Cross Border Insolvency under the Indian Regime: Necessity of Amending the Legislation post the Covid-19 Pandemic

By Sharbani Kar [1] & Pratik Dash [2]

This paper begins by discussing the impact of COVID-19 on Cross border Insolvency proceedings. The Model Law and its core principles are discussed with the adoption by the developing nations. Under Sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016, India has a cross-border insolvency procedure. The said provisions are considered haste inclusion with no steps being taken for bilateral arrangements with countries and failure to imbibe the core principle of Model in the said provision. The paper further delves into the delayed approach of framing Cross border Insolvency report to consider the problems caused by the existing provisions and making recommendations for a draft provision after two years of commencement of the Code. The amendments are made to the current Code, more particularly, the Pre-packaged Insolvency Model for the MSMEs, wherein foreign creditors and resolution of foreign assets of a debtor find no place. The FDI influx vis-à-vis ranking made to the ease of doing business during the COVID-19 pandemic, which can be contributory factors for achieving the prime objectives of maximizing asset value and effectuating time-bound resolution. In view of these existing circumstances, the authors advocate for the necessity of implementing the extended pending Model Law framework for Cross Border Insolvency to attain the legislative objects.

KEYWORDS: UNCITRAL Model Law, Ease of doing business, Bilateral agreement, Letter of Credit, Covid-19


The world economy has shattered after the onset of the COVID-19 pandemic. It has wrecked the distribution systems and GDP across several jurisdictions, making it difficult for small, micro, and medium scale businesses. It has even halted large corporates and Multinationals. Even piling debts in the market and the improbability of recovery and realization of assets is a growing concern. Cross- border insolvency is a method of realizing the assets of debtors in different jurisdictions. It refers to the maximization of recovery of debts incurred at the behest of those investors/creditors hailing from different countries.

India has been one of the worst affected countries in this pandemic, and IBC is not a legislation piece that has been discussed as of late. The ideologies behind the Code were discussed and presented through specific published reports and framed committees such as Eradi, [3] Bankruptcy Law Reforms, [4] etc. Whilst the Model Law [5] was enacted in 1997 to address the issue of Cross border insolvency, Indian lawmakers have decided to adhere to it in recent times with notification of two dead pieces of Cross Border Insolvency provisions into IBC under Section 234 and 235. The problems faced in cross-border resolution remain unaddressed because of failure to create and enforce bilateral agreements viz reciprocal arrangements. It extends to creating balance in the enforcement of insolvency orders/awards and prioritization of domestic proceedings qua creditors.

However, it is pertinent to raise how long the Indian Legislation would do away with the enforcement of enacted provisions post-pandemic when the economy revives and bad debts need cautious resolutions.


The framing of Model Law was done keeping in mind four factors also referred to as principle that would give access, recognition, relief to a debtor of one country and further, would be extended with Cooperation and efficient coordination to resolve the debts. These principles were the watermarks for the legislations across the globe to create a domestic framework that would facilitate a time-bound resolution of debts accrued in international trade practices. The Model Law even provides for flexibility [6] and consistency to the national insolvency laws. These recommendations were ratified by 44 countries instantly, including major developed countries such as United States, United Kingdom, etc. The Model Law was framed in an era that was devoid of technology and digitalization. It recognized both foreign and domestic insolvency proceedings inter alia public policy exceptions and flexibility [7] to include, vary provisions to suit domestic needs.

Countries have implemented exclusions that are far broader than those anticipated by the Model Law. The Model Law does not demand reciprocity, nor does it stipulate that a foreign representative wanting to use its services must have been appointed or foreign proceedings begun under the law of a State that has adopted it. [8]

Section 234 and 235: A Haste Inclusion devoid of Model Law principles:

Section 234 and Section 235 of the Insolvency and Bankruptcy Code, 2016, have been adopted in India. These provisions, however, have not yet been announced. By virtue of Section 234, subsection (1), the Central Government would enter into bilateral agreements with foreign countries to enforce the IBC-mandated Corporate Insolvency Resolution Process. By notification in the Official Gazette, the Central Government would direct the application of the Code’s provisions in relation to the assets/property of Corporate or debtor, or guarantors who have incurred personal liability to the debtors in countries with whom India has reciprocal arrangements. However, it has failed to address the issues of reviving the assets of fugitives Like Vijay Mallya, Mehul Choksee, Nirav Modi, etc. as they still have assets spread in multiple jurisdictions. Section 235 of the Code deals with a letter of request to foreign courts by the NCLT and NCLAT for implementation of its orders over the assets of a Corporate Debtor whose insolvency resolution has been admitted in India.

