[By Shivam Bhattacharya & Naman Jain]
The authors are students at the Gujarat National Law University.
The recent order of the Mumbai Bench of the NCLT approving the resolution plan for the revival of Jet Airways has marked the end of one of the earliest cases of cross-border insolvency determined under the Insolvency and Bankruptcy Code, 2016 (hereinafter “Code”). The final determination by the Court has in addition to providing insights into the working of the Code, also laid bare some of its limitations for resolving cross-border insolvency disputes. In pursuance of this, the authors intend to examine the entire case in light of the recent judgment by presenting the facts, orders and judgments passed. This article will also analyze the limitations of the Code in this regard and elaborate on how adopting some of the provisions of the UNCITRAL Model Law could help in dealing with similar insolvency disputes.
Background
The present case begins with the initiation of ‘corporate insolvency proceedings’ against Jet Airways and concludes with the final approval of the resolution plan for its revival by the NCLT. It spans three different Court orders over a period of two years.
Company Petition No. 2205 (IB)/MB/2019 in NCLT, Mumbai Bench
Three petitions were filed against Jet Airways, the Corporate Debtor in this case, for the initiation of Corporate Insolvency Resolution Process (CIRP) against it for the huge outstanding debt is owed. During the first hearing, the NCLT Bench was apprised of the fact that insolvency proceedings against Jet Airways had already begun a month prior in theDistrict Court of Netherlands. The Bench in this regard opined that conducting concurrent proceedings in the same matter would cause delay and vitiate the proceedings in the case. The reasoning put forth was that the two sections, Section 234 and 235 in the CODE for recognizing the orders of a foreign jurisdiction, mandate the requirement of the Indian Government to have reciprocal arrangements with the foreign country. However, the Court noted that in the instant case there were no reciprocal arrangements were made with the Dutch authorities.
Furthermore, the Bench also took into consideration that the registered office of ‘Jet Airways’ and their primary assets were located in India, and therefore the NCLT had the requisite jurisdiction in the instant matter. The Bench via its order dated 20th June 2019set aside the proceedings of the Dutch Court and declared it as a nullity. The initiation of the corporate insolvency resolution process in India against Jet Airways was accepted by the NCLT.
Company Appeal (AT) (Insolvency) No. 707 of 2019 in NCLAT, Delhi
The order passed by the NCLT bench on the aspect of non-recognition of the Dutch proceedings was challenged before the NCLAT by the Dutch Trustee. The NCLAT considered the appeal and directed the ‘Resolution Professional’(hereinafter “RP”), appointed on behalf of Jet Airways, to consider the feasibility of having a joint ‘corporate insolvency resolution process in coordination with the Dutch Trustee. The RP along with the Dutch trustee reached an agreement for facilitating the resolution process through a ‘Proposed Cooperation’model. Both the parties reached a final agreement on the proposed model and submitted it to the NCLAT for approval. The NCLAT accepted the model via its order dated 26th September. The Bench also allowed the Dutch Court Administration to attend the meetings of Jet Airways. Interlocutory Application No. 2081 of 2020 in NCLT, Mumbai Bench
An application for the final approval of the ‘Resolution Plan’ was filed before the Mumbai Bench of the NCLT. The Bench via its order dated 22nd June 2021accepted the ‘Resolution plan’ on a majority of the points, and gave a time period of 90 days to the consortium for taking the necessary regulatory approvals and permissions from the DGCA. The Bench ordered the formation of a Monitoring Committee for overseeing the entire process. Though the final determination by the Benchmarked the end of India’s first cross-border insolvency case settled under the Code, however, it raised some key concerns regarding the inadequacy of insolvency provisions in the Code.
Analysis and Suggestions
With transnational business increasing at a rapid pace and big corporations setting up offices in multiple jurisdictions, this decision by the NCLT assumes much significance. The final order passed has revealed several lacunae present in the Code for dealing with insolvency cases involving foreign creditors or debtors. A major point of contention was the ‘non-recognition of the proceedings which took place in the Dutch Court by the NCLT in its earlier order. The subsequent confusion and delay caused, led to the increasing chorus for including uniform provisions within the ambit of the Code, for dealing with cross-jurisdictional insolvency cases.
In pursuance of this, it can be inferred that a major drawback of the provisions within the Code for resolving cross-border disputes is that it mandates the formation of separate and individual bilateral agreements with other countries for enforcing the provisions of the Code. Such a type of arrangement would in addition to requiring a lot of time and negotiations also increase the probability of conflicting claims being made from both sides in connection with the judicial proceedings undertaken by their respective Courts.
In light of the aforementioned discussion, the authors are of the opinion that adopting the provisions of the UNCITRAL Model Law would be integral for reducing instances of conflict between the insolvency laws of two or more different jurisdictions. The Model Law provides for three essential and inherent provisions which aim at placing both the national and the foreign creditors or debtors on an equal pedestal.
Firstly, the principle of recognition in the Model Law provides for the recognition of the Court proceedings in a foreign jurisdiction, which ensures that no unnecessary time is lost and the dispute is resolved in an effective manner. It also allows proceedings to be conducted in a parallel and concurrent manner. Secondly, the ‘principle of access’ allows the foreign creditors and debtors to attend the Court proceedings taking place in a different jurisdiction. In essence this principle aids in bringing a more collaborative and transparent system in a cross-border dispute, since it gives the foreign representatives the opportunity to attend and observe the Court proceedings taking place in a different jurisdiction. This in turn greatly reduces the risk of conflicts arising from the orders or judgments passed by the Court. Thirdly, the Model Law also provides for sound guidelines under Sections 29 and 30 of the Model Law for maintaining a proper mechanism for ‘coordination and cooperation throughout the entire insolvency process. Constant cooperation in cases involving simultaneous domestic and foreign proceedings and in cases involving multiple simultaneous proceedings is covered within the ambit of these sections of the Model Law.
It is to be noted that since India is not a party to the UNCITRAL (United Nations Commission on International Trade Law) Model Law, in the instant case, the Dutch creditors found it difficult and cumbersome in recovering their claims from the insolvent airline. The authors in this regard are of the opinion that incorporating the above three key features of ‘recognition’, ‘access’ and ‘cooperation’ from the Model Law within the Code, would go a long way in assuaging the concerns of foreign creditors and ensure that more multinational corporations engage in business and partnership with their Indian counterparts. It would also ensure that the interests of both the domestic and foreign creditors and debtors are served. Moreover, the Insolvency Law Committee (ILC) also recommended in its report of 2018 the need for imbibing the provisions of the Model Law within the ambit of the Code.
Conclusion
In light of the aforementioned discussion, it is of utmost importance that some of the provisions of the Model Law related to insolvency laws are incorporated within the ambit of Code to deal with cases wherein the assets of a Company or Corporation are located at multiple locations. Owing to a large amount of global trade and commerce, conflicts and disputes are bound to arise. The UNCITRAL Model Law in this regard provides arguably the most comprehensive guidelines for mutually resolving such disputes benefitting both sides.
With more and more countries adopting the Model Law and the provisions of the Code dealing with insolvency laws found to be inadequate as observed in the Jet Airways saga, it is the prerogative of the Indian insolvency professionals and stakeholders to push for the adoption of the Model Code, so that a fair, equitable and efficient system for resolving insolvency proceedings is ensured.