Cross-Border Insolvency in India: Need for Adoption of the UNCITRAL Model Law

ABSTRACT

Globalization has led to growth of multinational corporations with creditors and assets held across countries. In terms of transnational agreements, India has made some incredible strides. People can now invest in foreign businesses thanks to globalization, and foreign investors are drawn to India. Cross-border insolvency has given rise to a new problem. Instead of being a formal convention that would legally compel countries to modify their provisions in order to ensure the smooth operation of international insolvency laws, the current international laws-that is, the UNCITRAL Model Laws on the subject of cross-border insolvency are merely laws. The provisions of the model law must be modified and incorporated into the laws of each individual country.

This article aims to make an exhaustive study of the insolvency laws of India with respect to cross border insolvency under the Insolvency and Bankruptcy Code, 2016 whilst exploring the model law in depth. Furthermore, it also examines the need for adopting the model law by India. Therefore, this creates a void between two nations’ legal regimes on international insolvency, which may cause hurdles in the international insolvency proceedings.

Keywords: – Cross Border Insolvency, Foreign Creditor, UNCITRAL Model Law, Corporate Insolvency Resolution Process (CIRP), United Nations Commission on International Trade Law, Insolvency and Bankruptcy Code, 2016.

1.Introduction

The globalization of trade and investment has led to the rapid expansion of multinational corporations operating across multiple jurisdictions. Companies today frequently hold assets, liabilities, and business operations in several countries. When such companies face financial distress or insolvency, resolving their debts becomes complex due to the involvement of multiple legal systems and courts. This phenomenon is commonly referred to as cross-border insolvency.

Cross-border insolvency arises when an insolvent debtor has creditors, assets, or business operations in more than one jurisdiction. In such situations, domestic insolvency proceedings may be insufficient to effectively address claims of foreign creditors or deal with assets located abroad. The absence of a coordinated legal framework often leads to conflicting court decisions, asset dissipation, delays in resolution, and unequal treatment of creditors.

In India, the Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to consolidate and modernize insolvency laws. The IBC has significantly improved the insolvency resolution process by introducing a time-bound mechanism for corporate insolvency resolution and liquidation. However, the Code provides only limited provisions for dealing with cross-border insolvency matters. Sections 234 and 235 of the IBC allow the Central Government to enter into bilateral agreements with foreign countries and permit courts to issue letters of request to foreign jurisdictions. These provisions, however, have not been effectively implemented in practice.

Given the increasing integration of India into the global economy, the absence of a comprehensive cross-border insolvency framework poses significant challenges. To address this issue, legal scholars and policymakers have advocated the adoption of the UNCITRAL Model Law on Cross-Border Insolvency, 1997. The Model Law provides a structured framework for cooperation between courts of different jurisdictions and facilitates efficient administration of international insolvency proceedings.

This article examines the concept of cross-border insolvency, the current legal framework in India, the key principles of the UNCITRAL Model Law, and the need for India to adopt the Model Law in order to strengthen its insolvency regime.

2. Concept of Cross-Border Insolvency

Cross-border insolvency refers to a situation in which the insolvency of a debtor affects stakeholders located in more than one jurisdiction. Such cases typically arise when a debtor company has assets in multiple countries or when creditors are located in different jurisdictions.

The main challenge in cross-border insolvency lies in the conflict between different national legal systems. Each jurisdiction has its own insolvency laws, procedures, and priorities regarding creditor claims. Consequently, courts in different countries may attempt to assert jurisdiction over the same debtor’s assets, leading to parallel proceedings.

Two major approaches have traditionally governed cross-border insolvency.

2.1 Territorial Approach

Under the territorial approach, each country exercises jurisdiction over assets located within its territory. Insolvency proceedings are conducted separately in each jurisdiction, and domestic courts prioritize the interests of local creditors.

While this approach preserves national sovereignty, it often results in fragmented proceedings and inefficient distribution of assets.

2.2 Universalist Approach

The universalist approach advocates a single insolvency proceeding conducted in the debtor’s primary jurisdiction, with courts in other countries recognizing and cooperating with that proceeding. This system promotes efficiency and uniform treatment of creditors.

Modern international insolvency frameworks adopt a modified universalism approach, which balances international cooperation with respect for domestic legal systems.

3. Existing Legal Framework in India

India’s insolvency regime is primarily governed by the Insolvency and Bankruptcy Code, 2016, which consolidated multiple insolvency laws into a single comprehensive framework.

The IBC introduced several institutional mechanisms, including:

National Company Law Tribunal (NCLT) as the adjudicating authority for corporate insolvency cases.

Insolvency and Bankruptcy Board of India (IBBI) as the regulatory body.

Insolvency professionals responsible for managing the resolution process.

Despite these reforms, the Code contains limited provisions for addressing cross-border insolvency.

3.1 Section 234: Agreements with Foreign Countries

Section 234 of the IBC authorizes the Central Government to enter into bilateral agreements with foreign countries to enforce the provisions of the Code. Such agreements may facilitate cooperation between Indian courts and foreign courts.

However, this provision depends entirely on the existence of bilateral treaties, which are difficult to negotiate and implement with multiple jurisdictions.

3.2 Section 235: Letter of Request

Section 235 empowers the NCLT to issue a letter of request to a foreign court seeking assistance regarding assets or evidence located abroad.

In practice, these provisions have rarely been used because they require prior agreements between countries and lack a comprehensive procedural framework.

4. Judicial Developments in India

Although India lacks a formal cross-border insolvency framework, courts have occasionally addressed such issues through judicial innovation.

