2

RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PATIALA

PROJECT REPORT ON CROSS BORDER INSOLVENCY ISSUES IN INDIA

NAME – PAWAN MUDOTIYA

ROLL NO. – 17148

SUBMITTED TO- ASST. PROFESSOR DR. ABHINANDAN BASSI

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CANDIDATE’S CERTIFICATE

I, the undersigned, hereby solemnly declare that the Project work titled: Analysis of Cross
Border Insolvency Issues in India, submitted to Rajiv Gandhi National University of Law,
Punjab, in partial fulfillment of the requirements of the B.A.L.L.B (Hons.), Five-year
Integrated Course, Ninth semester, is an original and bonafide research work of mine. I hope
that this work will be helpful in enhancing the knowledge of readers and framing of the
policies in the future course. All the information declared hereby is true to best of my
knowledge.

PAWAN KUMAR MUDOTIYA

ROLL NO: 17149
NINTH SEMESTER, B.A. LL.B. (HONS.)
RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB
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ACKNOWLEDGEMENT

My name is Pawan Kumar Mudotiya, 5th year student of Rajiv Gandhi National University of
Law. I am extremely elated on the completion of this project titled “Analysis of Cross
Border Insolvency Issues In India”, and therefore I would like to put forth my sincere
gratitude towards every individual who has been instrumental in its embodiment.

Firstly, I would like to humbly express my appreciation for Dr. Abhinandan Bassi, Assistant
Professor of Law, Rajiv Gandhi National University of Law, who guided me throughout the
research and mentored me thoroughly. She has been a constant source of inspiration and
learning. Being my supervisor, she has been a fierce critique and a guiding force who held
my back throughout this journey. Her nuanced observations and comments steered me in the
right direction of this research. Without her guidance, this project would not have seen its
light.

At this point, I would also like to extend my gratitude towards the RGNUL Library Dept. and
their continuous efforts to make the learning resources readily available to the students,
especially in my case as I required some additional research material and data sources to
complete my work.

I would also like to sincerely thank my batchmates and friends for constantly challenging me
which developed a competitive environment among the students and encouraged me to
adhere to due dates.

Sincere thanks are also due to the Hon’ble Vice Chancellor Sir and the worthy Registrar Sir,
for providing us with acute facilities on and off campus.

Lastly, I am grateful to my parents for providing me with an opportunity to study in this

college and for everything else that I am.
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TABLE OF CONTENTS

CANDIDATE’S CERTIFICATE...........................................................................................................

ACKNOWLEDGEMENT.....................................................................................................................

TABLE OF CONTENTS.....................................................................................................................

INTRODUCTION...........................................................................................................................

EVOLUTION OF CROSS BORDER INSOLVENCY REGIMES................................................

CROSS-BORDER INSOLVENCY SCENARIOS.........................................................................

UNCITRAL MODEL LAW ON CROSS BORDER INSOLVENCY............................................

THE CURRENT LEGAL FRAMEWORK IN INDIA.................................................................

WHAT HAPPENS WHERE AN INSOLVENT ENTITY HAS SUBSTANTIA L ASSETS

OVERSEAS?.................................................................................................................................

OPPORTUNITIES AND CHALLENGES UNDER THE IBC....................................................

OPPORTUNITIES.........................................................................................................................
CHALLENGES.............................................................................................................................
THE WAY FORWARD................................................................................................................

CONCLUSION..............................................................................................................................
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INTRODUCTION

Globalisation – in normal parlance is defined as the state of being globalised especially, in the
context of the positive shifts in production possibility curves through development of an
increasingly integrated global economy marked especially by free trade, free flow of capital,
the tapping of cheaper foreign labour markets, and removal of information asymmetries.
Amartya Sen, while pointing out the efficacy of integrated global system highlighted, that
presenting globalisation as an economic phenomenon is based on partial analysis. He opined,
‘Globalisation is a complex issue, partly because economic globalization is only one part of
it. Globalisation is greater global closeness, and that is cultural, social, political, as well as
economic.’1 However, the decade leading to 2020 and the recent pandemic, in particular, is
leading us to think otherwise. Thoughts like ‘globalisation has peaked’ 2 or ‘globalisation is
dead’3 are being deliberated and debated. The pandemic-induced lockdown has brought
economic activities to a grinding halt. Global growth 4 in 2020 is projected at - 4.9 per cent
and 2021 at 6½ percentage points lower than the pre-COVID-19 projections of January 2020.
FDI flows5 are forecast to decrease by up to 40 per cent in 2020, by further 5-10 per cent in
2021 with a slow rebound in 2022. Global trade flows6 are projected to contract between 12.9
per cent (optimistic scenario) and 31.9 per cent (pessimistic scenario) in 2020 with gradual
recovery in 2021. Looming uncertainty and bleak outlook have led to a new wave of
pessimism, writing off globalisation. The impact of the pandemic is set to have long term
scarring for businesses. As the pandemic continues to spread, market-led probabilities of
default have increased7 in G-20 and emerging market economies alike. Bankruptcies are to
become more common as firms exhaust cash buffers. The failure of a large multinational
company can have widespread ramifications in the industry of which it is an integral part; in
countries in which its operations are largely based and even the entire global market chain.
Excepting the recent (starting 2019) slowdown in global growth and trade, this decade saw

