Navigating Cross Border Insolvency In India: An Analysis Of Legal Precedents

The phenomenon of globalisation has interconnected national economies, leading to a significant surge in cross-border trade and fundamentally transforming the business landscape. This increased global interdependence has prompted companies to extend their operations across diverse jurisdictions worldwide. When a multinational enterprise faces insolvency and has assets and creditors in foreign nations, it triggers several cross-border ramifications, creating conflicts between the insolvency and liquidation laws of different countries. In such scenarios, safeguarding the rights and interests of both domestic and foreign investors becomes crucial. 

Broadly, three scenarios are associated with cross-border insolvency:

(i) Foreign creditors having claims over the assets of the corporate debtor in another jurisdiction and insolvency proceedings are initiated there;

(ii) Corporate debtor has multiple branches or places of business, leading to different assets in jurisdictions;

(iii) Corporate debtor is subjected to multiple proceedings in concurrent jurisdictions. 

The United Nations Commission on International Trade Law (“UNCITRAL”) came out with the Model Law on cross-border insolvency as early as in 1997 (“Model Law”). The Model Law was introduced as a comprehensive framework designed to address and harmonize international practices in the field of insolvency. Further, it was developed to facilitate efficient cross-border insolvency proceedings and it serves as a guide for nations seeking to enhance their legal frameworks for handling the insolvency process involving multinational enterprises. 

UNCITRAL's Model Law provides a set of standardized principles and procedures, promoting consistency and coordination among jurisdictions. The UNCITRAL Model Law provides a globally accepted and flexible framework designed to reduce the complexities caused by differing national insolvency laws, thereby creating a more predictable and fair resolution process for stakeholders in cross-border insolvency scenarios. The adoption of the Model Law by various countries underscores its significance in promoting a harmonized and effective approach to managing insolvency matters on an international scale. So far, only 50 countries have subscribed to the Model Law while India is yet to adopt the same. 

Evolution of cross-border insolvency mechanism in India 

The Bankruptcy Law Reforms Committee (“BLRC”) was charged with the drafting of the Insolvency and Bankruptcy Code 2016 (“Code”). The need to address cross-border issues was first brought out in BLRC’s report in November 2015 wherein it was observed that Indian financial firms may have claims upon defaulting firms which are foreign, or foreign financial persons may have claims upon Indian defaulting firms. The need to address this issue was thereafter recognised by the Joint Parliamentary Committee (“JPC”) and JPC in its report in April 2016, reviewing the BLRC’s report, recommended inclusion of Sections 234 and 235 to the Code.

Section 234 of the Code allows the Central Government to enter into bilateral agreements with foreign countries for resolving cross-border insolvency cases. Till date however no bilateral agreements have been entered into. Section 235 of the Code allows the Adjudicating Authority i.e. National Company Law Tribunal (“ NCLT”) to issue letters of request to foreign courts for cooperation and coordination in cross-border insolvency proceedings. There are no sections in the Code which provide for the Adjudicating Authority to recognise or assist a foreign insolvency proceeding and accordingly, a foreign court requiring assistance of an Indian Court to administer insolvency proceeding cannot approach the NCLT. 

The above sections are broadly defined, and have left ambiguity regarding the potential participation of foreign creditors in the insolvency proceedings in India. Further, there is no certainty with respect to the mechanism of recognition and enforcement of foreign judgements. 

The Insolvency Law Committee (“ILC”) was constituted to take stock of the functioning and implementation of the Code. The ILC in its report in March 2018 recognised a need to re-evaluate the cross-border insolvency framework as it was complicated, fragmented and not at par with global standards. In October 2018, ILC submitted a report to Ministry of Corporate Affairs (“MCA”) recommending adoption of UNCITRAL Model Law. A draft chapter based on Model Law was also submitted, referred to as “Draft Part Z” therein, which was to be incorporated as a separate part of the Code. 

The Cross-Border Insolvency Rules / Regulations Committee (“CBIRC”) in its report in June 2020 made additional modifications to Draft Part Z. Thereafter, in November 2021, MCA released further modifications to ensure Draft Part Z is finally made into law. The adoption of Model Law will act as a compelling signal towards positive international change and may be perceived as a progressive and forward-thinking reform in market. 

