New Delhi: What happens when a multi-national business collapses with its creditors and assets belonging to multiple countries? A parent company may enter into insolvency proceedings, say in New York, while its Indian subsidiaries continue to operate—leaving courts, insolvency professionals and even lenders struggling with a fundamental question about cross-border insolvency.
Which country’s proceedings take precedence, what happens to payments, and who gets paid first? More importantly, what is the legal framework to be followed?
In the last 20-30 years, Indian businesses have increasingly become multi-national. But, the absence of a codified cross-border insolvency framework has led to procedural delays and asset value destruction as seen in cases such as the one involving the now defunct Jet Airways.
These cases typically involve complex legal issues such as determining the appropriate jurisdiction for initiating insolvency proceedings, recognition and enforcement of foreign insolvency judgments, coordination among courts, and safeguarding the interests of both domestic and foreign creditors.
For instance, after Jet Airways folded up in 2019, insolvency proceedings were carried out both in India and The Netherlands. That episode exposed a big gap in the country’s insolvency regime when it came to cases transcending borders.
And, this persisted despite the presence of the Insolvency and Bankruptcy Code (IBC), 2016—India’s landmark legislation dealing with financial and corporate regulatory framework—as it left the international mechanisms unnotified and hanging till date.
The Code has two provisions—Sections 234 and 235—for cross-border insolvency. The former empowers the government to enter into bilateral treaties with foreign nations; the latter enables adjudicating authorities (like the National Company Law Tribunal, or NCLT) to issue letters of request to foreign courts to deal with assets abroad.
India, however, has not signed any bilateral agreement to date, rendering these sections effectively unused.
This situation was highlighted in the Insolvency Law Committee Report (2018), which criticised the current framework as being too narrow, reactive, and incapable of handling complex multinational insolvency cases.
By the latest IBC (Amendment) Act, 2026, the government is empowered to draft rules and regulations governing cross-border insolvency proceedings, including foreign proceedings, judicial cooperation, offshore asset recovery, and the coordination of insolvency cases across international jurisdictions
When it comes to the global level, the United Nations Commission on International Trade Law, commonly known as the UNCITRAL Model Law on Cross-Border Insolvency (1997), provides a common legal framework to help countries deal with cross-border insolvency cases.
Around 59 countries including Canada, Australia, the US, Japan, and Singapore have adopted this Model Law. India has not yet fully adopted the UNCITRAL Model Law on Cross-Border Insolvency.
Currently, the government has to execute bilateral treaties or reciprocal agreements with individual foreign countries to enforce cross-border claims. IBC also introduces the Centre of Main Interests (COMI) to determine which jurisdiction serves as the primary ground for the insolvency process, reducing parallel litigation and forum shopping
Why a cross-border framework?
In its 2021 quarterly newsletter, the Insolvency and Bankruptcy Board of India (IBBI) noted how the economic principle of allocative efficiency (i.e., an economy in which production is aligned with the preferences of consumers and producers) suggests releasing of idle resources for more productive uses.
“A cross border framework that aims to minimise costs and value erosion of assets and improve gains from trade contributes significantly to the overall growth prospects of the country,” it said.
Similarly, the 2022-23 Union Budget proposed that “Necessary amendments in the Code will be carried out to enhance the efficacy of the resolution process and facilitate cross border insolvency resolution”.
The need for a cross-border framework is also depicted via judicial precedents.
Prateek Kumar, a partner at Khaitan and Co, explained how Indian courts have not frequently encountered cross-border insolvency issues, largely because the pre-Amendment Act framework under Sections 234 and 235 of the IBC has remained largely inoperative in practice.
Courts have relied on principles of judicial comity and pragmatic coordination in the absence of a comprehensive statutory mechanism, he said.
In the Jet Airways case, the NCLAT approved a protocol enabling coordinated administration between the Indian resolution professional and the Dutch administrator despite the absence of legislative recognition, he told ThePrint.
Conversely, the low-cost carrier Go First case highlighted the limitations of the existing regime, particularly in disputes involving foreign aircraft lessors and the cross-border effectiveness of India’s insolvency moratorium.
“As Indian businesses increasingly operate through global supply chains, hold digital assets and maintain multinational corporate structures, such issues are only expected to become more frequent,” Kumar said.
Notably, Indian banks struggled to recover dues from fugitive businessman Vijay Mallya due to the absence of reciprocal treaties and cross-border insolvency laws. Despite court orders, Mallya’s partial disclosures and offshore transfers hindered recovery in the Kingfisher Airlines case.