These provisions are devoid of analysis and implications by the Draftsmen showcasing the major lacunae of the Code. The ambiguities range majorly in implementation of orders passed by the Adjudicating Authorities in foreign courts, cooperation ascertained to the letter of requests, reciprocal arrangements, etc. India’s adoption of the New York Convention for the Enforcement of Arbitral Awards, 1958, sheds light on the country’s readiness to reciprocity. Therefore, the Indian Legislators needed to understand that the enforcement of bankruptcy orders has far-reaching consequences, considering the multiple numbers of stakeholders involved and, more particularly, the need to adhere to a time-bound resolution of assets.

Draft Report by the Central Government in 2018: A delayed approach to implementing Model Law

The Central Government has understood the complexity of Cross Border Insolvency after two years since implementing the Code.

The Draft Committee has appreciated the necessities of exclusive features of the Model Law with flexibility, public policy exceptions, mandatory and non-mandatory relief inter alia another such dynamic and progressive approach. The Draft Provisions have left a lot of detail to the Central Government and IBBI’s subordinate law. To avoid confusion in the resolution of cross-border insolvencies, promulgations of rules/regulations must align with the Model Law’s goal and be implemented promptly.

The Committee has even appreciated that implementing the Model Law would allow recognition of foreign proceedings and substantive relief. The Centre of Primary Interests (COMI), which states that if domestic courts conclude that the debtor’s COMI is in a foreign nation, those foreign proceedings will be recognized as the main proceedings, was widely regarded as a necessity.

The draft introduces joint hearings for concurrent proceedings operating at different jurisdictions, promoting cooperation and preventing inconsistent judgments on the resolution process. It is difficult to understand why these provisions have not received the sanction of law. However, India had roaring cases of debts and debtors mushrooming in different countries, much before the pandemic.

Judicial Activism: Indian Judiciary’ s proactive approach for fair treatment

Indian judiciary has expanded its horizon beyond the black letter law. The resolution of Jet Airways in NCLAT is an example set apart. The NCLAT was hearing an appeal from orders and had partly set aside the impugned order passed by NCLT; so far, it related to the decline of request relating to ousting of jurisdiction of Dutch Court in having a parallel insolvency proceeding. [9] The NCLAT further went ahead to injunct creditors of the committee in discriminating against the Dutch creditor. The Resolution Professional was asked to enter into a Cross Insolvency Protocol with the Dutch Trustee Administrator.

The Dutch Supreme Court extended the principle of “Cooperation” of the UNCITRAL Model in Yukos Finance. [10] The arbitral award has granted foreign administrator permission to exercise its powers without depriving the legitimate claims of secured creditors in the Netherlands and the exercise of powers according to the law of the land where the insolvency proceedings were initiated.

Consolidation of insolvencies was made for the first time in the case of Videocon Industries with four foreign-based corporations by the NCLT Mumbai bench in February 2020. The Tribunal called into question IBC’s extraterritoriality and procedure involved collating foreign subsidiaries’ assets with those in India. It has once again demonstrated the need for similar regulations assets with those in India. [11]

In SBI v. SEL Mfg., Bankruptcy Code granted co. Ltd., NCLT, Chandigarh recognition of main foreign proceedings as India was treated as the centre of main interest by U.S. creditor in an application by the foreign debtor.

Amendments to the Insolvency Code amidst the global pandemic:

Apart from the significant suspension of the application sections, major reforms brought about by the Indian Government is an infusion of the package for the MSME, also known as pre-packaged insolvency process (PPIR), by significant amendment on 04th April 2021. It provided for the collaboration of the debtors and creditors in an informal agreement with 90 days of the resolution, unlike the convention CIRP. The Code’s interpretation extended to the applicability of Part III to the debtors’ guarantors. The resolution plan approval even doesn’t discharge ipso facto their liability. [12]

The personal guarantee also extends to foreign creditors who have rendered their liabilities to the Corporate Debtor whose resolution process is carried out in India. Due to uncertainty in the implementation of Model Law, no mechanisms could be adopted to resolve the foreign assets. The Legislation should have taken a proactive approach in framing the entire law as MSMEs have creditors engaged in inter-country and inter-continental trade practices. However, most affected small-scale promoters have not been able to get a restructured debt. More particularly, when the game becomes the resolution of debts across borders, it becomes a mammoth task. The Micro and Small Enterprises Facilitation Council (MSEFC) has remained functionless in this global pandemic to redress cross- border debts.

