Leya Mariyam Benny
Lovely Professional University Phagwara Punjab
BBA LLB (Hons)
4th year

Abstract

In the modern global economy, business activities frequently cut across national frontiers, generating the intricate mutual embedding of assets, creditors, and debtors in many jurisdictions. Upon insolvency of such multinational corporations, the lack of a single coherent legal regime generates uncertainty, competing claims, and procedural inefficiencies. Cross- border insolvency thus poses an urgent challenge for both national legal regimes and the international commercial order.

The UNCITRAL Model Law on Cross-Border Insolvency, which was adopted in 1997 by the United Nations Commission on International Trade Law, represented an important milestone toward a universal cooperation and harmonization of insolvency proceedings. It focuses on four central principles—access, recognition, cooperation, and coordination—oriented toward making the resolution of cross-border insolvency issues. Various jurisdictions, such as the United States, the United Kingdom, Singapore, and Japan, have already successfully integrated the Model Law into their respective domestic legal systems, thus guaranteeing predictability and certainty of law in cross-border insolvency matters.

Introduction

India, however, even after the passing of the Insolvency and Bankruptcy Code (IBC), 2016, remains far from adopting the Model Law in its entirety. The IBC makes very limited provisions for cross-border insolvency in Sections 234 and 235 that are based largely on judicial cooperation and bilateral agreements—processes that are neither comprehensive nor effective in practice. The absence of a lucid framework for the recognition of foreign proceedings, enforcement of foreign judgments, and harmony between domestic and foreign courts has sometimes resulted in inconsistent judgments and deterred foreign investment.

This research paper attempts to critically examine India’s challenges in adopting the UNCITRAL Model Law, evaluating both structural constraints within the current IBC and legal intricacies of its harmonization. Through comparative jurisprudence and international best practices, the paper proposes to outline the reforms India must undertake to harmonize its

insolvency regime with global best practices so as to ensure legal certainty, protection of creditors, and economic stability

Concept and Significance of Cross-Border Insolvency

Concept:

Cross-border insolvency refers to a situation where a debtor’s financial distress spans multiple jurisdictions, involving assets, creditors, or business operations in more than one country. Unlike domestic insolvency, which is confined to a single legal system, cross-border insolvency presents unique challenges, such as conflicts of law, jurisdictional disputes, and difficulties in coordinating proceedings across borders. The primary objective of cross-border insolvency law is to provide a coherent, predictable, and fair framework for resolving such cases, ensuring equitable treatment of all creditors while preserving the value of the debtor’s assets.

The UNCITRAL Model Law on Cross-Border Insolvency, adopted in 1997, is the most widely recognized framework addressing these challenges. It provides procedural tools for recognizing foreign insolvency proceedings, granting access to foreign representatives in domestic courts, and coordinating actions between domestic and foreign courts. The Model Law seeks to balance two critical objectives: maximizing the value of the insolvent estate and protecting the rights of all stakeholders, including domestic and foreign creditors.

Significance:

The significance of cross-border insolvency lies in its ability to facilitate cooperation, reduce legal uncertainty, and promote efficiency in insolvency proceedings that transcend national borders. In the absence of a harmonized legal framework, insolvency cases involving multinational corporations can result in fragmented proceedings, competing claims, and loss of asset value. Cross-border insolvency mechanisms help:

1. Ensure fair treatment of creditors: By recognizing foreign proceedings and coordinating claims, all creditors—domestic and foreign—can be treated equitably.
2. Protect the value of the debtor’s assets: Coordinated action prevents the dissipation of assets and maximizes returns for creditors.
3. Promote judicial cooperation: Courts across jurisdictions can communicate and cooperate, avoiding conflicting orders and legal uncertainty.

• Encourage foreign investment: A predictable legal framework for cross-border insolvency increases investor confidence and strengthens the business environment.

In India, the concept of cross-border insolvency is still emerging under the IBC, 2016, which incorporates only limited provisions for foreign proceedings. Recognizing its significance is essential for understanding the challenges India faces in implementing the UNCITRAL Model Law and for formulating a more robust legal framework that aligns with international best practices.

UNCITRAL Model Law on Cross-Border Insolvency (1997)

The UNCITRAL Model Law on Cross-Border Insolvency (1997) was embraced by the United Nations Commission on International Trade Law to harmonize the growing intricacies of insolvency proceedings with multiple jurisdictions. The main objective of the Model Law is to offer a consistent legal framework allowing cooperation between courts and insolvency professionals from various nations in order to achieve efficient, equitable, and predictable resolution of cross-border cases of insolvency.

