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The Need for a New Regime
The Insolvency and Bankruptcy Code, 2016 {“Code”} was introduced in the backdrop of an ailing corporate restructuring mechanism in India. The Code has been labelled as a success by many scholars and analysts but at the same time, it leaves enough room for deliberations and developments. The prime focus is on the introduction of a Cross-Border Insolvency regime in India. The degree of emphasis laid upon this regime is a genesis of an expected growth in the Cross-Border Investment activities, reduction in resolution cost and certainty of resolutions.
The idea of growth-sensitive business infrastructure is an attractive one. The nature of these investment activities is dynamic but at the same time, they are results of a secure and conducive environment. The introduction of the Code has tremendously affected the investment landscape of India. A large number of investors, in the form of Resolution Applicants, have shown a growing interest in this process. Moreover, the window of 180 days (extendable to 270 days) providing for resolution of the distressed assets, is a robust framework for such prospective investors looking for a speedy return for their investments. In a recent study conducted by the Reserve Bank of India, the stats showed an increase in the recovery rate after the introduction of the Code. The increase is stupendous and is promising as it has grown double-fold in comparison to the previous systems in place. Putting into effect, a cross-border regime is a step towards the multiplication of these investments and broadening of the domain for the India economy.
India labelled as one of the fastest-growing economies in the world, is well prepared for such a progressive step in the coming years or months or even weeks. The only consideration that India needs to pay is in the form of some understanding of such regimes and their functioning. A detailed study of how such successful regimes have managed to grow in the will follow in the succeeding section.
Lessons from the Principle of Modified Universalism and the Normativity of Comity
A single distributary mechanism for the creditors has been one of the priorities of every country. The same preferences are a by-product of the principle of modified universalism which, many believe, should be the golden thread of the existing and upcoming Cross-border Insolvency regimes all over the world.[1] The introduction of the UNCITRAL Model Law on Cross-border Insolvency was one among the many strides towards the fruition of this principle. The ascendancy behind such an umbrella mechanism is a genesis of uniformity, simplicity, and risk-free transaction handling.
A lot of lessons can be learned from the experiences of various regimes that have stood the tides of modernity, feasibility, and accessibility. These tides have been successfully countered by a conscious effort to understand the three C’s-coordination, cooperation, and communication-which have proved to be essential building blocks in fostering Ease of Doing Business in any country. The principle of Universalism has been studied in juxtaposition to its rivalled faction-territorialism. The reason behind branding the former as a better model in the current times is due to its ability to strengthen value maximization of assets of the creditors. The idea that multiple proceedings in different countries are eliminated and cooperation among the nations is increased, is nothing but an outright and well-thought recognition of the principle of Comity, as well. While Universalism can be said to be the limbs of a healthy Cross-border regime, the idea of comity is the brain or the philosophy that runs these regimes.
Historical times have been witness to upholding of both of these values. The primary benefit behind opting for these lies in the objective of value maximization through cooperation among the nations involved. The first-ever instance of such cooperation was recorded in the year 1996 when in the classical case of In Re Maxwell Communication[2], the international community observed a remarkable level of comity to espouse the goals of value maximization and waste reduction. It provided for a framework under which the U.K. administrators would deal with the corporate governance of the Maxwell estate but major decisions regarding borrowings and asset realizations would require consent by the U.S. examiner or approval by the U.S. court.
The cooperation among the nations is not a practice adopted for the parties involved, but it also plays a vital role in emphasizing the contextual realities of the different jurisdictions in action. An effective cooperation model would unequivocally demarcate the ‘spheres of influence’ among different nations to resolve the dispute. This demarcation is nothing but an embodiment of the principle of comity, which can very well be labelled as the normative parent of a successful Cross-border Regime. The growth of business entails a growth in their assets and liabilities in multiple jurisdictions, and, an efficacious adoption of the normative parent is a panacea for all the upcoming and developing Cross-border Insolvency Regimes. This calls for a contextual study on a territorial basis.
A Territorial Study: India
The Insolvency Law committee was constituted in 2016 to look into and prepare a draft Model Law on Cross-Border Insolvency on the lines of UNCITRAL Model Law.[3] What encompassed thereafter was a thorough study of the provisions in the present Code and the need of having certain changes to prepare a multifaceted piece of legislation. The report published in the year 2018 (October) enlisted Increasing Foreign Investments as one of its objectives.
(Un)Complicated Definitions
The Recommendation in the report have a wider implication over global investment activities. For Instance, the retention and omission of the words “with human means” from the definition of an “establishment” was extensively debated. The parley was critical concerning the operations and investment flows from the operations of Internet-based Companies. The Committee reserved its stand on the debate and is waiting for the jurisprudence to progress, but the inclusion of such companies is surely a promising move for the Investment sector. A lot of such steps have been approved and reserved, and, a lot of them have a potential of boosting Investment-related activities in India. This feature of the Code is a welcoming one and is much awaited by the International community.
Stricter qualifying terms
The grounds of reservations, concerning India’s regime on Cross-border Insolvency, have been limited to a considerable extent. This brings along a greater degree of mutual faith and recognition when it comes to the Business community. The report narrowed the interpretation of the term ‘public policy’ so that a greater pool of proceedings are disposed and thereby not compromising on the value of the assets of the businesses involved. It is for the same reason that the Model Law requires an action to be ‘manifestly’ contrary to the Public Policy. Such emphasis on these procedural issues is good news for the investors all over the globe as they no longer face the wrath of a fragmented system with multiple layers of opinion related complications.
Access to foreign professionals
The Right to Access that rests with the foreign representatives allows them to approach the Indian courts directly and seek their remedy. However, in the Indian context, granting direct access to foreign representatives goes against the India Law which bars foreign lawyers to practice in India. With these obstacles, it seems that India may not be able to fulfill even one of the most basic requirements of a Cross-border Insolvency Regime. However, the committee had lengthy discussions on this matter and one possible solution to such a barrier came out to be the inclusion of such foreign representatives into a different class of professionals. Such a measure, though not taken and left to the Central Government, has a huge prospective edge.
Getting Rid of the ‘Grab’ Rule
The Grab Rule[4] is a theory under which a debtor’s assets in each country are ‘grabbed’ by the local courts under different distributary mechanisms and are distributed among those creditors who know the local proceedings in each country. Unfortunately, a large chunk of these creditors are those who belong to that local area, only. In essence, we encounter ‘Territorialism’ again, which limits the International Business community to a single Insolvency regime.
The Indian legislation on Insolvency has so far been a victim of this off-putting rule. The UNCITRAL Model Law can be satisfactorily be termed as an elixir of life for the Indian as well as the International Investors and Business Operators. Adopting the Draft Law is a big step towards this historical development as we witness a massive growth in Joint Ventures, Mergers & Acquisitions, FDI’s, etc. all over the globe. With the adoption of Cross-Border Insolvency regime being a substantial mention in the Union Budget of India, the idea of operating under and uniform umbrella can be called a safer, better and business-friendly, in the current state of affairs.









Harsh Dhiraj Singh is a third year BBA LL.B (Hons.) Student at National law University, Jodhpur.






In Content Picture Credit: Moneycontrol

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