Author name: CBCL

[By Ravleen Chhabra] The author is a final year student of Institute of Law, Nirma University and can be reached at [email protected]. Introduction The Insolvency and Bankruptcy Code (“IBC” or “the Code”) has been probably one of the greatest developments in the Indian Legal System in a bid to reform India’s irresistible Non-Performing Assets conundrum. The Insolvency and Bankruptcy Board of India (“IBBI”), is the body that regulates the working of the IBC, has been actively involved in disseminating understanding and regulating the space [i]. In the wake of recent developments, the IBC had various hits and misses during its execution and is expected to mature in the coming future with better results. Despite having covered a plethora of aspects, there still exist certain issues with no provisions to govern. The current framework of this striving piece of economic legislation provides for a variety of plans for the resolution of individual stressed companies. However, owing to the lack of regulatory framework providing for consolidating the connected companies in group insolvency proceedings, lenders were finding it difficult to proceed for group insolvency proceedings. The dearth of a provision dealing with group insolvency is adversely impacting the resolution process in numerous cases where group companies are lugged to the National Company Law Tribunal (“NCLT”) by the lenders themselves, requesting for a group insolvency approach. However, in the absence of a legal provision allowing the same, the NCLT is unable to help them in any possible manner [ii]. Anchoring the First Step: Formation of the Working Group The first step in the direction of understanding the concept of group insolvency and proposing a legal framework was taken by the Central Government in January 2019 by establishing a working group under the leadership of Mr. UK Sinha, former SEBI Chief [iii]. Two months later, a committee known as the Insolvency Law Committee was reconstituted by the Government to analyse the implementation of the IBC, and craft suggestions to deal with the issues [iv]. One of the largely debated topics during the discussions was to suggest legal provisions in the IBC for allowing group insolvency. These developments seem to suggest that soon, a highly efficient and standardized framework shall be incorporated within the IBC for the resolution of an entire stressed group company having various entities in different NCLT jurisdictions. Global Regulations: How India can benefit? While examining the chapter on “Insolvency Proceedings of Members of a Group of Companies” integrated in the revised European Union (“EU”) Insolvency Regulation, 2017 (“EU Regulation”), a lot of inspiration can be taken from the impeccable manner in which the EU aims at inculcating coordination and cooperation regarding groups of companies, thereby resulting in a win-win situation for both the creditors and the debtors [v]. Article 72 (3) of the EU Regulation, in fact, signifies the importance of coordination, and not consolidation. In conjunction with the same, the recent synchronized scheme of group insolvency law in the Indian IBC shall aim to keep a group of stressed companies concomitantly to either reorganize the group as a whole or liquidate the total asset of the  group in the paramount interest of all parties involved. The ideology behind the same is to formulate a restructuring mechanism that permits the initiation of insolvency proceedings of companies within a corporate group adjudicated by the single independent court/tribunal [vi].This approach shall be helpful, keeping in mind that the groups of debtors or creditors can ask for joint proceedings, thereby reducing the likelihood of spending a huge amount of time and money. The recent amendments to the German Insolvency Act also provide for having only one administrator, while dealing with the insolvency of particular companies of a group, to improve their cooperation and coordination [vii]. Though the legislation does not provide for explicit consolidation of individual proceedings into one, they offer an opportunity to begin working in that direction. In India, it is noticed particularly in case of the infrastructure sector, that the holding company is subjected to insolvency without subjecting the subsidiary company and in most of these cases; it is tougher to put the individual company through insolvency resolution, resulting into its liquidation eventually. If India, under all odds circumstances, is able to incorporate some of these provisions as located out in European or the German Insolvency regime, then India can scotch the burgeoning cases like this and help in pumping up the  value for lenders as well. For assistance on the effective mechanism of cooperation, reference can also be made to the UNCITRAL‘s Legislative Guide on Insolvency Law, Part three: Treatment of enterprise groups in insolvency. The process of group insolvency in India can reap beneficial results in situations wherein there exists a provision allowing the debtors or creditors to seek joint proceedings against the same debtors in the same group in cases where more than one application is pending in the same court against debtors in the same group. This viewpoint can be useful in those cases where those stressed companies who are part of same group barge into the vestibule into corporate guarantees for availing and doing borrowing of either of group members or a debtor may shift his assets to those group companies to deceive creditors, in instantly recognizable situations, in such case, creditors should be able to pierce the corporate veil and initiate the insolvency proceedings within the said corporate group.  Such a scenario is possible only if the group companies are bound to coordinate and cooperate, throughout the process. Further, if any of the members fail to fulfil the obligation, the other members would not suffer the consequences. Group Formation Although the inevitable need for group restructuring of companies has been recognised, the crucial task remains of the methodology or technique of forming such groups, keeping in mind that the interests of no company should be preferred over the other. Such an objective can be achieved probably by forming groups of companies involving some form of the economic relationship, resulting in a mutual or reciprocated environment in terms of

