NCLAT decision on Jet's CoC meetings a welcome signal to foreign investors

The National Company Law Appellate Tribunal’s (NCLAT) decision to allow a Dutch court administrator to participate in the Jet Airways’ committee of creditors (CoC)’s meetings is a welcome signal to foreign investors on the ease of doing business in India. 

The NCLAT’s decision is based on a ‘Cross Border Insolvency Protocol’ agreed upon by the Dutch insolvency court administrator and the Indian Resolution Professional of debt-laden Jet Airways. While all the points had been mutually agreed, the issue of whether the Dutch court administrator could participate in CoC meetings remained the bone of contention.

A three-judge Bench headed by NCLAT Chairperson Justice S J Mukhopadhaya, however, cleared the confusion and allowed the Dutch court administrator to join the meetings.

“The orders of the NCLAT are useful since they provide a blueprint of how cross-border insolvency proceedings will be dealt with under the Insolvency and Bankruptcy Code (IBC) in the absence of a comprehensive framework, and where actions are not taken under Sections 234 and 235 of the IBC,” said Shreya Prakash, coordinator and research fellow at Vidhi Bankruptcy Research Programme.

The ruling is also likely to ensure equal footing in terms of access to foreign lenders and their representatives, as well as provide them visibility in the Indian insolvency proceedings, they said. “It sets the tone that until cross-border insolvency is in India, this could potentially be a way forward for many others. Without international cooperation, there are no other means for an (international) trustee to have visibility in India, or for the RP to have visibility in the Netherlands,” said Saurav Kumar, partner at IndusLaw.

In the terms of agreement signed between the Jet Airways’ Indian RP and the Dutch insolvency court administrator, there is lack of equal representation for the former, said Ravi Kini, managing partner at M V Kini & Co.

“The aims of the protocol are mentioned in Clause 3 of the protocol, which enumerates coordination, communication, information and data sharing, preservation, claim reconciliation, maximum value of assets, recoveries, and comity. The aims do not mention participation of Dutch trustees in Indian proceedings nor RP participating in Dutch proceedings,” said Kini, adding that it is “very important that the Indian RP should participate before the Dutch Bankruptcy Court so that he can protect the interest of the company during the sale of assets, as well as defence of claims against the company.”

However, most experts believe that the Jet Airways case is an exception and not a norm for becoming the foundation of cross-border insolvency norms in India. The IBC did not incorporate the idea of cross-border insolvency while it was being framed in 2015, as there was lack of “adequate institutional-backed dedicated bankruptcy courts, well-organised resolution professionals, information utilities, and seamless communication between bankruptcy courts of different jurisdiction,” said former Union law secretary T K Viswanathan in an e-mailed response.

Viswanathan, however, believes the NCLAT order, apart from being a clarification that foreign creditors have the same rights as are available to Indian creditors, will also send a strong signal to foreign investors that foreign investments are welcome.

“There an urgent need to provide for cross-border insolvency provisions in the Code since our courts and tribunals will have to conduct joint hearings in concurrent proceedings with bankruptcy tribunals of other jurisdictions, and will have to collaborate in evolving common standards to decide disputes,” said Viswanathan.

A report on cross-border insolvency has been submitted by a committee led by Insolvency and Bankruptcy Board Chairman Injeti Srinivas in March 2018. The 14-member committee had given its recommendations based on the United Nations Commission on International Trade Law’s suggestions, which have been accepted as a model law by many countries.

The committee had noted that cross-border provisions would help increase foreign investments, provide greater flexibility to all investors, protect and give priority to domestic interests, and provide a mechanism for cooperation.

The committee had suggested that the application of cross-border insolvency provisions should also be limited only to corporate debtors to start with and based on the experience gained, it could be extended to individual insolvency in due course of time.