1
An interview by David Barsamian with Amartya Sen from the April 2001 issue of “The Progressive”, 29
September.
2
https://www.bloombergquint.com/global-econo mics/have-we-reached-peak-globalization.
3
https://www.economist.com/open-future/2019/06 /28/globalisation-is-dead-and-we-need-to-inventa-new-
world-order.
4
IMF, 2020, World Economic Outlook Update, June.
5
UNCTAD 2020, World Investment Report.
6
WTO Press Release, https://www.wto.org/english/ news_e/pres20_e/pr858_e.htm.
7
IMF July 2020, G 20 Surveillance Note.
2

world merchandise trade reach a record USD 19.67 trillion in 2018. 8 India was 17th in the list
leading traders of goods and services in 2008 and rose to 11th position in 201810. Global
Foreign Direct Investment (FDI) flow9 was a record USD 1.41 trillion in 2018 and of which
India received USD 42 billion and was the 8th largest host country for investments. The year
2018 saw cross border mergers and acquisitions valued at USD 816 billion and FDI
greenfield projects of USD 999 billion announced across the world. There were an estimated
164 million10 people who worked in other countries in 2017 and in mid-2019, 5.2 million, 11
Indians were working abroad. By all measures India is today more integrated with the world
than ever before and globalisation continues to be an irresistible force today as it was in 1991.
Having an insolvency law that can deal effectively with cross border issues would provide
necessary comfort, in a worst-case scenario where many multinational enterprises are forced
into insolvency resolution proceedings. The ongoing pandemic has posed several challenging
questions regarding robustness of insolvency laws dealing with cross border insolvencies and
has necessitated a comprehensive response. The choice of framework however depends on
the country’s level of integration with global economy, maturity of insolvency system
currently in place, maturity of legal systems in general etc., among other things. The
Insolvency and Bankruptcy Code, 2016 (Code) sought to address cross border insolvency by
enabling the Central Government to enter into agreements or reciprocal arrangements with
other countries for enforcing provisions of the Code. 12 It has also provided that the
Adjudicating Authority (AA) under the Code can issue letter of request to a Court or an
authority competent to deal with request for evidence or action in connection with
proceedings under the Code in these countries.13 The Insolvency Law Committee14 in its
October 2018 report on cross border insolvency recommended to the Government adoption of
the Model Law. With this backdrop, this article explores regional efforts to address cross
border insolvency. In this regard, it also discusses the UNCITRAL framework and then
evaluates the alternatives for India in moving forward. Following this introductory section,
the next section presents the evolution of cross border insolvency measures including the
Model Law. Section III assesses whether India needs a cross border insolvency framework
and section IV assesses the alternatives available. The assessment favours bilateral
8
https://www.wto.org/english/res_e/statis_e/wts20 19_e/wts2019_e.pdf.
9
https://unctad.org/en/PublicationsLibrary/diaeiainf 2020d1_en.pdf.
10
https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/
wcms_652001.pdf.
11
https://migrationdataportal.org/data?i=stock_wor kage_perc&t=2019&cm49=356
12
Section 234, IBC.
13
Section 235, IBC.
14
Report of Insolvency Law Committee on Cross Border Insolvency, October, 2018.
2

arrangements over an overarching framework and we suggest that such arrangements may
look beyond the Model Law for doing so.

EVOLUTION OF CROSS BORDER INSOLVENCY REGIMES

The earliest attempt to address international aspects of insolvency was made in Latin
America in the South American Congress of Private International Law of 1888-1889. The
Montevideo Treaty of 1889 provided rules for liquidation, the concept of unity of
proceedings and vesting jurisdiction in the State of the debtor’s commercial domicile. The
Treaty, revised in 1940, defined ‘commercial domicile’ and provided guidance for
compositions, suspension of payments and analogous proceedings. 15 Even as the Treaty
existed, the Havana Conference in 1928 gave the Bustamante Code adopted by 15 Latin
American countries. It provided both the concept of unity and universality for some
countries. These were initial attempts to provide any guidance on insolvency matters between
countries that were integrated economically and had similar legal cultures. These had broad
application but gave preference to local creditors.16 In 1933, the Nordic States of Denmark,
Finland, Iceland, Norway and Sweden concluded a convention regarding bankruptcy. This
convention was later amended in 1977 and 1982. The convention provided for amalgamation
of assets into one estate and distribution according to the rules of the State where proceedings
were opened in the bankrupt’s residence or registered office. It provided for recognition of
bankruptcy proceedings in other states, judicial assistance, and recognition of judicial
decisions. In Europe work started in 1894 as part of the Hague Conference and in 1928 it was
decided to transform the multilateral convention into a model bilateral treaty, which saw very
little adoption. The Council of Europe concluded the European Convention on Certain
International Aspects of Bankruptcy in 1990, which provided for ‘main’ and ‘secondary’
bankruptcy proceedings. In May, 2002 EU Regulation 1346 came into force repealed in May
2015 by the Regulation (EU) 2015/848 and issued a ‘Recommendation of 12.3.2014 on a
New Approach to Business Failure and Insolvency.’ Regulation 1346 provided uniform rules
for the settlement of cross border insolvencies and focussed on coordinating insolvency
proceedings as they existed in member states rather than creating uniform rules, whereas
Regulation 848 and the Recommendation ‘signal the new approach.’ The objective is to
foster the creation of a homogenous legal framework for business restructurings across EU

15
Majumdar, Arjya B. (2009), “The UNCITRAL Model Law on cross-border insolvency”, India Law Journal,
Vol 2, Issue I, Jan- Mar.
16
Cunningham, D. and T. Werlen (1996), “Crossborder insolvencies in search of a global remedy”, International
Financial Law Review, London, 15:12:51- 54.
2

while also striving to promote a common and uniform legal, economic, and financial
environment between the European Union and the United States. 17 The latest EU Regulation
also is short on cooperation with non-EU countries in insolvency matters.

CROSS-BORDER INSOLVENCY SCENARIOS

Insolvency is essentially the inability to pay financial debt owed. In case of a corporate entity
having transnational operations, insolvency type scenarios might be triggered by a number of
circumstances, and in particular, in the Indian context:
 Where an Indian entity has domestic and foreign creditors, holding assets in India
and overseas;
 Where an Indian entity has foreign subsidiaries, and guarantees the financial debt
of its overseas subsidiaries (and potentially has granted security over its shares to
foreign creditors); and
 Where a foreign entity has foreign creditors, holding assets across a number of
jurisdictions, including India.

