Cross-Border Insolvency under the Insolvency and Bankruptcy Code 2016: Opportunities and Challenges

Cross-Border Insolvency under the Insolvency and Bankruptcy Code 2016: Opportunities and Challenges.

[Ishita Das]

The author is an LL.M. Candidate at the West Bengal National University of Juridical Sciences, Kolkata


Increasing international trade and commerce is one of the results of globalization where countries are dependent on one another for several goods and services. Therefore, in a scenario where a multinational corporation undergoes insolvency, such proceedings will naturally have ramifications in several jurisdictions, involving stakeholders such as foreign creditors. There are three situations broadly associated with cross-border insolvency:

(a) where foreign creditors have claims over the assets of the corporate debtor in another jurisdiction and the insolvency proceedings have been initiated there;

(b) where the corporate debtor has multiple branches or places of business and as a result, different assets in jurisdictions apart from the place where the insolvency proceedings have been initiated; and

(c) where the corporate debtor is subjected to multiple proceedings in concurrent jurisdictions.

In this regard, it is crucial to underscore the rights and claims of the foreign creditors vis-à-vis that of the domestic creditors.[i]

Recognition and enforcement of insolvency proceedings are extremely crucial. There are three schools of thought in this regard, globally. First, territorialism, wherein the effect of insolvency is limited to the jurisdiction where it has been initiated. Second, universalism, wherein there is recognition of a single insolvency proceeding in all relevant countries. Third, modified universalism, wherein a court takes the ‘main’ lead in the insolvency proceedings and the other ‘non-main’ courts provide cooperation and assistance.[ii] The Model Law drafted by the United Nations Commission on International Trade Law (“UNCITRAL Model Law”) embodies the third school of thought.

With regard to India, the Insolvency and Bankruptcy Code, 2016 (“IBC”) is touted to be a major step towards improving the system of financial laws and enhancing the ease of doing business in the country. Further, as evidenced by the recent World Bank rankings, wherein India jumped from 130 in 2016 to within 100 in 2017, it seems to be a move in the right direction.[iii] However, as pointed out by ASSOCHAM-EY in their joint study, the Code does not maintain any distinction between the domestic and foreign creditors, therefore, leading to the assumption that the two categories of creditors would be treated in an equivalent manner.[iv] The two sections that deal with cross-border insolvency under the IBC are inadequate and do not lay down a comprehensive framework to deal with the problems arising from transnational proceedings.

According to a recent Economic Times report, cross border insolvency is on the agenda for the Insolvency and Bankruptcy Board of India (“IBBI”) and expansion of the IBC to cover the transnational insolvency proceedings might be a reality very soon.[v] The report of the Bankruptcy Law Reforms Committee (“BLRC”) while dealing with the need for an effective domestic framework highlighted the need for adopting provisions dealing with the issue of cross-border insolvency in their report.[vi] The Joint Parliamentary Committee on the Code then incorporated two enabling sections in the IBC to ensure that the code was not incomplete.[vii] Sections 234 and 235 embody the opportunities for the inclusion of a detailed cross-border insolvency regime under the new Code. However, there are several challenges that need to be addressed urgently.

Cross-border Insolvency under the IBC and the Challenges

Section 234 of the IBC deals with agreements entered into with foreign countries. It provides that the Indian government may enter into an agreement with a government of another country for enforcing the provisions of the Code. The Indian government may direct that the application of the provisions of the IBC, as regards the assets of the corporate debtor or debtor, located in a country outside India with which reciprocal arrangements have been made, shall be subject to the conditions as may be specified from time to time.[viii] The IBC, therefore, emphasizes on reciprocity as observed in the insolvency regimes of countries such as South Africa. However, there are certain problems associated with this provision.

First, as the Indian government needs to enter into bilateral agreements with different countries, it may not be practically feasible to negotiate such agreements which could be long-drawn and time-consuming. Second, there is a possibility that each country may choose to incorporate different provisions in their bilateral instruments, which would only lead to fragmentation of India’s cross-border insolvency regime. Last, this could lead to multiplicity of litigations in cases where a corporate debtor has assets in more than one foreign jurisdiction, wherein the countries would fall back on their separate bilateral agreements to raise claims in connection with the insolvency proceeding.

At the same time on contrary, a one-size-fits-all approach, where a model bilateral insolvency agreement (on the lines of the model bilateral investment treaty brought by India) is favoured by India might prove to be counterproductive for a variety of reasons. First, there could be a high possibility that countries will not agree to such a uniform agreement, and second, any such mechanism which paints different canvases with the same brush i.e. tries to harmonize different examples and situations unique to each jurisdiction, tends to be flimsy and hardly effective. The best way out of this mess could be a model insolvency agreement, built on the lines of the Model Law; in which the contentious issues can be deliberated and modified by countries according to their unique requirements – thereby retaining the best of both methods.

