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Cross-Border Insolvency Reforms
Context:
The exponential growth of international trade has amplified cross-border insolvency challenges, underscoring the urgency for a reliable and predictable insolvency framework.
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- Such a framework is critical for ensuring economic stability, attracting foreign investment, and enabling efficient corporate restructuring.
A Historical Perspective
- Pre-Independence: During the British Raj, India grappled with financial failures and cross-border commerce without a comprehensive insolvency framework.
- The Indian Insolvency Act of 1848, the first insolvency law, addressed domestic issues but fell short on cross-border complexities.
- It was later replaced by the Presidency-Towns Insolvency Act, 1909, applicable in Calcutta, Bombay, and Madras, and the Provincial Insolvency Act, 1920, which governed mofussil regions.
- These laws, however, left a critical gap in addressing cross-border insolvency cases.
- Post-Independence: Insolvency laws remained stagnant until economic liberalisation in the 1990s highlighted the need for modernisation.
- Committees like the Eradi Committee (2000), Mitra Committee (2001), and Irani Committee (2005) recommended adopting the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (1997).
- Despite the Bankruptcy Law Reform Committee drafting the Insolvency and Bankruptcy Code (IBC) in 2015, cross-border insolvency provisions were initially overlooked.
- Provisions were later introduced under Sections 234 and 235 of the IBC.
- Section 234 enables India to enforce IBC provisions through reciprocal agreements with foreign countries, while Section 235 outlines procedures for seeking foreign court assistance.
Challenges in Cross-Border Insolvency
- Dormant Provisions in the IBC: Sections 234 and 235 of the IBC, introduced to address cross-border insolvency, remain dormant due to lack of reciprocal agreements and non-notification by the government, making them legally unenforceable.
- Judicial Challenges: NCLT (National Company Law Tribunal), the adjudicating authority for insolvency matters, lacks the power to recognise or enforce foreign insolvency judgments, limiting its effectiveness.
- Ad hoc protocols in cases like Jet Airways (2019) provide temporary solutions but lack predictability and efficiency.
- Outdated communication channels between Indian and foreign courts delay cross-border insolvency resolutions.
- Regulatory Gaps: India lacks a clear framework for recognising foreign insolvency proceedings, leading to inconsistent judicial decisions.
- The absence of coordination with foreign jurisdictions hampers the efficiency and fairness of cross-border insolvency cases.
Case Study: Jet Airways (India) Limited (2019)
- The absence of a reciprocal agreement between India and the Netherlands made it impossible to enforce insolvency proceedings in the Netherlands.
- Sections 234 and 235 of the IBC were not operational at the time, rendering them ineffective.
- An ad hoc cross-border insolvency protocol was developed, but it was temporary and lacked long-term effectiveness.
Recommendations for Reform
- Adopt the UNCITRAL Model Law: Implementing the UNCITRAL Model Law on Cross-Border Insolvency would provide a structured and internationally recognised framework, improving efficiency and investor confidence in India’s insolvency regime.
- Modernise Judicial Communication: Updating communication methods between Indian and foreign courts is essential to resolve cross-border insolvency cases efficiently.
- Adopting the Judicial Insolvency Network (JIN) Guidelines (2016) and the Modalities of Court-to-Court Communication (2018) would enhance transparency and streamline coordination.
- Empower the NCLT: Expanding the NCLT’s powers and enabling it to recognise foreign judgments would allow it to address cross-border insolvency cases comprehensively.
- Implementing Rule 11 of the NCLAT Rules (2016) would empower NCLT to exercise inherent jurisdiction over such matters.
- India’s current cross-border insolvency framework remains inadequate in addressing the complexities of global commerce. A robust framework would not only attract foreign investment but also ensure economic stability and efficient resolution of cross-border insolvency cases.