The issues stemming out of these scenarios are complex and in particular, where a parent
company guarantees the debt of a number of overseas subsidiaries or other group companies,
it creates contingent liabilities to discharge, in the event that one of its subsidiaries or group
companies cannot discharge their financial obligations. If a number of its subsidiaries or
group entities fail, then the call on the contingent liability created under the guarantees may
be so large, that the parent guarantor can no longer meet its obligations.

UNCITRAL MODEL LAW ON CROSS BORDER INSOLVENCY

The UNCITRAL Model Law18 attempts to deal with the complexities outlined above through
rationalising the process in dealing with cross-border insolvency, but it should not be
mistaken for creating a substantive, unified insolvency law.
It does this by providing a framework for access to insolvency appointed professionals in the
courts of other jurisdictions, permitting them to participate or commence proceedings in that
particular jurisdiction, though in the Indian context, this may need to be modified, on the
basis of locus standi in the Indian courts, requiring foreign insolvency professionals to
17
Manganelli, Paolo (2016), “The Modernization of European Insolvency Law: An Ongoing Process”, 11 J.
Bus. & Tech. L. 153, http://digitalcommons.law. umaryland.edu/jbtl/vol11/iss2/3.
18
The United Nations Commission on International Trade Law. (UNCITRAL). (2019a, 25 August). Status:
UNCITRAL Model Law on Cross border Insolvency. https:// uncitral.un.org/en/texts/inssolvency/modellaw/
cross-border_insolvency/status.
2

appoint an Indian insolvency professional to represent them in Indian proceedings. It also

lays out principles for where insolvency proceedings should be initiated. The UNCTR AL
Model Law sets out a principle for identifying the most appropriate jurisdiction for
commencing insolvency proceedings (‘the main proceeding’) and ensures that the resolution
professionals appointed in that jurisdiction are granted recognition and access in proceedings
in other jurisdictions, where the insolvent entity may have assets (‘the non-main
proceeding’).19
In essence, the UNCITRAL Model Law sets out the principle of center of main interests 20
(commonly referred to as ‘COMI’) in deciding where the main proceeding should be
commenced. Interestingly, COMI is not given a definition in the UNCITR AL Model Law. It
broadly implies that it is the seat of a corporate entity’s major stakes, whether that is in terms
of control or the location of its assets and its significant operations. COMI is determined by
factors, both objective and ascertainable by third parties, especially creditors and potential
creditors.21 Essentially, the command and control test is the commonly applied test to
determine the COMI of an entity. 22 There is a presumption in favour of the place of its
registered office, which normally corresponds to the head office of the company 23 and this
presumption has worked well where there is no serious controversy.24

In effect, the registered office, or the place of incorporation serves as proof of existence of a
corporate entity. The registered office, however, does not otherwise have special evidentiary
value and does not shift the burden of proof away from the foreign representatives seeking
recognition as a main proceeding.25 Courts generally take into account other factors, such as
the location of the debtor’s headquarters; the location of those who actually manage the
debtor (which could possibly be the headquarters of a holding company); the location of the
debtor’s primary assets; the location of the majority of the debtor’s creditors or of a majority
of the creditors who would be affected by the case; and the jurisdiction whose law would
apply to most disputes.26

19
The UNCITRAL Model Law, Ch. II.
20
The UNCITRAL Model Law, Art. 17(2)(a): “The foreign proceeding shall be recognised: (a) As a foreign
main proceeding if it is taking place in the State where the debtor has the centre of its main interests”.
21
Stanford International Bank Ltd., In re, 2011 Ch 33 : (2010) 3 WLR 941 : 2010 Bus LR 1270 (at ¶56).
22
Ian F. Fletcher, Insolvency in Private International Law, 390 (2d. ed., 2005).
23
The UNCITRAL Model Law, Art. 16(3); Miguel Virgos & Etienne Schmit, Report on the Convention on
Insolvency Proceedings, EU Council Document 6500/96 DRS 8 (CFC), (1996)
24
H.R. Rep. No. 31, 109th Congress, 1st Session, at ¶114.
25
Tri-Continental Exchange Ltd., In re, (2006) 349 BR 627, 635.
26
SphinX, Ltd., In re, (2007) 371 BR 10 (SDNY 2007).
2

In order to rebut the presumption of the COMI under Article 16 of the UNCITR AL Model
Law, one would be required to prove the involvement of agents or servants acting for the
company go beyond commercial activities, and the sorts of functions that one would expect
the head office to discharge.27 In not so obvious cases, the courts have held that the COMI
would be situated where inquiries and negotiations involving third parties were dealt with and
upon where demands for payment and invoices from third parties would be addressed. 28 In
the Indian context, the initiation of proceedings against an Indian corporate entity when the
COMI lies in India itself makes such proceedings the ‘foreign main proceedings’ 29 (under the
UNCITRAL Model Law) for a foreign creditor. This implies that the provisions of the Code
would take immediate effect. Recognition of the proceedings as a main proceeding will result
in automatic relief such as a stay or moratorium on domestic proceedings in relation to the
debtor, and the Indian insolvency professional would, presumably be afforded rights as a
foreign representative of a foreign main proceeding before the courts of contracting States to
the UNCITR AL Model Law, in any application to stay parallel main proceedings, or
otherwise, to commence secondary proceedings in relation to the Indian debtor’s assets which
may be located overseas.30
As discussed, however, in the case of the COMI of an Indian debtor falling outside India,
foreign main proceedings shall ensue in that jurisdiction, and the Code, having no
extraterritorial effect as of now, shall cease to apply. In such circumstances, relief available to
Indian creditors in that jurisdiction is subject to the laws of where the foreign main
proceedings are initiated and the provision of the Code, shall be applicable, only in so far as it
is consistent with or otherwise, at the discretion of the court in whose jurisdiction the foreign
main proceedings are commenced.
It should be stressed that the UNCITRAL Model Law does not import the substantive law of
the foreign system into the insolvency system of the enacting state, nor does it apply the relief
that would be available under the enacting state in any foreign proceedings. It does, however,
grant recognition and assistance to foreign representatives of an insolvency resolution process
in applying for interim relief and automatic stays, where available in that particular
jurisdiction where such relief is sought.31
27
Mackellar v. Griffin, 2014 EWHC 2644 (Ch).
28
Northsea Base Investment Ltd., In re, 2015 EWHC 121 (Ch).
29
The UNCITRAL Model Law, Art. 2(b).
30
UNCITRAL Model Law. (2019c, 25 August). UNCITRAL Model Law on cross-border insolvency with guide
to enactment and interpretation. https://www.uncitral. org/pdf/english/texts/insolven/1997-Model-Law-Insol-
2013-Guide-Enactment-e.pdf
31
UNCITRAL. (2019b, 25 August). Legislative guide on Insolvency Law. https://www.uncitral.org/pdf/
english/texts/insolven/05-80722_Ebook.pdf.
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THE CURRENT LEGAL FRAMEWORK IN INDIA

