Whether it is the time lag depicted in Future Shock by Alvin Toffler in 1970 or the relativity of time by Yual Hararri in The History of Homo Sapiens, we have never felt the fast pace of a changing world as we are witnessing now. The rapid pace of digitalization, investment opportunities across the world and exchange of technologies have shrunken the world to a click of a mouse. In this rapidly changing scenario, no investor can survive by restricting themselves to the boundaries of a nation, which results in having assets across more than one territorial jurisdiction. In a world of dichotomies, an insolvent debtor with assets spread out over various jurisdictions makes the insolvency process difficult due to overlapping laws, ways of enforcement of foreign judicial proceedings, recognition of court decisions, and so forth. Cross-border insolvency disputes need to be resolved by broader mutually acceptable cross-border legal frameworks for all the stakeholders for quicker and better resolution of the stressed assets.
The United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (UNCITRAL Model Law) in essence provides an independent framework to assist the member states in addressing cross-border insolvency proceedings, which allows the concerned jurisdiction to evaluate and thereby decide the operational nitty gritty best suited to the concerned country’s legal landscape. UNCITRAL Model Law provides an international framework to encourage cooperation and coordination between multiple jurisdictions.
However, there exists not much of a legal framework for addressing cross-border insolvency disputes in India. Sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016 (“Code”) are the Indian Insolvency laws that deal with cross-border insolvency wherein the Central Government can enter into bilateral agreements with another country to resolve situations pertaining to cross-border insolvency proceedings and the power of the Adjudicating Authority (“Court”) to issue the letter of request to a foreign court for action against the debtor’s assets. However, they suffer from various shortcomings and would not be able to provide a comprehensive mechanism for cross-border insolvency proceedings. As such, the draft cross-border insolvency legislation (“Draft Part Z”) recommended by the Report of the Insolvency Law Committee (the “Committee”) in October 2018, which was constituted by the Ministry of Corporate Affairs of the Government of India, would have to be adapted and included in the Code, thereby resulting in the introduction of various amendments and rules to accommodate the Draft Part Z.
In January 2020, the Ministry constituted the committee to further understand and recommend the necessary rules and regulatory framework for a smooth implementation of proposed cross-border insolvency provisions in the Indian Insolvency laws. Having said that, it cannot be ignored that a lot of procedural and legal challenges would have to be addressed for the effective adaptation and implementation of the Draft Part Z. However, once the hard work is carried out and the hurdles are met, the legal framework could ensure cooperation and communication between different jurisdictions and successfully address the resolution of cross-border disputes concerning India. The Indian Insolvency laws have to be tweaked, according to UNCITRAL Model Law, with certain modifications.
Another idea can be to have the UNCITRAL Model Law merge under resolutions made under Chapter VII of the United Nations Charter as mandatory for all the nations within a stipulated time frame, but resolutions under Chapter VI of the United Nations Charter have no enforcement mechanisms and are generally considered to have no binding force under international law that needs to be dealt with. The rapid growth of technology, trade and the corporate world has resulted in the rising number of multinational entities eventually creating borderless relations among countries and businesses.
Today, most countries have trade relations extending beyond one jurisdiction. Having a presence in various jurisdictions also results in having creditors and debtors situated in multiple jurisdictions. This makes the insolvency process, including the overlapping of different laws and proceedings, a complicated process. The Indian Insolvency laws were introduced as the primary legislation governing insolvency and bankruptcy in India. Even though Indian Insolvency laws have made progress in the harmonization of the insolvency process in India, the Indian Insolvency laws do not stipulate sufficient procedures for the regulation of cross-border insolvency proceedings.
Hence, adopting the base from the UNCITRAL Model Law seems to be a fair solution, since the complexities involved in the cross-border regime required in-depth study for adopting the UNCITRAL Model Law in India as well. The need for having a robust framework addressing all niche issues pertaining to cross-border insolvency had long been felt. Although various committees have presented their reports on cross-border insolvency, the present framework comprising Sections 234 and 235 of the Code are inadequate to cover all aspects of insolvency.
The UNCITRAL Model Law is a constructive step taken toward building such a mechanism, but it is also not independent of its own shortcomings. In the Indian perspective, reciprocity is one of the biggest concerns among all apart from infrastructural inefficiencies in India for the implementation and adoption of the UNCITRAL Model Law. However, after overcoming the obstacles and shortcomings, the UNCITRAL Model Law may be able to assure collaboration and communication across different jurisdictions, as well as successfully resolve cross-border conflicts involving India.