Acclaimed insolvency lawyer Sumant Batra said that a cross-border framework would promote trade and investment as it offers investors from different jurisdictions a level-playing field.
Its adoption, he said, will also brighten India’s position globally as a sophisticated insolvency jurisdiction. “It will be another step towards India’s leadership on the economic global stage.”
“Unless you have a mechanism of cooperation between various jurisdictions where parallel insolvency proceedings are taking place, the insolvency processes can lead to uncertainties of outcome,” Batra, a distinguished fellow at the Indian Institute of Corporate Affairs, Government of India, said.
The cross border insolvency framework can help in maximizing the value of the assets where parallel insolvency proceedings are going on, by adopting a coordinated effort in cooperation with creditors in different jurisdictions, he explained.
“It can also facilitate tracing of assets of defaulter companies taken out of India and hidden in other locations, and claw them back—this is called asset tracing and recovery. It can also make parallel insolvency processes more efficient and coherent.”
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Supremacy of domestic law
Batra explained how the UNCITRAL Model Law recognizes the supremacy of the domestic law.
Emphasizing that IBC will have supremacy over the model law—which means that NCLT will be able to refuse recognition of insolvency proceeding if it is against public policy of India, Batra noted that the Code can refuse to recognise any plan sanctioned by any foreign court if it is contrary to the provisions of the IBC.
For instance, if an insolvency is going on both in India and in New York, Indian lenders can go their own way and their American counterparts another way.
The cross-border insolvency system, he said, can “create coherence, a coordinated effort, while protecting interest of Indian stakeholders. Indian courts can refuse to recognize or implement the U.S. sanctioned plan if it is against public policy of India or it does not meet the same parameters as is an IBC”.
Kumar noted that the most immediate gap the proposed framework seeks to address is the absence of a structured mechanism for recognition of foreign insolvency proceedings.
A clear statutory mechanism for recognition would provide the foundation for judicial cooperation, coordinated administration and value maximisation, while significantly reducing legal uncertainty for creditors and investors engaged in cross-border transactions, he added.
Kumar noted that legislative reform alone is unlikely to be sufficient unless accompanied by a robust procedural framework.
The rules formulated and notified under Section 240C of the Amendment Act will need to clearly prescribe the process for recognition applications, interim relief, judicial communication with foreign jurisdictions, information sharing, and coordination between Indian and foreign insolvency proceedings.
Institutional capacity and specialisation will also be equally important to administer complex cross-border cases, the insolvency lawyer said.
“India may also benefit from adopting structured court-to-court communication protocols, similar to the Judicial Insolvency Network (JIN) Guidelines (adopted by, for instance, the Singapore Supreme Court and the United States Bankruptcy Courts for Delaware and New York) to facilitate efficient cooperation amongst jurisdictions,” he said.
“Ultimately, procedural reforms will be central to ensuring that cross-border insolvency proceedings are administered consistently, efficiently and in a manner that inspires confidence among domestic and international stakeholders alike.”
Implementation hurdles
On implementation of cross border insolvency rules, if and when notified, Batra flagged the lack of capacity amongst stakeholders such as NCLT and bankers.
This, according to him, is because they wouldn’t really know the nuances of the cross-border law. The government is probably likely to notify only one or two benches for adjudicating cross-border matters.
Kumar, meanwhile, said that the effectiveness of the proposed cross border insolvency framework will depend on how the new regime approaches the question of reciprocity.
The Insolvency Law Committee (2018) has recommended that the new UNCITRAL Model Law-based framework be adopted initially on a reciprocity basis, with the requirement to be diluted over time based on experience gained in implementation and the development of adequate infrastructure within the Indian insolvency system.
It, however, remains to be seen whether the IBC (Amendment) Act, 2026 and the rules to be notified under Section 240C will adopt this recommendation in its current form, or dilute it further, or depart from it altogether, and the extent to which recognition and cross-border relief will function in practice will depend on that outcome.
Secondly, Kumar said foreign jurisdictions may fall outside the framework’s ambit unless and until they are formally notified as reciprocating territories, potentially limiting its utility in such cases.
Third, in the interim, courts and stakeholders may continue to rely on ad hoc protocols for non-reciprocating jurisdictions, resulting in inconsistent practices and jurisprudence.
Equally important will be institutional preparedness of stakeholders including NCLT, National Company Law Appellate Tribunal (NCLAT), resolution professionals among others, Kumar said, seconding Batra’s concerns.
The framework’s effectiveness will not just depend on the rules/legislation introduced, but also on the ecosystem and its preparedness to support its implementation, he added.
(Edited by Tony Rai)
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