(a) In relation to each type of insolvency procedure available in the legal system of this economy, to what extent are the claims of foreign creditors recognised in the context of administration of that procedure?

(b) What principles or rules apply to the recognition and admission of claims by foreign creditors? (for example

(i) Are claims by foreign creditors subject to particular rules in relation to priority of payment?

(ii) Do foreign creditors have to satisfy special or additional requirements in order for their claims to be admitted?)

(c) What law is applied to establish the validity of foreign claims?

 

The Indian insolvency procedure do not discriminate against debts due to foreign creditors, as long as such debts have been lawfully incurred. The provisions of the Foreign Exchange Regulation Act, 1973 provide certain specific requirements for contracting a foreign debt and prior approvals of the RBI or the Ministry of Finance before contracting a foreign debt should be in place. If these consents or approvals are filed with proof in the appropriate insolvency court then the debt can be proved and the courts have even declared that they have authority to pay in foreign currency.

Foreign creditors are not given any specific special treatment for priority of payment. If their debt is agreed to be paid in repatriable currency as declared at the time of the consent from the Ministry of Finance or the RBI then the decree can be in foreign currency. The law of India or the law governing the company would be applied in determining the debt or the claim. The normal procedure of a proof of a claim will be applicable.

 

(a) To what extent does the insolvency law of this economy claim jurisdiction over assets of a corporate debtor situated abroad?

 

The provisions of the Companies Act do not have extra territorial jurisdiction and extend to only the whole of India. If an Indian company has assets outside the territorial jurisdiction of India then depending upon the rules of registration of the Indian company or branch abroad in a foreign jurisdiction, foreign law may apply. An order of insolvency is a judgement in rem and based on principles of reciprocity and private international law, new proceedings may have to be instituted in foreign jurisdiction based on foreign law applicable for the liquidation and winding up and sale of such assets, or branch or foreign company. If an insolvency order is passed in India, the branch and its assets would be subjected to such insolvency order, as a branch has no independent legal existence.

(a) To what extent do the rules of private international law of the legal system of this economy recognise insolvency procedures commenced in foreign jurisdictions?

(b) Under what circumstances, if any, may orders or judgments resulting from foreign insolvency procedures or administrations be recognized or enforced in the legal system of this economy?

 

Indian law will not recognize foreign insolvency procedures over an Indian Company. An insolvency order in order to be recognised against an Indian company has to be passed by the Company Court and no foreign court has authority to declare an Indian company as being wound up. A foreign court can at best pass a judgement against assets within its jurisdiction. If the judgement is unsatisfied, based upon rules of reciprocity and recognition of foreign judgements either the foreign judgement or decree may be executed in relation to reciprocating territories or found a new cause of action based upon the judgement in India. When a judgement is rendered as a judgement debt and is unsatisfied, insolvency procedure can commence in India before the Company Court.

As explained above no foreign court has authority as a Company Court to render a judgement or order of winding up in a foreign jurisdiction with reference to Indian companies. Therefore, the question of a foreign insolvency judgement of an Indian Company being recognised in India does not arise.

 

(a) What recognition is accorded in the legal system of this economy to the status and capacity of insolvency administrators (for example trustees, liquidators, receivers) appointed in foreign insolvency procedures?

 

Under the Civil Procedure Code and Sections 13 and 44A thereof, there are specific grounds and provisions on the basis of which a foreign judgement can be recognised or accepted by an Indian Court. Only judgements from a reciprocating country as is notified in the Indian Official Gazette are recognised. A judgement in rem rendered by a foreign court of a non-reciprocating territory will not be recognised for purposes of execution and will require the institution of a new civil suit in India. Consequently the appointment of a receiver or a trustee or a liquidator from a non-reciprocating territory will not be recognised by an Indian court. In relation to reciprocating territories when the judgement is transferred or execution is commenced of a decree from a reciprocating territory then Indian courts would give assistance and would appoint local agents of a foreign trustee or receiver as requested for execution or for enforcing a decree. When such decree remains unsatisfied then the Company Court on a petition or a notice of an unsatisfied judgement or decree, may commence winding up of an Indian company in India in the Indian Company court having jurisdiction.

(b) To what extent are foreign insolvency administrators entitled to claim, take control of, and realise or deal with property of the corporate debtor situated within the jurisdiction of the legal system of this economy?

 

Answered above.

(a) To what extent does the legal system of this economy recognise the validity of rights of security asserted by foreign creditors over assets of the corporate debtor?

(b) Are any special rules applicable to determine the validity, extent and ranking of such security rights?

 

The Indian legal system recognizes security of non-resident creditors provided such non-resident creditors have taken the consent and approval of the Ministry of Finance and the RBI before the creation of security over the assets of a corporate debtor. The Foreign Exchange Regulation Act, 1973 requires the foreign creditor to seek approval of the RBI for creation of security in favour of the foreign creditor. The ordinary rules of ranking applicable to domestic creditors will apply after the permission has been granted and the same rules applicable in relation to secured or unsecured creditors will apply thereafter.

(a) To which international conventions having some application in insolvency matters is this economy a party?

(b) When were these conventions entered into, and what other states are parties?

(c) What observations can be made about the practical results achieved under these international instruments?

 

Presently no information has been available on any special international conventions of insolvency to which India has acceded. In view of the Company Court and the existing Indian Law, international conventions will not hold the field as rules of private international law declare that no convention has a priority over domestic private law which is inconsistent with the convention or a treaty.

(a) Are there any other particular issues or special problems in the field of cross-border insolvency, not included in the answers supplied above, which have presented themselves before the courts of the legal system of this economy?

 

In view of limited reciprocating territories there are severe disabilities in instituting foreign insolvency actions in relation to Indian companies.

(a) Is the government of this economy aware of the UNCITRAL model law on cross-border insolvency, approved by the United Nations in June 1997?

(b) If so, are you aware of whether the government has any proposals to enact the terms of the model law?

 

The Government has not yet proposed to act on the UNCITRAL model for cross-border insolvency.