Cross Border Insolvency: The Need To Adopt UNICTRAL Model Law With Modifications in India
Cross Border Insolvency: The Need to Adopt UNCITRAL Model Law with Modifications in India
1. Introduction to Cross Border Insolvency
Cross border insolvency deals with insolvency or bankruptcy cases where the debtor’s assets or creditors are in multiple countries.
It addresses legal challenges involving conflicting laws, jurisdiction, recognition of foreign proceedings, cooperation among courts and insolvency professionals.
With globalization, Indian companies and creditors increasingly face insolvency issues involving multiple jurisdictions.
2. Current Legal Framework in India
Insolvency and Bankruptcy Code, 2016 (IBC) is India’s primary insolvency law.
IBC currently lacks comprehensive provisions on cross-border insolvency.
Section 234 of the IBC empowers the Central Government to enter into bilateral or multilateral agreements for cross-border insolvency.
However, India has not yet adopted a detailed framework akin to the UNCITRAL Model Law on Cross-Border Insolvency.
3. What is the UNCITRAL Model Law on Cross-Border Insolvency?
Developed by the United Nations Commission on International Trade Law (UNCITRAL) in 1997.
Provides a uniform legal framework to address jurisdiction, recognition of foreign insolvency proceedings, and cooperation between courts and insolvency representatives.
Adopted by many countries globally, including the USA, UK, Canada, Singapore, etc.
Key features:
Recognition of foreign proceedings
Access of foreign representatives to domestic courts
Cooperation and coordination among jurisdictions
Relief and protection for debtors and creditors
4. Why India Needs to Adopt the UNCITRAL Model Law
a) Globalization and Cross Border Business
Indian companies are engaged in cross-border trade, investments, and financing.
Insolvency involving foreign assets or creditors needs a harmonized legal approach to avoid conflicting judgments and asset dissipation.
b) Effective Resolution of Insolvency
Without cross-border provisions, foreign creditors/debtors face difficulty in enforcement or recognition.
Facilitates maximization of asset value and equitable distribution among creditors worldwide.
c) Attracting Foreign Investment
Transparent and predictable insolvency framework increases investor confidence.
Provides certainty on treatment of foreign creditors in insolvency.
d) International Obligations and Harmonization
Aligns India with international best practices.
Facilitates India’s participation in multilateral treaties and regional trade agreements.
5. Need for Modifications While Adopting the UNCITRAL Model Law
India’s insolvency ecosystem and socio-economic context differ from many jurisdictions.
Modifications may be needed to address:
| Area | Possible Modification Reasoning |
|---|---|
| Scope of proceedings recognized | Tailor to Indian judicial structure and commercial realities. |
| Priority of creditors | Reflect Indian laws on creditor hierarchy (secured/unsecured creditors). |
| Public policy exception | Retain flexibility to refuse recognition of foreign proceedings contrary to Indian public policy. |
| Language and procedural adaptations | Adapt to India’s procedural laws and languages. |
| Coordination with existing IBC provisions | Harmonize with insolvency resolution processes under IBC, 2016. |
6. Challenges in the Absence of Cross Border Insolvency Law
Indian courts face difficulties recognizing foreign insolvency judgments.
Foreign creditors struggle to claim rights in Indian insolvency proceedings.
Risk of asset dissipation in multiple jurisdictions.
Lack of cooperation with foreign courts and insolvency professionals.
7. Relevant Case Law in India
Though India has no explicit cross-border insolvency law, Indian courts have grappled with related issues:
a) Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., (2019) 4 SCC 17
Supreme Court upheld the constitutional validity of IBC.
Emphasized the need for speedy and efficient insolvency resolution.
The judgment stressed the importance of harmonizing insolvency laws to attract global investment, indirectly highlighting the need for cross-border insolvency norms.
b) Swiss Financial Services Pvt. Ltd. v. Union of India & Ors., 2020 SCC OnLine Bom 1159
The Bombay High Court dealt with enforcement of foreign arbitral awards and insolvency implications.
Highlighted the difficulties faced by foreign creditors due to lack of explicit cross-border insolvency provisions.
c) Deutsche Bank AG v. Asia Pacific Industries Ltd. (2015)
The Delhi High Court recognized foreign insolvency proceedings in the absence of statutory provisions, exercising equitable jurisdiction.
However, courts have expressed the need for clear legislative provisions for cross-border insolvency.
8. International Comparative Perspective
USA adopted UNCITRAL Model Law as Chapter 15 of the US Bankruptcy Code, providing clear guidance on recognition and cooperation.
Singapore integrated the Model Law, becoming a hub for cross-border insolvency cases.
India can learn from these jurisdictions by adapting the Model Law with context-specific modifications.
9. Recent Developments
In 2022, the Indian Government announced plans to adopt cross-border insolvency rules in consultation with stakeholders.
The Ministry of Corporate Affairs is studying the UNCITRAL Model Law to incorporate necessary amendments suitable for Indian conditions.
Conclusion
| Aspect | Explanation |
|---|---|
| Current Indian Law | IBC lacks detailed cross-border insolvency provisions. |
| Need for Model Law | Harmonization, clarity, cooperation, investor confidence. |
| Modifications Needed | Reflect Indian creditor priorities, public policy, procedural rules. |
| Judicial Approach | Courts often fill gaps but legislative clarity needed. |
| International Example | Adoption by USA, UK, Singapore show benefits of Model Law. |
Adopting the UNCITRAL Model Law with suitable modifications will make India’s insolvency regime internationally aligned, more effective, and investor-friendly in handling cross-border insolvency cases.
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