While the IBC has provisions for imposing moratorium on all suits and proceedings against the corporate debtor in India during the insolvency resolution period, a creditor or contract counterparty can initiate proceedings in another jurisdiction. Further, even though Section 234 of the IBC has been already notified, no such bilateral agreement has been entered into by India yet.

Section 235 of the IBC deals with letter of request to a country situated outside India in certain cases. It lays down that if during the pendency of the insolvency resolution process, or liquidation, or bankruptcy proceeding, the resolution professional, liquidator, or bankruptcy trustee feels that the assets of the corporate debtor or debtor are located in a country outside India with which reciprocal arrangements have been made, he may apply to the Adjudicating Authority under the Code regarding procurement of evidence or initiation of action in relation to such assets. The Adjudicating Authority, upon the receipt of such application, may issue a letter of request to a court or a competent authority to deal with the request, on being satisfied that evidence or action with regard to the foreign assets is required in connection with the insolvency resolution process, or liquidation, or bankruptcy proceeding.[ix]

While this provision promotes the spirit of cooperation between a local court and a foreign court/authority as embodied in the UNCITRAL Model Law, there are certain lacunae. First, there are no specific provisions which lay down the manner of cooperation between the local authorities and the foreign court or competent authority. Second, there is no mechanism of dealing with coordination of concurrent proceedings. Last, the dependence on letters of request for cooperation may cause unnecessary delay as it has to be routed through the official channels of the local and foreign jurisdictions, and in turn cause inconvenience to the creditors affected by such insolvency proceedings.


The UNCITRAL Model Law provides an efficient system of dealing with cross-border insolvency proceedings. However, since India has not adopted the Model Law, its transnational insolvency regime is yet to develop. The two sections of the IBC i.e., Sections 234 and 235, were incorporated as enabling provisions and therefore, the IBBI is tasked with the mandate of expanding the scope of cross-border insolvency under the Code. The Model Law can serve as a great blueprint for designing the cross-border insolvency regime in India. As already pointed out by the author, the scheme of entering into separate bilateral agreements or issuance of letters of request are not very efficacious, and therefore, the Indian transnational insolvency system should have a proper mechanism of cooperation and coordination between local courts and insolvency representatives on one hand and foreign courts and foreign representatives on the other hand, in line with the provisions of the Model Law.

The issue of cross-border insolvency is emerging in several jurisdictions due to an increase in transnational transactions and establishment of various branches and offices in different countries. Recognition of foreign proceedings assumes prime importance in an effective cross-border insolvency regime. While the Indian courts do recognize foreign judgments and decrees of some reciprocating countries such as the UK and Singapore (Sections 13 and 44A of the Code of Civil Procedure, 1908), no recognition has been accorded to foreign proceedings, particularly with regard to insolvency proceedings such as reorganizations.[x] For instance, if a foreign-based parent company undergoes restructuring in another jurisdiction (for example, under Chapter 11 of the US Bankruptcy Code), implementation of such a plan would be a difficult process in India.

While the IBC presents opportunities for improving the domestic insolvency system in the country, it is high time that India comes up with a comprehensive framework dealing with cross-border insolvency under the Code. For instance, with regard to the recent Punjab National Bank and Nirav Modi crisis, the pitfalls of not having an exhaustive cross-border insolvency laws are more apparent than ever before. Therefore, in order to meet the contemporary needs, it is crucial to build a solid foundation for cross-border insolvency in India. The introduction of such a comprehensive regime would also be in line with the government’s pitch portraying the country as a trade and investment hub.

[i] Abhishek Saxena & Jyoti Singh, India: Cross-Border Insolvency: Breaking Down The Indian Insolvency And

Bankruptcy Code, 2016, The Guide To Asia-Pacific’s Leading Lawyers (2016).

[ii] Donald T. Tratuman, Jay Lawrence Westbrook & Emmanuel Gaillard, Four Models for International Bankruptcy, 41 Am. J. Comp. L. 573 (1993).

[iii] Ease of Doing Business Rankings: India makes Highest-ever Jump to Rank 100 out of 190 Countries, Business Today (Nov. 1, 2017),

[iv] ASSOCHAM India, IBBI Needs a Framework to Resolve Cross-border Insolvency-Study (Sep. 11, 2017),

[v] Saikat Das, Insolvency Board to Consider Cross-border Norms, The Economic Times (Jan. 11, 2018),

[vi] Report of the Bankruptcy Law Reforms Committee Volume I: Rationale and Design (Nov. 2015).

[vii] Report of the Joint Committee on The Insolvency and Bankruptcy Code, 2015 (Apr. 2016).

[viii] The Insolvency and Bankruptcy Code, 2016, § 234.

[ix] Id., § 235.

[x]  Dhananjay Kumar, Indian Insolvency Regime without Cross-border Recognition – A Task Half Done? (May 16, 2017),

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