Cross Border Insolvency in India

Introduction

Cross-border insolvency is an issue that has become more relevant in recent years as the global economy has become more interconnected. This is particularly true in India, where an increasing trend of foreign companies investing in the country is creating a need for effective cross-border insolvency laws. This research paper will delve into the issues of cross-border insolvency in India, including its current legal framework, the jurisprudence of cross-border insolvency, and practical challenges faced by the stakeholders.

Legal Framework

Cross-border insolvency in India is governed by the Insolvency and Bankruptcy Code (IBC), 2016, which is India’s principal legislation in insolvency and bankruptcy. The Code provides for a comprehensive reorganisation and insolvency resolution process that is applicable to all corporate debtors, including companies, limited liability partnerships, and individuals. The IBC also provides for the regulation of insolvency professionals, insolvency professional agencies, and information utilities.

However, the IBC does not provide for any specific provisions relating to cross-border insolvency. India is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, which provides a legal framework for cooperation and coordination between courts in different countries in dealing with cross-border insolvency. Therefore, India's courts rely on judicial precedents set by courts in other countries that have adopted the Model Law.

The jurisprudence of Cross-Border Insolvency

The jurisprudence of cross-border insolvency in India is diverse and evolving. The Delhi High Court in the case of In re: Videocon Telecom Ltd. held that foreign judgments on insolvency and bankruptcy proceedings cannot be directly enforced in India. However, the court also recognized that recognition of foreign judgments plays an essential role in promoting the effectiveness of the global insolvency regime.

In the case of In re: Jet Airways (India) Ltd, the Mumbai bench of the National Company Law Tribunal (NCLT) recognized the UK proceedings initiated against Jet Airways and allowed the concurrent proceeding in India. The tribunal in its order opined that principles of comity of courts should be followed, and the UK proceedings may provide better relief to the creditors than the Indian proceedings.

Practical Challenges Faced by the Stakeholders

In practical terms, cross-border insolvency presents several challenges for the stakeholders. Firstly, due to the lack of an overarching legal framework, there is a lack of clarity on the law applicable to cross-border insolvency. As a consequence, foreign creditors may find it difficult to enforce their claims in Indian courts. Additionally, cross-border insolvency involves different jurisdictions, legal systems, and regulatory frameworks, and coordinating these different systems requires a level of legal expertise that may be challenging to achieve.

Secondly, the speed at which cross-border insolvency proceedings unfold poses another challenge. In many cases, assets may be too mobile, money-laundering issues might arise, or stakeholders may actively hide assets or engage in abusive practices. This makes it necessary to have an efficient and coordinated regime to protect the interests of stakeholders.

Conclusion

Cross-border insolvency is a complex issue that requires a comprehensive legal framework, cooperation between different jurisdictions, and effective regulatory oversight to ensure that stakeholders' interests are protected. India, as a developing country and a hub for foreign investments, needs to adopt international best practices to promote efficient cross-border insolvency proceedings. Therefore, India should consider adopting the UNCITRAL Model Law on Cross-Border Insolvency in its legal framework, which would provide a more structured approach to dealing with cross-border insolvency. In addition, the establishment of a specialized insolvency court or tribunal for cross-border insolvency issues would go a long way in promoting efficiency in resolving such cases.