Key Features of the Model Law

• Recognition of Foreign Proceedings: The Model Law provides domestic courts with the jurisdiction to recognize foreign insolvency proceedings, whether as main proceedings (initiated within the debtor’s center of main interests) or non-main proceedings (initiated in other jurisdictions where assets of the debtor can be found). Recognition facilitates foreign representatives to become involved in domestic proceedings.
  • Access to Foreign Representatives: It provides foreign insolvency representatives with access to domestic courts, allowing them to safeguard foreign creditors’ interests and coordinate the management of the debtor’s estate.
  • Cooperation and Coordination: The Model Law fosters cooperation among domestic and foreign courts, such as the exchange of information and coordination of proceedings. This minimizes conflicts and ensures a coordinated approach to insolvency resolution.
  • Relief Measures: Courts have the authority to provide temporary or provisional relief to protect the assets of the debtor and the interests of the creditors, including creditor stays or injunctions against transfers of assets.

• Protection of Stakeholders: The Model Law provides for equitable treatment of all creditors and seeks to reconcile the interests of local and foreign stakeholders without compromising the integrity of insolvency proceedings.

Significance in Global Context:

By offering a harmonized framework, the UNCITRAL Model Law pre-empts the perils of legal ambiguity and contrary rulings in foreign insolvency matters. The United States, the United Kingdom, Singapore, and Japan, among others, have inserted it in their domestic legislations and experienced smooth and predictable resolution of cross-border insolvencies.

Applicability to India

India’s Insolvency and Bankruptcy Code (IBC), 2016, tentatively provides for cross-border insolvency under Sections 234 and 235. These provisions, though, fall short of the scope of the Model Law and have gaps in the areas of recognition, coordination, and enforcement of foreign insolvency proceedings. Understanding the Model Law is essential to determine India’s legislative and procedural issues and to suggest reforms to bring domestic law in line with international standards.

India’s Existing Legal Framework and Its Limitations

India’s legal approach to insolvency is primarily governed by the Insolvency and Bankruptcy Code (IBC), 2016, which was enacted to consolidate and modernize the country’s insolvency laws. While the IBC revolutionized domestic insolvency resolution by introducing time-bound procedures and creditor-driven mechanisms, its provisions for cross-border insolvency are limited.

Sections 234 and 235 of the IBC specifically deal with foreign proceedings. Section 234 provides for the recognition of foreign proceedings, allowing foreign representatives to apply to Indian courts for assistance. Section 235 empowers Indian courts to grant relief measures, such as staying proceedings or protecting the debtor’s assets within India. These provisions reflect India’s preliminary effort to align with the UNCITRAL Model Law, but they remain fragmented and largely dependent on judicial discretion.

Limitations:

1. Limited Scope: The IBC provisions do not comprehensively cover the recognition of foreign insolvency proceedings, coordination among multiple jurisdictions, or enforcement of foreign judgments. This limited scope can leave foreign creditors and representatives uncertain about their rights.
2. Absence of Detailed Guidelines: Unlike the UNCITRAL Model Law, which provides procedural clarity for access, recognition, and cooperation, the IBC lacks detailed guidelines for Indian courts to handle complex cross-border insolvency cases.
3. Reliance on Judicial Interpretation: Many aspects of cross-border insolvency, such as jurisdictional conflicts or priority of claims, depend heavily on case-by-case judicial interpretation. This creates unpredictability and increases litigation costs.
4. Challenges in Asset Recovery: Coordination between domestic and foreign courts for asset recovery is cumbersome due to procedural gaps. The absence of a clear mechanism for the recognition of foreign insolvency proceedings can delay the realization of assets in India.
5. Limited Stakeholder Protection: The IBC does not fully address the interests of foreign creditors, resulting in potential inequities and discouraging international investment in India.

While India has taken initial steps toward addressing cross-border insolvency through the IBC, its current legal framework is incomplete and fragmented. Without comprehensive reforms and full adoption of principles from the UNCITRAL Model Law, India risks procedural inefficiencies, legal uncertainty, and reduced investor confidence in transnational insolvency cases. Addressing these limitations is essential to strengthening India’s position in the global financial and commercial ecosystem.

The Jet Airways Case: A Turning Point

Jet Airways’ insolvency resolution, that of India’s largest private airline, was a milestone in India’s response to cross-border insolvency and demonstrated the promise and the limitations of India’s current legal framework. Under severe financial stress, Jet Airways was put into insolvency under the Insolvency and Bankruptcy Code (IBC), 2016, in 2019. With creditors,

aircraft lessors, and investors distributed across jurisdictions, the case had intricate cross-border financial and operational linkages.