Sections 234 and 235 of the Code32 deal with cross border insolvency in a cursory manner,
empowering the government to make treaties and further empowering the Adjudicating
Authority under the Code, to issue a letter of request to a court in a country, with which an
agreement has been entered into, to deal with the assets in a specified manner (presumably, in
accordance with the provisions of the Code). Theoretically, this should also provide a
framework for foreign representatives to apply to the Indian courts to deal with assets in India
in a manner consistent with the insolvency laws of the jurisdiction where foreign main
proceedings have been initiated, in relation to a debtor, with assets in India.
For foreign proceedings to be recognized in India, the process set out under the Civil
Procedure Code, 1908, will be applicable, together with English common law principles,
though it should be noted that it is not broad enough to cover some insolvency related
proceedings. Likewise, for Indian proceedings to be recognized abroad, the procedural rules
of that foreign jurisdiction will apply. Those countries that have adopted the UNCITRAL
Model Law (which include most industrialized countries) are required to provide recognition,
assistance, cooperation, and appropriate relief in relation to insolvency proceedings
commenced in India, except where that country has otherwise required reciprocity.
As of June 2018, 44 states have adopted the UNCITRAL Model Law, including the United
States, the United Kingdom, and Singapore. Note, however, that certain countries that have
adopted it may have made reservations to it, and may require reciprocity.33 Clearly, while the
Code permits the government to enter into treaties to implement the UNCITRAL Model Law,
negotiating up to 200 separate bilateral treaties in a relatively short space of time is just not
practical, and it would further complicate matters, with the Indian courts having to take into
account the nuances of each treaty in any cross border insolvency matter. Surely, the simplest
solution would be for India to simply sign and ratify the UNCITR AL Model Law and then
incorporate that into the Code.

WHAT HAPPENS WHERE AN INSOLVENT ENTITY HAS

SUBSTANTIA L ASSETS OVERSEAS?

Insolvent entities (or those which are being restructured) might have substantial assets outside
of its COMI, which may be directly held (for example, the entity itself might be the legal
32
Insolvency and Bankruptcy Code (IBC), 2016 (2019, 25 August).
http://www.mca.gov.in/Ministry/pdf/TheInsolvency andBankruptcyofIndia.pdf
33
Keith D. Yamauchi, Should Reciprocity be a Part of the UNCITRAL Model Cross Border Insolvency Law?,
16 International Insolvency Review 145-179 (2007).
2

registered owner of property, or in the case of Woodpecker Airways, aircraft parked at the
gates of foreign airports).
It may also have shares in foreign subsidiaries or other group companies, and these share
certificates, are essentially moveable property (though they are likely to be pledged to any
lender of the subsidiary or the group company as security for any loan).
However, it needs to be underlined, that the assets of any foreign subsidiary or group
company are not the assets of the insolvent parent company (other than the shares held by it
in any such foreign subsidiary or group company). This is a cardinal principle of limited
liability and the courts will only lift the veil on the ring fencing of liabilities in exceptional
circumstances.

Broadly, there are three situations where an Indian company might be impacted in a cross-
border insolvency scenario;34

 Firstly, when a foreign creditor wishes to initiate or be a part of any insolvency

proceedings against an Indian company, initiated under the Code, in India;
 Secondly, where the creditors of an Indian company wish to enforce rights over the
assets of the Indian company which are located overseas; and
 Thirdly, when insolvency proceedings are initiated against a debtor in more than one
jurisdiction (and that debtor has assets in India).

In the first circumstance, under the provisions of the Code, foreign creditors may already
apply to the Adjudicating Authority for either the initiation of insolvency proceedings against
the Indian entity or to be a part of the ongoing proceedings, in the same manner as domestic
creditors, with the same rights. The Code, by virtue of including a “person resident outside
India” in the definition of ‘persons’,35 rightly underlines the principle of neutrality towards
the identity of the corporate debtor’s creditors.
However, the Code had fallen short in addressing the other two situations, wherein there is
neither a provision for automatic attachment over assets situated overseas nor for parallel
simultaneous proceedings against the corporate debtor in more than one jurisdiction. In non
UNCITRAL Model Law contracting States, the principles of private international law
essentially govern cross-border insolvency, and a formal application will need to be made to

34
Aparna Ravi, Filling in the Gaps in the Insolvency and Bankruptcy Code ― Cross Border Insolvency,
IndiaCorpLaw (May 17, 2016), https://indiacorplaw.in/2016/05/filling-in-gaps-in-insolvency-and.html.
35
The Code, § 3(23)(g).
2

attach those assets in the court of the relevant foreign jurisdiction where the corporate debtor
may have assets.

