The NCLAT order lays down the foundation stone for the cooperation with other jurisdictions in the matters pertaining to insolvency resolution. But will it be enough to foster a robust cross-border insolvency regime in India?
The recent NCLAT order on 12th July 2019 in Jet Airways case paves the way for cooperation between two jurisdictions where parallel insolvency resolution proceedings/ liquidation proceedings against the same debtor are being conducted, which is in consonance with what has been envisaged under UNCITRAL Model Law of Cross Border Insolvency, 1977. The question for consideration before the court was whether separate proceeding(s) in ‘Corporate Insolvency Resolution Process’ against common ‘Corporate Debtor’ can proceed in two different countries, one having no territorial jurisdiction over another.
Separate ‘Corporate Insolvency Resolution Proceedings’ have been initiated against the same ‘Corporate Debtor’ namely, Jet Airways (India) Limited, one in India where the registered office is situated and another in Netherlands (North Holland), where the regional hub of the Corporate Debtor is situated. The Appellate Tribunal in the order has put a stay on the NCLT order, which relates to the declaration that the offshore proceeding is not maintainable. Also, any decision on such an issue has been postponed to the hearing.
In this order, the moratorium was extending to the assets located abroad, not through by means of any provision, but by common understanding as the Appellant Administrator (Netherlands) gave assurance to cooperate in the proceedings in India and will not sell, alienate, transfer, lease or create any third party interest on the offshore movable and immovable assets of the debtor which are under his possession. This order provided an option to the respondent to suggest the procedure that may be followed in the facts and circumstances of the present case, without any conflicting interest of stakeholders of both the countries, but did not elaborate on or provided any direction with regard to structure and formulation of the procedure for the same. The order also proposed the “cooperation” between the Appellant Administrator and Interim Resolution Professional but again shed no light onto the procedure to be followed while doing so, which would one of the interesting things to look out for in this case as India has not adopted the Model Law which provides for the provision related to such cooperation between representatives from different jurisdictions.
This is one of few cases which deals with parallel proceedings and cross-border insolvency in India and the first, which seems to be in the right direction. This order is in consonance with the basic principle of the Model Law, which elaborates that a foreign representative of a debtor who is subject to collective insolvency can apply to the court in the other jurisdiction for resolution of its disputes.
Indian cross-border regime is very rudimentary at this stage and this order opens up the Pandora’s Box. There are many things which are yet to be developed and determined, like principle of Gibbs rule and automatic attachment of assets, etc. But this order is not the only instance where this issue has arisen, there was a discussion related to the provision of the concurrent proceedings in Insolvency Law Committee Report on Cross Border Insolvency issued in October 2018. When a foreign-main proceeding is recognized against a corporate debtor, there are certain conditions involving the existence of domestic assets to which the triggering of insolvency proceedings under the code is subjected to. In a foreign insolvency proceeding, a creditor who receives a part payment for a claim might not be eligible for receiving another payment in another proceeding against the same corporate debtor. However, the creditor is entitled to receive the additional payment if the same is proportionally lesser than the payment what other creditors, who are of the same standing have received. It is expected that more of such judgments would be pronounced by the courts in the near future and would further elaborate on principles like COMI and Model Law of Insolvency to make the present law more holistic.
In general, this order is a welcoming step and paves a way for the development of a robust cross-border regime in India.
Link to the order: https://nclat.nic.in/Useradmin/upload/14226460455d285c7ad3076.pdf
Shiren Panjolia is a penultimate-year law student at National University of Advanced Legal Studies, Kochi and pursuing his specialization in Commercial Laws.
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Categories: Corporate Law