[By Shantanu Lakhotia] The author is a student of Jindal Global Law School, Delhi and can be reached at [email protected]. Introduction Defunct airlines, Jet Airways has a gross debt and liability that adds up to more than Rs. 36,000 crores. This includes money owed to both domestic as well as foreign lenders, employees, vendors etc. However, currently, the major issue that is critically being debated in the National Company Law Appellate Tribunal (“NCLAT”) is regarding the question of jurisdiction of the bankruptcy court in Netherlands to try matters as well as pass orders of a company registered and incorporated in India. The present article will provide a history of the account that led to such a dispute being raised in the NCLAT as well as try to provide a possible answer to the same. History In June 2019, a consortium of banks led by State Bank of India well as other creditors had approached the National Company Law Tribunal (“NCLT”), seeking declaration of Jet Airways as bankrupt and to initiate Corporate Insolvency Resolution Process against it. During the hearing scheduled on 20th June 2019, NCLT was apprised of the fact that in April 2019, two European creditors, H.Esser Finance Company and Wallenborn Transport had filed a bankruptcy petition in the Noord-Holland District Court of Netherlands, against Jet Airways citing unpaid claims worth nearly Rs. 280 crores. The Dutch Court, claiming jurisdiction under Article 2(4) of the Bankruptcy Court of Netherlands, had passed an order dated 21st May 2019, declaring Jet Airways bankrupt and had ordered seizure of one of Jet Airways’ Boeing 777 aircraft that was parked in the Schiphol airport in Amsterdam. The Administrator appointed by the Noord-Holland District Court to manage the assets of Jet Airways had approached the NCLT, requesting it to withhold the bankruptcy proceedings going on in India, as a competent court in Netherlands had already initiated the same proceeding against Jet Airways in Netherlands. The Administrator raised the contention that if two parallel proceedings take place, it would lead to a great detriment to the Creditors of Jet Airways. The NCLT refused to withhold the proceedings in India, as according to them, the relief provided under Section 234 and 235 of the Insolvency and Bankruptcy Code of India (“IBC”) for cross-border insolvency could not be used as the two sections had yet not been notified by the Government of India, and in the absence of such notification, an order passed by a foreign Court would not be binding to the NCLT. To the contention raised by the Administrator, the NCLT had categorically stated in para 29 of its order that, ‘The order passed by Noord Holland District Court, Netherland for the company registered in India is nullity ab-initio’. Aggrieved by the order passed by the NCLT, the Administrator approached the NCLAT in appeal. The NCLAT, on the assurance of the Administrator that he would not alienate any offshore assets of Jet Airways in his possession, stayed the order of the NCLT, and listed the matter for arguments. The NCLAT further passed an order that in the pendency of the present Appeal, the Administrator will co-operate with its Indian Counterpart, to collate the claims of the offshore creditors. Furthermore, the NCLAT through its order also allowed the Administrator and its Indian Counterpart to negotiate a settlement in the best interest of Jet Airways and all of its stake holders. Analysis Countries have broadly tried to tackle the problem of cross-border insolvency, through two different and contrasting principles. The first principle is one in which one Court is provided with the jurisdiction to try a bankruptcy matter in regard to a debtor and the administrator appointed by the Court has the power to take charge all the assets of the debtor, located throughout the globe. According to this approach the Courts and laws of the country in which the debtor is domiciled or has his registered office should be given preference. This is known as the principle of unity or universality. On the other hand, there exists a principle that the Court in whose jurisdiction the bankruptcy proceedings has commenced, has jurisdiction on assets present only within its country’s state boundary. The consequence of this is that the Court, cannot pass an order against any asset of the debtor abroad and the administrator appointed by the Court can also only take charge of these limited assets. Furthermore, Court will follow its local laws on the matter. This is known as the principle of territoriality. A complication that is present in the Jet Airways case is that, both India as well as Netherland’s follow different principles of cross-border insolvency law. Netherland’s insolvency regime does not perfectly fit into any one of the above-mentioned two principles, but incorporates the tenants of both of them and hence essentially forms a different kind of principle which can be described as limited-universalism principle. In India, the Joint Parliament Committee Report, 2016, in its report had clearly stated that the Insolvency and Bankruptcy Code, 2016 was brought forth to solve, the question of bankruptcy and insolvency purely limited to the domestic scenario of India. In so far as Section 234 and 235 of the IBC is concerned, it needs to be realized, that it was not added by the Viswanathan Committee to tackle the bigger picture of cross border insolvency or provide a comprehensive framework for it, but simply to allow Indian Administrator to take control of assets of a corporate debtor situated in a country outside of India as well as provide foreign Administrator with the reciprocal arrangement. The foundation of such a mutually benefit arrangement, lies in Section 234 of IBC through which the Government of India, can enter into a treaty with other countries to bring forth the principle of universality. However, in the absence of such a treaty, India will abide by a principle of territoriality. Regardless, as of this moment Section 234 and 235 of IBC, has not been notified by the Government of India and