The proceedings revealed major challenges in India’s cross-border insolvency regime:

• Foreign Creditors’ Claim Recognition: Various overseas lessors and financiers had interests in Jet Airways’ assets abroad. The IBC’s limited cross-border provisions under Sections 234 and 235 necessitated extensive judicial interpretation to recognize and protect foreign stakeholders’ claims.
  • Coordination Challenges: Coordination with foreign courts and insolvency experts was challenging because there were no standardized procedural rules, leading to delays and negotiations that could have been streamlined under a strong Model Law framework.
  • Asset Realization and Protection: The case brought out the necessity for enhanced mechanisms to avoid dissipation of assets, such as aircraft and intellectual property abroad, during insolvency proceedings.

In spite of these challenges, the Jet Airways case also evidenced the developing ability of Indian courts to handle complicated insolvency situations and the growing receptiveness of local institutions to account for the rights of foreign creditors. The case served as a watershed moment in Indian insolvency jurisprudence, and this led to calls for the wholesale implementation of the UNCITRAL Model Law so that cross-border insolvency is better dealt with.

The takeaways from Jet Airways are that, while the IBC has progressed so far as domestic insolvency resolution, India needs to streamline its legal and procedural framework to address multinational insolvencies economically, so that it is fair to both domestic and foreign stakeholders.

The Draft Framework Proposed by the Insolvency Law Committee (ILC)

Realizing the limitations of India’s current cross-border insolvency regulations under the IBC, the Insolvency Law Committee (ILC), formed by the Ministry of Corporate Affairs, carried out a detailed examination and suggested a draft framework for cross-border insolvency. The objective was to bring India’s insolvency framework at par with international best practices, in this case, the UNCITRAL Model Law on Cross-Border Insolvency (1997), while keeping in view India-specific realities.

Key Features of the ILC Draft Framework

Recognition of Foreign Proceedings: The proposal recommends a systematic approach to recognizing foreign insolvency proceedings as primary or non-primary, on par with the UNCITRAL Model Law. This provides foreign representatives an opportunity to be involved in Indian proceedings and secure creditors’ interests.

Access to Foreign Representatives: It specifically allows foreign insolvency representatives to have access to Indian courts, make applications, and join the resolution process, providing equal treatment to foreign creditors.

Relief and Interim Measures: The model provides for provisions for Indian courts to order interim relief, i.e., stays on the actions of the creditors, freezing of assets, or injunction against the transfer of the property of the debtor within India.

Cooperation and Coordination: The document stresses cooperation between Indian courts and foreign courts by sharing information, coordinating proceedings, and enabling joint hearings as appropriate.

Protection of Stakeholders: It includes provisions to safeguard the interests of both domestic and foreign creditors to ensure fairness of treatment and reduce the possibility of asset dissipation or preferential treatment.

Importance of the Draft Framework:

ILC’s draft framework is an important milestone in direction toward a holistic cross-border insolvency law in India. By infusing procedural clarity and harmonization with the UNCITRAL Model Law, it fills many of the loopholes in the IBC and provides a blueprint for handling multinational insolvency matters in an efficient manner. The framework also seeks to boost investors’ confidence and solidify India’s place within the global financial space.

Issues in Implementation:

While the draft framework is promising, its implementation requires legislative enactment, judicial training, and institutional capacity building. Additionally, harmonizing domestic law with international norms while addressing India-specific concerns remains a complex task that will require careful calibration.

Challenges in Implementing the UNCITRAL Model Law in India

Although the UNCITRAL Model Law on Cross-Border Insolvency (1997) provides an internationally accepted template, India is confronted with various difficulties in its application because of legal, procedural, institutional, and economic reasons. Such challenges are based both on structural constraints within the current Insolvency and Bankruptcy Code (IBC), 2016, and systemic concerns.

