This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.
Cross-border Insolvency: India is going beyond borders in its strive to strengthen and successfully implement its Bankruptcy Code
In order to introduce a globally accepted and workable cross-border insolvency regime, and thereby strengthening the Insolvency & Bankruptcy Code, 2016 ("Code"), the Ministry of Corporate Affairs, vide its public notice dated 20 June 2018, has released a draft chapter on cross-border insolvency to be inserted in the Code itself and has invited comments from all stakeholders.
The draft suggests adoption of UNCITRAL Model Law on Cross-border Insolvency, 1997 (the "Model Law") which has emerged as the most widely accepted legal framework to deal with cross-border insolvency issues while ensuring least intrusion into the country's domestic insolvency law. The Model Law seeks to assist countries in relation to regulation of corporate insolvency and financial distress involving companies which have assets or creditors in more than one country. Many countries like United States, United Kingdom, Japan, Singapore, etc. have already substantially grafted the Model Law into their domestic legislation.
The document also suggests that the provisions for cross-border insolvency will be introduced first for the corporate debtors and will be extended for personal insolvency in due course of time.
The present Code does not provide a comprehensive framework for cross-border insolvency matters. Section 234 empowers the Central Government to enter into bilateral agreements with other countries to resolve situations pertaining to cross-border insolvency. Section 235 empowers Adjudicating Authority (NCLT/NCLAT) under the Code to issue a letter of request to court in a country with which such an agreement has been entered into, to deal with assets situated in that country in a specific manner. The agreement under these sections will apply when proceedings in India would require recognition, assistance, etc. abroad and when foreign proceedings require the same treatment in India. These provisions call for a lengthy procedure of negotiating and entering into bilateral treaties with foreign governments resulting into complex procedure due to multiple jurisdictions. The enforcement of foreign judgement is to be done by applying the provisions of Civil Procedure Code, 1908 while the treatment of the Indian proceedings abroad depends on law of that country. Thus, the present regime is grossly inadequate.
Proposed Legal Framework:
1. Applicability: It will apply to all corporate debtors to whom the Code applies where:
assistance is sought in India by a foreign court or a foreign representative in connection with foreign proceedings, or
assistance is sought in a foreign country in connection with Indian proceedings under the Code, or
foreign proceedings and proceedings in India under the Code in respect of same corporate debtor are taking place concurrently, or
creditors in a foreign country have an interest in requesting the commencement of, or participation in, the proceedings in India under the Code.
Central Government has retained power to notify classes of corporate debtors or entities to whom these provisions shall not apply.
2. Jurisdictional Coverage: While the new law will apply to countries which have adopted the Model Law, the Central Government has been empowered to enter into bilateral agreement with other countries and notify applicability of the new law on such countries subject to conditions as stated in the agreement with the respective country.
3. Access: It allows foreign insolvency officials and foreign creditors a 'direct' access to domestic courts and confers on them the ability to participate in and commence domestic insolvency proceedings against a debtor. It has been suggested to appoint an Indian insolvency professional as a representative of the foreign representative to exercise all functions on its behalf.
4. Recognition: It recognizes that in concurrent proceedings in multiple jurisdictions, the proceedings in one country has to be main proceedings while the proceedings in other countries have to be ancillary. Accordingly, it talks about a concept called 'Centre of Main Interests' and states that the corporate debtor's registered office will be presumed to be the centre of main interests in the absence of proof to the contrary. While making such determination, the Adjudicating Authority (NCLT/NCLAT) shall make assessment applying factors notified by the Central Government. If domestic courts determine that the debtor has its centre of main interest in the foreign country, they will consider insolvency proceedings in such foreign country to be the main proceedings while domestic proceedings will be treated as an ancillary proceedings. This will result in automatic relief such as stay/moratorium on domestic proceedings in relation to domestic debtor and allow foreign representative greater powers in handling the estate of the company. On the other hand, if foreign proceedings are considered as non-main proceedings, such relief will be at the discretion of the domestic court.
5. Cooperation: It envisages 'direct' cooperation between:
6. Coordination: It provides for commencement of domestic insolvency proceedings, when a foreign insolvency proceeding has already commenced or vice versa. It provides for coordination of two or more concurrent insolvency proceedings in different countries by encouraging cooperation between courts.
In simple words, once new law is enacted, a domestic creditor/lender will get access to overseas assets of the debtor and a foreign creditor will also be able to initiate and participate in insolvency proceedings against domestic debtor in an effective manner. On the other hand, the cooperation from foreign countries at appropriate stages of the proceedings will prevent assets (including overseas assets) from dissipating, thereby maximizing such assets to promote resolution over liquidation of the debtor which is the most important objective of the Code.
This proposal is yet another move by the Government towards making India as an attractive investment destination having effective cross-border insolvency law and clearly depicts its commitment to strengthen and implement the Code in its letter and spirit. Since many countries have already adopted the Model Law, it will fasten the whole process. The Ministry will finalize the draft after having received the comments from public before it can place it before cabinet and take next step in making it a law.
Other Key Developments in Insolvency Law
In its attempt to remove obstacles coming in the path of successful implementation of the Code, the Government promulgated the second Ordinance to further amend the Code effective from 6 June 2018. The Government has simplified the decision making process in order to promote resolution over liquidation by reducing the minimum voting requirements from 75% to 66% for important decisions like approval of resolution plan and 51% for routine matters. While giving the status of financial creditor to the home buyers enabling them to take the errant developers to task, the issue which will open door for different views is whether such home buyers will be treated as secured creditor or not. Besides, the Government has given due relief to the pure financial players by allowing them to bid during the insolvency process, by amending recently inserted Section 29A. Amongst other changes, the amendment has settled most of the contentious issues being faced in the on-going insolvency matters under the Code such as applicability of moratorium on guarantors and limitation on the proceedings under the Code, etc.
Click here to read our presentation on the significant changes in the Code.
Our Insolvency & Restructuring Practice - Recent NCLT Order
Our litigation team recently represented M/s Bengal Unitech Universal Infrastructure (P) Ltd. ("Client") before NCLT, New Delhi Bench in respect of a petition filed under Section 9 of the Code by one of its supplier, M/s RDC Concrete India (P) Ltd. for commencing corporate insolvency resolution process against our client. It was alleged that an amount of INR 5,94,40,956/- was payable by our Client to the petitioner against the invoices raised in respect of the ready mix concrete supplied by it and our client has failed to pay the same. Hence, the insolvency proceedings was initiated against our Client. Our litigation team opposed the said petition on the primary ground of a prior existence of dispute between the parties which was pleaded to be evident in the correspondence exchanged between the parties. After hearing both the parties at length, NCLT passed an order in favour of our Client and dismissed the petition on 16 November 2017. While doing so, NCLT clearly stated that the provision for triggering of corporate insolvency resolution process can be permitted only in the absence of any dispute.
Chambers of Rajan & Indraneel
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Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.
We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.
The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.
We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of the JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India.
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