Insolvency proceedings in India are governed by the Insolvency and Bankruptcy Code. Having come into force in the year 2016, the bill seeks to regulate and streamline the insolvency proceedings to be instituted within the country. It originated from the parliament's attempt to ensure recovery of debt and is based on filling the lacuna's left behind by the Recovery of Debts due to Banks or Financial Institutions Act, 1935 (RDBFI) and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFESI) [1].

When due to some intervening factors, the debts of a company become due and the company is no longer able to repay the same, then the company (after due process) is termed as insolvent and the process that goes behind the repayment of the debtor's post insolvency is referred to as insolvency proceedings.

Imagine a situation which involves a company that has offices (assets) in multiple countries. When such a company goes into insolvency proceedings then it is impractical to imagine that assets of the same company located in one country to not be eligible for debt recovery of another country, especially in the backdrop of ever-increasing globalization.

Unfortunately, however, because of the territorial limitations of most insolvency laws followed by countries, it becomes tough for insolvency proceedings of one country to consider assets of the company in another country. Even the Insolvency and Bankruptcy Code, 2016 does not sufficiently account for the 21st-century century cross-border insolvency.

Even at the place which it does viz-a-viz section 234 (Power to the central government to enter into bilateral agreements with other countries) and section 235 (Power to the adjudicating authority to request a court in another country where an agreement under 234 has been reached to deal with assets situated in that country), there lacks implementation from the government as well as the parliament (the sections are still to be notified).

Apart from these, the following problems are also felt in the present insolvency regime in India [2]:

1. In the absence of a universal law, cross border insolvency depends heavily on how the Indian government can negotiate with its foreign counterparts. This itself is very subjective and depends upon the relationship shared between the countries and hence is not very useful.
    
2. In the absence of any bilateral treaty, there exists no second option for India to take recourse of while seeking to attach a company's assets situated in another country.
    
3. In the absence of procedural law, even if certain assets of a company are identified for insolvency proceedings, it becomes difficult to gain evidence and perform matters of procedure on them.
    
4. Foreign judgements especially of insolvency proceedings like administrative orders are not enforceable in India in totality and do not consider things like parallel proceedings and cooperation required.

It is in this backdrop that a detailed perusal of the United Nations Commission on International Trade Law (UNICTRAL) model law on cross-border insolvency makes sense.

The UNICTRAL Model

An attempt has been made through the UNICTRAL model to address the common problems of international insolvency in terms of rules of jurisdiction, choice of law, cooperation amongst courts of different countries etc. The underlying aim here is of cooperation and coordination where the model, while respecting the diversity of insolvency laws across the globe, seeks to establish parameters through which the difficulty in cross-border insolvency proceedings can be mitigated.

In terms of outlines, the UNICTRAL model is broadly based on 4 pillars i.e., Recognition, Access, Coordination and Cooperation.

Recognition: The model law allows the domestic courts to consider foreign insolvency proceedings while determining relief which in turn avoids multiplicity of awards.

Access: Foreign creditors and professionals who have an interest in the insolvency proceedings against a particular debtor are allowed access to the domestic courts via the UNICTRAL system which places them in a position to then institute or be a part of the insolvency proceedings against that debtor.

Coordination and Cooperation: When insolvency proceedings are involved, it is more than likely that simultaneous such proceedings would be instituted parallelly in different jurisdictions. The UNICTRAL model seeks to bring about a seamless cooperation between all the aggrieved parties as well as the adjudicators irrespective of their jurisdiction and to ensure coordination between them in a bid to effectuate smooth concurrent proceedings.

Provisions of the Model Law
Chapter I:
Amongst other preliminary provisions, it involves the scope of application of law as well as definitions like foreign representative[3] and foreign insolvency proceeding[4]. In which ever place, the debtor's main center of interest is located, the proceedings at that place are known as main proceedings and the rest are referred to as non-main proceedings[5]. The chapter also gives leeway to the state to decide the extent of application of the model law based on several intervening factors like public policy of the state as well as pre-existing laws.

Chapter II:
In continuation of the object of "access", this chapter of the model law seeks to give the foreign creditors the right to participate in domestic insolvency proceedings and make their claim heard. It places them on an equal footing with the domestic creditors vide articles 9-13. Care has been taken so that the domestic courts can accept and grant relief to foreign credits as well by virtue of articles 19 and 21.

Chapter III:
Under the provisions of this chapter, the domestic courts have the power to recognize and application by a foreign office holder and grant interim relief if any pending the outcome. Under Article 20 of the Model Law, if certain foreign insolvency proceedings have been termed as "main proceedings" then the following reliefs are automatically bestowed viz

• Stay over individual proceedings in the enacting state in lieu of the foreign proceedings
• Stay over execution of the debtors' assets in the enacting state in lieu of foreign proceedings
• A complete suspension on the debtor's right to dispose off any of his assets.