The Insolvency and Bankruptcy Board of India (“IBBI”) has long considered the implementation of an extensive framework for cross-border insolvency. Recently, the Whole-Time Member of IBBI suggested a simultaneous introduction of the cross border and group insolvency frameworks; however, it appears that it will take some more time before such legislation can be successfully enacted and put into practice.

Given this evolving regulatory framework, it is now important to understand how the courts in India have interpreted cross border insolvency matters.

Developments on cross-border insolvency laws through judgments

Pursuant to the introduction of the Code, there has been ambiguity on the role and involvement of foreign parties in the insolvency process of companies. One noteworthy judgment was the Supreme Court’s decision in Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd. [1] , clarifying the meaning of ‘person’ under Section 3(23) of the Code to include persons resident outside India. It recognized the scope of foreign creditors/ foreign banks and financial institutions to participate in the insolvency resolution process in India. Some other key judgments include:

(i) Stanbic Ghana Bank Case: Recognition of foreign awards / judgements

As early as in 2017, the possibility of initiating insolvency proceedings against an Indian company on the basis of a foreign court order was recognized in the case of Stanbic Bank Ghana [2].  A loan was given by Stanbic Ghana Bank to Rajkumar Impex Ghana Limited (principal borrower), a wholly owned subsidiary of Rajkumar Impex Private Limited (guarantor). Upon default in repayment, the bank initiated proceedings against the principal borrower in Ghana and against the guarantor in English Court. During the pendency of insolvency proceedings before the Ghana Court, the English Court passed an order against guarantor. Basis the said order, the bank (the financial creditor) initiated proceedings under section 7 of the Code against the guarantor. The Adjudicating Authority observed that “this Tribunal has no jurisdiction to enforce the foreign decree; however, there is no bar in it taking cognizance of the foreign decree.” This decision of NCLT was challenged in appeal and affirmed by the Appellate Tribunal, i.e. NCLAT [3] and Supreme Court [4] both. 

The recognition of foreign awards was also observed in another case of Agrocorp International Private vs National Steel and Agro Industries Limited [5],  wherein the NCLT allowed initiation of insolvency resolution process by a foreign creditor on the basis of a foreign arbitral award.

(ii) SEL Mfg Case: First time recognition of Indian court as centre of main interests

In 2005, the United States in 2005 had adopted the UNCITRAL Model Law. Chapter 15 of the United States Bankruptcy Code provides for the procedure through which bankruptcy courts recognise the foreign insolvency proceedings. In November 2019, in the case of SBI vs SEL Mfg. Co. Ltd.,  the NCLT [6] (Chandigarh Bench) was recognized as the ‘foreign main proceeding’ under the US Bankruptcy Code by US Bankruptcy Court based on the application of foreign representative who attributed India as the ‘centre of main interests’ of the foreign debtor. This order gave recognition to Indian insolvency proceedings in the face of concurrent proceedings in India and US. 

(iii) Jet Airways Case: First CIRP with joint participation of Indian and Dutch Creditors

In 2019, State Bank of India (SBI) led Consortium of creditors approached the NCLT Bench at Mumbai, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Jet Airways Limited under Section 14 of the Code to prevent asset transfers. Jet Airways was admitted to CIRP on 20 June 2019 [7]. However, prior to admission, two European creditors had filed a bankruptcy petition in the Netherlands, seeking the seizure of one of Jet Airways' aircraft parked in Amsterdam. In the said proceedings in Netherlands, the Dutch Court had appointed an administrator to oversee Jet Airways’ assets in the Netherlands. In this regard, a direction was sought before NCLT, to recognize the insolvency proceedings in the Netherlands. The NCLT did not recognise the foreign insolvency proceedings, in view of the absence of notified provisions for cross-border insolvency under the Code.  

