Cross Border Insolvency Under IBC
This is an age of globalisation. Many companies registered in India have assets in foreign countries. Similarly, many companies registered in foreign countries have assets in India. An insolvency regime cannot be complete till there is proper framework in existence for Cross Border Insolvency.
At present, Sections 234 and 235 of the Code have provisions for Cross Border Insolvency.
Under section 235, a Resolution Professional, Liquidator or Bankruptcy Trustee, as the case may be, may make an application to the Adjudicating Authority that evidence or action relating to assets of Corporate Debtor situated in another country is required, if India is already having bilateral agreement with such county under section 234. On such application the Adjudicating Authority may issue letter of request to a Court or an Authority of such country competent to deal with such request.
Present provisions of Cross Border Insolvency are based on bilateral mechanism, which is a lengthy process.
JET AIRWAYS CASE
In the absence of detailed Cross Border Insolvency Framework, the Tribunals have attempted to resolve cross border issues in insolvency proceedings. Jet Airways is one such case.
Insolvency proceedings was initiated against Jet Airways (India) Ltd. by Mumbai Bench of NCLT vide order dated 20th June, 2019.
Jet Airways was also having assets in Netherlands. Bankruptcy proceeding has been initiated in Netherlands also and an Administrator has been appointed in that case as per Bankruptcy Laws of the Netherlands. The Administrator filed written submission before Mumbai bench of NCLT and raised various objections regarding insolvency proceedings in India. The Mumbai bench of NCLT1 rejected the contentions of Administrator and admitted the application for initiation of insolvency proceedings.
In this matter Resolution Plan was submitted by consortium of Mr. Murari Lal Jalan and Mr Florian Fritsch was allowed by Mumbai Bench of NCLT vide its order dated 22.06.2021.
INSOLVENCY LAW COMMITTEE REPORT
The Insolvency Law Committee on Cross Border Insolvency submitted its Report in October, 2018 wherein it was recommended to adopt UNCITRAL Model Law with appropriate modifications.
The Model Law is based on principles of access, recognition, cooperation and coordination. The Model Law provides accessibility to Insolvency Professionals and foreign creditors direct access to Domestic Courts. It provides them ability to participate in and commence domestic insolvency proceedings against a debtor. Model Law provides recognition of foreign proceedings and provision of remedies by Domestic Courts based on such recognition. If Domestic Court decides that the debtor has Centre of Main Interest (COMI) in a foreign country, such foreign insolvency proceedings are recogonised as the main proceedings. Recognition of the Centre of Main Interest (COMI) will lead to automatic Moratorium and allow a Foreign Representative greater power in handling estate of the debtor. The Model Law provides basis framework for cooperation between domestic Insolvency Professionals and foreign Insolvency Professionals.
The Insolvency Law Committee has recommended that Model Law should only be applicable to Corporate Persons. Individual and Partnerships should be kept excluded from the applicability of modified Model Law and Section 234 and 235 should continue to be applicable to them. The Committee has also recommended that Model Law should be initially be applicable on reciprocal basis and gradually the same should be made applicable universally.
Draft Provisions
ILC in its report also included draft provisions i.e. “Draft Part Z” in respect of Cross Border Insolvency. These provisions are based on UNCITRAL Model Law but with modifications suited to Indian circumstances.
The purpose and scope of the provisions are cooperation between Adjudicating Authorities, Resolution Professionals, Liquidators, Corporate Debtors, Stakeholders, Courts, and other competent authorities of foreign countries; greater legal certainty for trade and investment; fair and efficient administration of Cross Border Insolvencies; protection and maximisation of value of Corporate Debtor’s assets; and facilitation of the rescue of financially troubled businesses thereby protecting investment and preserving employment.
The provisions will be applicable to Corporate Debtors where assistance is sought in India by a Foreign Representative in connection with Foreign Proceedings; or assistance is sought in foreign country in connection with a proceeding under this code; a Foreign Proceeding and a Proceedings under this code is taking place concurrently; creditor in a foreign country have an interest in requesting the commencement of or participation in a proceeding under the Code. Corporate Debtor includes any person incorporated with limited liability outside India.
The provisions are applicable to countries who have adopted UNCITRAL Model Law in first instance. Central government by notification can apply provisions of Model Law to countries mentioned in Part B of its Schedule by notification. Central Government may enter into agreement with other country for enforcing provisions of this Code. The Central Government may add or omit any country from the Schedule, if such addition or omission is necessary in the interest of security of India or public interest.
The Adjudicating Authority may refuse to take any action authorised by these provisions, if the implementation of such action would be manifestly contrary to the public policy in India after serving a notice to Central Government.
A Foreign Representative can apply to the Adjudicating Authority and exercise his powers and functions under these provisions. A Foreign Representative has been defined as a person or body authorised in a Foreign Proceeding to administer the reorgnisation or the liquidation of the Corporate Debtor’s assets or affairs or to act as a representative of the Foreign Proceedings and includes any person or a body appointed on an interim basis.
Upon recognition of Foreign Proceedings, a Foreign Representative will be entitled to participate in proceedings regarding to Corporate Debtor.
Foreign creditors will have the same rights regarding commencement of and participation in a proceeding under the Code as creditors in India. Whenever under the Code, a notice is given to the creditors in India, such notice will also be given to creditors that do not have address in India.
A Foreign Representative may apply to the Adjudicating Authority for recognition of the Foreign Proceedings in which the Foreign Representative has been appointed along with certified copy of decision, a certificate from Foreign Court or any other evidence as may be prescribed. If aforesaid documents have been submitted, the Adjudicating Authority may presume existence of Foreign Proceedings.
The Corporate Debtor’s registered office is presumed to be the Corporate Debtor’s Centre of Main Interests (COMI) for the purpose of these provisions. This presumption will apply only if the registered office has not moved to another country within three months period prior to filing of application for initiation of insolvency proceedings in such country. While determining the Corporate Debtor’s Centre of Main Interest, the Adjudicating Authority may conduct an assessment.
The Adjudicating Authority may recogonise the Foreign Proceedings as Foreign Main Proceedings, if the Corporate Debtor has the Centre of its Main Interest (COMI) and foreign non-main proceedings, if it taking place in a country where the Corporate Debtor has an establishment. “Establishment” has been defined as any place of operations where the Corporate Debtor carries out a non-transitory economic activity with human means and assets or services
If the Foreign Proceedings are recogonised as main proceedings, the Adjudicating Authority may declare by order Moratorium in respect of assets of the Corporate Debtor.
Upon recognition of proceedings whether main or non-main, upon request of the Foreign Representative the Adjudicating Authority may order Moratorium in respect of assets of the Corporate Debtor in India, entrust the distribution of all or part of the Corporate Debtor’s assets in India to the Foreign Representative after ensuring that interests of creditors in India are adequately protected. Foreign Representative may make an application for avoidance of transaction under Section 43, 45, 49 and 50 of the Code.
Central government may issue guidelines for cooperation and communication between the Adjudicating Authority, Foreign Courts or Foreign Representatives.
CROSS BORDER INSOLVENC RULES/REGULATIONS COMMITTEE
The Ministry of Corporate Affairs, constituted Cross Border Insolvency Rules/Regulations Committee on 23rd January, 2020 to propose rules and regulatory framework that would enable implementation of Part Z. The CBIRC has submitted its report along with draft rules and regulations.
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- State Bank of India Vs. Jet Airways (India) Ltd.; CP (2205) (IB)/MB/2019
- Jet Airways (India) Ltd. Vs. State Bank of India Ltd.; Company Appeal (AT) (Insolvency) No. 707/2019
Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.
