The discourse over cross border or international insolvency framework has significantly gained traction with the turmoil at Jet Airways. Any airline having international operations will naturally have assets and businesses in multiple jurisdictions. If it goes bankrupt, then questions pertaining to the relevant country will naturally arise.
To address such situations, the United Nations Commission on International Trade Law (UNCITRAL) has formulated a model law, which recognises litigation transgressing international boundaries, especially in cases of multinational corporations.
An international insolvency regime essentially forms part of Private International Law, which is not a law in itself, but is a set of rules which identifies the correct domestic legal system to be applied in a particular dispute among international parties. UNCITRAL tried to harmonise it by making domestic legal systems structurally similar. Hence, the question of choosing one legal system over another is essentially rendered meaningless.
The Indian Insolvency and Bankruptcy Code (IBC) was enacted at break-neck speed, and probably because of the urgency, does not include anything substantial on international insolvency. The IBC under Section 234 states that “the central government may enter into an agreement with the government of any country outside India for enforcing the provisions of this Code”. This is just an enabling provision and doesn’t define or identify the structure for an international insolvency regime.
Hence, the government has rightly decided to amend the IBC to recognise the UNCITRAL Model Law. However, the problem is that mere inclusion of the model law through the IBC is not sufficient for an efficient functioning of the system. As is the case with most domains of Indian law, insolvency too isn’t governed by a single legislation. Before the IBC, there were more than four major legislations dealing with the subject and multiple judicial bodies like DRT, high courts, the Company Law Board and the like having concurrent jurisdiction. Though most of laws were repealed through the operation of the IBC, SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest) remains in force.
Therefore, any international regime will be hampered when the stakeholders will have rights under several other legislations than the model law and the IBC. For instance, the moratorium enforced by IBC even in domestic cases is not entirely immune to enforcements of securities by banks under SARFAESI. Hence, a compliance by secured creditors (mostly banks) is not guaranteed, for which another regulation is needed, in addition to repeal of SARFAESI.
The Indian courts, as it is, are not known for non-interference, so much so that the Supreme Court had invoked Constitutional powers to allow withdrawal of applications when the IBC did not permit the same. Hence, not just the law, the attitude of the courts is as much important to make the businesses feel comfortable with the judicial and legal process.
The Report of Insolvency Law committee on cross border insolvency has itself laid down four important principles for the regime to come into force.
First is access, which means access to courts and resolution process by foreign insolvency professionals and parties. Access to courts to foreigners is already allowed, however no legal mechanism exists to allow foreign professionals to participate in the resolution process.
Second is the determination of Centre of Main Interest (COMI). This is the most important and problematic for India, in some cases it will involve a determination by the Indian courts, that India essentially doesn’t have jurisdiction in the particular case. This involves yielding of jurisdiction by Indian courts, which is very problematic, when they are not even deterred to invoke the Constitution to assume jurisdiction.
Third and fourth are cooperation and coordination. Cooperation is a direct cooperation among adjudicating authorities among different countries, like the NCLT cooperating with US Bankruptcy Court – directly, without the involvement of the governments. Coordination is with respect to simultaneous proceedings and mutual recognition of the same by the authorities.
Both of these are immensely difficult to implement and something of this sort has never been done in India. It’s difficult to imagine an Indian court, especially the higher judiciary, coordinating and cooperating with a foreign court and recognising it, in the same litigation. Therefore, exhaustive changes in laws with respect to the jurisdictional rules in clearly worded terms is needed, along with commiserate changes in the attitude of the courts.