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In its recent order in the matter of Jet Airways (India) Ltd. (Offshore Regional Hub/Offices Through its Administrator Mr. Rocco Mulder) v State Bank of India & Anr., NCLAT allowed the Dutch Administrator appointed by the Noord District Court in Holland to participate in the meetings of the Committee of Creditors (CoC) constituted for the corporate insolvency resolution process (CIRP) of Jet Airways and has allowed the parallel insolvency proceedings to continue in the Dutch Bankruptcy Court. This order has paved a new way for judgements involving cross border insolvency process in India. The NCLAT has set aside the order which was passed by the NCLT Mumbai Bench that a foreign court cannot have jurisdiction to initiate any offshore insolvency proceedings against the corporate debtor.
Before proceeding ahead, it is important to know about the Cross-Border Insolvency laws prevailing in the country. Section 234 and 235 of the Insolvency and Bankruptcy Code of India (IBC), mainly deal with the Cross- Border Insolvency process. Section 234 provides for agreements with foreign countries, in which the Central Government may enter into bilateral agreements with other countries for purposes of enforcing the IBC. Whereas, section 235 of the IBC states about letter of request to a country outside India in certain cases, wherein the relevant court or tribunal in India can issue a letter of request to a foreign court or tribunal to seek its assistance, where a debtor’s assets may be located abroad. But the problem with these provisions is that, the government is yet to notify the date from which these two sections will be operational. As the laws are yet to come into force, the only option left is to enter into reciprocal or bilateral arrangements with other country (not under section 234 of IBC) which aims more towards reducing judicial red-tape across borders, for timely recovery of debts. Its primary goal is to streamline and smoothen the interaction or communication between resolution professionals/liquidators and foreign insolvency administrators and allow for easier access to foreign assets of entities undergoing insolvency in India. In the present case of Jet Airways, the parties to the proceeding have agreed to ‘Proposed Cooperation’, through a protocol which is facilitated and formulated by both the parties together. But the problem with such bilateral treaties is that, different countries have different processes for dealing with insolvency, thus making the process very lengthy and non-beneficial for the creditors in general.
In this case, as the government failed to take steps for providing legal framework for cross-border insolvency proceedings, the NCLAT took the responsibility to give the protocol entered into between the Dutch Administrator and Indian Insolvency Resolution Professional a legal base. But the very order has led to a significant change in way the Dutch Administrator shall deal with the insolvency case. In the protocol , it has been stated that “The Parties recognize that the Company being an Indian company with its Centre of main interest in India, the Indian Proceedings are the main insolvency proceedings and the Dutch Proceedings are the non-main insolvency proceedings”, due to which Indian laws are applicable to the foreign assets located in Netherlands. For e.g.: the imposition of the moratorium under section 14 of the IBC shall be applicable in Netherlands too. Therefore, in short it can be said that with regard to the Insolvency proceeding, the Dutch Administrator would thus be duty-bound to respect Indian law in this regard and preserve the value of the assets of Jet Airways in Holland.
It is felt that it is a necessity that the Ministry of Corporate Affairs must give due regard to the recommendations given in the Report of the Insolvency Law Committee on Cross Border Insolvency which had recommended that the Cross-Border Insolvency provisions must be in accordance to the UNCITRAL Model Law on Cross Border Insolvency. The reason why it was suggested was to “focus on authorizing, encouraging cooperation and coordination between jurisdictions, rather than attempting the unification of substantive insolvency law, and respects the differences among national procedural laws.” Further, it is also noteworthy to see that the Model Law provides for laws which are applicable in situations when:
A Foreign court or a foreign insolvency professional needs support in State.
Both foreign and domestic proceedings are simultaneously in progress.
Insolvency proceedings need to be commenced in State by foreign creditors and other interested parties
In a foreign State assistance is required relating to domestic proceedings
Thus, by incorporating these changes, the cross-border insolvency process in India shall be streamlined and will be made easier. It will meet the very objective for which IBC was drafted: to ensure that the debts of the creditors are paid back in a time bound manner, so as to ensure that the Corporate Debtor functions smoothly.
In the present case, it needs to be noted that the role of the Dutch Administrator is to just take part in the meetings of the CoC as an observer and therefore, he won’t be having any right to vote in the meetings as such. But the NCLAT in its order has stated that the Dutch Administrator shall be working in cooperation with the Resolution Professional (RP) and if the Dutch Administrator has any suggestions, he can convey it to the RP.
In the end, it is felt that the Parliament needs to decide upon the sections 234 and 235 of the IBC as they deal with the very important aspect of Cross Border Insolvency cases. In this globalized world, there are several companies who operate not only in the country of its origin, but also in other countries. Therefore, it becomes important that if a situation arises where India and any other country is simultaneously filing for insolvency against any corporate body, there needs to be a proper legal framework, so that there is an effective communication between the officials or representatives of both the countries and there is no unnecessary delay in realization of the debts of the creditors. The case of Jet Airways is a landmark example for the urgent need for having a legal framework for Cross Border Insolvency.