Cross-Border Insolvency: UNCITRAL Model India

Cross-Border Insolvency: The Current Gap in India's IBC

India's Insolvency and Bankruptcy Code, 2016 (IBC) transformed domestic insolvency resolution with time-bound processes and creditor-friendly mechanisms. However, the IBC has a critical gap in dealing with insolvency cases involving cross-border elements. As Indian companies expand globally and foreign companies invest in India, the absence of a formal cross-border insolvency framework creates legal uncertainty and recovery challenges for creditors, debtors, and resolution professionals.

According to IBBI data, more than 15% of CIRP cases admitted between 2020 and 2025 involved debtors with some form of cross-border operations, whether through foreign subsidiaries, overseas assets, foreign creditors, or international supply chains. These cases face unique challenges that the current IBC framework is not designed to handle, including conflicting court orders, uncoordinated asset sales, and fragmented creditor distributions across jurisdictions.

Why Cross-Border Insolvency Matters

The IBC includes Sections 234 and 235 for bilateral agreements and letters of request to foreign courts, but these sections have never been notified. In practice, Indian courts handle cross-border elements through ad hoc arrangements, common law principles, and judicial cooperation, which is neither predictable nor efficient.

The UNCITRAL Model Law: Global Framework

The United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Cross-Border Insolvency in 1997. It provides a standardised legal framework that countries can adopt, with modifications, into their domestic law. Over 50 jurisdictions have adopted the Model Law, including the United States (Chapter 15 of Bankruptcy Code), United Kingdom, Singapore, Japan, and South Korea.

Key Features of the Model Law

• Access: Foreign insolvency representatives have the right to apply directly to courts in the adopting country without going through diplomatic channels
• Recognition: Foreign proceedings can be recognised as either "main" (COMI-based) or "non-main" (establishment-based) proceedings, each with different levels of relief
• Relief: Upon recognition, the court can grant automatic stay (for main proceedings) or discretionary relief (for non-main proceedings) to protect the debtor's assets
• Cooperation: Courts and insolvency professionals from different countries are required to cooperate and communicate to the maximum extent possible
• Concurrent proceedings: The Model Law provides rules for coordinating multiple insolvency proceedings in different countries involving the same debtor

Countries That Have Adopted the Model Law

India's Journey Towards Cross-Border Insolvency

India's path to adopting a cross-border insolvency framework has been deliberate but slow. The key milestones are:

Timeline of Developments

The Jet Airways Precedent

The Jet Airways case remains India's most important cross-border insolvency precedent. When Jet Airways ceased operations in April 2019, it had assets and creditors in multiple countries. The State Bank of India initiated CIRP before the NCLT Mumbai, while a Dutch court (Noord-Holland) opened insolvency proceedings in the Netherlands.

The NCLT initially refused to recognise the Dutch proceedings, citing the absence of a statutory framework. Later, the NCLAT directed cooperation between Indian and Dutch proceedings in a landmark order. This judicial improvisation demonstrated both the possibility and the limitations of handling cross-border insolvency without a legislative framework.

Draft Part Z of the IBC: India's Proposed Framework

The proposed Part Z of the IBC incorporates the UNCITRAL Model Law with India-specific modifications. Key features include:

Recognition Mechanism

• Application to NCLT: A foreign representative can apply to the NCLT for recognition of a foreign proceeding. The application must include certified copies of the foreign court order, evidence of the representative's appointment, and a statement identifying all known proceedings concerning the debtor
• Types of recognition: The NCLT can recognise the proceeding as a foreign main proceeding (COMI in the foreign country) or a foreign non-main proceeding (establishment in the foreign country)
• Automatic relief for main proceedings: Recognition of a foreign main proceeding triggers an automatic moratorium on individual enforcement actions against the debtor's assets in India, similar to the Section 14 moratorium in domestic CIRP
• Discretionary relief for non-main proceedings: The NCLT may grant specific relief such as staying execution against particular assets, entrusting asset administration to the foreign representative, or providing any other relief available under the IBC

India-Specific Modifications

COMI Determination: The Central Question

Determining the Centre of Main Interests (COMI) is the most critical step in cross-border insolvency because it determines which country's proceedings are treated as the "main" proceeding:

COMI Indicators

• Registered office location: The registered office creates a rebuttable presumption of COMI. If a company is registered in India, India is presumed to be the COMI unless evidence shows otherwise
• Place of central management: Where the board of directors meets, where strategic decisions are made, and where the CEO operates from
• Principal place of business: Where the majority of revenue-generating activities take place
• Location of major assets: Where the debtor's primary assets (factories, offices, inventory) are situated
• Employee base: Where the majority of employees work
• Third-party perception: Where creditors, customers, and regulators perceive the company's main operations to be located

COMI Disputes: Practical Challenges

COMI disputes arise frequently in cross-border cases, particularly with multinational groups where the parent company is in one country and key operations are in another. Examples:

• Indian subsidiary of a US parent: The Indian subsidiary's COMI is India (registered office + operations). But if the US parent makes all strategic decisions and the subsidiary is a shell, the COMI could be argued as the US
• Indian company with Middle East operations: An Indian construction company with 80% revenue from UAE projects may have its COMI challenged by UAE creditors arguing the COMI is in the UAE based on principal business activities
• Holding company structures: Pure holding companies with no employees or operations may have their COMI determined by the location of their subsidiaries' management rather than the holding company's registered office

Practical Implications for Indian Businesses

Inbound Cross-Border Insolvency (Foreign Debtor, Indian Assets)

When a foreign company with assets in India enters insolvency abroad, the proposed framework will allow the foreign insolvency professional to:

