NOTE4STUDENTS:

Cross-border insolvency laws in India need urgent reforms for fairness, efficiency, and global alignment. UPSC often asks about legal gaps and proposed reforms in areas like insolvency, focusing on practical challenges and solutions. Questions could also reference cases like Jet Airways (2019), where Indian and Dutch courts struggled to cooperate, or Videocon Industries (2019), which highlighted the absence of a framework for group insolvency. Students commonly falter by skipping important cases or failing to connect issues to India’s global economic ambitions. Similarly, many struggle to relate India’s domestic legal gaps to broader global challenges, such as aligning with frameworks like the UNCITRAL Model Law or coordinating with foreign jurisdictions. This article bridges these gaps by explaining the need for reforms, like strengthening India’s Insolvency and Bankruptcy Code (IBC) and implementing globally accepted practices. It simplifies challenges such as ad hoc solutions, overburdened legal systems, and unresolved jurisdictional issues, while offering actionable recommendations. What makes this article stand out is its practical examples making it easier to understand and apply.

PYQ ANCHORING & MICROTHEMES:

GS 3: Justify the need for FDI for the development of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. [2016]

Microthemes: FDI

The current state of cross-border insolvency laws in India is poor, with existing rules that cannot be enforced effectively and slow progress in making necessary changes. This situation requires urgent reform to ensure a more effective legal framework.

About Cross-Border Insolvency

Insolvency means a person or company cannot repay their debts on time. Cross-border insolvency happens when the debtor’s assets or creditors are spread across different countries. Regulating cross-border insolvency is crucial in today’s globalized world to help companies restructure, attract foreign investments, and ensure economic stability.

Need of Cross-Border Insolvency Laws

Increasing Global Connections: With India growing its trade and signing agreements with over 54 countries, a strong framework is vital for handling multinational insolvency cases.
Protecting Creditors: Ensures fair treatment of both Indian and foreign creditors, boosting investor trust.
Efficient Asset Recovery: Helps recover assets spread across different countries, reducing delays and financial losses.
Resolving Disputes Easily: Clarifies which country has the main authority in a case, preventing conflicts and duplication of proceedings.
Matching Global Standards: Adopting global models like the UNCITRAL Model Law will align India with countries like the USA and UK, attracting more foreign investment.

Challenges in India’s Cross-Border Insolvency

No Comprehensive Law: India lacks clear laws for such cases; existing sections (234 and 235 of IBC) are not enforceable. For example, in the Jet Airways (2019) case, Indian and Dutch courts couldn’t cooperate effectively.
Complex Jurisdictions: Determining the main authority (Centre of Main Interest or COMI) is tough due to no clear provisions in Indian law.
Temporary Solutions: Cases are resolved through costly ad hoc arrangements instead of structured mechanisms.
Overburdened Legal System: With over 22,000 cases pending (2024), NCLT struggles to focus on cross-border issues that require specialized knowledge.
Group Insolvency Issues: No framework exists for dealing with companies with global subsidiaries. Example: Videocon Industries Ltd. (2019) required the NCLT to extend jurisdiction without proper legal support.

Recommendations for Cross-Border Insolvency in India

Adopt Global Standards: Implement the UNCITRAL Model Law to streamline cooperation, recognize foreign proceedings, and protect creditors.
Strengthen the IBC: Include a new section (Part Z) for handling international cases, defining COMI and simplifying legal processes.
Enhance NCLT Capabilities: Assign the Principal Bench to manage foreign cases and train judges and professionals in handling complex cases.
Promote Global Coordination: Use the Judicial Insolvency Network (JIN) Guidelines to ensure smooth communication between Indian and foreign courts.
Reciprocal Agreements and Group Insolvency: Finalize agreements with other countries to facilitate cooperation and create a framework for managing cases involving global companies.

#BACK2BASICS:

Historical Background of Cross-Border Insolvency in India

Era	Key Developments	Limitations
Pre-Independence Era	– Indian Insolvency Act, 1848: Focused on domestic insolvencies.	Focus only on domestic insolvency, ignoring cross-border complexities.
	– Presidency-Towns Insolvency Act, 1909: Applied to major cities (Calcutta, Bombay, Madras).
	– Provincial Insolvency Act, 1920: Governed insolvencies in rural regions.
Post-Independence Era	– Continuation of British-era insolvency laws with no major amendments.	Third Law Commission’s recommendations (1964) to modernize laws were not acted upon.
1990s Economic Liberalization	– Globalization increased the need for comprehensive cross-border insolvency laws.	Recommendations to adopt the UNCITRAL Model Law on Cross-Border Insolvency remained unimplemented.
	– Committees like Eradi (2000), Mitra (2001), and Irani (2005) pushed for reforms
Insolvency and Bankruptcy Code (IBC), 2016	– Aimed to consolidate and modernize domestic insolvency laws.	Sections 234 (reciprocal agreements) and 235 (foreign court requests) are unenforceable due to policy delays.
	– Introduced provisions for cross-border insolvency under Sections 234 and 235.

KEY CASE STUDIES FROM INDIA

Case	Key Issues	Outcome
Jet Airways (India) Limited (2019)	– Simultaneous insolvency proceedings in India and the Netherlands.	– NCLAT directed joint resolution proceedings under a Cross-Border Insolvency Protocol.
	– Lack of reciprocal agreements under Sections 234 and 235 of IBC.	– Recognized India as the Centre of Main Interest (COMI) and Netherlands proceedings as secondary.
	– Jurisdictional conflict between Indian and Dutch courts.
Videocon Industries Limited (2019)	– Inclusion of foreign subsidiaries’ assets in Indian insolvency proceedings.	– NCLT included foreign subsidiaries’ assets under the resolution plan.
	– No clarity on group insolvency or cross-border frameworks.	– Highlighted the need for legal provisions addressing group insolvency and cross-border disputes.