The Insolvency and Bankruptcy Code has faced grave implementation challenges in the last three years. This is neither unexpected nor surprising. What is definitely disappointing is that some of these implementation challenges could have been prevented based on international experience.
It was widely expected that the cross-border insolvency provisions would be part of the IBC or enacted soon after. While reviewing the Insolvency and Bankruptcy Bill in the year 2016, the Joint Parliamentary Committee (JPC) expressed concern that the Bill did not address this. Noting the international element of many corporate transactions and businesses, JPC in its report recorded that the implications of cross-border insolvency cannot be ignored if India is to have a comprehensive and long-lasting insolvency law. “Not incorporating this will lead to an incomplete Code”, the report further stated. Unfortunately, the cross border insolvency provisions did not find place in the IBC.
Many large cases undergoing insolvency, such as, Amtek Auto, Videocon Industries, Essar Steel, Jet Airways and others are confronted with complex cross-border issues. Absence of a framework to deal with cross-border insolvency is likely to result in significant loss in value of assets of such companies. The government has shown no urgency to enact the law.
Eventually, the judiciary had to step in to plug this gap in the case of Jet Airways insolvency. In May this year, a Dutch Court passed an order of insolvency of Jet Airways on a petition of creditors based in Netherlands and appointed a Trustee. Jet Airways has its regional hub in Schiphol Airport. A month later, while directing admission of SBI petition under the IBC for commencement of insolvency process against Jet Airways, the NCLT directed the Interim Resolution Professional to ignore the order of Dutch Court and Trustee. Recognising the threat ignoring Dutch Court and Trustee pose to a sustainable insolvency resolution outcome of Jet Airways, the NCLAT advised exploration of a framework of cooperation. After extensive negotiations, a Cross Border Insolvency Protocol (Protocol) was agreed upon.
Designed on the principles of UNCITRAL Cross Border Insolvency Model Law, the Protocol provides a framework of international coordination, while respecting the independent jurisdiction, sovereignty, and authority of the NCLT/NCLAT and the Dutch Court. The Protocol recognised that given Jet Airways was an Indian company with its centre of main interest in India, the IBC proceedings are the main insolvency proceedings and the Dutch Proceedings are the non-main insolvency proceedings.
The Protocol seeks to promote international cooperation and coordination of activities to provide for their orderly and timely administration in order to reduce cost; promote communication among the parties and the committee of creditors; and provide, wherever possible, for direct communication among NCLT, NCLAT and Dutch Court; provide for the sharing of relevant information and data among the parties to avoid duplication of effort and activities; to identify, preserve, and maximise the value of Jet Airway’s worldwide assets for collective benefit of all.
The Protocol was approved by the NCLAT in September and viewed as a historical development by the international community and signals a rapidly maturing insolvency market in India. It is likely to benefit the outcomes in Jet Airways and set a healthy precedent for similar cases. While the Protocol plugs a huge gap, it is in no way a substitute for a comprehensive cross-border insolvency law. Most sophisticated economies have well developed cross-border insolvency laws. Adoption of the UNCITRAL Model Law is a necessity and not an option for India.
Source: Financial Express, November 1, 2019