Ishita Mishra, Presidency University, Bengaluru
Jyotsana Singh, CNLU Patna
Editor: Masoom Israney, Middlesex University Dubai
With the several fast-growing economies in recent times, there has been a steady increase in corporate affairs all over the world. Corporations continually seek more opportunities to improve their businesses, and while pursuing their aims, they understandably require resources (especially capital). When these corporations do not get adequate resources in their home state, they prefer other states, if accessible, which leads to cross border relations.
Cross Border Insolvency is not a novel concept; however, with the recent Jet Airways case (2019), it has become a matter of discussion for lawyers, judges, scholars, researchers, and other legal luminaries. Insolvency refers to an inability to pay the debt amount in a specific time frame. Although Cross Border insolvency has not been defined, generally, it is taken as the insolvency of the debtors who have assets in more than one state.
CROSS BORDER INSOLVENCY MECHANISMS
The cross border insolvency issues can be resolved in two different ways:
2. Bilateral Agreement or Treaties
Cross Border Insolvency in International Law
a) The United Nations Commission on International Trade Law (UNCITRAL) Model on Cross Border Insolvency: This Model law was adopted in 1997 by UNCITRAL in Vienna, which proposed access, recognition, relief, and cooperation as tools to facilitate cross border insolvency resolution. It further mentioned two types of proceedings.
-Foreign Main Proceedings
-Foreign Non-Main Proceedings
This Model law has the principle of public policy as an exception, which is a widely commended provision.
b) EC Regulations on Insolvency Proceedings: This is a set of regulations formulated by the European Commission, which is applicable only to member states of the European Union. It provides three kinds of proceedings:
Main proceedings, place where the debtor has a centre of main interest within the EU
Secondary proceedings, place where the debtor has an establishment
Territorial proceedings, where the debtor has an establishment, but main proceedings have not yet commenced elsewhere.
c) Many other countries have legislated laws in order to implement either of the above stated International laws. The best examples of this would be the Singapore Model Law and Guidelines, Bankruptcy Code of United States of America, Insolvency and Bankruptcy Code of India (2016).
BITs have been the source of the Cross Border Insolvency Resolution procedure, even when there was no procedural legal framework available for it. BITs are the bilateral treaties between two nations where they agree upon certain procedures for various issues and have specific clauses for arbitrations and insolvency procedures. These are regarded as highly effective instruments. Even today, there are many domestic laws in which provisions of their respective bilateral treaty provisions have been embedded.
INDIA’S LEGAL STAND
Insolvency and Bankruptcy Code, 2016
While reviewing the history of Insolvency and Bankruptcy laws in India, it was considered to be quite a major quandary. Back in 2000, a main report had been advanced by the Justice Eradi Committee, considering the truth of globalization of exchange and opening up of the worldwide economy for Indian organizations, which in turn orders the reception of the UNCITRAL Model Law in India to manage the issues of cross border insolvency successfully. A while later, in 2002, the Professor Mitra Committee brought to light the need to have a set up law in India to manage cross fringe bankruptcy. In 2005, the JJ Irani Committee stated a requirement for the Indian economy to verbalize a complete system that tends to global bankruptcy issues.
In August 2014, Bankruptcy Law Reform Committee (BLRC) sat under the chairmanship of Mr. T.K. Vishwanathan, who recommended the present Insolvency and Bankruptcy Code of India. As a result of this, the Insolvency and Bankruptcy Code was introduced into the Parliament in 2015. The century-old, Presidency Towns Insolvency Act, 1909, has since been replaced by Bankruptcy and Insolvency Code in 2016. This Code was introduced to reduce the duration of the insolvency procedure, as earlier it took approximately four years. In this Code, foreign investors have been given the same rights as domestic investors.
The enactment of IBC 2016 has helped a great deal with cross border insolvency. It is a time-bound code where there is a specified time given within which the creditor must decide to solve the insolvency issue. Here, it is specified to be 180 days. It is a comprehensive law wherein every law is provided in one code. A Board of Insolvency and Bankruptcy (IBBI) has been set up to look over the IBC and ensure that it is functioning properly. Insolvency and Bankruptcy Code (2016), is a 'one for all and all for one' law. As globalization increased, this motivated a lot of foreign investors to invest in India.
In 2015, when the Bankruptcy Law Reforms Committee suggested Insolvency and Bankruptcy Bill (2015), it did not specify the arrangements relating to cross fringe indebtedness caused by virtue of the absence of an institutional reinforcement in India such as a legal foundation, experienced indebtedness specialists and a solid structure guaranteeing immaculate correspondence between chapter 11 courts of various nations. To cover this aperture, the Joint Parliamentary Committee suggested for Section 234 and Section 235 in the Code. A draft has recently been prepared by the Ministry of Corporate Affairs to amend Sections 234 and 235 of the I&B Code, 2016. Section 234 provides the Central Government the authority to enter into BITs, and Section 235 offers the provision for the application for a letter of request to liquidate the assets located abroad. The proposed Amendments are-
Concepts of individual insolvency in which individuals would be divided into three categories: Personal Guarantor, Proprietor, and Common Individuals
Concept of Cross Border Insolvency: It would be applicable only to corporate debtors and not in personal cases.
Code of Civil Procedure, 1908
CPC does not provide any specific provision for insolvency matters, but it gives the provisions for the execution of decrees by the foreign courts. Section 44A is evidence to this, whereas Section 13 contains the restrictive clause to the general provision stated above.
Many challenges have been faced recently regarding cross border insolvency. A timeframe to manage issues relating to global bankruptcy, normalization of a system with the best global practices, and mechanisms to manage circumstances where clashing arrangements exist in bi-parallel game plans, are some of the pivotal challenges required to be resolved at the earliest. An effective method is also required to manage cross border insolvency issues in the circumstance where the advantages and loan bosses of the account holder are in the nation, to which there is no complementary course of action.
In any case, two new sections are not enough to resolve the worldwide challenges of insolvency, and therefore, a separate chapter should be included in the Code, which will be based on UNCITRAL Model Law. With the advancement of foreign investments in India, now is an appropriate time to adopt a uniform code to avoid any significant complications in the near future.