Introduction
As Indian businesses expand globally, where insolvency matters are no longer limited to one country, there is a need for strong cross-border relationships and a proper framework. The existing provisions under the IBC are limited, and it depends largely on the bilateral agreements. To address this gap, the Insolvency Law Committee has recommended that India adopt the UNCITRAL model. Adopting this model will improve cooperation between countries across jurisdictions and protect the interests of all stakeholders. This blog argues that adopting the UNCITRAL model, law is not beneficial in some situations, like insolvency, but it is necessary to bridge this gap.
Understanding the concept of cross-border insolvency
In India Insolvency law is governed by Insolvency and Bankruptcy Code, 2016, the term insolvency means Insolvency refers to a business that can no longer pay its debts. A company might be unable to repay creditors if it’s struggling financially, where cross-border insolvency means that when an insolvent debtor has creditors or assets that spread across different jurisdictions, i.e. different countries, this situation is referred to as cross-border insolvency.
For instance, if an Indian company takes a loan from a bank that is located in Germany and owns assets in the USA and has creditors in the UK, if that company becomes insolvent, then the question arises,
1. Should Indian courts handle the process?
2. Should foreign courts step in?
3. What happens if both start proceedings at the same time?
This leads to multiple issues, conflict of jurisdiction, parallel proceedings in both countries and difficulty in enforcing decisions across the countries. Whereas domestic insolvency proceedings, a single legal system governs the whole process, but when it comes to cross-border insolvency where it lacks a uniform structure due to this absence of coordination often results in delays, loss of asset value, and uncertainty for all stakeholders involved. As Indian businesses continue to expand globally, cross-border insolvency is becoming the new normal.
India’s existing framework under IBC
The Insolvency and Bankruptcy Code, 2016 provides two provisions to deal with the matter of insolvency, i.e. Section 234 and Section 235.
234. Agreements with foreign countries.
This section says that,
(1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code.
(2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.
235. Letter of request to a country outside India in certain cases.
This section says that,
(1) Notwithstanding anything contained in this Code or any law for the time being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding.
(2) The Adjudicating Authority on receipt of an application under sub-section (1) and, on being satisfied that evidence or action relating to assets under sub-section (1) is required in connection with insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request.
Section 234 of IBC, 2016 authorises the Central Government to enter into bilateral agreements with foreign countries to deal with matters regarding insolvency. And in contrast, Section 235, which empowers the Adjudicating Authority to issue letters of request to courts in those foreign jurisdictions where such an agreement exists, particularly to address issues relating to assets of corporate debtors located outside the Indian Jurisdiction.
These two provisions failed to provide a comprehensive framework to address the cross-border insolvency issue.
Reasons for those failures,
- Bilateral Agreement
- where a debtor has assets in several countries, managing and reconciling different treaty obligations becomes highly complex for the adjudicating authority.
- The ad hoc nature of these provisions leads to significant delays in insolvency proceedings, undermining the efficiency that the IBC aims to achieve.
Judicial approach with regards to cross-border insolvency
In the case of State Bank of India vs SEL Manufacturing Company Limited, how Indian Insolvency proceedings can extend beyond the national borders and it also shows the gaps in the current legal framework, when dealing with the issue of domestic creditors who are having more control than foreign creditors in the CIRP process where NCLT was not able to resolve the problem earlier. The court noticed that foreign creditors or not properly heard and might be ignored, so the concept of nemo debt esse judex in propira causa arises which ensures fair and equal treatment for foreign creditors. Since IBC does not have clear rules for handling the claims of foreign creditors it led to delays and confusion. This makes a strong case for adopting a structured and unified process like UNCITRAL Model law to handle cross border Insolvency matters effectively.
In the matter of Jet Airways (India) Ltd, was the most successful and leading airline in India which was founded in 1992 and it provides a good quality service operating both domestic and international flights and played a dominant position in the aviation sector in earlier times. However, Jet Airways began to face financial difficulties. The major reason for the downfall is expensive full-service which became unsustainable when low-cost carriers like IndiGo and SpiceJet entered into the market and offered cheaper fares. In addition to this, Jet Airways also made another wrong financial move by acquiring Air Sahara, as they overpaid and, as a result, increased their financial burden without getting the expected returns. The company also incurred huge debts amounting to around ₹36,500 crore, and because of the nature of the business, the company was not in a position to have enough assets to pay off the debts. The lack of proper leadership and the wrong decisions taken by the management, along with the lack of long-term vision and proper planning, also contributed to the failure of the company. Due to all these reasons, Jet Airways was compelled to shut down its operations in the month of April 2019. In this matter parallel proceedings were initiated in both the countries i.e. India and Netherlands Where creditors have been approached by the NCLT in India under Insolvency and bankruptcy Code, 2016 to begin the Corporate Insolvency Resolution process (CIRP) a Dutch court had already declared the company as bankrupt and appointed an administrator. The NCLT refused to recognize the foreign proceedings, holding that a foreign court had no jurisdiction over an Indian company and stating that Sections 234 and 235 of the IBC which deal with international cooperation though it was not yet in force. However, the appeal has been filed, and the NCLAT took a cooperative approach to allow both cases to continue simultaneously. The NCLAT directed the Indian Resolution Professional and the Dutch Administrator to work together to achieve this objective with the help of the Cross-Border Insolvency Protocol. The Dutch Administrator has been allowed to attend the Committee of Creditors’ meetings, but without voting rights. The Resolution Professional has been allowed to deal with foreign assets after mutual agreement. This is an important case that reveals the shortcomings in the Indian insolvency framework with regard to the lack of an effective legal framework for dealing with cross-border insolvency cases, the lack of international treaties, and the territorial applicability of the IBC, thus emphasizing the need to adopt international standards with regard to insolvency, like the UNCITRAL Model Law.
