The troubles of creditors and employees of Jet Airways seem insurmountable. But this case also presents a unique opportunity for India to showcase its capability to handle cross-border insolvency matters.
The National Company Law Appellate Tribunal (NCLAT) has posed a pertinent question in the appeal filed by the Dutch administrator it has brought in to assist in the insolvency proceedings against Jet Airways (India) Limited: can separate insolvency proceedings be conducted against a common debtor in two countries?
Neither have the provisions on cross-border insolvency in the Insolvency and Bankruptcy Code (IBC) been tested, nor has India adopted the United Nations Commission on International Trade Law (UNCITRAL) model law on cross-border insolvency.
The disputed NCLT order under appeal specifically notes that “the order of the foreign court is a nullity in the eye of law and such order cannot be given effect”. NCLT goes on to add that the resolution of Jet Airways is of ‘national importance’ and its proceedings “cannot be stayed or withhold even for a single day based on the order passed by any foreign court.…”
NCLT’s observations highlight the classic struggle between territorialism and universalism. Territoriality, with a blind focus on sovereign interest, can result in inefficient and unpredictable outcomes that can hamper global trade and foreign investment. At the same time, universalism that believes in ‘one proceeding, one law’ is utopian.
In this backdrop, a version of modified universalism has emerged in the form of the UNCITRAL model law on cross-border insolvency. Legislation based on it has been adopted in 44 countries. The model law, while recognising that a cross-border insolvency should be administered under one main proceeding governed by one law, it empowers other countries to decide whether recognition of one proceeding as the main one would infringe local interests, prior to according deference to the main proceeding.
But how can courts determine which proceeding shall be designated as the ‘main proceeding’?
The model law provides a rebuttable presumption that the country where the registered office of the debtor is located is the centre of main interest (Comi) of the debtor, and proceedings in this country should be classified as the ‘main proceedings’. So, say, in the Jet case, a rebuttable presumption in favour of India being Comi exists. But courts also have a duty to independently determine the Comi of the debtor.
Factors include the location of the debtor’s central administration, the country ascertained as Comi to creditors, the location of most employees and of the debtor’s books and records. Keeping these factors in mind, it’s highly likely that India would be designated Comi, and Indian proceedings be recognised as the main proceedings.
This should result in automatic relief — such as a moratorium on the transfer of Jet’s foreign assets, and allowing the Indian insolvency representative greater powers in handling Jet’s estate. But insolvency proceedings in Holland need not be stopped. It can be recognised as the non-main proceeding if Jet has an ‘establishment’ (site of non-transitory economic activity) in the country.
Courts in other countries, including India, may then grant relief towards such non-main proceedings. For such scenarios, the model law provides for coordination of two or more concurrent insolvency proceedings in different countries by encouraging cooperation between courts and insolvency representatives.
Courts in international insolvency cases have in the past used the model law to use quicker forms of communication (email, videoconferencing), instead of letters rogatory, etc, that involve longdrawn diplomatic channels.
Given that India has not adopted the model law yet, it may be difficult for NCLAT and creditors to rely on the framework provided in it. In October 2018, the Insolvency Law Committee constituted by the corporate affairs ministry had recommended the model law’s adoption with some modifications. Its current framework is much more effective in dealing with crossborder insolvency than under IBC, which relies on individual agreements to be entered into by the government with foreign countries.
NCLAT and creditors should make an application for recognising the Indian proceeding as the ‘main’ one in every foreign insolvency proceeding commenced against Jet. Most countries, including Britain, the US, Singapore and Dubai International Financial Centre (DIFC), have adopted the model law in some form. Very few of these require reciprocity. So, such applications can be made regardless of India’s adoption of the model law. (Interestingly, even Holland hasn’t adopted it.)
NCLAT has certainly set the ball rolling by asking parties to present it with apossible way forward. Any further action that it takes needs to be carefully charted, as all eyes will be on India.
Orginally published – https://economictimes.indiatimes.com/blogs/et-commentary/jet-insolvency-usable-model-law-or-airy-fairy/