In UNCITRAL Model Law contracting States (and those contracting states that accept
applications from insolvency professionals in non-contracting States), generally, co-
operation, assistance and recognition of foreign law proceedings will be afforded. It’s perhaps
pertinent to now turn to the question of how other jurisdictions approach the problem of locus
standi in the context of foreign insolvency proceedings and orders from foreign courts or
tribunals? The United Kingdom, for example, although it does not recognize India as a
‘relevant country’ under the provisions of Section 426 of the Insolvency Act of 1986, 36 it
does, however, provide an insolvency professional the right to approach the English Courts to
either request recognition of insolvency proceedings under which it has been appointed, so as
to ensure that assets located in the UK become part of the Indian insolvency proceedings, or,
otherwise, be a part of insolvency proceedings initiated by a creditor in the UK. But what
about contracts between an Indian insolvent entity and foreign creditors, which are governed
by English law? Will those foreign creditors be subject to (and bound by) the Code in the
event that an insolvency resolution process is triggered in India against an Indian debtor?
Will those foreign creditors need to prove their debts through the process in India and does
the moratorium under the Code apply to parallel proceedings by foreign creditors before
foreign courts, seeking enforcement of any local security interests? There is a long-standing
principle of English law that a debt governed by English law cannot be discharged by a
foreign insolvency proceeding, unless that creditor submits to those foreign proceedings,
derived from the decision by the English Court of Appeal in Antony Gibbs and Sons v. La
Société Industrielle et Commerciale des Métaux.37

The so-called Gibbs Rule was recently put to test by English courts in Bakhshiyeva v.
Sberbank of Russia & Ors.38 In this case, the court considered an application by a foreign
representative to the English court on behalf of the International Bank of Azerbaijan (‘the
Debtor’) for a permanent stay on a creditors’ enforcement of claims in England under English
law contracts, contrary to the foreign insolvency proceeding, to which the creditors of the
Debtor were purportedly bound.

36
The Insolvency Act, 1986, § 426 stipulates an obligation on part of the British Courts to assist the foreign
representatives from relevant countries in the insolvency proceedings involving attachment of assets situated in
their jurisdiction.
37
Antony Gibbs and Sons v. La Société Industrielle et Commerciale des Métaux, (1890) 25 QBD 399.
38
Bakhshiyeva v. Sberbank of Russia & Ors., 1 2018 Bus LR 1270 : 2018 EWHC 59 (Ch) (‘Sberbank’).
2

In this case, the foreign insolvency proceedings had been initiated in Azerbaijan against the
Debtor and a restructuring plan had been agreed by nearly all of its creditors (‘the
Restructuring Plan’), which had been approved by the Azeri courts (‘the Approving Order’)
and the question arose as to whether they should be recognised in England under the Cross
Border Insolvency Regulations, 2006 (‘the CBIR’), which broadly, implements the
UNCITRAL Model Law.

The judgment is quite an interesting one, because there are essentially three issues at stake:
firstly, whether a moratorium can be extended indefinitely (when it appears that the
moratorium period under local law seems to be on the brink of expiry); secondly, whether
creditors with rights under foreign law documents, who did not participate or agree to the
restructuring plan are bound by it; and thirdly, whether the Gibbs Rule is still good law.

Turning to the brief facts of the case, Sberbank had lent US D 20 million to the Debtor,
pursuant to English law financing documents and another creditor, Frankin Templeton, was
the beneficial owner of USD 500 million of notes, issued by the Debtor and also governed by
English law (Sberbank and Frankin Templeton together, being ‘the Respondents’).

The Respondents did not participate in the Restructuring Plan and did not consent to it. At
first instance, the English court granted the representative of the Debtor the relief sought,
imposing a moratorium, preventing creditors in general, and the Respondents in particular,
from commencing or continuing any action against the Debtor.

The Respondents appealed the decision, arguing that the foreign restructuring proceedings
under Azeri law came to an end at the end of January 2018 and further, it did not bind them,
relying on the Gibbs Rule. It was cited in the judgment that many English law insolvency
academics now consider the Gibbs Rule as an anachronism, with some going so far as to say
that the “Gibbs doctrine belongs to an age of Anglocentric reasoning which should be
confined to history”.39 It was also pointed out in the proceedings that in Pacific Andes
Resource Development Ltd., In re,40 the Singapore High Court chose not to be bound by the
Gibbs Rule, finding that:

“In the case of a contractual obligation which happens to be governed by

English law, a further rule should be developed whereby, if one of the
parties to the contract is the subject of insolvency proceedings in a

39
Sberbank, 49.
40
2016 SGHC 210 at 48.
2

jurisdiction with which he has an established connection based on

residence or ties of business, it should be recognised that the possibility of
such proceedings must enter into the parties’ reasonable expectations in
entering their relationship, and as such may furnish a ground for the
discharge to take effect under the applicable law”.

The Gibbs Rule is not doubt problematic: on the one hand, it does not recognise foreign
insolvency or restructuring proceedings taking precedence over an English law debt; yet on
the other hand, the English courts generally expect a foreign court to recognise its own
judgments in relation to a restructuring in England, over and above foreign creditor’s rights
under a foreign law loan agreement. This appears to be a paradox.

On the question whether the Gibbs Rule had been eroded by the adoption of the UNCITRAL
Model Law (incorporated under the CBIR), some academics have pointed out that:

“In situations where a restructuring is on foot in the foreign jurisdiction,

the foreign representative can seek recognition in England pursuant to
Article 15 of the [Model Law]. (One is obviously dealing with a situation
where the foreign representative does not wish to proceed with a parallel
scheme of arrangement in England and creditors have not sought to invoke
the English court’s insolvency jurisdiction.) Provided the foreign
representative was appointed in foreign main proceedings, i.e. where the
debtor has the centre of its main interests, the mandatory consequences of
recognition include, under Article 20(1), the staying of both creditor
actions and executions against the debtor’s assets …”

Furthermore, the effect of this for foreign creditors who do not agree to any restructuring plan
initiated in the debtor’s COMI should become obvious:

“Hence the foreign representative can stymie a hold-out creditor who

might be minded to ignore the foreign restructuring and proceed instead to
bring an action or to seek to execute in England, relying upon a debt that
arose under an English contract. By applying for a stay the foreign
representative may not have to deal, at least not immediately, with the
substantive question of whether the English debt will ultimately be
discharged by the foreign proceedings.
2

However, the application of Article 20 in respect of a foreign restructuring

is not wholly free from complexity. The reference in Article 20(2)(a) to ‘as
if’ a winding-up order had been made raises some uncertainty. For there
is, of course, no discharge in a winding up. Thus one may ask: what will
happen in England in respect of the stay once the foreign restructuring
plan has been approved, the corporation resumes trading outside
bankruptcy protection and the foreign proceedings are formally closed by
the foreign court?”

