Sanya Shah, Pravin Gandhi College of Law Mumbai

Neha Pandey, NLU Shimla

Editor: Jasmine Emmanuel, GLC Thrissur


With the growth of the Indian economy came the inward flow of foreign investors. The increase in the number of foreign companies financing Indian companies and setting up manufacturing units increased the importance and need for insolvency laws. Insolvency refers to the state of an individual or an organization who is not able to satisfy its financial burdens which are due. In simple words, an individual or organization which is insolvent is unable to pay its debts. Cross-border insolvency is a means to deal with the insolvency of financially insufficient organizations who have assets or creditors present in a jurisdiction other than its own. If we scan the business world globally, we learn that cross-border investment agreements and their outcomes are highly affected by the insolvency laws in both jurisdictions, which means a set of insolvency laws sets the foundation for what foreign investment would look like in a country.[1]

There are three major aspects which the cross border insolvency deals with. First, it protects the rights of the foreign creditors who have certain rights on the assets of the debtor that are in some different jurisdiction wherein the proceedings of the insolvency are in place. Second, when the assets of the debtors are in various jurisdictions and the creditor wants to involve those assets in a different jurisdiction in the proceedings of insolvency. Third, when the insolvency proceedings are going on or commenced on the same debtor in more than one jurisdiction.

Current Legal Framework

In India, the Insolvency and Bankruptcy Code, 2016[2], also commonly referred to as the “Code” in papers and article regarding cross-border insolvency, came into effect in December of 2016. The Code consists of several laws that apply to insolvency resolution of companies, partnerships, as well as individuals. Through several amendments, the Code has been allowed to evolve easily despite being fairly new; judicial interpretations and cases have also made the improvement of the Code very swift and has allowed it to easily cover several different aspects of insolvency laws.

Currently, only two sections of the Insolvency and Bankruptcy Code, 2016 are applicable to cross-border insolvency matters. Section 234 of the Code provides “The Central Government may enter into an agreement with the Government of any country outside Indian for enforcing the provisions of this code. The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.” This section of the Code, in short, allows the Central Government of India to enter into agreements with that of foreign Governments. The second Section that applies to cross-border insolvency is Section 235, and it reads “Notwithstanding anything contained in this Code or any law for the time being in force if, in the course of the insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, 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 with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding.” When evidence or action from a foreign country is required in order to resolve an insolvency matter. an application must be made to the NCLT (National Company Law Tribunal) under Section 235, and if the NCLT believes it is a necessary and appropriate request, they may issue a letter to a court or an authority of a country.[3]

Need For a Proper and New Framework

Though such provisions and sections exist in the Code, insolvency laws in India are considered to be weak. Many Committee reports have suggested the drafting of a stronger set of cross-border insolvency which would safeguard international financing and investment. The report by the Insolvency Law Committee suggest the incorporation of the Model Law into the Code.[4]

When we look into the existing code, making reciprocal arrangements doesn’t state the procedure which has to be established in order to conduct the insolvency procedure. As there is no proper procedure for the insolvency procedure to be conducted then that makes the law incomplete. By only giving the right to make reciprocal arrangements with countries through the act doesn’t solve the problem of cross border insolvency.

The insolvency procedure conducted should be equivalent for all the countries entering into the reciprocal arrangements. But here there is no such procedure established by the Legislature of India. So in order to have proper structure and justice to all the investors investing from various countries, there should be a proper procedure of insolvency which would be.

Adopting the UNICTRAL Model Law in India

The most important legal-remedy for the existing challenges of the Indian insolvency code is UNCITRAL. The United Nations Commission on International Trade Law UNCITRAL is the core legal body of the United Nations system in the field of international trade law. UNCITRAL received the content of Model Law on Cross Border Insolvency issues on 30 May, 1997 and thereby was passed by United Nations (UN) General Assembly on 15 December 1997.

It gives greater flexibility, as it was not passed as a convention but as a model law so that the nations can make the required amendments in their domestic laws regarding cross-border insolvency as per the model. More than 40 countries have adopted this model law at present. In India, the existing provisions for cross-border insolvency i.e., Section 234 & 235 of IBC are time taking and insufficient, for which the government is adopting this model law as this will strengthen the framework of insolvency resolution.

The Insolvency Law committee also recommended this. The Insolvency Law committee chaired by Shri Injeti Srinivas submitted a report on cross border insolvency in the month of October, 2018 to Union Minister of Finance and Corporate Affairs regarding the recommendations on inclusion of UNICITRAL Model Law under Insolvency and Bankruptcy Code, 2016 with suitable modifications in Indian Context.[5]

The Ministry of Corporate Affairs (MCA) constituted a committee in January 2020 to study and analyse the UNCITRAL Model Law for ‘enterprise group insolvency’ and make recommendations in the context of the Insolvency and Bankruptcy Code 2016 (IBC).[6]

The significance of enacting Model Law-

· This law is much clearer than the IBC in terms of remedy and procedure followed for foreign entities.

· State can make changes in the model law as per the conditions and the local insolvency laws therefore this law is more flexible.

· Coordination between insolvency professionals and courts will exist in domestic as well as foreign jurisdiction through this Model Law.

· With the enactment of this model law, India can bring a lot of attractive opportunities for investors- the time for exchanging necessary information between two nations will be reduced, credit recovery efficiency will increase.

Therefore, adopting UNICITRAL Model Law will help in improving the ranking for ease of doing business, priority to the domestic proceeding, remedy in other jurisdictions for Indian creditors, mechanism of cooperation etc.


In India, this concept needs a proper legal framework. It can be seen very clearly that there is a pressing need of standardizing and formalizing the framework of cross border insolvency in India to have consonance with rapidly increasing foreign trade. When we look at the present situation of the Make in India movement, where we are inviting foreign nations to invest here, so to motivate the investors India should adopt flexible laws like UNICITRAL Model Law. Cross border insolvency can only be applied if India enters bilateral treaties with other countries. When the rights and interests of foreign investors are secured, other nations invest here. Therefore, it’s essential that a proper insolvency regime is established which promote foreign direct investment in India.

[1] "MCA Invites Suggestions from Stakeholders on Draft Chapter of Cross Border Insolvency.” IBC Laws. IBC Laws, 26 June 2018. Web. [2] Ministry of Law and Justice. The Insolvency And Bankruptcy Code, 2016. New Delhi: N.p., 2016. Print. [3] Desai, Nishith. Introduction To Cross-Border Insolvency. New Delhi: Nishith Desai Associates, 2020. Web. 14 Aug. 2020. [4] Jindal, Anchal. "Cross Border Insolvency In India: A Cherry On The Cake." IBC Laws. N.p., 2020. Web. 14 Aug. 2020. [5] Ministry of Corporate Affairs.CrossBorderInsolvencyReport,20 Jun 2018. New Delhi: N.p., 2018. Print. [6] Srivats, KR. “MCA panel’s scope on cross-border insolvency gets bigger”. The Hindu 8 Mar.2020. Web.

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