In India, the insolvency law is governed by the Insolvency and Bankruptcy Code, 2016. Insolvency of a company comprises of parties wherein one is the debtor and the other is the creditor. When the debtor fails to cater its obligation to pay off the creditor, then the creditor initiates the insolvency procedure under the Insolvency and Bankruptcy Code, 2016. When one of the parties in such an insolvency proceeding belong to a nation other than India, then it is categorized under the term “cross-border insolvency”.
Section 234 and Section 235 of the Insolvency and Bankruptcy Code, 2016 deal with the provision of cross-border insolvency. The Indian provisions of cross-border insolvency on the assets located outside India apply if there is a reciprocal arrangement with the other country.
If any insolvency proceeding is conducted in any foreign jurisdiction and the debtor or its assets are situated in India, then a letter addressed to the authority in India is required for collecting any evidence in this regard.
There are various points which need to be catered for effective cross-border insolvency like:
* Sign memorandums of understanding with more and more countries: Lack of arrangements with certain nations may deter people to enter into financial or operational transactions with entities in that nation. Therefore, a framework for cross-border transaction must be kept in place effectively.
* Attempt uniformity in cross-border provisions: There is no uniformity in the provisions of cross-border insolvency. This leads to different treatment of transactions between different countries. If a mechanism is devised wherein the global cross-border insolvency provision is operated, then there will be fair treatment of cross-border insolvency.
For bringing such uniformity, the UNCITRAL model law on cross-border insolvency which was formulated in 1997 can be adopted by countries. It is a template adopting which can bring about fair treatment between countries involved in cross-border insolvency in terms of both proceedings and ease of doing business.
In India, the civil law provision i.e., Section 44A of the Civil Procedure Code, 1908 is followed for recognition of foreign proceedings in India. Whenever the reciprocal arrangement is not in place with a country with which cross-border proceedings are initiated, this civil law procedure is applied for enforcing the foreign orders.
With the advent of globalisation, the need for provisions like cross-border insolvency become the need of the hour and there should be more recognition of the reciprocal arrangement with more and more countries to strengthen trade and commerce. Currently, the Committee on Bankruptcy is considering the adoption of UNCITRAL model law on insolvency which can bring about the necessary change and equip India with an efficient cross-border insolvency law.
Author: Adv. Varun Singh, Founder, Foresight Law Offices India. Views are personal.