Necessity is the mother of invention.

Corporate fugitives and fraudsters like Nirav Modi and Vijaya Mallya have given new shape and dimension to several Indian laws. In particular, they are the role models to understand the severity of the recovery problem faced by the Central Government to get a hand on overseas assets of loan defaulters’ like them.

Central government is considering creation of an establishment to take up cross-border insolvency cases via a reciprocal agreement with other nations by amending the Insolvency and Bankruptcy Code (IBC).

Cross-border insolvency would control the conduct of financially distressed debtors if such debtors own assets in more than one country.

The said proposal is also backed up by Section 234 of the IBC which stipulates that ‘The Central Government may enter into an agreement with the government of any country outside India for enforcing the provisions of this Code.’ 

Enforcement of cross-border provisions may unlock the doors for tapping overseas assets of defaulters and help in swift resolution of the cases.

The proposal to insert cross border insolvency provision in IBC is enthused from UNCITRAL Model Law, an international governance legislation on cross-border bankruptcy cases formulated by the United Nations Commission on International Trade Law.

The objective of UNCITRAL Model Law is to service countries regulating with cross border insolvency cases and empower lenders of such countries to handle with overseas assets of defunct companies or debtors without any hiccups.

Many countries have adopted the UNCITRAL to resolve cross border insolvency cases. India have not signed the UNCITRAL yet.

Many Indian corporates (with subsidiaries abroad) are on the verge of dissolution / winding up and facing insolvency proceedings. Due to absence of specific provisions of cross border insolvency under IBC – it is becoming increasingly very difficult for the Central government to intrude into the foreign soil to get the control of foreign assets of companies defaulted in India.

Implementation of such measures is the need of the hour to arm relevant authorities with tools and weapons needed to hunt down the defaulters absconding abroad to evade the punishment for the violation of laws.

Another proposal which is under deliberation is that introduction of online system to resolve individual insolvency cases as a part of government labors to establish different contrivance to treat the individual insolvency cases. Medium and small enterprises (which have registered as sole proprietorships or partnerships) could fall into individual insolvency cases.

The underlying intent in introduction of the online system is to evade the necessity of appearing in person and engagement of resolution professional

Ministry of corporate affairs is planning to gauge the success of IBC on three parameters (time taken, money recovered and the cost burden on the corporate debtor) and by comparing such statistics with global counterparts to further develop the efficacy of the IBC.

One can hope with the implementation of cross border insolvency provision and introduction of different contrivance for handling individual insolvency cases will aid in recovering the loans by unlocking the doors to access the foreign assets of defaulters and differentiating corporate and individual insolvency cases to facilitate quick disposal of insolvency cases with non-performing assets.

Research and inputs by Paruchuri Baswanth Mohan.