4.1 Jet Airways (India) Ltd. Insolvency Case

The insolvency proceedings of Jet Airways (India) Ltd. became a landmark case in cross-border insolvency. Parallel insolvency proceedings were initiated in India and the Netherlands.

The National Company Law Appellate Tribunal (NCLAT) allowed cooperation between the Indian resolution professional and the Dutch administrator. A cross-border insolvency protocol was established to coordinate proceedings between the two jurisdictions.

This case demonstrated the practical necessity of a formal legal framework for cross-border insolvency cooperation.

4.2 Videocon Industries Case

Another significant development occurred in the Videocon Industries insolvency case, where the NCLT allowed substantive consolidation of multiple group companies undergoing insolvency proceedings.

Although the case primarily involved domestic entities, it highlighted the challenges of dealing with complex corporate structures spanning multiple jurisdictions.

These cases illustrate that Indian courts are willing to adopt innovative approaches, but the absence of statutory provisions limits the effectiveness of such measures.

5. UNCITRAL Model Law on Cross-Border Insolvency

The UNCITRAL Model Law on Cross-Border Insolvency (1997) was developed by the United Nations Commission on International Trade Law to assist countries in establishing a modern legal framework for international insolvency proceedings.

The Model Law does not attempt to unify substantive insolvency laws. Instead, it provides procedural mechanisms that enable cooperation and coordination between courts of different jurisdictions.

5.1 Objectives of the Model Law

The Model Law seeks to:

1. Promote cooperation between courts and insolvency authorities of different states.
2. Provide greater legal certainty for international trade and investment.
3. Ensure fair and efficient administration of cross-border insolvency.
4. Protect the interests of creditors and other stakeholders.
5. Facilitate the rescue of financially distressed businesses.
6. Key Principles of the UNCITRAL Model Law

The Model Law is based on four fundamental pillars: access, recognition, relief, and cooperation.

6.1 Access

Foreign insolvency representatives are granted direct access to domestic courts in countries adopting the Model Law. This ensures that foreign administrators can seek legal assistance without initiating separate insolvency proceedings.

6.2 Recognition

Courts may recognize foreign insolvency proceedings and classify them as:

Foreign Main Proceedings – initiated in the jurisdiction where the debtor has its Centre of Main Interests (COMI).

Foreign Non-Main Proceedings – initiated in jurisdictions where the debtor has an establishment.

Recognition enables courts to grant appropriate relief and coordinate proceedings.

6.3 Relief

Once a foreign proceeding is recognized, courts may grant various forms of relief, including:

Stay on creditor actions

Protection of debtor assets

Appointment of insolvency administrators

6.4 Cooperation and Coordination

The Model Law encourages courts and insolvency professionals to cooperate with foreign authorities and coordinate simultaneous proceedings to avoid conflicting decisions.

7. Global Adoption of the Model Law

The UNCITRAL Model Law has been adopted by numerous countries, including:

United States (Chapter 15 of the U.S. Bankruptcy Code)

United Kingdom

Singapore

Australia

Canada

Japan

The widespread adoption of the Model Law demonstrates its effectiveness in facilitating international insolvency cooperation.

8. Need for Adoption of the Model Law in India

Adopting the UNCITRAL Model Law would significantly strengthen India’s insolvency framework.

8.1 Promoting International Cooperation

The Model Law would enable Indian courts to cooperate with foreign courts and insolvency professionals, facilitating coordinated resolution of multinational insolvency cases.

8.2 Protecting Creditor Interests

A structured cross-border insolvency framework would ensure equitable treatment of both domestic and foreign creditors.

8.3 Enhancing Investor Confidence

Foreign investors are more likely to invest in jurisdictions with predictable insolvency laws. Adoption of the Model Law would improve India’s reputation as an investor-friendly destination.

8.4 Efficient Asset Recovery

Coordinated insolvency proceedings would prevent asset dissipation and maximize value for creditors.

8.5 Alignment with Global Standards

Adopting the Model Law would align India’s insolvency framework with international best practices and support its integration into the global financial system.

9. Recommendations for India

While adopting the Model Law, certain modifications may be necessary to accommodate India’s legal framework.

First, India should incorporate the Model Law into the IBC as a separate chapter governing cross-border insolvency.

Second, Indian courts should retain a public policy exception allowing them to refuse recognition of foreign proceedings that conflict with national interests.

Third, the government should develop specialized training programs for judges, insolvency professionals, and regulators dealing with international insolvency cases.

Finally, India should strengthen cooperation with major trading partners to facilitate effective cross-border insolvency administration.

10. Conclusion

Cross-border insolvency has become an increasingly important aspect of modern commercial law due to the globalization of business operations. Companies frequently operate across multiple jurisdictions, making insolvency proceedings more complex and interconnected.

Although the Insolvency and Bankruptcy Code, 2016 has significantly improved India’s domestic insolvency regime, its provisions for cross-border insolvency remain limited. Sections 234 and 235 rely on bilateral agreements that have not been effectively implemented, leaving India without a comprehensive framework to address multinational insolvency cases.

The UNCITRAL Model Law on Cross-Border Insolvency offers a practical and internationally recognized solution to these challenges. By promoting cooperation between courts, recognizing foreign proceedings, and ensuring equitable treatment of creditors, the Model Law provides an effective mechanism for resolving cross-border insolvency disputes.

Given India’s growing integration into the global economy, adopting the UNCITRAL Model Law is essential for strengthening its insolvency regime. Such adoption would enhance investor confidence, improve asset recovery, and align India with international best practices in insolvency law.

Therefore, incorporating the UNCITRAL Model Law into the Indian insolvency framework represents a necessary step toward building a robust and globally compatible insolvency system.