Money & Banking

Cross-border insolvency framework-related amendments likely in Winter session

K.R.Srivats | Updated on September 24, 2019

The Centre will, in the winter session of Parliament, look to bring amendments to the insolvency and bankruptcy code (IBC) so as to provide a comprehensive framework for cross-border insolvency, a top Government official said.

“We will bring the necessary changes in the next session (of Parliament),” Corporate Affairs Secretary Injeti Srinivas told BusinessLine, when asked about the status of implementation of cross-border insolvency framework in the country.

It may be recalled that the second report of the insolvency law committee, headed by Injeti Srinivas, had recommended in October that India should adopt the UNCITRAL Model Law of Cross Border Insolvency 1997 for its cross-border insolvency framework.

Asked if the government will look to take an ordinance route to bring the required amendments to IBC for ushering in cross-border insolvency framework, he replied in the negative. The government may also bring changes to IBC for introducing group insolvency concept, it is learnt. The Insolvency and Bankruptcy Board of India (IBBI) had, in January this year, set up a 11-member working group under the Chairmanship of former SEBI chief UK Sinha to go into the concept of ‘group insolvency’ and suggest a suitable framework.

Amit Vyas, Founder Partner, Vertices Partners, a law firm, said that the IBC, as on date, encapsulates the cross-border insolvency provisions in sections 234 & 235 (unenforced sections).

However, these provisions are not self-sufficient, and limitations like existence of mutual/ bilateral treaties between India and other countries result in uncertainty and cumbersome process, which prevent recovery of debts by foreign investors / creditors against Indian companies and vice-versa. “A separate chapter under the IBC will enable greater foreign investments by assuring expeditious disposals of disputes arising by and between foreign investors and Indian companies,” said Vyas.

The ongoing insolvency proceedings against Jet Airways in India is a classic example of the lacunas of IBC and the need for amendment and immediate enforcement of the globally acceptable and/or applicable provisions of IBC will enable greater foreign investments by assuring expeditious disposals of disputes arising by and between foreign investors and Indian companies, he added.

Punit Dutt Tyagi, Executive Partner, Lakshmikumaran & Sridharan, a law firm, said that the proposed amendment to IBC 2016 is likely to bring about a comprehensive framework to deal with cross-border insolvency.

Last year, in October 2018, the Insolvency Law Committee on Cross Border Insolvency recommended India adopting the UNCITRAL Model Law on Cross-Border Insolvency with suitable modifications.

The proposed amendment is likely to be on the same lines. As much of the law is taken from UNCITRAL Model, which is tried and tested law on the subject, there are no serious infirmities, he said.

However, there are a few modifications proposed by the Insolvency Law Committee that limits the operation of the cross-border insolvency or that may result in inconsistencies.

“One of the serious limitation to the proposal is the requirement of ‘reciprocity’ i.e. this section will apply only if the foreign state’s law is consistent with the Indian regime, i.e. IBC, 2016. Such a requirement will heavily restrict the application of the cross-border insolvency. The other possibility is to give recognition to all jurisdiction that has adopted UNCITRAL Model, this if done will give a much wider application to IBC, 2016”, Tyagi said.

Published on September 24, 2019

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