Consequently, the Dutch Administrator filed an appeal against the NCLT order. The NCLAT [8] overturned the NCLT's order, allowing the Dutch administrator to participate in the Committee of Creditors meetings and cooperate with the Indian Insolvency Resolution Professional. The NCLAT facilitated co-operation between Indian and Dutch counterparts to formulate a resolution plan in the best interest of Jet Airways and its stakeholders. NCLAT's ruling successfully struck a balance between providing relief to foreign representatives and safeguarding the interests of those affected, aligning with the Model Law framework's objectives.

(iv) Group Insolvency of Videocon Companies: Paving the way for a consolidated CIRP of related companies

In December 2017, SBI filed a petition under Section 7 of the Code before NCLT to initiate insolvency proceedings against Videocon Industries. After admission of Videocon Industries' in CIRP, the SBI-led consortium sought consolidation of 15 companies affiliated with Videocon Industries, where the consortium acted as the common creditor. Despite separate CIRP proceedings being initiated for each individual entity, attracting viable bids proved to be challenging. In the absence of explicit provisions in the Code, the NCLT examined bankruptcy jurisprudence from US and UK and ultimately, in exercise of their equity jurisdiction, the NCLT [9] ruled in favor of the consortium, thereby consolidating the separate CIRP proceedings against individual companies in the Videocon Group.

Further, in February 2020, the NCLT [10] approved a second round of group insolvency for Videocon Industries involving four foreign-based companies. The NCLT directed the inclusion of overseas oil and gas businesses in the ongoing insolvency proceedings, prompted by a plea from the managing director of the Videocon Group seeking an extension of the moratorium. This decision raised questions about the extraterritorial applicability of Code and the process of consolidating assets of foreign subsidiaries with those in India. The NCLT order of February 2020 has been challenged [11] by State Bank of India before NCLAT, however arguments are ongoing in the appeal and is yet to be decided by the Tribunal. 

Analysis and conclusion 

The realm of cross-border insolvency is a dynamic and complex landscape, shaped by evolving legal precedents and international perspectives. A series of judicial pronouncements in India have played a pivotal role in navigating the challenges associated with cross-border insolvency. The recognition and enforcement of foreign proceedings, the coordination of multiple jurisdictions, and the pursuit of fair and equitable resolutions are critical aspects that continue to demand attention. However, these instances underscore the urgency for governmental action to expedite the incorporation of cross-border insolvency provisions. 

The proposed draft provisions by the ILC present a potential framework that, if accepted, could significantly enhance coordination and communication among states, effectively resolving cross-border insolvency disputes. Further, its enforcement holds the promise of strengthening the Code, promoting foreign direct investment, and facilitating ease of doing business in India—an area which the government has been focussing on. While Sections 234 and 235 of the Code offer avenues for addressing international insolvencies, their practical implementation introduce complexities. Negotiating bilateral agreements with diverse terms and conditions with each nation involved also poses challenges. Therefore, to make the process more efficient and straightforward, it is crucial to adopt a consistent and robust framework for cross-border activities.

Fundamentally, as India progresses in creating a detailed cross-border insolvency law, the urgent need for formal legislation cannot be overstated. Meanwhile, the growing judicial precedents, preliminary drafts, and subsequent recommendations will continue to shape the approach to cross-border insolvency cases.

1. Macquarie Bank Limited v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 decided on 15 December 2017

2. M/s Stanbic Bank Ghana Limited v. M/s Rajkumar Impex Pvt Limited, CP/670/IB/2017 decided on 27 April 2018 

3. V R Hemantraj v. Stanbic Bank Ghana Limited & Anr., Company Appeal (AT) (Insolvency) No.213/2018 decided on 29 August 2018 

4. V R Hemantraj v. Stanbic Bank Ghana Limited and Ors, Civil Appeal No. 9980 of 2018 decided on 12 October 2018

5. Agrocorp International Private v. National Steel and Agro Industries Limited, CP IB No 798/MB/C-IV/2019 decided on 09 June 2020

6. SBI v. SEL Mfg. Co. Ltd., CP (IB) No. 114/Chd/Pb/2017 decided on 11 April 2018

11. State Bank of India v. Venugopal Dhoot & Ors- Company Appeal (AT)(Ins) No. 299/ND/2020