Nevertheless, pursuant to the definitions of a foreign proceeding 41 and a foreign

representative42 under Article 17(1) of Schedule 1 to the CBIR, the court must recognise a
foreign insolvency proceeding if:

a) The foreign insolvency proceeding constitutes a “foreign proceeding” as defined by

Article 2(i) of Schedule 1 to the CBIR;
b) The applicant is a “foreign representative” within Article 2(j) of Schedule 1 to the
CBIR ; and
c) The application satisfies the evidential requirements set out in Article 15 of Schedule 1
to the CBIR.

Where a foreign liquidation is recognised by the English court as a foreign main proceeding,
under the CBIR, then the debtor benefits from an automatic stay in England. 43 However, the
situation is slightly different in the context of a foreign restructuring where an administration
moratorium is granted.

In considering a similar case, based on similar facts to the Sberbank case, the English court,
in BTA Bank JSC, In re,44 granted a stay order for two principle reasons:

“first, the relief is appropriate because it enables the English court to

cooperate with the financial court in Almaty City in subjecting the bank’s
assets and claims to a single regime for the benefit of the general body of

41
CBIR, Art. 2(i), Sch. 1 defines a foreign proceeding as: “ ...a collective judicial or administrative proceeding
in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding
the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of
reorganisation or liquidation.”
42
CBIR, Art. 2(j), Sch. 1 defines a foreign representative as: “ …a person or body, including one appointed on
an interim basis, authorised in a foreign proceeding to administer the reorganisation or the liquidation of the
debtor’s assets or affairs or to act as a representative of the foreign proceeding.”
43
CBIR, Art. 21(1), Sch. 1.
44
2012 EWHC 4457 (Ch) (‘BTA Bank’).
2

claimants. Secondly, I consider the relief appropriate because there plainly

should not be an unseemly scramble for English assets by English
claimants to the possible prejudice of the general body of claimants, but
there should be an ordered approach to such English claims as might
survive the Kazakh insolvency process”.45

Notwithstanding the decision in Re BTA Bank JSC, the court in the Sberbank case, held that
the UNCITRAL Model Law and the CBIR does not empower an English court to vary, or
discharge rights granted under English law, or otherwise, essentially conform the rights of
creditors under English law, with the rights that they have under foreign law (and have
otherwise, not consented to).

What appears to be a critical emphasis in the judgment is the distinction between insolvency
(and the distribution of assets) and restructuring (and the variation or removal of rights).
Although they are both collective proceedings (involving the debtor’s creditors), the first
process relates to the removal of assets from the grasp of a single (or class of) creditor in a
particular jurisdiction (for the collective benefit of the creditors as a whole), while the second
process relates to the denial of contractual rights, if that creditor has not consented to a
restructuring plan.

The Sberbank judgment further seems to underline that the English courts will not apply
foreign law, or apply English law in such a manner that replicates or achieves the intended
relief that may be available under foreign law, if such a result could not be achieved under
English law.

So, to what extent does the Code and the proposed incorporation of the UNCITR AL Model
Law address the lacuna of the Gibbs Rule and what, in the context of the Sberbank judgment,
might happen if an Indian debtor undergoing the corporate insolvency resolution process in
India under the Code had foreign creditors pursuant to English law financing documents?

In these circumstances, would an English court admit the insolvency resolution professional’s
application as a foreign representative to stay any action by those creditors until the
moratorium period had expired under the Code? Can it already do this by virtue of the CBIR
incorporating the UNCITRAL Model Law, without further legislative action required in
India, adopting the UNCITRAL Model Law as part of the Code?

45
BTA Bank, 13.
2

In the absence of any reservation made by the United Kingdom in relation to reciprocity for
its insolvency representatives in India, granting it rights under the UNCITRAL Model Law, it
is reasonable to conclude that the answer to that question would be yes.

Secondly, would the English court reject any application for a permanent stay or moratorium
made by the Indian foreign representative in connection with foreign creditor’s rights under
English law financing documents and the Indian debtor’s assets located in the United
Kingdom?

What we can take away from the Sberbank judgment is that an application for permanent
relief that goes beyond the moratorium period of the restructuring process in India, will likely
be struck out by an English court. But that’s a different conclusion from temporary relief,
preventing creditors from asserting their rights under English law documents against the
Indian debtor in the UK during the moratorium period under the Code in India; and such
temporary relief is likely to be granted by an English court.

The Code enables the Adjudicating Authority to send a Letter of Request to an appropriate
Court of the country with which a bilateral treaty has been entered into under Section 234, for
recognition of proceedings, though theoretically, such a request is still subject to the
discretion of the English court and the application of the Gibbs Rule, notwithstanding the
provisions of the UNCITR AL Model Law and the incorporation of it under English law
through the CBIR .

It should be noted, in this context, that the Azeri law has been amended to extend the
moratorium period, potentially, indefinitely, and this raises the question to what extent any
temporary relief granted in the English courts is necessarily required to be extended, until the
moratorium allowing the restructuring, comes to a close. It remains to be seen how that
question will be dealt with, and no doubt, the foreign representative of the Azeri bank will
appeal the decision in Sberbank on this particular ground, amongst, potentially others.

