Cross-Border Insolvency under the Insolvency and Bankruptcy Code, 2016

In an increasingly globalised economy, businesses operate across multiple jurisdictions, hold assets abroad, and engage international creditors. When such companies face financial distress, their insolvency often becomes cross-border, involving foreign courts, assets in multiple countries, and international stakeholders. India’s growing integration with the global economy has made cross-border insolvency issues more common, especially in sectors like aviation, technology, manufacturing, and finance. However, India’s current legal framework under the Insolvency and Bankruptcy Code, 2016 (IBC) remains incomplete and limited in addressing cross-border cases. This article examines the existing framework, key challenges, global models, and the way forward for developing a robust cross-border insolvency regime in India.

What Is Cross-Border Insolvency?

Cross-border insolvency refers to situations where:

• The debtor has assets located in more than one country,

• Creditors are based outside the home jurisdiction,

• Insolvency proceedings occur simultaneously in multiple countries, or

• Assistance of a foreign court or insolvency professional is required.

These situations demand cooperation between courts across jurisdictions, coordination of insolvency proceedings, and a mechanism to protect the interests of foreign creditors.

Current Framework under the IBC: Sections 234 and 235

The IBC deals with cross-border insolvency through two provisions, but they remain largely ineffective in practice.

Section 234 – Bilateral Agreements

This allows the Indian government to enter into reciprocal agreements with foreign countries for enforcing provisions of the IBC. However:

• No such agreements have been signed yet.

• Negotiating bilateral treaties with each country is impractical and time-consuming.

Section 235 – Letter of Request

An Indian insolvency professional or NCLT may send a letter of request to a foreign court seeking assistance in dealing with assets abroad. But this too depends on the other country agreeing to provide assistance, something not guaranteed without a treaty.

Thus, the current framework is fragmented, ad hoc, and insufficient to handle modern cross-border insolvency cases efficiently.

Challenges in Cross-Border Insolvency Cases in India

(a) Lack of Legal Clarity

Courts and insolvency professionals have no structured mechanism for dealing with foreign assets or creditors.

(b) Conflicts of Jurisdiction

Foreign courts may start parallel proceedings, leading to inconsistent rulings, delays, or forum shopping.

(c) Limited Relief for Foreign Creditors

Without a clear framework, foreign creditors may hesitate to participate, resulting in lower recovery and reduced investor confidence.

(d) Difficulties in Asset Tracing

Assets located abroad cannot be easily traced, frozen, or brought under insolvency proceedings without international cooperation.

(e) Delay and Inefficiency

Without a streamlined process, cross-border matters drag on, defeating IBC’s core principle of time-bound resolution.

These issues became evident in high-profile cases like Jet Airways, Videocon, and Essar Steel, where foreign assets and parallel proceedings complicated insolvency efforts.

The Jet Airways Case: A Turning Point

The insolvency of Jet Airways marked a significant moment for cross-border insolvency jurisprudence in India.

Situation

• Jet Airways had assets and operations in the Netherlands.

• Dutch courts initiated insolvency proceedings.

• Indian NCLT initially refused to recognise the foreign proceedings.

Outcome

Ultimately, through mutual cooperation between the Dutch administrator and the Indian RP, both sides agreed to a cross-border Insolvency Protocol, supervised by NCLT and Dutch courts.

Importance

This case demonstrated:

• The value of judicial cooperation,

• The limitations of the current legal system,

• The need for a structured statutory framework.

However, this ad hoc solution cannot replace formal legislation.

International Models: The UNCITRAL Framework

To address global insolvency issues, the UNCITRAL Model Law on Cross-Border Insolvency (1997) provides a widely accepted framework.

It is based on four principles:

(a) Access

Foreign insolvency representatives can directly access domestic courts.

(b) Recognition

Courts can recognise foreign insolvency proceedings as either:

• Main proceedings (where debtor has its centre of main interests – COMI), or

• Non-main proceedings.

(c) Cooperation

Courts and insolvency practitioners must cooperate across borders.

(d) Coordination

Simultaneous proceedings in multiple jurisdictions must be aligned to avoid conflict.

Over 50 jurisdictions, including the US, UK, Singapore, and Japan, have adopted the Model Law.

India’s Proposed Draft: Adoption of the UNCITRAL Model Law

The Insolvency Law Committee (ILC) Report of 2018 recommended adopting the UNCITRAL Model Law with certain modifications. The Ministry of Corporate Affairs introduced a draft cross-border insolvency framework, which proposes:

• Incorporating COMI-based recognition of foreign proceedings,

• Providing foreign creditors equal treatment,

• Ensuring cooperation between NCLT and foreign courts,

• Allowing Indian courts to refuse assistance in cases affecting national interests,

• Recognising foreign insolvency professionals.

  
  

Advantages of adopting the Model Law in India:

• Enhances investor confidence,

• Encourages foreign investment,

• Provides predictability and fairness,

• Enables efficient recovery of overseas assets,

• Aligns India with global practices,

• Reduces delays and increases certainty.

Despite its benefits, the Model Law has not yet been formally enacted.

Concerns and Considerations Before Adoption

While the UNCITRAL Model Law is beneficial, India must adapt it carefully.

(a) Public policy and national interest

India must retain the right to refuse foreign orders harmful to Indian creditors.

(b) Sectors of strategic importance

Special rules may be required for sectors like defence, banking, and insurance.

(c) Protection of domestic stakeholders

Small operational creditors, employees, and government dues must be safeguarded.

(d) Capacity building

Judges, insolvency professionals, and regulators need training in cross-border matters.

The Way Forward

For a robust cross-border insolvency regime, India should:

1. Implement the UNCITRAL-based framework with suitable modifications.

2. Strengthen institutional capacity in NCLT/NCLAT for dealing with international cases.

3. Develop protocols for judicial cooperation and information sharing.

4. Digitise insolvency systems for coordination with foreign courts.

5. Educate creditors and professionals on international insolvency mechanisms.

With India aspiring to be a global investment hub, modernising its cross-border insolvency regime is a vital step.

Conclusion

Cross-border insolvency is no longer an exception, it is a commercial reality. India’s current provisions under the IBC are inadequate to handle multinational corporate distress, leading to uncertainty, delays, and reduced recoveries. By adopting a structured and internationally aligned framework preferably based on the UNCITRAL Model Law, India can ensure better coordination with foreign courts, protect creditor rights, and foster investor confidence. As global trade expands, a strong cross-border insolvency system will be essential for maintaining India’s credibility and competitiveness in the international market.