[By Kartik Adlakha] The author is a fourth year student of Jindal Global Law School and can be reached at [email protected]. Introduction The Insolvency and Bankruptcy Code, 2016 (“IBC” or “the Code”) is divided into three distinct parts. While Part I titled ‘Preliminary’ and Part II titled ‘Insolvency Resolution and Liquidation for Corporate Persons’ have been in effect for long. However, Part III titled ‘Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms’ is yet to be brought into effect. Individuals and corporates are the two types of guarantors that usually guarantee a loan given to the corporate debtor. While corporate guarantors are already covered under Part II of IBC, personal guarantors find no place under IBC. Ministry for Corporate Affairs (“MCA”) is considering notifying and bringing Part III into effect in this regard. MCA and Insolvency and Bankruptcy Board of India (“IBBI”) invited public comments on the Draft Regulations for Bankruptcy Process for Personal Guarantors to Corporate Debtors. Draft Regulations for Bankruptcy Process for Personal Guarantors were published in a discussion paper by IBBI. Personal Guarantors being individuals would feature under Part III of the IBC. This blog post seeks to  present a comparative analysis between the current liquidation process for insolvent personal guarantors under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDBFI Act”) and the process proposed under IBC. It also seeks to illustrate the pros and cons of the IBC process and will conclude with suggestions on how to make the process for individual insolvency better under IBC. Comparison between the Existing Legal Regime for Individual Guarantors and the Proposed Regime under IBC As of today, recovery from an individual guarantor is covered under the RDDBFI Act. The process under RDDBFI happens before the Debt Recovery Tribunals (“DRTs”). The Adjudicating authority under IBC as laid down by Section 179 would also be DRT but the proceedings would happen as per the new process envisaged under IBC. The process under the RDDBFI Act starts with an application to the DRT by a bank or financial institution under Section 19 of the Act which is to be accepted or rejected by the DRT within 30 days. If accepted, a summons is issued to the personal guarantor under Section 19(4) of the Act. The personal guarantor needs to submit a statement of defence as provided under Section 19(5) of the Act within 30 days of service of summons. Then, the Hearing for Admission or Denial of Documents takes place as specified under Section 19(5A) of the Act. The whole process concludes with the passing of the final order under Section 19(20) of the Act which has to be passed within 30 days from the conclusion of the hearing. A certificate of recovery is issued by the Presiding Officer with the Final Order as per Section 19(22) of the Act. The Presiding Officer then sends it to the Recovery Officer for Execution. The proposed process under IBC starts with a bankruptcy application to DRT by any individual creditor or debtor under Section 121 of the Code. Then on the direction of DRT, an Insolvency Professional will be appointed as the Bankruptcy Trustee by IBBI under Section 125 of the Code within 10 days. After this, DRT will pass a bankruptcy order under Section 126 of the Code within 14 days of receiving the confirmation of the appointment of the bankruptcy trustee under Section 125 of the Code. This order will vest all rights relating to the assets of the personal guarantor in the bankruptcy trustee until the bankruptcy process completes. This would follow a public notice by DRT inviting claims from creditors under Section 130 within 10 days from the bankruptcy commencement date (“BCD”). BCD is the date on which Bankruptcy Order has been passed. This would follow registration of claims under Section 131 of the Code and preparation of a list of creditors under Section 132 of the Code by the Bankruptcy Trustee. Post this, a meeting of creditors will be called by the Bankruptcy Trustee within 21 days from the BCD. As per Section 136, Administration and Distribution of Estate of Bankrupt will follow. After completion of administration and distribution, a final report has to be submitted by the bankruptcy trustee to the committee of creditors. The committee of creditors will have to approve the report and judge whether the bankruptcy trustee be released under Section 148 of the Code or not. The process will come to an end with the Bankruptcy Trustee applying for a discharge order under Section 138 of the Code which would release bankrupt from all bankruptcy debt. Need and Importance of Draft Regulations These regulations provide for a level playing field for recovery from both corporate and individual guarantors by bringing personal guarantors under IBC. They also promote transparency and accountability as they provide for regular reports by the Bankruptcy Trustee [i] in addition to the final report requirement under IBC. Voting process and guidelines for sale of bankrupt’s assets is also delineated under these proposed regulations. However the most important element of individual insolvency put forth by the regulations is the concept of minimum protection. The regulations elucidate that up to 5 lakh rupees of personal ornaments and a single dwelling unit would come under excluded assets and will not be subject to the bankruptcy proceedings. Working Group on Individual Insolvency, a group constituted by IBBI to recommend the strategy and approach for implementation of the provisions of the Code has proposed an all-encompassing formula for calculation of the single dwelling unit. This formula takes into account the size of the debtor’s family, the minimum area required for each family member and the circle rate of the area. This is important as it indicates that the Working Group is sensitive to the fact that individuals and not corporations are at stake here, and they do need minimum assets for their survival. However, it is felt that the upper limit of personal ornament protection is quite less and should at