The government plans to promulgate an Ordinance amending the Insolvency and Bankruptcy Code (IBC) by adding a chapter on cross-border insolvency. This addendum aims to comfort to foreign investors in India and vice-versa.
A source confirmed the introduction of the Ordinance would be tabled post the Cabinet’s nod. It would be based closely on the UNCITRAL model law for cross-border insolvency.
The UNICITRAL model law primarily deals with four crucial principles of cross-border insolvency, i.e.,
- Uninterrupted access to foreign insolvency professionals and foreign creditors to partake in or commence domestic insolvency proceedings against a defaulting debtor.
- Recognition of international proceedings and provision of remedies,
- Cooperation between national and international courts; domestic and international insolvency practitioners;
- Coordination between two or more parallel insolvency proceedings in different countries.
This model law has been adopted by 44 countries, including the US, the UK and Singapore.
As of now, section 234 and 235 of the IBC all matters related to cross-border insolvency. However, they are not enforced since they are yet to be notified.
Currently, cross-border insolvency can only be enforced if India subscribes to bilateral treaties with foreign governments. Finalising such treaties may take longer as each treaty is different, and there is uncertainty among foreign investors. Additionally, it creates ambiguity for National Company Law Tribunal (NCLT) and other Indian courts, which often has to treat each case separately.
Some officials stated that the government wants to create a separate provision for insolvency that would be globally accepted and well organised. They added the government aims to improve the business environment in the country.
This would reduce the time for exchanging information between the two countries, and serve as a signal to foreign investors and multilateral agencies such as the World Bank about the robustness of the country’s financial sector reforms.
Previously the IBC was amended to include Section 29(A) that bars straying promoters from bidding for companies undergoing resolution under the code. The ordinance also granted homebuyers the status of financial creditors. The second amendment to the Code allowed for the withdrawal of application after a case was admitted in the NCLT if 90 per cent of lenders approved it.
With the Lok Sabha elections around the corner, a cross-border insolvency law empowers foreign creditors to get money lent to Indian corporate entities. In the same spirit, Indian companies can also claim their dues from foreign companies.