Chapter IV:
Since the very matter concerns involvement of more than one sovereign state, it is imperative that feasible cooperation is achieved in every respect between the states. An elaborate commentary in this regard has been provided under articles 25-27 of the model law. To ensure smooth communication and no communication barrier, an effort has been made in the model law to hold joint audio-video conference of courts across jurisdictions[7]. The extended emphasis on cooperation is with a view to ensure that the ultimate stakeholders viz-a-viz the creditors receive their dues as expeditiously as possible. The provisions contained in articles 28-32, seek to complement the existing provisions of cooperation and ensure optimum coordination[8].

UNICTRAL Model and India's draft guidelines

India is no stranger to insolvency proceedings. The latest fiasco surrounding the Jet Airways insolvency viz-a-viz parallel proceedings in Amsterdam drew quite an irk from the legal community with many calling for immediate implementation of the model law. Keeping this in mind, the ministry of corporate affairs has released a set of draft guidelines with a chapter titled 'Z' which speaks about cross-border insolvency. While making some minor changes, this draft is based on the UNICTRAL model itself and has been framed upon the recommendation of the Insolvency Law Committee vide its report dated 16/10/2018.

The committee has suggested to include this chapter of 29 sections in the Insolvency and Bankruptcy Code. This includes, certain general provisions, other provisions of public policy exception, recognition of foreign proceeding etc.

The following important features of the draft chapter is worth noting:

1. Applicability:
   The provisions of the draft chapter are applicable only to corporate debtors and not to individuals. This can be seen as a cautious approach taken by the legislature to first study the implications of the draft chapter on corporate debtors and then looking at the response, later extend it to individual debtors.
    
2. Reciprocity:
   The draft chapter is only applicable in those countries which have simultaneously adopted the UNICTRAL Model law in their own insolvency system. Although, the logic behind this move is as simple as it gets, it still leaves unanswered the question as to what happens with insolvency proceedings arising out of countries which haven't yet adopted the model law.
    
3. Distinction between main and non-main proceedings:
   The UNICTRAL Model allows for distinction between main and non-main proceedings. In a country where the corporate debtor has its main center of interest, insolvency proceedings in that country is referred to as main proceedings and where the debtor has an establishment, that is known as non-main proceedings. This demarcation allows to determine the level of control that the foreign jurisdiction is entitled to in lieu of domestic insolvency proceedings and the relief to be granted.
    
4. Center of Main Interest (COMI):
   Section 14 of the draft chapter provides the necessary guidance to determine the center of main interest where unless something to the contrary is proven, the registered office of the corporate debtor is treated as its COMI. This presumption is going to be applicable only in the case the registered office has not been shifted within 3 months prior to the commencement of insolvency proceedings.

Draft Chapter: Benefits and Implications
On the adoption of the draft chapter, India would be able to take the following benefits:

1. Economic advantage:
   When the UNICTRAL model would be implemented, it would allow the investment market to foreseeably predict nuances of investment as well as adjudication which would in turn allow India to become a favored destination for foreign creditors.
    
2.  Flexibility:
   Being based on the UNICTRAL model, the draft chapter respects the differences in different insolvency laws across the globe while allowing for deviations in procedure viz-a-viz the domestic insolvency law.
    
3. Priority to domestic insolvency proceedings:
   The draft chapter allows discretion to the adjudicating authority to determine the legitimacy of foreign proceedings once a domestic proceeding has been initiated under the Insolvency and Bankruptcy Code.
    
4. Exception of public policy and protection of domestic interest:
   The draft chapter also gives the right to the adjudicating authority to refuse any foreign proceeding provided it goes against India's public policy. Hence, an effort is made in this regard to look at India and its interest first before assisting the foreign party.
    
5. Cooperation:
   As is the underlying feature of the UNICTRAL model, the draft chapter also looks to enhance cooperation between courts and professionals across jurisdictions in a bid to ensure that the creditors (irrespective of nationality) do not suffer.

International Recognition [9]

In terms of international recognition, the UNICTRAL model on cross border insolvency remains the most widely accepted insolvency framework with recognition in over 49 countries including the US, South Africa, Singapore, and the United Kingdom.

There is no doubt that if the UNICTRAL model gets adopted internationally, then it would ease the problem of cross-border insolvency to a great extent. However, the biggest problem remains its global recognition. Once the UNICTRAL model law is recognized maximum countries around the world, it would thereafter ease the present problems of cross border insolvency.

United States

Bankruptcy in the United States is dealt with by the Bankruptcy Code 2005 (officially titled as the Title 11 of the United States Code) in which chapter 15 deals with foreign nationals. This chapter allows foreign nationals, the right to litigate bankruptcy proceedings within the US provided assets are present in the country.

Added in the year 2005 and having replaced the erstwhile section 304, it is based on the much talked about UNICTRAL model on cross-border insolvency[10]. Its primary objectives include promoting cooperation, protecting and maximining debtor's assets as well as protecting the creditors.

