Insolvency code revamp: Experts seek equal rights for foreign creditors, want rules codified

IBC's Section 240C aims to align Indian law with international best practices.

The revamped Insolvency and Bankruptcy Code IBC should allow foreign creditors same rights as domestic creditors when they are dealing with a cross-border insolvency case, aligning it with global standards, experts have said.

The comments follow the release of Parliamentary Select Committee’s report on the IBC (Amendment) Bill, 2025, which has called for codification of the basic tenets of the cross-border insolvency framework.

They should also have direct access to Indian courts to seek recognition and relief without requiring domestication of foreign proceedings, experts said.

“This includes the right to participate in Indian insolvency proceedings concerning the same debtor,” said Abhishek Swaroop, Partner at Saraf and Partners

The parliamentary panel report, released on December 17, suggested that the corporate affairs ministry "codify the basic tenets of the cross-border insolvency framework directly within the Code itself to provide clear legislative guidance for the Central Government and address judicial concerns."

The new bill only adds an enabling provision in the IBC (Section 240C) for cross-border insolvency, which allows the government to create a framework for its implementation.

In the absence of a clear statutory framework, courts may be forced to rely on ad-hoc judicial cooperation, leading to uncertainty, delays and inconsistent outcomes, experts say.

"Codified rules would bring predictability, enhance creditor confidence and improve India’s standing as an insolvency-friendly jurisdiction," Vidya K, Partner, King Stubb & Kasiva Advocates and Attorneys.

Foreign creditors should receive notice of insolvency proceedings of the corporate debtor (CD) having operations across multiple jurisdictions. They should also be allowed to participate in creditor meetings (with Indian creditors).

Codified rules would facilitate value maximisation, prevent parallel proceedings, and ensure efficient resolution of cross-border insolvency cases, Vidya added.

Kumar Saurabh, Partner at Khaitan & Co said that “predictability and certainty of legal rules and regulations lead to better commercial decisions and therefore it is critical that Cross Border Insolvency rules are codified in India.”

The Section 240C aims to align Indian law with international best practices, specifically the UN-CITRAL Model Law on Cross-Border Insolvency (MLCBI).

The UN-CITRAL MLCBI is the global gold standard for handling bankruptcy cases that involve more than one country. Unlike a treaty, a model law is a template, and countries can adopt it and tweak it to fit their local legal systems.

MLCBI allows foreign insolvency professionals (like liquidators) and foreign creditors to have direct access to domestic courts, and allows a domestic court to officially recognise a foreign proceeding.

Once a foreign proceeding is recognised, the court can grant relief to the debtor to protect assets. This might include staying all legal actions against the debtor, and preventing the debtor from transferring or selling assets located in that country.

MLCBI also mandates that courts and insolvency professionals in different countries talk to each other. Instead of two different courts in two different countries fighting over the same pool of money, they work together to ensure a single, fair outcome.

Codification based on MLCBI would enable India to align with international best practices adopted "by over 50 jurisdictions globally", Swaroop said.

According to Kalpit Khandelwal, Partner, Aekom Legal, cross-border insolvency operates in a legal grey zone, relying on ad-hoc judicial cooperation and limited statutory guidance.

"Codification will bring certainty, predictability and speed," he said.

The ministry told the panel that the concept of “delegated legislation” enables the legislature to confer limited law-making powers on the executive, “particularly in complex and technical domains such as economic regulation, where flexibility and adaptability are crucial”.

“This approach promotes flexibility, elasticity, and expedition in the implementation of the law, particularly in fields demanding executive experimentation,” it said.

The technical nature and established international meaning of “cross-border insolvency proceedings”, referring to multi-jurisdictional cases necessitating coordination, provides a sufficiently clear and non-vague scope for the delegated rule-making power, the ministry said. “This ensures rule-making precision while maintaining adaptability to global and domestic complexities in insolvency cases.”

The model law provides a globally recognised framework for cross-border insolvency but jurisdictions often adapt it with minor variations, ranging from substantial modifications in countries such as Japan and South Korea to non-adoption in Russia and Germany.

For instance, China has introduced a draft framework for judicial cooperation in cross-border bankruptcy that draws inspiration from the model law but opts for a pragmatic, restrictive approach rather than full adoption, the ministry said.