Policymakers are keen to introduce it, professionals yearn for it,  foreign investors are waiting for it and both foreign and domestic resolution professionals hope that it gets introduced soon.  Indian businesses which have spread their footprint across the globe were demanding it as of yesterday, especially given the financial market linkages! 

Yes, you guessed it right — what is being considered here is the introduction of a cross-border insolvency framework for India. This framework has been in the works for several years now and one is told that things have entered the last lap and the ball is in government’s court to take the legislative process forward. 

But what nobody is able to say with certainty or prove through a study is how India is going to benefit from a cross border insolvency framework and whether it will benefit India more than foreign jurisdictions or not. “As a principle, it (cross border insolvency framework) is good, but how will I know my country will benefit more or not be worse off. For this, there is no clarity as of now. Nobody has been able to do a study and explain that India will benefit and not lose”, said an insolvency law expert who did not wish to be identified. 

Need for a study

The Corporate Affairs Ministry ( MCA), which is the administrative Ministry overseeing insolvency, would do well to approach an academic institution and commission a specific study on whether having such a framework will benefit India more or would end up playing to the advantage of the foreign investors and foreign jurisdictions at the cost of domestic interests. 

The moot question is “Are we going to benefit more or other countries will benefit more”? There is no clarity or certainty on this front. One thing is sure — MCA wants to do it and take it forward. But the Prime Minister’s Office (PMO) does not appear to be still entirely convinced about the merits of having a cross border insolvency framework! It all boils down to that question as to who will it benefit more! Till then, the bargain between MCA and PMO may continue to arrive at a suitable decision. PMO, it is learnt, is yet to be convinced that India will not lose out from having a framework on this front. 

The need for an analytical study is all the more necessary given that there is no clarity on how much of assets of Indian enterprises are located/ housed in foreign jurisdictions. There is also no clarity as yet on how much money Indian creditors have given to foreign corporates and how much money foreign creditors have given to Indian entrepreneurs and extent of assets they have built in the country. 

There is, however, a strong desire within India to have a cross border insolvency framework at the earliest. G Ramaswamy, former President of CA Institute, said the cross border insolvency framework will improve the confidence level of investors on India. “The investment guarantee is important for our growing economy and to improve investment climate in India”, Ramaswamy said. 

So what is the status?

IBBI Chairman Ravi Mital said at a recent international webinar that the model law on cross-border insolvency is almost ready and is under consideration of the government.  

He contended that the enactment of cross-border insolvency law will make India an even more attractive destination for cross-border investments as insolvency regime would become predictable for foreign companies. He did highlight that having a cross border insolvency framework will entail great benefits for India. But the crucial question is whether India will benefit more or not? 

The buzz in the corridors of power is that the legislative amendments may not see the light of the day even in the winter session. Reason: There is no academic study to convince the decision makers that India will benefit more from having such a framework. 

The new comprehensive framework is likely to be largely patterned on the UNCITRAL model law on cross-border insolvency, which has been adopted by the US, the UK, Japan and Singapore. The UN Model law is now proposed to be tweaked to suit the Indian context and requirements.  

The proposed Indian law will permit the country to refuse recognition of foreign proceedings or provisions if anything is contrary to domestic public policy. Therefore, priority will be given to domestic proceedings and, thus, there may be some protection of domestic creditors.  

It will also empower Indian insolvency representatives  to access foreign jurisdictions and avail recognition and cooperation. It will enable foreign representatives to have same benefits in India. The model law will guide coordination between courts and insolvency professionals in foreign jurisdictions. 

The existing Insolvency and Bankruptcy Code(IBC) does cover situation of cross-border issues through sections 234 and 235 of the IBC. That has, however, hardly been taken recourse to.  

The MCA has already received public comments on the proposed legal framework for cross-border insolvency under the IBC. 

Whichever way things may pan out, one thing is for sure. Global experience demonstrates that cross-border investment decisions are influenced by insolvency laws in a particular country. Adoption of cross-border insolvency regime is expected to further India’s image as the most improved jurisdiction in terms of insolvency resolution. 

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