When a foreign proceeding is underway, the foreign company has the liberty of filing under chapter 15 where it must prove the existence of a foreign proceeding first[11]. The proceedings under chapter 15 are mostly secondary in nature as the primary proceeding generally takes place in the foreigner's own country[12].

Thereafter, the court will investigate whether the proceeding can be designated as "main" or "non-main" and depending on that, an automatic stay will or will not be granted. As a method of promoting cooperation, the US bankruptcy code is expressly directed to ensure maximum cooperation with foreign entities and courts in a bid to ensure that creditors interest is protected[13].

In a nutshell, chapter 15 of the US Bankruptcy code, allows foreign creditors to file for insolvency proceedings in the US, instructs the US courts to provide maximum assistance, promotes cooperation between countries on the lines of the UNICTRAL model as well ensures no discrimination takes place against creditors.

European Insolvency Regulation[14]

From May 2002, the European Insolvency Regulation came into force whose primary objective is to have common insolvency regime for European nations. Its application extends to all nations except Denmark.

Under this regulation, provisions have been so made that the main insolvency proceeding can take place only in that country in which the debtor's center of main interest lies and secondary proceedings in other European Union states. In these proceedings, the appointed insolvency officer can sell off the debtor's assets in a coordinated attempt across Europe.

• Article 16: allows for automatic recognition of an order for the opening of proceedings and appointed officer.
• Article 18: As long as compliance with other local laws are met, the office holder is allowed to exercise his powers in jurisdictions of other countries as well.
• Article 20: If a creditor acquires an asset in a foreign jurisdiction, then necessary intimation must be sent to the officer holder.
• Article 31: When there are different officer holders for primary and secondary proceedings then the person in charge of assets over the secondary proceedings are required to cooperate with that of the primary proceedings.

Here again it can be witnessed that considerable efforts have been made to ensure that cooperation as envisaged by the UNICTRAL model law is achieved and to also ensure that cross border insolvency proceedings viz-a-viz M/A transactions are not hampered on the grounds of jurisdiction.

Moving Ahead: The Lessons For India
The Ministry of Corporate Affairs has made the initial efforts to introduce the draft chapter in regard of cross-border insolvency proceedings. The same is based on the UNICTRAL model. However, going by the laws present in the United States and Europe viz Chapter 15 of the Title 11 of the United States Code and the European Insolvency Regulation, much remains unanswered.

India is seen as a growing economy, with investment increasing many times in the previous decades. As such, foreign creditors have become the central stakeholders in this regard.

Here, if a specific law protecting the foreign creditors is not put in place, then the dream of India being the investment hub of the world would remain a dream only. In the interest of investment and growth, it is expedient on the part of the government to quickly come up with an elaborate law based on the UNICTRAL model which will in turn act as the safeguard to foreign investors alongside ensuring that cooperation is achieved in realizing runaway debtor's assets. Once a proper global mechanism is put in place based on the same UNICTRAL model, then the goal of a free-market world would be duly realized.

End-Notes

1. https://ibclaw.in/short-note-on-insolvency-and-bankruptcy-code-2016/ (Accessed on 02-12-2021 at 14:05 hours)
2. https://www.mondaq.com/india/insolvencybankruptcy/1123982/cross-border-insolvency-regime-in-india (Accessed on 02-12-2021 at 14:46 hours)
3. Article 2(d) of Model Law
4. Article 2(a) of Model Law
5. Article 2(b), 2(c) of Model Law
6. Article 16 and 17 of the Model Law
7. Berends, A. J., "The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview", Tulane Journal of International and Comparative Law : Tulane Law School, New Orleans, 1998, 6:309-399
8. Guide To Enactment Of The UNCITRAL Model Law On Cross-Border Insolvency, para 39 UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment, United Nations Document A/ CN.9/ 440
9. https://indianexpress.com/article/business/economy/cross-border-insolvency-un-model-automatic-recognition-foreign-rulings-7646416/ (Accessed at 03/12/2021 at 12:21 hours)
10. https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-15-bankruptcy-basics (Accessed at 05-12-2021 at 12:06 hours)
11. https://www.thebalance.com/what-is-insolvency-5190931 Accessed at 05-12-2021 at 12:35 hours
12. https://www.govinfo.gov/content/pkg/USCODE-2010-title11/pdf/USCODE-2010-title11-chap15-sec1501.pdf (Accessed at 05-12-2021 at 12:40 hours)
13. https://www.govinfo.gov/content/pkg/USCODE-2010-title11/pdf/USCODE-2010-title11-chap15-subchapIV.pdf (Accessed at 05-12-2021 at 12:49 hours)
14. https://www.financierworldwide.com/the-impact-of-the-uncitral-model-law-on-cross-border-insolvency-and-the-european-insolvency#.YaxYsdBBxPY (Accessed at 05-12-2021 at 15:29 hours)