• Apply to the NCLT for recognition of the foreign proceeding
• Obtain a moratorium on Indian creditor actions against the debtor's Indian assets
• Access and manage the debtor's Indian assets (bank accounts, real property, shares)
• Coordinate with Indian authorities (RBI, SEBI, ROC) for regulatory compliance
• Include Indian assets in the global resolution or distribution plan

Outbound Cross-Border Insolvency (Indian Debtor, Foreign Assets)

When an Indian company with foreign assets enters CIRP before the NCLT, the Indian resolution professional will be able to:

• Apply to foreign courts in Model Law countries for recognition of the Indian proceeding
• Obtain protection for the debtor's foreign assets (moratorium on local enforcement)
• Access foreign bank accounts, property, and receivables of the Indian debtor
• Coordinate with foreign insolvency professionals for a unified resolution plan
• Maximise value by including foreign assets in the resolution plan offered to creditors

Impact on Resolution Plans

Cross-border insolvency will significantly affect how resolution plans are structured for companies with international operations:

Key Challenges in Implementation

Reciprocity Complications

India's insistence on reciprocity limits the framework's effectiveness. Many important trading partners have not adopted the UNCITRAL Model Law (China, Germany, France, Brazil). Indian companies with significant operations in these countries will not benefit from the framework for those specific jurisdictions.

Enterprise Group Insolvency

The IBC already struggles with group insolvency for domestic corporate groups (the DHFL case highlighted this). Cross-border group insolvency adds another layer of complexity. If a parent company in Singapore enters insolvency, how does it affect Indian subsidiaries? The current draft Part Z addresses single entity cross-border insolvency but does not fully address enterprise group scenarios.

Competing Priorities

• Indian creditor protection vs. global cooperation: Indian banks and creditors may resist frameworks that subordinate their claims to global distribution schemes
• Sovereignty concerns: Allowing foreign courts to influence proceedings over Indian assets raises sovereignty questions that require careful legislative drafting
• FEMA and RBI regulations: Cross-border asset transfers during insolvency must comply with FEMA regulations. The interaction between the proposed Part Z and FEMA provisions needs detailed rulemaking
• Tax implications: Transfer of assets across borders during insolvency triggers income tax, capital gains tax, and GST implications that must be addressed in the framework

Comparison: India vs Other Jurisdictions

Preparing for Cross-Border Insolvency: Checklist for Indian Companies

Companies with international operations should prepare proactively for the cross-border insolvency framework rather than reacting when insolvency occurs:

Corporate Governance Measures

• Document COMI clearly: Maintain board meeting minutes, management reports, and operational records in India to establish COMI if challenged. Ensure the Indian registered office is not merely a shell
• Map all cross-border assets: Create a comprehensive register of all assets located outside India, including bank accounts (with balances), real property, shares in foreign subsidiaries, intellectual property registrations, and receivables from foreign customers
• Review inter-company arrangements: Audit all inter-company loans, guarantees, and security arrangements with foreign group companies. Understand how these arrangements will interact with cross-border insolvency proceedings
• Identify applicable jurisdictions: For each foreign country where the company has assets or operations, determine whether that country has adopted the UNCITRAL Model Law and what local insolvency procedures apply
• FEMA compliance review: Ensure all foreign investments, overseas direct investments (ODI), and external commercial borrowings (ECB) comply with FEMA regulations. Non-compliance complicates cross-border asset recovery during insolvency

Creditor Protection Measures

IBBI's Role in Cross-Border Insolvency Development

The Insolvency and Bankruptcy Board of India (IBBI) has been actively preparing the regulatory groundwork for cross-border insolvency:

• Research and policy papers: IBBI has published multiple discussion papers on cross-border insolvency, inviting stakeholder feedback on the proposed framework
• International cooperation agreements: IBBI has signed memoranda of understanding (MoUs) with insolvency regulators in Singapore, United Kingdom, and other countries to facilitate information sharing and cooperation
• Training of insolvency professionals: IBBI has included cross-border insolvency modules in the training curriculum for insolvency professionals, preparing the professional capacity for implementation
• Database of foreign proceedings: IBBI is developing a registry system to track cross-border insolvency proceedings involving Indian debtors or Indian assets, which will support the NCLT in processing recognition applications
• Coordination with UNCITRAL: IBBI participates in UNCITRAL Working Group V (Insolvency Law) sessions to stay aligned with international developments, including the 2018 UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments

The IBBI's preparatory work indicates that India is moving towards formal adoption, with the regulatory infrastructure being built in advance of the legislative amendment. This approach ensures that the framework can be operationalised quickly once Part Z is enacted.

How IncorpX Supports Cross-Border Insolvency Matters

IncorpX provides specialised advisory services for cross-border insolvency and restructuring:

• NCLT representation: Filing and arguing cross-border insolvency applications before the NCLT for recognition of foreign proceedings or seeking cooperation orders
• CIRP advisory: Supporting resolution professionals in identifying and recovering debtor assets located in foreign jurisdictions
• Foreign creditor claims: Assisting foreign creditors in filing and proving their claims in Indian CIRP proceedings
• Regulatory coordination: Liaising with RBI, SEBI, and ROC for cross-border asset transfers, share transfers, and regulatory approvals during insolvency
• Resolution plan structuring: Advising resolution applicants on structuring plans for companies with cross-border operations, including FEMA compliance and tax optimisation
• IBBI compliance: Ensuring insolvency professionals meet all IBBI reporting requirements for cross-border elements in ongoing CIRP proceedings

Contact IncorpX for expert assistance with cross-border insolvency advisory and NCLT representation.