OPPORTUNITIES AND CHALLENGES UNDER THE IBC

OPPORTUNITIES

The IBC was introduced to deal with the scheme of insolvency and bankruptcy in India.
Following the introduction of the IBC, there has been a remarkable improvement in India’s
ease of doing business ranking, as per the latest World Bank report. The report lauds India’s
2

attempt to make insolvency more accessible by adopting the new Code.46 The two provisions
dealing with cross-border insolvency were inserted to ensure that the Code was not
incomplete, and they certainly add to the overall presentation and organization of provisions
in the IBC. The author reached out to eminent academics, experts, and practitioners in this
area to gather their perspectives on the impact of the IBC in India. The respondents were
asked to provide their feedback through the questionnaire shared by the author. The
questionnaire had both objective and subjective components. Most of the respondents who
provided their feedback on the questionnaire circulated by the author felt that the adoption of
the IBC can create a positive economic environment for the creditors and can improve India’s
ease of doing business ranking in the near future (17 out of the 20 respondents provided such
feedback to the questionnaire). Further, ASSOCHAM and EY in their joint study point out
that the Code does not maintain any distinction between the domestic and foreign creditors,
therefore, leading to the assumption that the two categories of creditors would be treated in an
equivalent manner.47

The ILC recommends that while the foreign creditors will have access to the domestic courts
under the current framework of the IBC, the cross-border system should be incorporated
based on reciprocity, which can be taken away later depending on the evolution of the
insolvency regime in India.48 This indicates that the ILC has adopted a rather cautious
approach towards the inclusion of the cross-border insolvency system, perhaps, keeping in
view the unique circumstances of the country as regards insolvency and bankruptcy. While
the Code is exhaustive as regards the domestic insolvency proceedings, the incorporation of
just two provisions relating to cross-border insolvency is grossly inadequate to deal with this
transnational problem effectively. This view is supported by the feedback of the majority of
the respondents (16 out of the 20 respondents provided such feedback). The BLRC and the
ILC reports underscore the need to adopt an effective framework dealing with cross-border
insolvency under the IBC, drawn from the Model Law. Therefore, the main opportunity
presented in the IBC to address the issue of cross-border insolvency stems from the inclusion
of Sections 234 and 235. The challenges associated with having just two provisions relating
to cross-border insolvency have been discussed further.
46
World Bank. (2019b, 25 August). Doing business 2019: Training for reform, the economy profile of India.
http://www.doingbusiness.org/content/dam/doingBusiness/country/i/ india/IND.pdf.
47
ASSOCHAM India & EY. (2017, October). Experiencing the code: Corporate insolvency in India. Author.
https:// www.ey.com/Publication/vwLUAssets/ey-experiencing-the-code-oct/$File/ey-experiencing-the-code-
oct.pdf.
48
Insolvency Law Committee. (2018a, March). Report of the Insolvency Law Committee.
http://www.mca.gov.in/ Ministry/pdf/ReportInsolvencyLawCommittee_ 12042019.pdf.
2

CHALLENGES

The majority of the respondents who provided their feedback on the questionnaire felt that
the two provisions dealing with cross-border insolvency under the IBC were not sufficient
(18 out of the 20 respondents provided such feedback). First, dealing with Section 234 of the
IBC, as the Indian government needs to enter into bilateral agreements with different
countries, it may not be practically feasible to negotiate such agreements which could be long
drawn and time consuming. Second, there is a possibility that each country may choose to
incorporate different provisions in their bilateral instruments which would only lead to
fragmentation of India’s cross-border insolvency regime. Last, this could lead to the
multiplicity of litigations in cases where a corporate debtor has assets in more than one
foreign jurisdiction, wherein the countries would fall back on their separate bilateral
agreements to raise claims in connection with the insolvency proceedings. While the IBC has
provisions for imposing a moratorium on all suits and proceedings against the corporate
debtor in India during the insolvency resolution period, a creditor or contract counterparty
can initiate proceedings in another jurisdiction.49 Further, even though Section 234 of the IBC
has been notified, India has not entered into any bilateral agreement so far.

Section 235 of the IBC promotes the spirit of cooperation between a local court and a foreign
court/ authority as embodied in the Model Law, however, there are certain lacunae. First,
there are no specific provisions which lay down the manner of cooperation between the local
authorities and the foreign court or competent authority. Second, there is no mechanism for
dealing with the coordination of concurrent proceedings. Last, the dependence on letters of
request for cooperation may cause an unnecessary delay as they have to be routed through the
official channels of the local and foreign jurisdictions. They can in turn cause inconvenience
to the creditors affected by such insolvency proceedings.

The draft chapters proposed by the ILC seem promising. The chapters should be
incorporated into the IBC after certain modifications. Chapter II deals with access of foreign
representatives and creditors to the Adjudicating Authority, wherein Clause 7 specifies that
the foreign representative shall be entitled to apply to the Adjudicating Authority, subject to
the code of conduct as prescribed. While this seems to be in line with the access principle
stipulated under Article 9 of the Model Law, the main departure from the Model Law

49
Kumar, D. (2017, 16 May). Indian insolvency regime without cross-border recognition – A task half done? A
Cyril Amarchand Mangaldas Blog. https://corporate.cyrilamarchandblogs.com/2017/05/indian-insolvency-
regime-without-cross-border-recognition-task-half-done.
2

