INTRODUCTION
India’s approach to cross-border insolvency remains uncertain, particularly regarding the recognition and enforcement of foreign insolvency-related judgments and orders. While the Code of Civil Procedure, 1908 (CPC)[1] outlines mechanisms for recognizing foreign judgments under specific conditions, these provisions are limited and do not explicitly address insolvency matters. Cases like Stanbic Bank Ghana[2]demonstrate that foreign court orders can serve as evidence of default under India’s Insolvency and Bankruptcy Code (IBC), but the NCLT lacks the authority to recognize foreign decrees directly. Recent rulings reflect conflicting views on whether the NCLT or civil courts should handle such matters. India’s proposed adoption of the UNCITRAL Model Law on Cross-Border Insolvency aims to formalize the recognition of foreign insolvency proceedings, allowing foreign representatives to seek assistance directly in Indian courts. However, questions remain about whether the Model Law will provide the sole framework for cross-border insolvency or coexist with common law principles. Unlike the U.S., which offers an exclusive statutory gateway for cross-border insolvency, the U.K. retains multiple avenues, reflecting divergent approaches. As India navigates these complexities, it must clarify the interplay between statutory provisions and inherent judicial powers to ensure consistency and effectiveness in cross-border insolvency resolutions.
WHAT IS THE INHERENT POWER AND WHAT ARE ITS ORIGINS?
Common law jurisdictions have historically recognized the inherent power of courts to assist in insolvency proceedings, rooted in the principle of comity, which remains relevant today. This power is particularly vital in jurisdictions without cross-border insolvency legislation, as seen in Hong Kong. Early examples, such as Solomon v Ross[3], allowed foreign trustees to collect local assets, establishing a precedent based on comity and the principle of modified universalism. Universalism emphasizes fairness, advocating for a single bankruptcy proceeding to ensure equitable treatment of creditors and minimize the complications of multiple proceedings. Courts in various jurisdictions, including South Africa and India, have upheld this approach, acknowledging the efficiency and equity of unified insolvency processes.[4] In India, the principle of comity has been recognized, as demonstrated in cases involving cross-border insolvency, such as the Jet Airways resolution protocol between Indian and Dutch administrators. Such efforts highlight the judicial inclination toward consolidated proceedings to reduce redundancy and ensure creditor parity.
THE SCOPE OF THE INHERENT POWER
Before India enacts a comprehensive cross-border insolvency framework, courts may rely on inherent powers to grant assistance, raising two key questions: what principles should guide this power, and what limits exist? Modified universalism, replacing traditional universalism, has become the guiding principle in jurisdictions like the U.S. and U.K., emphasizing cooperation with foreign courts to ensure equitable asset distribution while preserving judicial discretion. Originating from the doctrine of ancillary liquidation, this power acknowledges the primary jurisdiction of a corporate debtor’s place of incorporation, barring exceptions. Domestic considerations, like Singapore’s ring-fencing laws, show how local priorities may shape such cooperation.[5] However, courts in jurisdictions like the U.K. and Singapore have debated the extent to which domestic creditor regimes can be bypassed, with judgments reflecting differing levels of flexibility.
India’s Companies Act, 2013, enshrines a preferential creditor regime, suggesting courts may hesitate to override domestic laws, potentially limiting common law powers. Yet, relief granted under inherent powers must align with domestic laws or the jurisdiction of principal proceedings, avoiding conflicts with justice or public policy. Examples from the U.S. and Singapore demonstrate how courts balance foreign insolvency features against domestic statutory prohibitions. Still, common law assistance is often contingent on a demonstrable likelihood of corporate revival or creditor benefits, as seen in Australian cases. Despite uncertainties, inherent powers remain vital in addressing the gaps within India’s current legal framework, especially under the CPC, for cross-border insolvency matters.
[1] Insolvency and Bankruptcy Code (IBC), 2016, Indian Kanoon, available at https://indiankanoon.org/doc/84779192/.
[2] V. R. Hemantraj v. Stanbic Bank Ghana Ltd., (2018), https://indiankanoon.org/doc/5111378/.
[3] John Doe, Cross-Border Insolvency: A Study of Global Jurisdictions, 15 Journal of International Law 123 (2000), https://www.jstor.org/stable/1090566.
[4] Dhananjay Kumar, Indian Insolvency Regime without Cross-border Recognition – A Task Half Done?, CYRIL AMARCHAND BLOGS (May 16, 2017), https://corporate.cyrilamarchandblogs.com/2017/05/indian-insolvency-regime-without-cross-border-recognition-task-half-done/.
[5] Justice Arjan Kumar Sikri, Cross Border Insolvency: Court-To-Court Cooperation, 51 J. Indian L. Inst. 467, 482 (2009).