Source: The Hindu 

Introduction 

Cross-border insolvency laws are crucial for international trade, providing legal certainty and improving the health of entities with global operations. The UN Commission on International Trade Law (UNCITRAL) has been promoting its Model Law since the late 1990s to harmonize these laws across nations. However, progress in adopting the Model Law has been slow, with only 60 countries implementing it so far. 

What is UNCITRAL ? 

• UNCITRAL, established by the UN General Assembly in 1966, is the core legal body of the United Nations system in international trade law, aimed at promoting progressive harmonization and unification of international trade law. 
• The Commission has a diverse membership of 60 states, carefully selected to represent various geographic regions, economic systems, and legal traditions globally. 
• India holds a significant position as one of only eight founding members of UNCITRAL and has maintained continuous membership since the Commission's inception. 
• UNCITRAL's work encompasses creating model laws, conventions, and legislative guides, as well as facilitating debates in working groups, providing a valuable platform for countries to develop and adopt principles of international commercial and trade law. 
• The establishment of UNCITRAL was rooted in the recognition that international trade cooperation among states is crucial for promoting friendly relations and maintaining global peace and security. 

What is Cross Border Insolvency ? 

• Cross-border insolvency, also known as international insolvency. 
  • It refers to situations where an insolvent debtor has credits and/or debtors in multiple jurisdictions across different countries. 
• The Insolvency and Bankruptcy Code, 2016 (IBC), while making progress in harmonizing domestic insolvency processes in India, does not provide sufficient procedures for regulating cross-border insolvency proceedings. 
• The Ministry of Corporate Affairs (MCA), through its Insolvency Law Committee on Cross-Border Insolvency (ILC), has assessed the implementation of the IBC and found that the current insolvency framework in India is not on par with global standards. 
• The ILC has recommended re-evaluating the current insolvency framework and adopting the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency, 1997 to address concerns related to cross-border insolvency in India. 
• In domestic insolvency proceedings, an Insolvency Professional manages various stages such as identifying the debtor's assets and creditors, and settling claims based on priority rules after approval from the Adjudicatory Authority.  

What is the Model Law for Cross-Border Insolvency? 

• UNCITRAL has developed a Model Law for cross-border insolvency based on four pillars: access, recognition, cooperation, and coordination. 
• The Model Law is non-binding, allowing countries to tailor its implementation to their specific requirements. 
• As of the report's date, only 60 countries have adopted the UNCITRAL Model Law on cross-border insolvency. 

What is the India's Position on Model Law for Cross-Border Insolvency? 

• The Bankruptcy Law Reform Committee recognized the potential benefits of the UNCITRAL Model Law while drafting the Insolvency and Bankruptcy Code (IBC) in 2016. 
• The Indian government has acknowledged the benefits of the Model Law, as mentioned in the Economic Survey 2022. 
• Despite committee recommendations, India has not yet adopted the UNCITRAL Model Law on cross-border insolvency. 
• Recent reports suggest that a decision on adopting the Model Law has likely been deferred again. 
• The Union Budget, while supporting improvements to the IBC's efficiency through technology platforms and judicial infrastructure augmentation, did not address the adoption of the Model Law. 
• Currently, India relies on limited provisions allowing bilateral agreements on a case-by-case basis for cross-border insolvencies, which are considered ad hoc and inadequate. 
• India has been actively engaging in Free Trade Agreements (FTAs), Comprehensive Economic Corporation Agreements (CECAs), and Comprehensive Economic Partnership Agreements (CEPAs) with over 54 countries, but these agreements generally lack detailed cross-border insolvency provisions. 
• Free Trade Agreements (FTAs) and similar trade deals are becoming more common, but they don't usually include rules for handling bankruptcies across borders. 
  • Even though these agreements are supposed to cover complex trade issues, they mostly just talk about general disputes and trade remedies. 
• India is making new trade agreements with other countries, and these could include rules about bankruptcies, but right now they don't.. 
  • It's strange that even big organizations like the World Trade Organization don't really talk about cross-border bankruptcy when they discuss the future of trade. 
  • Including bankruptcy rules in trade agreements would make them stronger and more useful, especially for a country like India that's signing lots of these deals. 
• The government departments responsible for trade and bankruptcy, along with legal experts, should work together to figure out how to include these rules in trade agreements. 

