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Cross Border Insolvency : An Analysis under the Code


·         With the Make in India policies and rapid increase in Indian economy, creditors and corporates were frequently transacting businesses in multiple jurisdictions.

·         India seeks to attract foreign companies to set up manufacturing facilities in India as all the major stakeholders were getting exposure internationally.

·         But only getting capital through investment doesn't completes the nations' duty rather India has to take all the necessary steps to protect the stakeholder's investments when any company gets insolvent.

·         When it comes to cross border insolvency, there has been no lucid legal mechanism exists in India.

·         Proper cross border insolvency laws are necessary to protect the rights of foreign investors as well as to provide assurance to these foreign nations that their investments are safe in India. 

·         Insolvency denotes a state when an organization or an individual is not able to fulfil its financial burdens which are due against the lenders in terms of debts.

·         The concept of cross border insolvency refers to treatment of financially burdened debtors where the assets of the debtors are in more than one country or the creditors are in more than one country.

·         The Ministry of Corporate Affairs issued a public notice on 20th June, 2018, for inviting comments and suggestions on the proposed draft chapter on cross border insolvency, as it plans to introduce under the Code.

·         The Insolvency Law Committee, set up in November 2017, constituted by the Ministry of Corporate Affairs submitted its Report on Cross Border Insolvency in October, 2018.

·         The Committee on adoption of the United Nations Commission on International Trade Law Model Law (UNCITRAL Model Law) on Cross-Border Insolvency, 1997, which is proposed to be added as part of the Code.

The cross border insolvency deals with three dimensions:

Firstly, protecting the rights of the foreign creditors who gave certain rights on the assets of the debtor which are in the different jurisdiction wherein the proceedings of the insolvency are in place.

Secondly, when the assets of the debtors are in various jurisdictions and the creditor wants to involve those assets in different jurisdiction in the proceedings of insolvency.

Thirdly, the insolvency proceedings are going on or commenced on the same debtor in more than one jurisdiction.


·         Reciprocal agreements require individual long-drawn-out negotiations with each country.

·         Reciprocal agreements do not bring about the efficiency otherwise achieved by a uniform code of co-operation between various jurisdictions.

·         Differing reciprocal agreements with different countries complicate insolvency proceedings.

·         Reciprocal agreement mechanism does not address issues relating to co-ordination/recognition of insolvency proceedings commenced in multiple jurisdictions and involving multiple branches of a single entity.

·         In the absence of reciprocal agreements, no guidance to an Insolvency Professional for availing evidence or taking action with respect to foreign assets.

            Recognition of foreign insolvency proceedings is one of the major objectives of any legal regime that seeks to address cross-border insolvency. At present, Indian law recognises foreign judgments and foreign decrees of some reciprocating territories, such as the UK and Singapore (section 13 & 44A of the Code of Civil Procedure, 1908). However no recognition has been accorded to foreign proceedings, including insolvency- related proceedings, such as reorganisations.


·         Currently, a cross- border insolvency would be dealt with under sections 234 and 235 of the Code.

·         Section 234 empowers the Central Government to enter into bilateral agreements with other countries to resolve situations pertaining to cross-border insolvency.

·         Section 235 empowers the Adjudicating Authority under the Code to issue a letter of request to a court in a country with which an agreement under section 234 has been entered into, to deal with assets situated in that country in a specific manner.

·         The agreements under these sections will apply both when proceedings in India would require recognition, assistance, etc. abroad and vice-a-versa.

·         For foreign proceedings to be recognized in India, the process set out under the Civil Procedure Code, 1908 will be applicable, together with English common law principles.

·         Similarly, for Indian proceedings to be recognized abroad, the procedural rules of that foreign jurisdiction will apply.

·         Also, those countries that have adopted the UNCITRAL Model Law (which include most industrialized countries) are required to provide recognition, assistance, cooperation and appropriate relief in relation to insolvency proceedings commenced in India, except where that country has otherwise required reciprocity.





·         UNCITRAL received the content of Model Law on Cross Border Insolvency issues on 30 May, 1997 and thereby was passed by United Nations (UN) General Assembly on 15 December 1997.

·         Certain jurisdictions have substantially implemented the model law into their domestic legislation such as USA, Japan, UK, Australia, Canada, Mexico and South Africa.

·         The basic concept is to establish what the ' main proceedings' are in relation to any international insolvency, all other proceedings are referred to as the 'non-main proceedings.'

·         The main proceedings are commenced where the debtor has its Centre of Main Interest (COMI) where as the non-main proceedings may be commenced in any place where the debtor has a commercial establishment.

·         No requirement for reciprocity between countries; Focus on ensuring that countries provide assistance to insolvency officials from other countries and eliminating preferences for local creditors over foreign creditors.

