Answer By law4u team
The Insolvency and Bankruptcy Code (IBC) allows creditors, including foreign creditors, to initiate insolvency proceedings against a corporate debtor in India. However, foreign creditors must navigate jurisdictional issues, claim recognition, and enforcement challenges. While the IBC does not explicitly distinguish between domestic and foreign creditors, cross-border insolvency aspects are evolving in India’s insolvency framework.
Foreign Creditors and Insolvency Proceedings under IBC
Right to Initiate Proceedings
Foreign creditors holding financial or operational debt can file insolvency applications before the National Company Law Tribunal (NCLT) against a defaulting corporate debtor in India.
Jurisdiction of NCLT
The NCLT has jurisdiction over insolvency cases involving Indian companies irrespective of the creditor’s nationality.
Filing Claims and Proof of Debt
Foreign creditors must submit proof of debt and supporting documents as per IBC requirements to participate in the insolvency resolution process.
Challenges for Foreign Creditors
- Legal and procedural complexities related to cross-border insolvency.
- Enforcement of claims and recognition of foreign judgments.
- Possible delays and higher costs in pursuing claims.
Cross-Border Insolvency Framework
India is working towards incorporating cross-border insolvency principles (such as the UNCITRAL Model Law) into the IBC to facilitate better cooperation and recognition of foreign insolvency proceedings.
Equitable Treatment
Foreign creditors are treated on par with domestic creditors under the IBC’s distribution waterfall and insolvency resolution process.
Legal Framework
- Section 7, 9, and 10 of IBC – Filing of insolvency applications by financial and operational creditors
- Section 60, IBC – Jurisdiction of NCLT
- Ongoing Cross-border Insolvency initiatives – Proposed amendments and policy discussions
Example
A UK-based supplier to an Indian company defaults on payment. The UK supplier, as a foreign operational creditor, files an insolvency application before the NCLT under Section 9 of the IBC. The supplier submits necessary documents proving the debt and participates in the committee of creditors during the resolution process.
