Draft Framework for Cross Border Insolvency
Recently, the government may defer plans to take cross-border insolvency proceedings.
Cross-border insolvency refers to situations in which an insolvent debtor has assets and/or creditors in more than one country.
The 1997 Cross Border Insolvency Model Law of the United Nations Commission on International Trade Law (UNCITRAL) is the widely accepted legal framework for dealing with cross-border insolvency issues.
Currently, the following two sections of the Insolvency and Bankruptcy Code, 2016 provide a basic framework with respect to cross-border insolvency:
- Section 234: It enables the Central Government to enter into bilateral agreements.
- Section 235: Under this adjudicating authority can issue letters of request to foreign courts.
Need for cross-border insolvency law
- The current framework depends on India entering into bilateral treaties, which require long-term negotiations. This can create a situation of uncertainty for foreign investors.
- Where multiple jurisdictions are involved, bilateral treaties with each country have to be invoked. This will create complications.
- Separate actions will not be available under the present procedure, unless bilateral treaties specifically contain provisions in this regard.
- These actions may include recognition of foreign actions, co-operation between Indian and foreign courts, etc.
- There is no remedy available to deal with the situation when an Indian debtor has assets in a country with which India does not have a bilateral agreement.
Source – The Hindu