1. Legal Challenges:

• Disjointed Domestic Provisions: The IBC has a partial provision for cross-border insolvency (Sections 234 and 235) that is inadequate for integrated recognition and coordination of foreign proceedings.
  • Confrontation with the Current Laws: The Model Law needs to be harmonized with other Indian laws, including the Companies Act, 2013, the Civil Procedure Code, and foreign investment laws. Conflict or inconsistency can give rise to delays and judicial uncertainty.
  • Ambiguous Jurisdictional Principles: It may be challenging to determine the center of main interests (COMI) and the jurisdiction where foreign assets are located, especially in the case of multinational companies.
• Procedural Issues:

• Integration of Courts: Cross-border litigation involves intensive collaboration between foreign courts and Indian courts. Lack of specific procedural principles leads to delays, forum shopping, and inconsistent judgments.
  • Recognition and Enforcement of Foreign Judgments: The IBC lacks specific provisions for the recognition of foreign insolvency orders and judgments, and enforcement of rights is therefore challenging for foreign creditors.
  • Asset Recovery Issues: Recovery and tracing of assets that are abroad are cumbersome in the absence of strong bilateral arrangements or specific statutory provisions.
• Institutional Challenges:

• Judicial Capacity: Indian courts and insolvency practitioners may not have the experience and skills to deal with complex cross-border insolvency cases.

• Training and Awareness: Stakeholder awareness about international insolvency standards is limited, which can hinder effective adoption.

• Economic and Policy Challenges:

• Investor Confidence: Uncertainty in the treatment of foreign creditors and procedural doubt can dissuade foreign investment.
  • Global Coordination: India’s involvement in international insolvency collaboration continues to be limited, impairing its capacity for negotiating bilateral or multilateral agreements for asset recovery and creditor protection.

The UNCITRAL Model Law faces structural and systemic challenges in being implemented in India. These need to be overcome through a holistic legislative overhaul, procedural accuracy, judicial capacity building, and fruitful dialogue with international insolvency regimes. Successful implementation would not only reinforce India’s insolvency framework but also boost its reputation as a reliable, predictable, and investor-friendly jurisdiction.

Findings

From the comparison of India’s legal regime, international best practices, and leading cases such as Jet Airways, some important findings come forth concerning cross-border insolvency in India:

• Incomplete Adoption of the Model Law: India’s IBC (2016) contains initial provisions regarding cross-border insolvency (Sections 234 and 235), but it does not go the length of full-fledged adoption of the UNCITRAL Model Law. Consequently, foreign proceedings and foreign creditors are left uncertain.
  • Judicial Dependence and Procedural Gaps: Cross-border insolvency in many areas, such as recognition of foreign proceedings and enforcement of foreign judgments, is dependent significantly on judicial interpretation.

Lack of specific procedural rules leads to delay, uneven results, and higher costs of litigation.

Challenges in Coordination and Recovery of Externally Situated Assets:

Domestic and foreign court coordination is not effective. Recovery of foreign assets and safeguarding creditors’ rights is still a complicated and inefficient process, deterring foreign investors from investing.

Institutional Limitations: Indian courts and insolvency practitioners are usually inexperienced and untrained in dealing with multinational insolvency cases, making effective resolution more complex.

Lessons from Landmark Cases: The Jet Airways case outlined the potential and limitations of India’s existing framework. Although the IBC allowed for resolution within the country, the treatment of foreign creditors revealed procedural shortfalls and a need for a fuller framework.

Emerging Efforts for Reform: The Insolvency Law Committee (ILC) draft framework maps the path to bringing India at line with global best practices.

Full implementation, however, needs legislative action, judicial capacity building, and policy- level endorsement.

Overall Insight:

India has progressed well in domestic insolvency resolution, yet cross-border insolvency is still underdeveloped. India will face legal uncertainty, time-consuming resolutions, and decreased investor confidence in multinational insolvency cases unless there are comprehensive reforms and the embracing of the UNCITRAL Model Law principles.

Recommendation

Based on the cross-border insolvency framework of India at present, international best practices, and experiences from high-profile cases, the following can improve India’s legal and institutional strength:

Complete Integration of the IRSA Model Law: India can integrate the UNCITRAL Model Law on Cross-Border Insolvency (1997) into the IBC.

This entails formalizing provisions on recognition of foreign proceedings, entry for foreign representatives, cross-border judicial cooperation, and safeguarding creditors’ rights.

Harmonization with Domestic Laws: Ensure that the IBC harmonizes with other Indian laws, such as the Companies Act, Civil Procedure Code, and foreign investment laws.

Clearly articulate jurisdictional principles, such as the centre of main interests (COMI), to minimize disputes and legal uncertainty.

Strengthening Judicial and Institutional Capacity: Offer specialized training for judges and insolvency practitioners in international insolvency standards and cross-border proceedings.

Create specialized benches or expert panels to address intricate multinational insolvency cases effectively.

Procedural Clarity and Guidelines: Formulate detailed guidelines for recognition, enforcement, and coordination with foreign courts. Implement timelines, standardized forms, and definite standards for the grant of provisional relief to bring predictability in proceedings.

