Why India Is Preparing for Its Most Important Insolvency Reform Since 2016
As India deepens its position in the global business ecosystem, the next big leap in insolvency reform is already on the horizon — a full Cross-Border Insolvency Framework based on the UNCITRAL Model Law. After years of deliberation, expert committee reports, and policy consultations, India is now closer than ever to adopting a modern, internationally aligned mechanism to deal with multinational insolvencies.
This reform is not just timely — it is essential. With Indian companies owning assets abroad, foreign investors financing Indian businesses, and global groups operating seamlessly across jurisdictions, cross-border distress has become a structural reality. The current patchwork of Sections 234–235 of the IBC cannot meet these demands. The expected adoption of the UNCITRAL Model Law marks a transformational shift.
Why Cross-Border Insolvency Matters for India
1. Indian companies now have global footprints
From IT services to manufacturing and energy, Indian corporates hold assets, subsidiaries, and receivables abroad — requiring foreign court assistance during insolvency.
2. Foreign creditors and investors need predictability
Global lenders insist on legal certainty when dealing with Indian borrowers, especially for:
- enforcement of foreign judgments,
- recognition of foreign insolvency proceedings,
- and protection of assets in India.
3. Current IBC provisions are inadequate
Sections 234–235 require bilateral treaties — an impractical solution that India has signed with no country so far. This gap hinders international creditor confidence.
4. India cannot remain isolated in a global insolvency landscape
Major economies — the US, UK, Singapore, Japan, Australia — already follow the UNCITRAL Model Law. India is preparing to join them.
What the UNCITRAL Model Law Brings — and Why India Wants It
The Model Law is built on four pillars:
1. Recognition of Foreign Insolvency Proceedings
Foreign main proceedings (where the debtor has COMI) can be recognized swiftly, enabling immediate protection of assets in India.
2. Cooperation Between Courts
Indian courts can directly communicate with foreign courts — reducing delays and duplication.
3. Coordination of Parallel Proceedings
If insolvency runs in two countries, courts coordinate instead of conflicting.
4. Access for Foreign Insolvency Professionals
Foreign representatives can approach Indian NCLT for relief and asset protection.
These mechanisms are designed for speed, predictability, and global creditor confidence.
What the Indian Framework Is Expected to Include (Based on Drafts & Government Signals)
1. Adoption with India-Specific Modifications
India is expected to adopt the Model Law with “public policy” exceptions and procedural safeguards.
2. COMI (Centre of Main Interest) Test
The framework will rely on COMI to decide jurisdiction — aligned with best global practices.
3. Power of NCLT to Recognize Foreign Proceedings
Recognition will likely give:
- moratorium protection,
- access to Indian assets,
- cooperation mechanisms,
- enforcement of restructuring decisions.
4. Preserving India’s Right to Protect Domestic Interests
Expect carve-outs for:
- financial stability,
- public interest,
- domestic claim priorities.
5. Fast-Track Relief Mechanisms
Interim protection to stop asset flight before full recognition.
6. Aligned with the IBC Amendment Bill Roadmap
The 2025 Bill references the need for strengthening international insolvency tools, setting the stage for eventual Model Law adoption.
Practical Impact: Who Stands to Benefit?
1. Banks & Financial Creditors
- Better recoveries from overseas assets
- Smooth enforcement of foreign judgments
- Coordinated insolvency strategy across borders
2. Resolution Professionals
- Clear authority when handling cross-border groups
- Faster access to overseas information
- Global cooperation mechanisms
3. Foreign Investors
- Increased trust in the Indian insolvency regime
- Better protection for foreign lenders
- Global standards reduce perception risk
4. Indian Multinationals
- Predictable mechanisms for stress in foreign subsidiaries
- Reduced litigation and cost during multi-country failures
Implementation Challenges — India Must Resolve Before Adoption
1. NCLT capacity and training
Cross-border matters need specialized benches and familiarity with foreign judgments.
2. Determining COMI in complex groups
Indian conglomerates often have multiple jurisdictions, holding companies, and shared management.
3. Interaction with FEMA, taxation & enforcement laws
Coordination is essential to avoid regulatory conflict.
4. Harmonizing with Indian public policy protections
The framework must protect domestic creditors while enabling global cooperation.
The Big Picture: A More Global, More Mature IBC
Cross-border insolvency adoption will be the most important reform since 2016 because it:
- modernizes the IBC,
- brings India into the global insolvency network,
- boosts investor confidence,
- protects overseas assets,
- and reduces litigation chaos in multinational bankruptcies.
It signals India’s transition from a domestic insolvency regime to a globally integrated restructuring framework.
The world is watching — and India is preparing for its most important insolvency upgrade yet.
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Author Note: The author is an Insolvency Resolution Professional with extensive experience in managing multiple CIRP and liquidation assignments. For queries or professional discussions related to the Insolvency and Bankruptcy Code (IBC), you may reach out to: Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.
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