concerns direct access. The ILC has discussed few reasons why a direct access system may
not be conducive for India, including the inability of foreign lawyers to practice currently and
the fledgling nature of the country’s cross-border insolvency regime. The ILC notes that the
foreign representatives may be represented by domestic insolvency experts and left it to the
discretion of the Central Government to provide subordinate legislation as regards the extent
of the right to access. The ILC recommended the inclusion of the code of conduct provision
as the Model Law does not prohibit the domestic courts from penalizing the foreign
representatives for any misconduct.50 While this provision serves an important function,
perhaps, the legislators may provide a detailed code of conduct in the subordinate legislation
itself instead of explicitly including it in Clause 7 (2). The second pillar stipulated in the
Model Law deals with recognition of the foreign proceedings. Chapter III of the draft Part
provides for the provisions in this regard. Clause 15 draws heavily from Article 17 of the
Model Law to decide whether the foreign proceeding should be treated as a foreign main
proceeding or a foreign non-main proceeding.51 The foreign proceeding would be treated as a
foreign main proceeding if the corporate debtor has a COMI in the foreign country and a
foreign non-main proceeding if the corporate debtor has an establishment in that country.
However, as per Clause 4, which reflects Article 6 of the Model Law, notwithstanding
anything contained in the draft Part, the Adjudicating Authority may refuse to recognize a
foreign proceeding if it manifestly violates India’s public policy. While the ILC states that
India could draw inspiration from the practices of the courts in the United States where the
public policy exception has been construed narrowly, the Adjudicating Authority still has the
discretion to interpret the scope of the exception in a slightly broad fashion. This is not very
encouraging for the foreign creditors and is stipulated under Clauses 17 and 18 of the draft
Part. The ILC discouraged the inclusion of ‘interim relief’ under the draft Part due to the bad
example set by the cases brought under the Sick Industrial Companies (Special Provisions)
Act, 1985. Clause 17 deals with ‘mandatory relief’ and reflects Article 20 of the Model Law
wherein it provides for the imposition of an automatic moratorium upon the recognition of a
foreign main proceeding. Clause 17 (2) provides that the moratorium as regards foreign main
proceedings should be similar in scope to the proceedings, as provided in Section 14 of the
IBC, including the exceptions and limitations. Clause 18 is drawn from Article 21 of the
Model Law and specifies that ‘discretionary relief’ would be provided by the court
50
Insolvency Law Committee. (2018b, October). Report of Insolvency Law Committee on cross border
insolvency. http://www.mca.gov.in/Ministry/pdf/CrossBorder InsolvencyReport_22102018.pdf.
51
The Cross-Border Insolvency Regulations, 2006. (2019, August 25). http://www.legislation.gov.uk/uksi/
2006/1030.
2

irrespective of whether the proceeding is a foreign main proceeding or a foreign non-main

proceeding. The ILC notes that Section 14 of the IBC should guide the provision of
mandatory and discretionary reliefs as regards foreign proceeding.52 While the moratorium
may not be modified, the legislators should leave additional space for the provision of
discretionary reliefs as the foreign proceedings may require certain other mechanisms. While
Clause 18 (1) (f) that deals with the possibility of additional reliefs, seems to be a catch-all
provision, the legislators may specify the principles that would guide the application of this
provision in the subordinate legislation. The final pillar, dealing with cooperation and
coordination has been provided under Chapters IV and V of the draft Part. The relevant
provisions concerning cooperation have been incorporated in the draft Part without
substantial modifications.53 The ILC notes that direct communication, as provided under
Article 25 of the Model Law, between the Adjudicating Authority and the foreign courts is
premature at this stage. Therefore, the ILC recommends that the Central Government should
frame guidelines in this regard, as reflected in Clause 21 of the draft Part. Chapter V deals
with concurrent proceedings, and as per the recommendation of the ILC, the relevant
provisions of the Model Law have been incorporated without significant deviations in the
draft. The ILC notes that as the provision of interim reliefs has not been included in the draft
Part, the same shall be excluded from Chapter V. While Chapter V seems to be adequately
comprehensive, Chapter IV of the draft Part requires more clarification from the legislators
due to the lack of specific provisions. Perhaps, the legislators could make this chapter more
robust following the application of the proposed provisions to cross-border insolvencies in
India.54

THE WAY FORWARD

The Notification, setting out the draft chapter on cross-border insolvency “(essentially
adopting the UNCITRAL Model Law)” is to be welcomed, though it is assumed that it paves
the way for India’s accession to the UNCITRAL Model Law, rather than the laborious
alternative of having to enter into bilateral arrangements with other jurisdictions.

52
High Level Committee on Law. (2000). Report of the High Level Committee on Law relating to the
insolvency and winding up of companies [Eradi Committee Report].
53
Bankruptcy Law Reform Committee. (2015, February). Interim report of the Bankruptcy Law Reform
Committee. https:// www.finmin.nic.in/sites/default/files/Interim_ Report_BLRC_0.pdf.
54
Joint Committee on the Insolvency and Bankruptcy Code. (2016, April). Report of the Joint Committee on the
Insolvency and Bankruptcy Code, 2015. http://ibbi.gov.in/16_
Joint_Committee_on_Insolvency_and_Bankruptcy_ Code_2015_1.pdf.
2

However, as the complexity of the foregoing discussion should highlight, simply adopting the
cross-border insolvency regime should not be mistaken to mean that the provisions of the
Code will be imported, or its intent applied in foreign jurisdictions. What should be clear, if
anything, is that the Gibbs Rule remains good law and foreign creditors will retain their rights
under English law financing agreements, notwithstanding an Indian restructuring, assuming
of course, that they have not participated in the restructuring or consented to the restructuring
plan. Further, it is highly unlikely that a permanent stay on proceedings before the English
courts will be granted to a foreign representative of an Indian debtor in the context of a
restructuring that has not been implemented within any time bound requirement.

CONCLUSION

This project highlights that cross border insolvency raises a number of complex issues, which
essentially, can be simplified by asking two concrete and related questions. Where is the
center of control, or main interest of the insolvent entity and where are its assets located? The
answer to the first question should determine where primary insolvency proceedings are
brought; and the answer to the second question relates to where secondary foreign
proceedings are brought.

Matters of cross-border insolvency should be regulated purely from a procedural perspective

and not on substantive matters. Although there may be broad consensus, it would be
impractical to suggest a global definition of insolvency; and for that matter; a globally
acceptable process in terms of its resolution and the distribution of value between creditors.
Each jurisdiction will have its own nuances and therefore, it is surely logical to embrace the
idea of a center of main interest in determining primary and secondary proceedings.

In relation to secondary proceedings, potentially across multiple jurisdictions, depending on

where the insolvent entity may have assets, the admissibility test should depend upon the
recognition afforded to the appointment of any insolvency professional pursuant to
insolvency type legislation, acting in the interests of all of the creditors of the insolvent entity
(and not just a narrow class of them)
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