By Nihit Nagpal and Manmeet Singh Marwah
The Economic Survey prepared by the Economic Division, Department of Economic Affairs, Ministry of Finance, Government of India is an annual performance report of the Country’s economy which focuses on the economic developments in the country of each and every sector and helps in better utilization of resources and their allocation in the Union Budget. The Economic Survey is presented before the Budget and the theme of Economic Survey 2021-22, relates to the art and science of policymaking under conditions of extreme uncertainty.
Cross Border Insolvency signifies circumstances in which an insolvent debtor has assets and/or creditors in more than one Country. Usually, there are domestic laws for insolvency proceedings in for domestic creditors/debtors however, in certain insolvency cases, a company might owe assets and liabilities in more than one Country.
PRESENT SITUATION OF CROSS BORDER INSOLVENCY CASES
Currently, the Insolvency and Bankruptcy Code, 2016 provides for the domestic laws for the handling of an insolvent enterprise. There is no standard instrument to restructure the firms involving cross-border jurisdictions in the Insolvency and Bankruptcy Code, 2016. The same issue was dealt by the National Company Law Tribunal (NCLT), Mumbai vide its order dated June 20, 2019 passed in State Bank of India v. Jet Airways (India) Ltd.[1] stating that “there is no provision and mechanism in the IBC, at this moment, to recognize the judgment of an insolvency court of any Foreign Nation. Thus, even if the judgment of Foreign Court is verified and found to be true, still, sans the relevant provision in the IBC, we cannot take this order on record.”
A foreign creditor can make its claims against a domestic company in India however, the Insolvency and Bankruptcy Code, 2016 does not allow for automatic recognition of any insolvency proceedings in other countries. Section 234 of the Insolvency and Bankruptcy Code, 2016 empowers the Central Government to enter into bilateral agreements with other countries to resolve situations about cross-border insolvency. Further, the Adjudicating Authority can issue a letter of request to a court or an authority under Section 235 of the Insolvency and Bankruptcy Code, 2016, competent to deal with a request for evidence or action in connection with insolvency proceedings under the Code in countries with the agreement as Section 234 of the Insolvency and Bankruptcy Code, 2016.
PROBLEMS WITH THE PRESENT SITUATION
The current provisions under the Insolvency and Bankruptcy Code, 2016 are ad-hoc in nature and are susceptible to delay. Entering into mutual (reciprocal) agreements require individual long-drawn-out negotiations with each country which leads to uncertainty of outcomes of claims. The lack of cross border insolvency framework creates various issues such as:
- The extent to which an insolvency administrator may obtain access to assets held in a foreign country.
- Priority of payments- Whether local creditors may have access to local assets before funds go to the foreign administration or not.
- Recognition of the claims of local creditors in a foreign administration.
- Recognition and enforcement of local securities, taxation system over local assets where a foreign administrator is appointed etc.
RECOMMENDATIONS IN THE ECONOMIC SURVEY
The Committee had suggested a need for a standardized framework for Cross-Border insolvency and recommended for the adoption of the United Nations Commission on International Trade Law (UNCITRAL) with certain amendments to make it appropriate to the Indian law. Till date UNCITRAL has been adopted by 49 countries such as Singapore, UK, US, South Africa, Korea, etc. as it deals with main issues of cross border insolvency cases having the following four main principles:
- Access: It allows foreign professionals and creditors direct access to domestic courts and enables them to participate in and commence domestic insolvency proceedings against a debtor.
- Recognition: It allows recognition of foreign proceedings and enables courts to determine relief accordingly.
- Cooperation: It provides a framework for cooperation between insolvency professionals and courts of countries.
- Coordination: It allows for coordination in the conduct of concurrent proceedings in different jurisdictions.
BUDGET 2022-2023
The Budget was presented on February 01, 2022 in the Parliament by Nirmala Sitharaman, Minister of Finance, Government of India in which she had stated that necessary amendments in the Insolvency and Bankruptcy Code, 2016 will be carried out to enhance the efficacy of the resolution process and facilitate Cross Border Insolvency Resolution.
CONCLUSION
The Government has recognized the need of the hour to match up with the global scenarios and amend the Insolvency and Bankruptcy Code, 2016 to improve the existing resolution process. This is indeed a step forward which will him in facilitating the claims of the creditors against the corporate debtor even when Cross Border Insolvency is involved.
[1] CP 2205 (IB)/MB/2019, CP 1968(IB)/MB/2019, CP 1938(IB)/MB/2019
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