ESTABLISHMENT OF CROSS- BORDER INSOLVENCY REGIME IN INDIA

Authors:

Riya Mathur, Durham University England

Sameera Naiyar, Jamia Millia Islamia University

Editor: Masoom Israney, Middlesex University Dubai



Cross border insolvency or international insolvency can be described as a situation where insolvent or bankrupt debtors have creditors and assets in multiple jurisdictions.[1] Scholars on aspects of commercial insolvency consider cross border insolvency as an instance which "..occurs in circumstances which in some way transcend the confines of a single legal system so that a single set of domestic insolvency law provisions cannot be immediately and exclusively applied without regard to the issues raised by the foreign elements of the case."[2]

Cross-border insolvency essentially deals with three aspects:

1. Protection of the rights of the foreign creditors who have certain rights on the assets of the debtor, which are in the different jurisdictions wherein the proceedings of the insolvency are in place. 2. When the assets of the debtors are in various jurisdictions, and the creditor wants to involve those assets in a different jurisdiction during the proceedings of insolvency. 3. When the insolvency proceedings are going on or commenced on the same debtor in more than one jurisdiction.[3]

The cross-body insolvency proceedings are regulated under the Insolvency and Bankruptcy Code, 2016. Under this are two provisions:

Section 234 states that the Central Government can enter into agreements with the government of a foreign country to start the insolvency proceedings. It empowers the Central Government to enter into bilateral agreements with other countries to resolve the situation. Section 235 authorizes the Central Government to make an application to the National Company Law Tribunal (NCLT), which may issue a letter of request to a court or an authority of a country with whom a reciprocal arrangement has been established if there is a need for action or evidence related to foreign assets.


REPORT

Considering an alarming amount of drawbacks and a lack of a proper procedure for insolvency proceedings in India, a report was submitted by the Insolvency Law Committee suggesting that the UNCITRAL Model Law on Cross Border Insolvency proposed by United Nations Commission on International Trade Law be incorporated in the Code.

In order to overcome the drawbacks presented by the Code, this Model aims to provide the creditor the right to access the assistance of the court and of the representatives involved in the foreign insolvency proceedings. It also provides a simple procedure for recognizing foreign proceedings and the appointment of a foreign representative. Lastly, it offers interim relief and automatic stay at the courts' discretion.[4]


ROLE OF BITS IN ESTABLISHMENT OF CROSS BORDER INSOLVENCY REGIME

Bilateral agreements can be and have been used in the past to deal with cross border insolvency concerns. In fact, even before introducing procedural agendas in the form of treaties, the provisions for bilateral agreements should be entrenched in the domestic law of the country.[5] The Code provides for this primitive requirement. Therefore, by abiding with the guidelines of BITs, the countries and foreign investors will be promoted to establish businesses in potential countries. More investment will have a retrospective effect on the country's trade and commerce, thereby solving issues of bankruptcy and insolvency.


DRAWBACKS IN CROSS BORDER INSOLVENCY PROCEDURE

Although we think that entering into Bilateral Agreement with different countries may be a technique for dealing with cross border insolvency provided by the Code, there are numerous drawbacks to it:

· Materializing a bilateral agreement requires time;

· Insolvency regimes of different countries may vary widely;[6]

· Countries may have different guidelines regarding the support and acknowledgement of judgment in different countries.


ROLE OF INSOLVENCY PROTOCOLS IN ESTABLISHING CROSS BORDER INSOLVENCY REGIME

These protocols seek for the promotion of international cooperation and coordination of the activities for providing for orderly and timely administration or reducing cost. It also promotes communication amongst parties and the committee of the creditors and provides for direct contact between them. Additionally, it provides for sharing vital information and data amongst them to avoid the replication of efforts and their activities. While the Protocol plugs a considerable gap, it is in no way a substitute for all-inclusive cross-border insolvency law.[7] Most sophisticated economies have well established cross-border insolvency laws. Adoption of the UNCITRAL Model Law (United Nations Commission on International Trade Law) is not an option, but rather is a necessity for India.


ROLE OF JUDICIAL INSOLVENCY NETWORK IN ESTABLISHING CROSS BORDER INSOLVENCY REGIME

The Judicial Insolvency Network helps in establishing cross border insolvency regime by providing some reliefs. These reliefs can further be classified into three types, namely;

Ø Interim

Ø Automatic

Ø Discretionary

INTERIM RELIEF

This relief can be sought at the time after the application to recognize a foreign proceeding has been made. From the time of filing an application for acknowledgement until it is decided upon, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a provisional nature, including staying execution against debtor’s assets.

AUTOMATIC RELIEF

This kind of relief is resultant of recognition of a foreign proceeding as a “foreign main proceeding”;

Effects of recognition of a "foreign main proceeding":

· Instigation or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities has stayed;

· Implementation against the debtor's assets has stayed[8]

· The right to transfer, hamper or otherwise dispose of any assets of the debtor is suspended.

DISCRETIONARY RELIEF

This is consequent upon recognition of the foreign proceedings as either a main or non-main proceeding. In determining whether to grant discretionary relief or to alter or dismiss any relief granted, the court must be satisfied that the interests of the creditors and other interested persons, including the debtor, are adequately protected. That is one reason why the court may grant relief on such circumstances as it considers suitable. Either a foreign representative or a person affected by the relief may apply to modify or terminate the relief. The court might also do so on its own.


CONCLUSION

As of now, an effective legal framework for cross border insolvency proceedings is not present. If the Draft Provisions are incorporated, the framework suggested could make huge strides in ensuring coordination and communication between jurisdictions to successfully address the resolution of cross-border insolvency cases, barring a few legal and procedural challenges.

Since in modern times, trade is not limited to any country or state, every country/state has become a destination of foreign investors. It is for this reason that it is important to ensure the rights and interests of other foreign investors are secured to collect their dues, which is an essential aspect of the guidelines of BITs. Cross border insolvency laws help in dealing with and providing an effective mechanism for dealing with cross border insolvency. It can be done by increasing cooperation and reciprocity between and amongst different countries and their competent authorities.

[1] Ian F Fletcher, Insolvency In Private International Law (Oxford University Press 2005). [2] 'Ian F. Fletcher, Insolvency In Private International Law: National And International Approaches' (2000) 69 Nordic Journal of International Law. [3] The Insolvency and Bankruptcy Code, 2016 [4] 'India Law Journal' (Indialawjournal.org, 2020) <https://www.indialawjournal.org/cross-border-insolvency.php> Accessed 14 August 2020. [5] Bornali Roy”India: Cross border insolvency :a new regime “Mondaq , 29 June,2017” <https://www.financialxpress.com/opinion/cross-border-insolvency-protocol-fills-a-gap-but-is-not-a-comprehensive-law/ /> accessed 13 august 2020 [6] Ibid. [7] “Significance of cross border insolvency “IAS Parliament, 2 November 2019" <https://www.iasparliament.com/current-affairs/significance-of-cross-border-insolvency> accessed 13 August 2020 [8], and the United Nations Model Law on Cross Border Insolvency (1997) https://www.jus.uio.no/lm/en/html/un.cross.border.insolvency.model.law.1997/> accessed 13 August 2020

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