Why India needs cross border insolvency ?
- Sections –234 and 235 relating to cross border insolvency – not adequate to effectively deal with default cases of domestic corporate debtor having assets and operations outside India.
- Legal framework is required to deal assets overseas.
- Existing provisions only allow Central government to enter into agreement with foreign country for enforcing provisions of Code.
- Although the Insolvency bankruptcy code has resulted in significant improvement in India’s insolvency regime, there is a need to include cross-border insolvency in the Code to provide a comprehensive insolvency framework.
How it will ensure an effective resolution mechanism ?
- It would help banks access overseas assets of a company undergoing resolution.
- FDI
- Once approved, the proposed cross border insolvency framework will lead to more cross-border deals and help in making India an attractive FDI target by reducing the risks associated with insolvency.
- Furthermore, it will make India an attractive investment destination for foreign creditors given the increased predictability and certainty of the insolvency framework.
- It would provide greater efficiency and certainty on cross-border insolvency issues.
- Level Playing Field.
- It is in line with UNICTRAL Model Law on Cross-Border Insolvency and thus cooperation can be sought from other countries who have adopted the model law etc.
- Modern business is transnational and the law should proceed on that basis.
- Inclusion of cross-border insolvency framework is expected to further enhance ease of doing business, provide a mechanism of cooperation between India and other countries in the area of insolvency resolution, and protect creditors in the global scenario.
- Foreign creditors and Indian creditors will be at par if the framework on cross-border insolvency gets introduced in India.
- Model law will make it very easy for Indian MNCs and global MNCs to resolve insolvencies seamlessly across borders.
- It is also a big positive for lenders including equity investors as it sets the right tone to their investment committee that due processes would be followed that are globally acceptable.
- Cross-border deals, both inbound and outbound, would greatly benefit from the reduced risk perception of India as a destination where strong Insolvency law exists. This would encourage lot many lenders to consider backing M&A transactions involving India.
UPSC CSE Notes 