Foreign creditor’ s debt: yet unaddressed and unresolved post COVID-19

The methods resorted by the Government have still made the room dark for the foreign creditors who are yet on the verge of resorting to arbitration and mediation mechanisms. With the implementation of the Code, suspected tainted money under the Prevention of Money Laundering Act of 2002, and freezing of assets thereunder, the aforementioned act has suffered a significant setback. Foreign Exchange transactions that involve creditors in multiple jurisdictions fail to realize the debts on account of these money laundering proceedings. However, the benefits are to be reaped only if the law is at hand as a tool.

Foreign Banks have no option to enforce a security interest in Indian Law at their disposal. In greater measure, the chaos by pandemic has made the IBC’s object viz. maximization of assets unfruitful for foreign creditors. Resolution professionals and Liquidators would face tough times to address claims and valuations in realizing assets across multiple countries. Foreign creditors are devoid of participation and voting rights in a COC meeting. Therefore, every major resolution seems ineffective, and revival is minimalistic post the pandemic unless the UNCITRAL Model Law is carved in as Law.

An out-of-court settlement mechanism initiated as a Pre-Pack mechanism would also preclude the foreign creditors from being part of the agreement entered with debtors.

Possible Impact on FDI and Ease of Doing Business in India post COVID-19:

India has been certainly proactive in mapping out IBC as one of the catalysts to achieve the objectives of Foreign Investment and Ease of Doing Business. In World Bank’s “Doing Business” 2020 Report, India has climbed 14 places to 63rd rank. Nevertheless, the positions are chaotic for all the countries for the next two years when the world is reeling under this pandemic. India is being faced with second and third phases to rot out with discrepancies in vaccine rolls. Cross border regime is warranted, which would otherwise have gains that are lower than fair value.

The FDI inflow has been a good reason to boast for India, with the investments being made to the digital sector while the global foreign equity flow has come to a record low. Cross-border mergers and acquisitions, such as Facebook’s acquisition of a 9.9% share in Reliance Jio platforms, have added icing to the cake. To create a business environment, the legislators need to buckle up for addressing credit lines across borders. The faith of creditors in ease of business would also rely on resolving and restructuring an accrued debt.


Therefore, it is of utmost importance to present the draft bill for Cross border Insolvency in India before both the Houses of Parliament and give it Presidential permission without any hesitation as the UNCITRAL Model Law has addressed the needs of many nations in providing a robust framework for Insolvency courts to restructure the debts. The business environment in India is getting a progressive change, which would further accelerate post the pandemic and needs time- bound resolution with the removal of all the anomalies which would hinder in realizing the objects of IBC. Following the pandemic, a precise framework in cross-border insolvency based on model law’s core principles is an immediate necessity.

[1] Asst. Professor of Law at Lingaya’s Vidyapeeth.

[2] Practicing advocate at High court of Orissa.

[3] Eradi Committee Report, Laws Relating to Insolvency and Winding of Companies (2000).

[4] Bankruptcy Law Reforms Committee (BLRC) Report (2015).

[5] Model Law in Cross border Insolvency (1997).

[6] Article 6 of the UNCITRAL Model Law of Insolvency, (last accessed 20th September, 2021).

[7] Article 6, Part One. UNCITRAL Model Law on Cross-Border Insolvency, Chapter I. General provisions, UN publications, UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation.

[8] A Case to Cross the Border Beyond the UNCITRAL by Sudhaker Shukla and Kokila Jayaram (last accessed 20th September, 2021).

[9] Company Appeal (AT) (Insolvency) No. 707 of 2019.

[10] Manish Arora and Raushan Kumar, India’s tryst with cross-border insolvency law: How series of judicial pronouncements pave the way? (SCC Online Blog), April 16, 2021.

[11] State Bank of India v. Videocon Industries Ltd., MA 2385/2019 in C.P.(IB)-02/MB/2018.

[12] Lalit Kumar Jain v. Union of India, 2021 SCC Online SC 396.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Kirit P. Mehta School of Law Publications