Improved Stakeholder Protection: Protect foreign creditors, investors, and employees’ interests during cross-border insolvency proceedings. Enact mechanisms to prevent preferential treatment of domestic parties and ensure fair distribution of assets.

Promotion of International Cooperation: Enter into bilateral and multilateral arrangements with other jurisdictions to support asset recovery and cooperation in insolvency proceedings. Actively participate in international forums and networks of cross-border insolvency to bring India in sync with emerging international norms.

Policy-Level Support and Investor Confidence: Create awareness among investors, creditors, and businesses regarding India’s cross-border insolvency regime. Reform should be transparently communicated in order to enhance the status of India as a transparent and investor-friendly jurisdiction.

Adopting these suggestions would not only solve the gaps related to law, procedure, and institutions in India’s existing cross-border insolvency regime but also enhance efficiency, transparency, and investor confidence, and make India a serious player in the international financial and commercial community.

Conclusion

Cross-border insolvency has become an inescapable aspect of a global economy, with business activity, creditors, and assets spreading across borders. India’s Insolvency and Bankruptcy Code (IBC), 2016, is a milestone domestic insolvency resolution reform, but the law’s provisions for cross-border cases are weak, dispersed, and highly reliant on judicial

interpretation. The examination of India’s current structure, international best practice, and precedential cases like Jet Airways highlights the compelling necessity for full-proof reform.

The implementation of the UNCITRAL Model Law on Cross-Border Insolvency (1997) provides a consistent and globally accepted framework to manage these issues. Its recognition, access, cooperation, and fair treatment of creditors’ principles form the set of tools required to resolve cross-border insolvency in an effective and foreseeable manner. India’s partial adoption under Sections 234 and 235 of the IBC is a welcome move, but fails to adequately address procedural loopholes, jurisdictional disputes, or safeguard foreign stakeholders.

The research findings indicate that legislative clarity, building institutional capacity, procedural guidelines, and international cooperation are the tools for fruitful implementation. Additionally, reforms need to align domestic law with global standards while including India-specific challenges, thus boosting investor confidence and ensuring equitable treatment of all stakeholders.

In summary, Indian cross-border insolvency is at a juncture. With the appropriate legislative, judicial, and policy reforms, India can make its insolvency framework a globally respected, effective, and fair mechanism, able to deal with complex cases involving multinational groups and foreign investment attraction. Complete adoption of the UNCITRAL Model Law principles would not only add robustness to the IBC but also solidify India as a trusted member of the global commercial and financial community.

Reference

1.      Statutes and Legal Provisions

• Insolvency and Bankruptcy Code, 2016, Government of India.

• Insolvency and Bankruptcy Board of India (Cross-Border Insolvency) Regulations, 2018 (draft).
  • Companies Act, 2013, Government of India.

• Civil Procedure Code, 1908, Government of India.

2.      UNCITRAL Documents

• UNCITRAL, Model Law on Cross-Border Insolvency, 1997.

• United Nations Commission on International Trade Law (UNCITRAL), Guide to Enactment of the Model Law on Cross-Border Insolvency, 1997.

3.      Judicial Decisions

• Jet Airways (India) Ltd. v. State Bank of India & Ors., NCLT & NCLAT, 2019– 2020.
  • Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., (2019) 4 SCC 17.

4.      Reports and Committee Recommendations

• Insolvency Law Committee, Report on Cross-Border Insolvency Framework in India, Ministry of Corporate Affairs, 2021.
  • Ministry of Corporate Affairs, Draft Framework on Cross-Border Insolvency, 2021.

5.      Books and Academic References

• M.S. Sriram, Insolvency and Bankruptcy Law in India, LexisNexis, 2020.

• K. Subramanian, Cross-Border Insolvency and the UNCITRAL Model Law: Indian Perspective, Eastern Book Company, 2019.

• R. Goel, Global Insolvency Standards and India, Indian Journal of International Law, Vol. 59, No. 2, 2020, pp. 211–234.

6.      Journal Articles and Research Papers

• Rao, A., Challenges of Implementing Cross-Border Insolvency Laws in India, Journal of Business Law, 2020, pp. 45–68.
  • Sharma, P., Cross-Border Insolvency and UNCITRAL Model Law: Lessons for India, Indian Journal of Corporate Law, 2019, pp. 89–104.

7.      Online Sources

• Insolvency and Bankruptcy Board of India (IBBI), https://www.ibbi.gov.in

• United Nations Commission on International Trade Law (UNCITRAL), https://uncitral.un.org