What are the Legal Frameworks Governing Cross- Border Insolvency in India in IBC, 2016? 

• Section 234 deals with Agreements with foreign countries. 
  • This section empowers the Central Government of India to enter into agreements with governments of foreign countries to enforce the provisions of the Insolvency and Bankruptcy Code. 
  • The Central Government can, through an official notification in the Gazette, specify conditions for applying the Code's provisions to assets or property of corporate debtors or personal guarantors located in foreign countries with which India has reciprocal arrangements. 
  • This provision allows for international cooperation in insolvency proceedings, potentially facilitating cross-border insolvency resolution. 
• Section 235: Letter of request to a country outside India in certain cases. 
  • During insolvency resolution, liquidation, or bankruptcy proceedings, if the resolution professional, liquidator, or bankruptcy trustee believes that assets of the corporate debtor or personal guarantor are located in a foreign country with which India has reciprocal arrangements under Section 234, they can take action. 
  • In such cases, the professional handling the proceedings can apply to the Adjudicating Authority if evidence or action related to those foreign assets is required for the ongoing proceedings. 
  • Upon receiving such an application, the Adjudicating Authority must assess whether the evidence or action related to the foreign assets is indeed necessary for the insolvency, liquidation, or bankruptcy proceedings. 
  • If satisfied of the necessity, the Adjudicating Authority is empowered to issue a letter of request to a competent court or authority in the foreign country where the assets are located. 
  • This provision creates a mechanism for seeking international judicial assistance in gathering evidence or acting related to assets located abroad, which may be crucial for effective insolvency resolution. 
  • The section emphasizes the importance of reciprocal arrangements, linking it back to Section 234, and states the need for international cooperation in cross-border insolvency cases. 

Important Case Law on Cross Border Insolvency  

• Jet Airways (India) Ltd. v. State Bank of India (2016)  
  • The Jet Airways case states the complexities of cross-border insolvency due to the presence of assets, creditors, and interests in multiple jurisdictions. 
  • It necessitated coordination between Indian and foreign insolvency proceedings, demonstrating the challenges in harmonizing diverse insolvency systems across different legal jurisdictions. 
  • The case states the need for a formation of framework to manage international aspects of insolvency proceedings for companies with global operations. 
• Videocon Industries Ltd. v. State Bank of India, 2018 
  • This case exemplifies the intricacies of cross-border insolvency when a company has subsidiaries and assets spread across multiple countries. 
  • It raised significant legal questions regarding asset recovery and creditor coordination in an international context. 
  • The case brought to the forefront the issue of India's recognition of foreign insolvency proceedings and the need for a comprehensive cross-border insolvency regime. 
  • It states the challenges in managing concurrent insolvency proceedings in different jurisdictions for a single corporate group. 
• State Bank of India & Others v. Kingfisher Airlines (2017)  
  • This insolvency case demonstrated the complexities involved in managing international lessors, creditors, and assets in a cross-border insolvency scenario. 
  • It raised questions about the application of Indian insolvency laws to assets and liabilities located in foreign jurisdictions. 
  • The case states the need for clear protocols in dealing with foreign creditors and asset recovery in international insolvency proceedings. 
  • It states the challenges in reconciling Indian insolvency laws with international aviation leasing agreements and practices. 

Conclusion 

There is a pressing need to integrate cross-border insolvency provisions into Free Trade Agreements (FTAs) and similar international trade pacts. While the UNCITRAL Model Law is well-recognized, its implementation has been challenging. As India continues to sign new FTAs, incorporating insolvency clauses would strengthen these agreements and better prepare trading entities for potential cross-border insolvency issues. This integration would ultimately benefit India's international trade landscape.