The UNCITRAL model law
The UNCITRAL Model Law on Insolvency was developed in the year 1997 by the United Nations Commission which offers a practical and structured framework to deal with matters which involve more than one country. It provides a modern framework where a company is in serious financial trouble and having assets or creditors are in different countries. This framework helps the process to be handled smoothly. The main aim of this model is to focus on cooperation between the countries instead of forcing all countries to follow the same insolvency process. The Model Law has been accepted by around 49 nations, including Australia, Canada, United States, Japan, New Zealand, Singapore, and South Africa (UNCITRAL, 2019).
With the rise in global business, the incidence of cross-border insolvency is on the rise. However, the legal system is not keeping pace with the problem.
Because of the gap:
1. Different procedures may be adopted
2. Confusion and delay may arise
3. Lack of coordination among the courts
4. The value of the assets may decrease
5. It becomes difficult to save the companies
6. It is creating uncertainty and affecting global trade and investment.
The UNCITRAL model law is guided by four main principles, which ensure the efficient handling of international insolvency cases. The first principle is the provision of access, whereby foreign insolvency representatives and creditors are allowed to make direct applications to the foreign court, thus simplifying the process and avoiding delays. The second principle is the provision of recognition, whereby foreign insolvency proceedings are formally recognized by the court, and the debtor is allowed to have proceedings initiated in foreign jurisdictions. The proceedings may be main proceedings, based on the debtor’s Centre of Main Interests (COMI), or non-main proceedings, where the debtor maintains an establishment, thus avoiding duplication and jurisdictional conflicts.
The third principle is the provision of relief, whereby the court is empowered to offer relief and assistance, such as the temporary suspension of legal proceedings and the protection of the debtor’s assets, thus ensuring an orderly and fair process. The last principle is the provision of cooperation, whereby the model law encourages the interaction and coordination of foreign courts and insolvency professionals, thus ensuring the efficient handling of cases involving multiple jurisdictions. Recognizing these issues, the Insolvency Law Committee (ILC), recommended that India adopt the UNCITRAL Model Law with necessary modifications if required which suit domestic needs.
The Report – Draft Z
In its report, the Insolvency Law Committee proposed a draft chapter, which is referred to as Draft Z, and is intended to cover issues related to cross-border insolvency. The draft is based on the UNCITRAL model law on cross-border insolvency and provides provisions related to the recognition of foreign proceedings, the rights and claims of foreign creditors, and the powers of insolvency professionals. The draft provides foreign creditors with the same rights as local creditors by treating them equally.
Why India should adopt UNCITRAL for cross-border insolvency matter
The adoption of the Model Law brings a positive effect to the creditor where the foreign creditors are presently uncertain when they have to deal with the Indian companies. The most important aspect of having the model is the elimination of the problem of forum shopping. The problem is that, in the absence of a clear and well-defined system, creditors often turn to the jurisdiction that is most favorable to them. The end result is chaos. The Model Law, through the COMI principle, provides a clear and well-defined system. The end result is fairness and the elimination of unnecessary litigation.
Conclusion
While India’s insolvency regime has made significant progress since the introduction of the IBC, its success remains incomplete without a cross-border insolvency regime. The Jet Airways case is a classic example of the cost of inaction, involving years of litigation, erosion of asset values, and uncertainty for creditors. It also highlights the disconnect between the realities of international business and domestic legal systems. The UNCITRAL Model Law is a practical and widely accepted solution to cross-border insolvency. It is certainly not perfect, but it is a systematic approach to a problem that can no longer be avoided. The country has already shown its capacity to introduce radical changes to its legal system. The introduction of the IBC is a case in point. The next step is clear. India’s insolvency regime is no longer domestic; it is time to take it global.
REFERENCES
1. Insolvency, Investopedia, https://www.investopedia.com/terms/i/insolvency.asp (last visited Mar. 29, 2026).
2. Manasi Lad-Gudhate, Cross-Border Insolvency, 53 Chartered Sec’y 67 (Apr. 2023), https://www.icsi.edu/media/webmodules/CSJ/April/15ArticleManasiLadGudhate.pdf.
3. The Insolvency and Bankruptcy Code, No. 31 of 2016, India Code, https://www.indiacode.nic.in/bitstream/123456789/15479/1/the_insolvency_and_bankruptcy_code%2C_2016.pdf.
4. Ibid
5. State Bank of India v. SEL Manufacturing Co. Ltd., CP (IB) No. 114/Chd/Pb/2017 (NCLT Chandigarh Apr. 11, 2018), https://www.legitquest.com/case/state-bank-of-india-v-sel-manufacturing-company-limited/226D3B
6. Cross-Border Insolvency: An Oversight by the IBC, JETIR (2020), https://www.jetir.org/papers/JETIR2007188.pdf
7. Cross-Border Insolvency in India & the Case of Jet Airways: Experts’ Opinion, Taxmann, https://www.taxmann.com/research/ibc/top-story/105010000000016987/cross-border-insolvency-in-india-the-case-of-jet-airways-experts-opinion.
8. The Insolvency and Bankruptcy Code, No. 31 of 2016, India Code, https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&orderno=238.
9. Section 235: Letter of Request to a Country Outside India in Certain Cases, IBC Laws, https://ibclaw.in/section-235-letter-of-request-to-a-country-outside-india-in-certain-cases/
10. United Nations Commission on International Trade Law, UNCITRAL Model Law on Cross-Border Insolvency (1997), https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency
11. United Nations Commission on International Trade Law, Status: UNCITRAL Model Law on Cross-Border Insolvency (1997), https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency/status.
12. UNCITRAL Model Law on Cross-Border Insolvency, iPleaders, https://blog.ipleaders.in/uncitral-model-law-on-cross-border-insolvency/
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