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The Economic Survey for the financial year 2021-22 called for the establishment of a standardized framework for addressing the issue of ‘cross-border insolvency’ resolution. This need was felt due to the current legislation regarding insolvency proceedings being lackluster in this respect. Flowing from this the Finance Minister also announced amendments in her budget speech to enable cross-border insolvency resolution. Therefore, it becomes important to understand the finer aspects behind cross-border insolvency resolution and what the future holds in terms of IBC, 2016 provisions, so as to achieve ease of business reforms.


In the simplest of terms, insolvency is a situation where individuals or organizations are unable to meet their financial obligations. As a result, naturally, if an organization is unable to pay back its debt and other obligations to its creditors, insolvency proceedings have to be initiated against the specific debtor. Cross Border Insolvency is a particular subset of insolvency proceedings wherein a debtor who is insolvent has assets and/or creditors in more than one country. Professor Ian Fletcher, a renowned scholar on aspects of commercial insolvency, proposes that ‘cross-border insolvency’ should be considered as a situation…in which insolvency occurs in circumstances which in some way transcend the confines of a single legal system. As is evident, this development complicates matters in itself. However, an added source of consternation is the lack of ‘effective’ resolution procedures in the statute books. This leads to delays in resolution proceedings, chances of prolonged litigation, and multiplying costs, with cascading investor sentiments.


The initial draft of the code did not even contain provisions with regard to cross-border insolvency. This was pointed out by the Bankruptcy Law Reforms Committee (BLRC) which noted the following “The next frontier lies in addressing cross-border issues. This includes Indian financial firms having claims upon defaulting firms which are global, or global financial persons having claims upon Indian defaulting firms.” This draft bill was then reviewed by a Joint Parliamentary Committee (JPC) which took note of the suggestions of the BLRC. As a result, two provisions, namely Section 234 and 235 were added to the IBC to deal with cross-border insolvency proceedings.

However, these provisions were only an elementary structure grossly inadequate to address the problem of cross-border resolution. Section 234 empowers the Central Government to enter into bilateral agreements with other countries to resolve situations about cross-border insolvency. Under Section 235, the Adjudicating Authority can issue a letter of request to a court or an authority competent to deal with a request for evidence or action in connection with insolvency proceedings under the Code in countries with the agreement. As can be seen, entering into bilateral agreements with other nations just for the purposes of insolvency resolution is neither pragmatic nor purposeful. Another problem that would arise within the status quo is, that if there is more than one nation involved, entering into agreements would be mired in convolution and would defeat the entire purpose of a well-defined and structured insolvency framework. This was acknowledged by the Economic Survey in its report too, wherein it mentioned “The current provisions under IBC are ad-hoc in nature and are susceptible to delays. Entering into mutual (reciprocal) agreements requires individual long-drawn-out negotiations with each country. This leads to uncertainty of outcomes of claims for creditors, debtors, and other stakeholders as well.”


Pursuant to the above-mentioned limitations of the IBC Code, the Mumbai Bench of the National Company Law Tribunal (NCLT) also noted in Jet Airways (India) Limited vs State Bank Of India & Anr “ It is also important to note that there is no provision and mechanism in the I&B Code, at this moment, to recognize the judgment of an insolvency court of any Foreign Nation. Thus, even if the judgment of Foreign Court is verified and found to be true, still, sans the relevant provision in the I & B Code, we cannot take this order on record.”

In the above case, simultaneous proceedings were initiated against Jet Airways in India as well as the territory of Holland. An appeal by the administrator appointed by the Dutch court to recognize the insolvency proceedings in Holland was rejected by the NCLT. This was then appealed at the National Company Law Appellate Tribunal (NCLAT). The NCLAT set aside the ruling of the Mumbai Bench of the NCLT. Pursuant to this ruling, the administrator and the insolvency professional agreed upon a ‘cross border insolvency protocol’. This example illustrates the complications that all parties have to face, owing to the absence of a definite framework for addressing cases where a debtor might have assets in multiple jurisdictions, as was the scenario in the case of Jet Airways.

Similar was the condition in the highly publicized Videocon insolvency case. It was reported that Videocon had asked the NCLAT to include its assets overseas for the corporate insolvency resolution proceedings. This request was eventually allowed by the NCLAT. These examples showcase how the adjudicating bodies have to deal with ‘cross-border’ issues on a case-to-case basis. This calls for a dire need for a uniform and definite framework within the IBC to deal with such cases. The Economic Survey mentioned in its report, that such a need for a framework had already been highlighted in the report of the Insolvency Law Committee (ILC) back in 2018. The ILC had suggested adopting the United Nations Commission on International Trade Law (UNCITRAL) with certain specific changes to make it suitable for the Indian context.


The UNCITRAL model law has been adopted by several countries around the world, with specific changes to make the model law jurisdiction-specific. The basic objective behind this model law is to ensure that the interest of banks and persons involved including the creditors are protected in cross-border insolvency matters. The model law has been adopted by 49 countries including some like the USA, UK, South Korea, etc. It is based on four basic principles

  • Access: It allows foreign professionals and creditors direct access to domestic courts and enables them to participate in domestic insolvency proceedings.
  • Recognition: It allows recognition of foreign proceedings and enables courts to determine relief accordingly.
  • Cooperation: It provides a framework for cooperation between insolvency professionals and courts of other countries.
  • Coordination: It allows for coordination in the conduct of concurrent proceedings in different jurisdictions.


One major problem that insolvency professionals have faced while attaching assets of insolvent organizations is the debilitating role played by tax-havens. For instance, Pravin Nandar, who is the insolvency professional for the Videocon case mentioned how “It has been difficult to take legal control of the company’s assets because of this,” this refers to the fact that Videocon Oil has assets in Brazil and Indonesia, owned through intermediate companies located in jurisdictions such as the British Virgin Islands (BVI) and the Cayman Islands. Videocon India had set up special purpose vehicles (SPVs) in the tax havens and owns shares in those SPVs. The SPVs in turn hold shares in the companies that own those assets in Brazil and Indonesia. This is a serious issue as these ‘tax friendly’ nations function under the garb of confidentiality, due to which it becomes extremely difficult to track and trace the complex web of transactions leading to asset trails.


As businesses nowadays transcend national borders and jurisdictions, it is essential for countries to adhere to a common set of principles guided by the UNCITRAL Model Law. The adoption of the Model Law according to the needs of Indian Commerce and Business is a step in the right direction, which will eventually lead to greater participation of multinational companies in the economy. It will also be aiding stressed creditors which generally involve large public sector banks in participating in and commencing an action against debtors who own assets around the globe. This too will prove to be a benefit to the larger Indian economy.

Author(s) Name:  Sarthak Das (Government Law College, Mumbai)