Economic Survey underlines need for standardised framework

New Delhi: There is a need for a "standardised framework for cross-border insolvency" that will help lenders of debt-ridden companies to claim and recover the corporations' assets and liabilities on foreign shores also, according to the Economic Survey 2021-22.

It mentioned about the report of the Insolvency Law Committee, which had recommended the adoption of the United Nations Commission on International Trade Law (UNCITRAL) with certain modifications to bring the foreign assets under the insolvency process.

Presently, foreign creditors can make claims against a domestic company in India. However, the Insolvency & Bankruptcy Code (IBC) does not allow for automatic recognition of any insolvency proceedings in other countries.

"The IBC currently does not allow for automatic recognition of any insolvency proceedings in other countries" and the present provisions "leads to uncertainty of outcomes of claims for creditors, debtors and other stakeholders as well," the survey said.

The survey noted that Section 234 and 235 of the IBC, which presently deals with cross border insolvency, are "ad-hoc in nature" and are "susceptible to delay". Section 234 empowers the central government to enter into bilateral agreements with other countries to resolve situations about cross border insolvency. Further, the NCLT can issue a letter of request to a court or an authority, under Section 235, competent to deal with a request for evidence or action in connection with insolvency proceedings under the IBC in countries with the agreement.

"As can be seen, the current provisions under the IBC are ad-hoc in nature and are susceptible to delay. Entering into mutual (reciprocal) agreements require individual long-drawn-out negotiations with each country," the survey, tabled by Finance Minister Nirmala Sitharaman, said.