Cross-Border Insolvency: India’s position Under UNCITRAL Model Law

Introduction

When an insolvent debtor has creditors and/or debtors in more than one jurisdiction (i.e., in many different countries), that situation can be referred to as “cross-border insolvency” or “international insolvency”.¹ India introduced insolvency resolution law in 2016 named the Insolvency and Bankruptcy Code (IBC). The main objective of this Code is to establish a consolidated framework for resolving insolvency and bankruptcy issues of individuals, corporate entities, and partnership firms in India.²

The IBC framework protects the interests of all stakeholders — creditors, debtors, and employees involved in the insolvency process. The IBC only handles matters related to insolvent entities located in India. But in today’s world, with growing demand, many Indian companies create cross-border relationships with other countries, having foreign creditors and assets.

The United Nations Commission on International Trade Law (UNCITRAL) is the core legal body of the United Nations system, established by the United Nations General Assembly in 1966. Though India is a member in relation to the UNCITRAL Model Law on Cross-Border Insolvency, it has not yet fully implemented it. The Insolvency Law Committee, constituted by the Ministry of Corporate Affairs on 16 November 2017, decided to adopt the UNCITRAL Model Law on Cross-Border Insolvency, 1997 by inserting a separate part for this purpose into the IBC. Adopting the Model Law could bridge the legal gap. This article explains India’s current legal position, reviews the UNCITRAL framework, and discusses how India would benefit from incorporating it into the domestic insolvency regime.

India’s Current Legal Framework

The Insolvency and Bankruptcy Code, 2016 is the primary insolvency law in India which deals with insolvency matters of corporate entities, individuals, and partnership firms located in India. The IBC has provided only two cross-border insolvency resolution provisions: Section 234 and Section 235, but these provisions have not been implemented effectively.³

Section 234 of the IBC states Agreements with foreign countries — (1) The Central Government may enter into an agreement with the government of any country outside India for enforcing the provisions of this Code. (2) The Central Government may, by notification in the official Gazette, direct that the application of this Code in relation to assets or property of a corporate debtor, including a personal guarantor of a corporate debtor situated in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.

Section 235 says Letter of request to a country outside India in certain cases — (1) Notwithstanding anything contained in this Code or any law for the time being in force, if in the course of an insolvency resolution process, liquidation or bankruptcy proceedings under this Code, the resolution professional, liquidator, or bankruptcy trustee is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor, are situated in a country outside India with which reciprocal arrangements have been made under Section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required. (2) The Adjudicating Authority, on receipt of such an application and being satisfied that evidence or action relating to those assets is required, may issue a letter of request to a court or authority of that country competent to deal with such request.⁴

These sections fail to provide a comprehensive framework to deal with cross-border insolvency problems. The limitations include:

1. Bilateral agreements are time-consuming, expensive, and unreliable due to the multiple layers of negotiation involved.
2. Maintaining competing clauses signed with different jurisdictions is difficult when assets of corporate debtors are located in several places.
3. An ad-hoc procedure would significantly delay the insolvency proceedings.

UNCITRAL Model Law on Cross-Border Insolvency — A Global Standard

UNCITRAL is a core legal body of the UN system established in 1966 with the goal of reducing legal obstacles to international trade by developing model laws, conventions, and other legal texts and by harmonising and modernising international trade law. UNCITRAL promotes the use of legislative and non-legislative instruments in various areas of commercial law. Its texts are developed through an international process involving a variety of participants and are structured to be representative of different legal traditions and levels of economic development.

The UNCITRAL Model Law on Cross-Border Insolvency, adopted on 30 May 1997, is designed to assist States in developing modern and harmonised international laws and to enable their insolvency frameworks to more effectively address cross-border insolvency proceedings concerning debtors experiencing severe financial distress.

The Model Law is intended for cases where the insolvent debtor has assets in more than one state or where some of the debtor’s creditors are not from the state where the insolvency proceeding is taking place. The Model Law highlights four key elements significant to the conduct of cross-border insolvency cases:

1. Access: These provisions give foreign representatives and creditors a right to directly approach the courts of enacting States to seek assistance and to authorise representatives to conduct local proceedings.
2. Recognition: The Model Law establishes simplified procedures for recognition of foreign insolvency proceedings as either “main” or “non-main” based on the debtor’s Centre of Main Interest (COMI).
3. Relief: After recognition, courts may grant automatic and discretionary relief necessary for the orderly and fair conduct of cross-border insolvencies.
4. Cooperation and Coordination: The Model Law expressly encourages courts and insolvency professionals to work collaboratively across jurisdictions.

