1, ILC Report.
[10] Clause 14, Draft Law.
[11] Byrnes J. (2015), “The Dispute Over Evaluating Center of Main Interests – How Simple Legislation Could
Save the U.S. Court System Time and Money”, Journal of International Business and Law, 14 (2).
[12] Clause 17 and Clause 25, Draft Law.
[13] Clause 24, Draft Law.
[14] Clause 28, Draft Law.
[15] Clause 18 (3), Draft Law.
[16] Paragraph 16.2, ILC Report.
[17] Clause 22(1), Draft Law.
[18] Gopalan S. and Guihot M. (2015), “Recognition and enforcement in cross-border insolvency law: A proposal for judicial gap-flling”, Vanderbilt Journal of Transnational Law, 48(5), pp. 1225-1284.

Authors:
Bahram Vakil, Founder and Managing Partner
Suharsh Sinha, Partner
Amrita Sinha, Partner
Arzan Zarolia, Associate