            In India the existing provisions for cross-border insolvency i.e, Section 234 & 235 of IBC are insufficient and time taking, for which the government is adopting this model law as this will strengthen the framework of insolvency resolution. In context of bankruptcy laws it was recommended in Justice Eradi Committee Report of 2000 for implementation of model law by amending Part VII of Companies Act, 1956, Recognition, co-ordination and participation of creditors in foreign proceedings. Also in 2001, the N.L. Mitra Committee Report also provided that the cross border insolvency laws of India is outdated and there was a need of Bankruptcy Code. The Insolvency Law Committee vide its Report in 2018 has recommended the adoption of UNCITRAL Model Law The basic object behind this model law is to ensure that the interest of banks and person involved including the creditor are protected in regard to cross border insolvency matters. By introducing these provisions there will be substantial growth in mergers and acquisitions which would thereby enhance the economy of the country.

Circumstances where this Model Law can be applicable:

a)      A foreign court or a foreign insolvency professional needs support in State.

b)      Both foreign and domestic proceedings are simultaneously in progress.

c)      Insolvency proceedings need to be commenced in State by foreign creditors and other interested parties.

d)     In a foreign State, assistance is required relating to domestic proceedings.

Significant aspects of enacting this Model Law:

A.    With the enactment of this model law, India will transform into an destination for foreign creditors for investment. The three main economic benefit achieved by Model Law are :

·         reduction in time for exchanging necessary information between countries

·         increase in credit recovery efficiency and

·         cooperation and assistance helps in preserving the company's assets from

·         dissipating, resulting in successful reorganization.

B.     This law is much clearer than the IBC in terms of remedy and procedure followed for foreign entities.

C.     This law is more flexible as a State can make changes in the model law as per the conditions and the local insolvency laws.

D.    A country could refuse validity of the foreign proceedings if such is against the public policy of the country.

E.     Through this Model Law coordination between courts and insolvency professionals will exist in domestic as well as foreign jurisdiction.



English Law

            In Common law system, Company is referred as an entity which has its legal personality separate from its members comprising it. As a legal personality, company has its own rights, duties and liabilities with a perpetual succession. Therefore, the "place of incorporation" is treated as its base for suing or to be sued. When the English Law is read with EC Regulations, it can be inferred that the "Centre of Main Interest (COMI)" play a vital role in adjudicating proceedings. As the "place of incorporation" will not be a determining factor for determining jurisdiction rather COMI has to be read conjointly. The decision in the case of "Re Real Estate Development Co and Diffraction Diamonds DMCC, Re plays an important role in deciding the dispute of winding up of Foreign Companies under UK law as there needs to be established sufficient connection between "place of incorporation" & "Centre of Main Interests". The interpretation of sufficient connection depends upon common sense and commercial perception of judges.

United States

            In USA, the test of "place of incorporation" plays an important role in determining which law to be applied. But the important point here is US recognizes principle of dual citizenship for corporations. Thus in case the domicile of a company is at one place and the company is carrying out its core business operations in another states the corporation shall be deemed to be a citizen of both states. With regard to cross border insolvency, US bankruptcy courts have to recognize a foreign proceeding when conditions laid down in Chapter 15 of Bankruptcy Code of US are satisfied.

            In re Tri-Continental Exchange Ltd, the issue of foreign main proceeding and non-main proceeding was raised. The US court took reference of COMI definition from EU Regulation and held that where the debtor had its principal office and primary concentration of employees, that should be the COMI of the debtor. Further in re Sphinx, Ltd, US court referred to the reasoning of Eurofoods case and held a hedge fund registered in the Cayman Islands will have its COMI in the US when most of its assets were located in the US and the debtor conducted most of its business in the US. Other provisions of automatic relief like stay of execution proceedings regarding assets located in US and the debtor conducted most of its business in the US. The US code allows concurrent proceedings against debtor once foreign proceedings are recognized.


The concept of insolvency, although, is as old, however, recently this concept has come out of shadows and gained importance. The UNCITRAL has also given aspects of cross border insolvency and has given procedural framework in regards to insolvency for efficiency in the administration. It is done by increasing cooperation and reciprocity amongst different courts and competent authorities. The Insolvency Law Committee also suggested that there is a need for an effective cross-border insolvency law to enable coordinated and efficient insolvency proceedings. The Insolvency Law Committee report provided recommendations of the committee on adoption of the UNCITRAL Model Law and the modifications necessary in the Indian context as the current provisions of the Code do not provide an comprehensive framework for insolvency involving assets, creditors or parallel proceedings in foreign jurisdictions. Cross border insolvency can be enforced only if India enters bilateral treaties with foreign nations. It is important to ensure that the rights and interests of foreign investors are secured to collect their dues just like domestic investors. It is important that proper insolvency regime is established to promote foreign direct investment in India.