India needs to adopt cross-border insolvency laws

Source: The post India needs to adopt cross-border insolvency laws has been created, based on the article “Navigating cross-border insolvency” published in “The Hindu” on 25th September is 2024

UPSC Syllabus Topic: GS Paper 2- International relations- Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Context: The article emphasizes the need for India to adopt cross-border insolvency laws, especially in trade agreements like FTAs and CEPAs, to support international trade. It argues that insolvency provisions should be integrated into such agreements for stronger trade relationships.

For detailed information on Addressing cross border insolvency read this article here

What Is UNCITRAL’s Model Law on Cross-Border Insolvency?

1. The UN Commission on International Trade Law (UNCITRAL) introduced a Model Law based on four key principles: access, recognition, cooperation, and coordination.
2. Since the 1990s, it has been promoting these laws, but only 60 countries have adopted them.
3. Despite the benefits of the Model Law, many countries have implemented it differently due to its non-binding nature. Some include exceptions based on public policy or reciprocity.

Why India needs to adopt cross-border insolvency laws?

1. Strengthening Trade: Cross-border insolvency laws provide legal certainty, improving financial stability for companies operating internationally.
2. Model Law Recommendations: UNCITRAL’s Model Law, recommended by the Bankruptcy Law Reform Committee, aims to enhance trade cooperation globally, but only 60 countries have adopted it.
3. India’s Current System: India relies on bilateral agreements, which are seen as inadequate for cross-border insolvency cases. By including insolvency provisions in these agreements, India can strengthen its trade relationships and ensure better handling of financial risks.
4. Increasing Trade Agreements: India has signed FTAs with over 54 countries but lacks detailed insolvency provisions.
5. Global Competitiveness: Including cross-border insolvency in trade agreements would boost India’s international trade competitiveness.

What Are the Challenges in Implementing Cross-Border Insolvency Laws?

1. Although UNCITRAL’s Model Law is recognized, its practical application in diverse legal and economic systems remains debated.
2. Only 60 countries have adopted UNCITRAL’s Model Law, showing slow global progress.
3. The non-binding nature of the law allows nations to tailor it, leading to variations in implementation.
4. Countries often include exceptions, such as public policy and reciprocity clauses, complicating harmonization.

Question for practice:

Examine why India needs to adopt cross-border insolvency laws and how it can strengthen its trade relationships.