Business in India and insolvency laws

The Insolvency and Bankruptcy Code, 2016 (IBC), has come into effect in India at a time when overseas companies are seeing increased India business as well as an increasing number of Indian businesses going global. Is the IBC then to be considered an enabler to doing business in India?

For overseas entities doing business in India directly through downstream Indian entities (categorized as “foreign companies”), a cross-border insolvency situation may arise when: firstly, the insolvent company has a number of foreign creditors who want to ensure that their rights are protected; secondly, an insolvent company has assets located in another jurisdiction, which its creditors may want to access as part of the insolvency proceedings; finally, insolvency proceedings with respect to the same debtor are commenced and ongoing in more than one country.

The IBC does not distinguish between foreign and domestic creditors. Thus it permits foreign creditors to commence and participate in proceedings under the code, which takes care of the first situation above. However, the IBC does not substantially engage with the second and third scenarios, even though sections 234 and 235 of the IBC talk about signing bilateral treaties and letter of request respectively.

Manoj Kumar is the founder and managing partner at Hammurabi & Solomon, where Shweta Bharti is a senior partner.