People frequently use the word “bankrupt” to describe a situation in which a person or business lacks the financial means to fulfill their economical responsibilities. This is what Insolvency is referred to as. If a person, business, or other organization is unable to pay its debts when they are due, it enters into insolvency. Insolvency and bankruptcy are not the same thing at all. A court of law’s mandated legal guidelines are used to overcome insolvency, and bankruptcy is an identification of this process. A state of insolvency is one in which a debtor is unable to fulfill his obligations. A legal strategy known as bankruptcy is used to recover money from an insolvent debtor.
Cross-border bankruptcy refers to situations when the insolvent debtor has assets in many countries or if part of the debtor’s creditors are from countries other than the one in which the insolvency proceedings have been filed. With the development of commercial technology, big multinational firms are no longer the exclusive domain of cross-border trade. Businesses have been enticed to expand their operations beyond their local jurisdictions and coordinate their operations across international borders by the expanding scale of economies. Businesses deal
with a wide variety of legal systems as a result of the rising globalization of corporate activity. Therefore, it is not surprising that multinational insolvencies have cross-border repercussions when they occur.
In India, to review and assess the functioning and implementation of the Insolvency and Bankruptcy Code, 2016 (“IBC”), the Insolvency Law Committee (“ILC”) was constituted by the Ministry of Corporate Affairs.
The insolvency regime in India has reportedly undergone a paradigm shift as a result of the IBC. The IBC has chosen an institutional structure that prioritizes the Committee of Creditors’ business judgment and allows little possibility for judicial involvement. The National Company Law Tribunals (NCLT) established at various locations around India serve as the adjudicating authorities for all insolvency issues under the IBC in regards to resolution and liquidation. Depending on the registered office of the corporate debtor, an application for launching insolvency against that entity may be submitted to any of the NCLTs spread out across the nation.
When the application is approved, the insolvency resolution procedure begins, and a resolution specialist is chosen to oversee the corporate debtor’s affairs. The resolution specialist requests resolution plans for the corporate debtor from prospective candidates. The resolution plans are then presented to the Committee of Creditors, which consists only of the corporate debtor’s financial creditors. After that, the Committee of Creditors is required by the IBC to decide whether to adopt a resolution plan subject to a number of conditions being met. The NCLT is then presented with the resolution plan for approval.
If there are no resolution applicants, no resolution plans approved by the Committee of Creditors, no competing resolution plans, or the Adjudicating Authority rejects the Committee of Creditors’ approved resolution plan, then the corporate debtor will be subject to liquidation proceedings.
The NCLT and the NCLAT, which serves as its appellate authority, are both tribunals with a narrow scope of competence and are not permitted to have plenary or equitable jurisdiction. Even though it is broad, the IBC’s wording defines and restricts the NCLT’s residuary authority. It’s important to note that the NCLT is unable to act in ways that the IBC does not mention explicitly.
Case: State Bank of India vs. Jet Airways (India) Ltd (2019) SCC Online NCLAT 1216
This case is the first in which the court had to decide on issues involving concurrent insolvency proceedings in India and other jurisdictions as well as the determination of the debtor’s Centre of Main Interest (COMI).
The Dutch Administration wanted to begin parallel procedures in Dutch Courts in this case, in addition to the domestic insolvency proceedings of Jet Airways in India. There was no pre-existing legislation in India that outlined efficient methods to resolve cross-border issues, similar to the US and UK disagreement in MCC. The nation initially took a territorial stance, utterly dismissing the Dutch court case and declared it to be legally meaningless. However, after obtaining the participation of the Dutch Bankruptcy Administrators, the Tribunal in an appeal at NCLAT allowed the first cross-border bankruptcy procedure, with the primary insolvency proceeding taking place in India and being governed by domestic rules.
An agreement between the two authorities based on Model Law for a cross-border insolvency procedure was approved by the NCLAT in its appeal. Due to the company’s incorporation and major place of business being India, India was recognized as Jet Airways’ COMI. India’s first cross-border insolvency case, which established a precedent for subsequent cases
In India, there is currently not much of a legal system in place to deal with cross-border insolvency disputes. Even if the two articles in the Code are published and put into effect, they have a number of flaws and cannot serve as a full framework for international insolvency procedures. As a result, the draft chapter that the Committee proposed would eventually need to be modified and added to the Code, leading to the implementation of several changes and provisions to make room for the draft chapter.
The findings of the courts in recent cases suggest a positive judicial trend about the potential of India to develop a corporate-friendly strategy given the lack of a legal framework to handle cross-border disputes under IBC. However, these instances should serve as a wake-up call to the government to hasten the incorporation of cross-border insolvency procedures.
A special committee was established by the Ministry of Corporate Affairs in January 2020 to better understand and recommend the laws and regulatory framework required for a successful implementation of the proposed cross border insolvency provisions in the Code. However, it doesn’t appear that there have been many updates on the committee’s progress in incorporating provisions for cross-border insolvency into the Code.
Having stated that, it is indisputable that numerous procedural and legal issues would need to be resolved in order for the draft chapter to be effectively adapted and implemented. The legal framework could, however, ensure cooperation and communication between various jurisdictions and successfully address the resolution of cross-border conflicts including India after the difficult work is done and the obstacles are overcome.