Judicial Precedents of Cross-Border Insolvency in India

In India, the cross-border insolvency principle is judicially recognised through a mix of statutory provisions, judicial precedents, and emerging international cooperation. Judicial recognition allows courts of one country to support insolvency proceedings initiated in another country.

The most significant judicial precedents include:

• Jet Airways (India) Ltd. v. State Bank of India and Anr. (2020 SCC Online NCLAT 1198) — Decided by the National Company Law Appellate Tribunal (NCLAT) in 2019, this case was a crucial precedent for cross-border cooperation in the absence of a proper insolvency framework in India. The NCLT permitted participation in the Indian insolvency procedure for Jet Airways by the Dutch administrator on the platform of cross-border cooperation.
• Ruchi Soya Industries Ltd. v. Union of India (2021 SCC OnLine SC 567) — The Supreme Court addressed issues related to the rights of creditors in different jurisdictions while underlining the importance of harmonised laws for equitable treatment.
• State Bank of India & Others v. Kingfisher Airlines (AIRONLINE 2017 SC 750) — This case raised the question of the applicability of Indian insolvency law to foreign creditors and assets outside India.

The Insolvency Law Committee Report

The Ministry of Corporate Affairs constituted the Insolvency Law Committee (ILC) on 16 November 2017. The ILC submitted two reports. The first report, submitted in March 2018, recommended various amendments to the IBC. In connection with cross-border insolvency, the committee decided to submit separate recommendations and undertake in-depth research to adopt the UNCITRAL Model Law for India.

The second ILC report was submitted on 16 October 2018. The Committee proposed a Draft Part Z consisting of draft guidelines recommended in its report. These draft guidelines aim to address the limitations of India’s cross-border insolvency framework and recommended changes to the IBC based on the UNCITRAL Model Law.

The drafted chapter applied only to corporate debtors, excluding individuals and partnership firms at the time the report was submitted. However, the Draft Part Z proposed that the definition of “Corporate Debtor” should include foreign entities. The Committee also proposed to amend Sections 234 and 235 to exclude corporate debtors and apply those sections only to individuals and partnerships.

The Committee recommended that India adopt an advanced and modified version of the UNCITRAL Model Law as a separate chapter within the IBC to recognise clear rules for “foreign main” and “foreign non-main” proceedings based on COMI. It also suggested the government initiate bilateral agreements with major trade and investment partners such as the United States, Singapore, the United Kingdom, and the European Union.

To ensure effective implementation, the cross-border insolvency framework under Sections 234 and 235 must be operationalised. The Committee recommended specialised training programmes for NCLT and NCLAT members on cross-border insolvency principles, international cooperation protocols, and comparative insolvency frameworks — preferably in cooperation with UNCITRAL and jurisdictions that have successfully implemented the Model Law.

Conclusion

Cross-border insolvency has become one of the key challenges across jurisdictions. Currently, India’s cross-border insolvency framework is not strictly implemented. India should participate in UNCITRAL working groups to deal with cross-border insolvency issues. This would help India engage with international practice and build global standards for cross-border insolvency cooperation.

In the modern insolvency landscape, cross-border issues are critical as businesses globalise. Under the present scheme, India has mainly dealt with domestic insolvency issues under the IBC 2016 and lacks a coherent mechanism to handle cross-border insolvency. Bilateral agreements or foreign court assistance under Sections 234 and 235 remain largely unimplemented on paper and require reforms.

Adopting the UNCITRAL Model Law on Cross-Border Insolvency, suitably adapted to the Indian legal framework, would provide a structured and predictable process for handling cases involving insolvency spread across multiple jurisdictions. This would enhance economic stability, attract foreign investment, and facilitate corporate restructuring. While India has taken significant strides in addressing insolvency issues domestically, the absence of a comprehensive cross-border insolvency framework remains a gap that must be addressed to ensure a more efficient and effective resolution process for international creditors and debtors alike.⁹