India, cross-border insolvency and legal reform

The growth in international trade has amplified cross-border insolvency challenges, highlighting the need for effective regulation. A reliable and predictable insolvency framework is essential for economic stability, attracting foreign investments, and facilitating corporate restructuring.

Under the British Raj, India faced significant challenges in managing financial failures and cross-border commerce. To address domestic insolvencies, the Indian Insolvency Act of 1848 was introduced as the first insolvency law. This was later replaced by the Presidency-Towns Insolvency Act 1909, which applied to Calcutta, Bombay, and Madras, and the Provincial Insolvency Act, 1920, which governed insolvencies in mofussil regions. While these laws provided a framework for handling domestic insolvencies, they failed to address the complexities of cross-border insolvencies, leaving a critical gap in the legal system.

An evolution

After Independence, these laws remained unchanged, despite the Third Law Commission’s 26th Report (1964) recommending modernisation. It was only in the 1990s, driven by economic liberalisation and the pressures of globalisation, that the need for a comprehensive insolvency law, with provisions for cross-border cases, became a focus of national discussions. Committees such as the Eradi Committee (2000), Mitra Committee (2001), and Irani Committee (2005) recommended adopting the United Nations Commission On International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency, 1997. In 2015, the Bankruptcy Law Reform Committee, drafted the Insolvency and Bankruptcy Code (IBC) Bill, focusing on domestic insolvencies.

Following concerns from the Joint Parliamentary Committee about the absence of cross-border insolvency provisions, clauses 233A and 233B were added, later codified as Sections 234 and 235 of the IBC. Section 234 allows the Indian government to enforce IBC provisions in foreign countries through reciprocal agreements, while Section 235 outlines the procedure for seeking assistance from foreign courts through a letter of request.

Cross-border insolvency challenges in India

The State Bank of India vs Jet Airways (India) Limited (2019, SCC OnLine NCLT 7875), brought Sections 234 and 235 of the IBC under scrutiny. The National Company Law Tribunal (NCLT) identified two critical issues — first, the absence of a reciprocal arrangement between India and the Netherlands for cross-border insolvency resolution, and, second, the non-notification of these sections by the central government, making them legally unenforceable. The case highlighted the inactive status of these provisions, effectively labelling them as “dead letters” — provisions that exist in theory but cannot be applied in practice.

To address this regulatory gap, the Ministry of Corporate Affairs constituted two expert committees: the Insolvency Law Committee (2018) and the Cross-Border Insolvency Rules/Regulation Committee (2020). Both committees identified the shortcomings in the current framework and recommended adopting the UNCITRAL Model Law on Cross-Border Insolvency. These recommendations were later endorsed by the Parliamentary Standing Committee on Finance in its Thirty-Second Report, “Implementation of IBC – Pitfalls and Solutions” (2021), and reiterated in its Sixty-Seventh Report”, (2024).

In both reports, the Standing Committee stressed the urgent need for a cross-border insolvency framework to strengthen the IBC, 2016. However, the dismal state of cross-border insolvency regulation in India persists, with unenforceable governing sections and extremely slow progress on necessary amendments.

In Jet Airways (India) Limited vs State Bank of India (2019 (SCC OnLine NCLAT 1216), the National Company Law Appellate Tribunal (NCLAT) considered a “cross-border insolvency protocol”, an internationally recognised approach now used as an ad hoc solution for regulating cross-border insolvencies.

The need for reform

First, while protocols have been effective in addressing individual cases, they remain an ad hoc/temporary solution. The need for court approvals increases judicial burden, transaction costs, and delays resolutions, reducing the debtor’s asset value. Experts underline the importance of adopting a structured framework. Therefore, it is recommended that India adopt the UNCITRAL Model Law.

Second, reforming the outdated communication methods between Indian and foreign courts is crucial, especially for cross-border insolvency cases. The adoption of the Judicial Insolvency Network (JIN) Guidelines (2016) and its Modalities of Court-to-Court Communication (2018) would modernise judicial coordination, enhance transparency, and improve efficiency in handling cross-border insolvency matters.

Third, Section 60(5) of the IBC, with its non-obstante clause, restricts civil courts from exercising jurisdiction over insolvency matters, including cross-border cases, leaving the NCLT as the sole adjudicating authority. However, the NCLT lacks the power to recognise or enforce foreign judgments or proceedings, which significantly limits its effectiveness in managing cross-border insolvency matters. This limitation is further exacerbated by the failure to implement Rule 11 of the NCLAT Rules, 2016, for IBC matters, preventing the NCLT from exercising inherent jurisdiction or comity to address cross-border insolvency issues. To resolve these challenges and ensure effective management of cross-border insolvency cases, it is imperative to expand the powers of the NCLT.

V. Jayshree is Research scholar, Gujarat National Law University, Gandhinagar, Gujarat. Mamata Biswal is Professor of law, Indian Council of Social Science Research (ICSSR), Senior Research Fellow, and Head, Centre for Corporate and Insolvency Law, Gujarat National Law University, Gujarat