Why in News?
Insolvency and Bankruptcy Code 2016 is now set to be amended to expand the scope of the Code to include cross-border insolvency matters.
What is Cross-border insolvency?
- Cross-border insolvency involves a situation where an insolvent debtor has assets or creditors in more than one country.
- The issue arises, when different countries have conflicting domestic bankruptcy and insolvency regimes, governed by principles of territorialism.
- There is also the issue of lack of co-operation amongst foreign courts and statutory agencies.
What is UNCITRAL Model Law?
- United Nations Commission on International Trade Law proposed the UNCITRAL Model Law on Cross Border Insolvency to deal with such issues.
- The proposal was adopted in 1997 and it can be adopted by countries with modifications, which suit their domestic context.
- It has provisions allowing foreign insolvency courts, and officials access to domestic courts (and vice versa).
- It also provides for recognition of orders and judgments passed by insolvency courts located in foreign jurisdictions.
- Increasing cross-border trade, prompted several Asian nations (Myanmar, the Philippines, Republic of Korea and many more) to adopt the Model Law in the last decade.
- The Model Law has till date been adopted by 49 countries.
What are the efforts taken by India for Cross-border insolvency?
- The Insolvency and Bankruptcy Code (IBC) 2016 is regarded as landmark legislation. It is a Model Law that has been tweaked to suit India’s context and requirements.
- The MCA constituted a Cross-Border Insolvency Rules and Regulations Committee (CBIRC) to make recommendations to the draft rules.
- Notable features include its applicability to corporate debtors and personal guarantors.
- It is also indicated that financial service providers and pre-packaged process may be outside the proposed framework.
Why Cross-border insolvency reform is essential now?
- Economic growth since the 1990s has been driven by LPG reforms.
- Increased interdependence of economies has resulted in high levels of cross-border investments, foreign borrowing, and movement of people across countries. So, the risk of failure is also no longer restricted to a single economy.
- Financial risks are transmitted through global markets and the absence of a comprehensive framework to deal with cross-border risks hampers prospective businesses and investments.
- The Joint Parliamentary Committee, while reviewing the draft IBC Bill in 2016, emphasized the need for a cross-border resolution framework.
What are the challenges associated?
- Enforcement of foreign judgments – The Code of Civil Procedure (CPC) supports the recognition and enforcement of foreign judgments.
- The use of these provisions involves going through already heavily backlogged Indian courts.
- Since insolvency matters need timely addressing, this would be both time-consuming and costly.
- The IBC envisages entering into bilateral agreements and issuance of letters of request to foreign courts such agreements with countries entails time, effort and costs.
- Bilateral economic arrangements have not always given the desired results.
- Arriving at an agreement applicable to several countries is challenging.
- Settlement of insolvency matters with non-reciprocating countries requires filing new suits.
What are the benefits of having a Cross-border insolvency framework?
- Dispute settlement.
- Access to assets held abroad in foreign subsidiaries.
- Information sharing and cooperation of foreign agencies and reduce litigations across jurisdictions.
- Encompasses suitable timelines, skilled professional capacity, and coordination requirements.
- Indicates clear supportive measures available to foreign jurisdictions in India.
- Indian creditors and investors lending/investing aboard will also benefit from a clearly defined resolution mechanism.
Moral objectivism: The position that certain acts are objectively right or wrong, independent of human opinion. It doesn’t depend on what anyone thinks is right or wrong. Moral Objectivism holds that there is objective, universal moral principles that are valid for all people.
Moral relativism is the idea that morals are not absolute but are shaped by social customs and beliefs. In other words, morals aren’t set in stone. Instead, they are defined by culture. Helping to link the term to its definition, moral relativism holds that morals are related to culture.