top of page

CROSS BORDER INSOLVENCY IN INDIA: A CLOSER LOOK

ABSTRACT

Cross-border insolvency is an issue where rapidly increasing in today’s globalized economy, where businesses and financial transactions transcend national boundaries. In this blog, we discuss a comprehensive overview and analysis of cross-border insolvency in India, focusing on its legal framework, key principles and recent developments (UNCITRAL model law).


KEYWORDS: Cross border insolvency, UNCITRAL Model law, Legal framework, India insolvency and bankruptcy code.


INTRODUCTION

After globalization, almost every country had interconnected in different aspects like economy, and businesses, and often engage in many cross-border activities that involve many jurisdictions. While this presents a number of opportunities for growth and expansion, it also poses challenges in cases of insolvency. Cross-border insolvency is a situation where the Insolvent debtor has assets in more than one nation or country.


LEGAL FRAMEWORK

In India, the legal framework for cross-border insolvency underwent a significant transformation with the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC). The IBC provides a comprehensive framework for insolvency and bankruptcy proceedings, including provisions for dealing with cross-border insolvency cases. India's approach to cross-border insolvency is largely influenced by the principles set out in the UNCITRAL Model Law on Cross-Border Insolvency, which aims to promote international cooperation and coordination in insolvency matters.[1]


KEY FEATURES

  • Recognition of foreign proceedings: The Insolvency and bankruptcy code,2016 allows for the recognition of foreign insolvency proceedings in India. It means that if insolvency proceedings are initiated (take place) in a foreign jurisdiction, Indian courts may recognize and enforce those proceedings in India. The objective is to ensure a coordinated and efficient resolution of the debtor's assets and liabilities across jurisdictions.

  • Cooperation and Communication: The IBC emphasizes cooperation and communication between the insolvency resolution professional (IRP) or the resolution professional (RP) appointed in India and the foreign representatives involved in the cross-border insolvency proceedings. The objective is to facilitate the exchange of information, coordination of actions, and implementation of a uniform insolvency plan.

  • Priority of Creditor Claims: The Insolvency and Bankruptcy Code, 2016 provides for the recognition of foreign creditors' claims in Indian insolvency proceedings. This ensures that foreign creditors are not disadvantaged and have a fair opportunity to participate in the distribution of the debtor's assets.

AREA OF CONFLICTS

In spite of the progress made in India's legal framework for cross-border insolvency, several challenges persist. Some of the key challenges include:

  • Lack of uniformity: While the IBC incorporates the UNCITRAL Model Law, its application and interpretation may vary across different jurisdictions. This lack of uniformity can create uncertainties and complexities in cross-border insolvency cases.

  • Jurisdictional Conflicts: Cross-border insolvency involves multiple jurisdictions with different laws and legal systems. Resolving jurisdictional conflicts and coordinating proceedings can be challenging, particularly when conflicts arise between the laws of the home country and the host country.

  • Cultural and Language Barriers: Cross-border insolvency often involves dealing with different legal systems, languages, and cultural norms. These differences can obstruct effective communication, cooperation, and understanding between the parties involved.[2]

RECENT DEVELOPMENTS

Insolvency Law Committee

Injeti Srinivasa, Secretary of Corporate Affairs, headed the Insolvency Law Committee (ILC). The UNCITRAL Model Law for Cross Border Insolvency 1997 allows for an integral structure for addressing international insolvency issues and hence it was recommended by the ILC to adopt it in the Indian context.

To address some of these challenges, India has taken steps towards greater cooperation and alignment with international best practices. In 2018, India became a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, signaling its commitment to international cooperation in cross-border insolvency matters. The inclusion of India in the Model Law is expected to enhance the recognition and enforcement of foreign insolvency proceedings in India and facilitate greater coordination between jurisdictions.

Further, the Indian government has been actively engaged in bilateral and multilateral negotiations and discussions with other countries to enhance cooperation in cross-border insolvency cases. These efforts aim to establish more effective mechanisms for the recognition and enforcement of foreign insolvency proceedings and the coordination of actions between jurisdictions.


CONCLUSION

Cross-border insolvency is an increasingly relevant aspect of the global business landscape, and India's efforts to streamline its insolvency laws demonstrate its commitment to promoting international cooperation and facilitating the efficient resolution of cross-border insolvency cases. The legal framework introduced by the Insolvency and Bankruptcy Code has enhanced creditor protection, encouraged global cooperation, and positioned India as an attractive destination for foreign investment.

As India continues to adapt and refine its cross-border insolvency framework, businesses operating in a global context can expect greater certainty and predictability in dealing with cross-border insolvency matters. This will contribute to the overall stability and growth of the global economy, fostering trust and collaboration among nations.


REFERENCES [1] Insolvency and bankruptcy code,2016,https://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf. UNCITRAL Model law on Cross-Border Insolvency. [2] UNCITRAL MODEL LAW, https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration.

43 views0 comments
bottom of page