Cross-border insolvency is one where the insolvent debtor has assets in more than one State or where some creditors of the debtor are not from the State where the insolvency proceeding is taking place.

The number of cross-border insolvency cases have increased rapidly since the 1990s due to globalisation and privatisation, but countries are yet to adopt a singular and amicable international law which is essential for disposal of such cases without conflict of interest of interested entities.

The absence of such unified international law results in dis-satisfactory and inadequate approaches in cases pertaining to cross-border insolvency. This is due to jurisdictional and coordination issues between two or more countries. Companies and individuals fear to tread within a country, where no such unified international laws prevail and this arrangement simultaneously affects the economy and progress of the respective country.

There is an imperative need for cross-border insolvency law in every country which deals with international trade, investments, and other financial activities : firstly, due to enforcement of principles of the law and justice and secondly, the corporate sector only believes in profit-making whether inside or outside national borders.

Illustration, it will be impossible to deal with an insolvent company lawfully if that company has its headquarters in country A, creditors in country B, and assets and operations in another country C. In case of discrepancy this arrangement will become a nightmare for interested parties as well as for the countries which swear to protect the interests of their citizens, unless every country submits to international cross- border insolvency law.

Present Situation
In India the cross- border insolvency is dealt under sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016, which were introduced only in 2015. IBC requires the respective countries to enter into a bilateral agreement for administering the cross- border insolvency proceedings. This works on the doctrine of reciprocity, and requests for such arrangements may be made via official letters by the National Company Law Tribunal (NCLT) or by a court having competent jurisdiction to a foreign court or tribunal under whose jurisdiction the assets of the corporate debtor are located. Thus far, India has signed, no such bilateral treaty with any other nation to accord the same.

Progressive countries such as United States of America, United Kingdom, Australia, and many others have already adopted uniform international cross-border insolvency law, unfortunately India, even after repeated recommendations from several government-constituted expert committees (viz. Balkrishna Eradi Committee, NL Mitra Committee, JJ Irani Committee) is yet to, introduce a unified international law. However, the Insolvency and Bankruptcy Code, 2016 which is based on UNCITRAL Model Law has introduced direct provisions relating to cross-border insolvency.

The national interest of India is also hampered because of the non-acceptance of a unified international cross-border insolvency law as foreign creditors would be hesitant to invest in Indian companies as their assets/debts, during insolvency would not be recoverable. It cannot be even assessed how much investment India has lost due to the failure of the Indian government to introduce and implement such cross-border insolvency laws.

UNCITRAL Model Law On International Commercial Arbitration (1985)
The Model Law is accompanied by a Guide to the Enactment and Interpretation. This is directed primarily to executive branches of Governments and legislators preparing the necessary enacting legislation but, it also provides useful insight for those in charge of interpretation and application of the Model Law, such as judges, and other users of the text, such as practitioners and academics.

“The Judicial Perspective is designed to assist judges with questions that may arise in the context of an application for recognition under the UNCITRAL Model Law on Cross-Border Insolvency. As such it is relevant not only to judges from States that have enacted legislation based on the Model Law but to judges from any State likely to be concerned with cross-border insolvency cases. The text discusses the Model Law from a judge’s perspective, identifying issues that may arise on an application for recognition or cooperation under the Model Law and discussing the approaches that courts have taken in countries that have enacted legislation based on the Model Law.”

The Model Law bifurcate foreign insolvency proceedings on the basis of:
# Foreign main proceedings- when proceedings initiate at the place where the corporate debtor has his registered office also known as the “centre of main interests”.
# Foreign non-main proceedings- proceedings initiated at any other place where the corporate debtor has an establishment other than the registered main office.

Symbiosis Between UNICITRAL & IBC
India’s inclination towards adopting the Model Law
The Model Law simplifies and further directs the countries, and their legal machines to provide the requisite recognition of the insolvency proceedings commenced outside and in multiple jurisdictions.

Since 2000, a number of government-appointed committees (the Eradi Committee and the N.L. Mitra Committee) have recommended the acceptance of UNICITRAL model of law for cross-border insolvency disputes, but the same is yet to be taken into consideration by the legislators. If India adopts the Model Law on cross- border insolvency, then Insolvency matters will be effectively disposed-off, keeping in mind the interests of various entities especially, the creditors engaged in insolvency proceeding at multiple jurisdictions.

Key components of the Model Law for the orchestration of cross-border insolvencies:
# Access to courts in an enacting state;
# Recognition of foreign proceedings, as either a foreign main proceeding or a foreign non-main proceeding;
# Relief that is to be given for the fair and orderly conduct of the cross-border insolvency; and
# Co-operation and co-ordination between courts where the debtor’s assets are situated and the court in which concurrent proceedings are being carried out.

In India, when the National Company Law Tribunal (NCLT) recognises any proceedings as foreign main proceedings, there is an automatic suspension of trade or moratorium on the assets of the corporate debtor, similar to the moratorium under the IBC. The main proceedings can, therefore, go on, fortified by the fact that the assets of the company are going nowhere. Therefore, the primacy of the foreign main proceeding under Model Law is hampered and becomes futile.

India is trying to carefully tread in the sphere of cross-border insolvency, as we believe in the supremacy of Indian courts over foreign courts. However, we are failing to contemplate a situation where a unified international law if adopted on cross-border Insolvency proceedings there would be effective disposal of cases without the major intervention of Indian courts. Only after numerous recommendations by committees and observations made by Indian courts and when enough pressure was put on the legislators, did they to open their eyes with respect to cross-border insolvency.

The Insolvency Law Committee on April 1, 2018, published a report observing that Sections 234 and 235 of the Code did not provide a comprehensive framework on cross-border insolvency matters and stated that it will attempt to formulate a framework based on the Model Law in a separate report. There is also a rumour of discussions with the United States of America for a reciprocal agreement.

Section 234 of IB Code, 2016 empowers the Government to establish reciprocal agreements with other countries via a “Letter of Request” and enforce the provisions of the Code by the official liquidator to the authority of a country with which a reciprocal agreement has been signed for taking actions on the assets of the company situated in such country.

Instantaneous Steps And Future Ahead
It is important to accept that the Code does not envisage the adoption of any law, including the Model law, but only reciprocal arrangements with countries. This is perhaps the biggest flaw in the current insolvency regime in India.

The lacunae in the Insolvency Code and Indian law in general regarding cross-border insolvency proceedings in India have been recognised by various government appointed committees while assessing the law relating to Insolvency. Justice Eradi in 2000 recommended quick adoption of the provisions of Model law relating to insolvency matters. Subsequently, the NL Mitra Committee while submitting its report on the Advisory Group on Bankruptcy Laws again recommended the same.

Similarly, Model Law should be adopted and India should try to contemplate any other future loopholes and fix them simultaneously. This can be done by introducing a new chapter in the IB code which deals with cross-border insolvency with a small tint of Indian Law and regulations. Provisions for interim relief pending the recognition of foreign proceedings.

Given the pace at which our courts work, one would think such a provision is essential, and it’s dropping has the worrying potential to unravel the entire scheme of the new law.

Finally, the Model Law should be adopted in order to achieve harmonization of insolvency laws, through international co-operation and co-ordination.