Can an NRI File for Insolvency Under Indian Law?

Under the Insolvency and Bankruptcy Code (IBC), individuals, including Non-Resident Indians (NRIs), are eligible to file for insolvency in India, provided they meet certain criteria. The process for NRIs seeking insolvency relief is generally the same as that for residents, but there may be specific jurisdictional and procedural considerations due to their non-resident status.

Can an NRI File for Insolvency Under Indian Law?

Eligibility of NRIs to File for Insolvency:

Under Section 10 of the Insolvency and Bankruptcy Code (IBC), an individual, including NRIs, can file for insolvency if they are unable to pay their debts.

NRIs are eligible to file under the personal insolvency provisions of the IBC, which allows individuals to initiate insolvency proceedings if they are unable to meet their debt obligations.

Jurisdiction and Legal Provisions:

The insolvency proceedings for an NRI will be heard by the National Company Law Tribunal (NCLT), which has jurisdiction over insolvency matters.

The jurisdictional criteria for filing are based on the individual’s residence or the location of the creditor. While NRIs can file for insolvency in India, they may also need to provide evidence that the debts are connected to India, such as a property in India or financial obligations within the country.

Filing Process for NRIs:

The process is similar to that for residents: the NRI must submit an application to the NCLT and provide information on their debts and assets. For individual insolvency, the NCLT will then examine whether the debtor’s financial situation warrants the initiation of insolvency proceedings.

NRIs may have to ensure that they are in compliance with foreign exchange regulations (such as the Foreign Exchange Management Act (FEMA)) if the debt or asset is cross-border in nature.

Individual Insolvency vs. Corporate Insolvency:

NRIs can file for individual insolvency if they meet the requirements of personal insolvency, similar to resident individuals. This is under the framework laid out for individual insolvency in Part III of the IBC.

If an NRI is involved in a corporate insolvency resolution process (CIRP), they can participate as a creditor, but they cannot file as an insolvency applicant unless they are a director or key management person of the company in question.

Role of Insolvency Professionals:

NRIs can hire insolvency professionals (IPs) who are licensed by the Insolvency and Bankruptcy Board of India (IBBI) to manage their case. The IP will ensure that all required documentation, including the proof of debt, financial statements, and other relevant documents, are presented in accordance with IBC provisions.

Cross-border Insolvency Issues:

In cases where the NRI has assets or creditors in multiple jurisdictions, cross-border insolvency laws may come into play. India is a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, which provides a framework for dealing with insolvency cases that span multiple countries. The IBC provides a mechanism to resolve such conflicts and ensure smooth cooperation with foreign jurisdictions.

Impact of Non-Resident Status:

The NRI’s non-resident status does not bar them from filing for insolvency in India. However, the process may be impacted by their ability to attend hearings in person or communicate effectively with the NCLT and other authorities. In certain cases, hearings may be conducted through virtual hearings or via their appointed representatives.

Filing for Insolvency by NRIs in Case of Personal or Financial Stress:

If an NRI faces personal financial stress, such as overseas debts or losses from assets or investments in India, they are eligible to file for insolvency under the provisions of the IBC for individuals. The Resolution Process will be focused on liquidating the individual’s assets or finding an acceptable repayment plan for creditors, depending on the outcome of the case.

Legal and Procedural Considerations:

Foreign Exchange Regulations:

NRIs need to ensure they comply with any applicable foreign exchange regulations when dealing with Indian assets or debts, particularly in the case of cross-border transactions.

Section 2(27) of the IBC:

The IBC defines an individual as any natural person, which includes NRIs. Therefore, NRIs are permitted to initiate insolvency proceedings in India as individual debtors.

Section 60(1) of the IBC (Jurisdiction):

The jurisdiction for filing the insolvency application can be determined based on the location of the debtor’s assets or place of business. If the NRI has assets in India, they can file under the jurisdiction of the NCLT.

Enforcement of Orders:

Any orders made by the NCLT during the insolvency process can be enforced in India, and for enforcement outside India, the NRI may need to seek help from foreign courts, especially in cases where assets or creditors are located abroad.

Example:

Suppose an NRI residing in the United States has a property in India with a large home loan debt. The NRI is unable to pay back the loan due to financial difficulties. The NRI decides to file for individual insolvency under the Insolvency and Bankruptcy Code (IBC) in India.

• The NRI files a petition with the NCLT in India and provides details about their debts, assets, and financial situation.
• The Resolution Professional (RP) is appointed to oversee the process, and the Committee of Creditors (CoC) is formed to address the resolution of the debt.
• The NRI must comply with all the legal requirements, including the submission of relevant documents, such as proof of debt and financial records.
• The NCLT may allow the NRI to negotiate a repayment plan with creditors, or if the process fails, the debtor’s assets in India may be liquidated to pay off the debts.