NCLT: Foreign courts cannot intervene in insolvency proceedings July 22, 2019
Published in: Between The Lines
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The National Company Law Tribunal, Mumbai Bench (“NCLT”), in the case of State Bank of India v. Jet Airways (India) Limited (decided on June 20, 2019) held that foreign courts cannot intervene or create parallel proceedings for the insolvency proceedings of an Indian company.
The State Bank of India filed an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (“Code”) for initiation of corporate insolvency resolution process (“CIRP”) against Jet Airways (India) Limited (“Jet Airways”), which was clubbed with the applications made by operational creditors under Section 9 of the Code. While it was under consideration, the NCLT was apprised of insolvency proceedings against Jet Airways which had already been initiated by a Dutch Court (the Noord Holland District Court). In the judgement of the Noord Holland District Court dated May 21, 2019, Mr R. Mulder (“Intervener”) was appointed as the “administrator in bankruptcy” of Jet Airways.
Whether the initiation of CIRP against Jet Airways is maintainable before the NCLT, considering ongoing parallel proceedings in the Noord Holland District Court in the Netherlands?
The Intervener stated that insolvency proceedings against Jet Airways in the Netherlands had commenced and if the NCLT passes an order of commencement of CIRP in India, a peculiar situation would emerge where the same company has two parallel insolvency proceedings in different jurisdictions, which could lead to complications and delays. This will further create uncertainty and impair the chances of attracting potential resolution applicants for Jet Airways. It was also contended by the Intervener that even though Sections 234 and 235 of the Code, which deal with agreements with foreign countries and letters of request to other countries in certain cases, have not been notified by the Central Government, there is no bar or prohibition under the Code forbidding the NCLT to recognise insolvency proceedings in a foreign jurisdiction. It was also contended that the judgement of the Noord Holland District Court dated May 21, 2019 is final and binding on Jet Airways and its lenders and neither Jet Airways nor any operational/financial creditors of Jet Airways have appealed against the judgement.
Observations of the NCLT
The NCLT analysed the contentions put forth by the Intervener. The NCLT stated that though Sections 234 and 235 of the Code deal with the matters regarding agreements with foreign countries and a letter of request to a country outside India in the insolvency resolution process where the assets of the corporate debtor exist outside India, these sections have not yet been notified and hence are not enforceable. Further, since the registered office of Jet Airways is in India, the jurisdiction lies with the NCLT. Section 234 of the Code states as follows:
“234. Agreements with foreign countries.-
(1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code.
(2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.”
The NCLT observed that since the Government of India and the Government of the Netherlands have no such agreement, no other court has the power to pass on order under the Code. Further, the NCLT observed that the contention of Mr. Mulder that the two parallel proceedings will lead to complications, is not sustainable, as the order of the foreign court is a nullity in the eye of law and such order cannot be given effect.
Decision of the NCLT
Considering the above, the NCLT held that the order passed by Noord Holland District Court, Netherlands which resulted in bankruptcy proceedings commencing against Jet Airways under Dutch law is nullity ab-initio. It further stressed that since Jet Airways has over 20,000 employees, its debt resolution is of ‘national importance’. The NCLT further analysed the report of the Bankruptcy Law Reforms Committee of November 2015, which stated that speed is of the essence. Keeping the above points in mind, the NCLT stated that any further delay in the CIRP proceedings against Jet Airways would be against the provisions of the Code and since both the debt and default in repaying the debt are proved, the petition seeking invocation of the CIRP was admitted and moratorium under Section 14 of the Code was imposed. Since Jet Airways’ debt resolution was of ‘national importance’, the resolution professional was directed to attempt to complete the CIRP process within the statutory period of 180/270 days.
Vaish Associates View
The NCLT has, in this case, correctly stated that parallel insolvency proceedings should be avoided and that since Jet Airways is an Indian company, Indian law should be applicable to it. By stating that Sections 234 and 235 of the Code are not notified and the Government of India has not entered into an agreement with the Government of the Netherlands and since the registered office of Jet Airways is situated in India, the NCLT has correctly held that any insolvency proceedings for such companies outside India shall be null and void and Indian courts should have a primary and exclusive jurisdiction.
In October 2018, Insolvency Law Committee constituted by the Ministry of Corporate Affairs to recommend amendments to the Code, submitted a report to the government on Cross Border Insolvency, where it suggested that the government shall adopt the ‘UNCITRAL Model Law on Cross-Border Insolvency, 1997’. This has been accepted by approximately 44 nations already, and deals with major principles of cross-border insolvency such as coordination between two or more concurrent insolvency proceedings in different countries, which was the bone of contention in the instant matter. Therefore, adoption of such a framework seems to be in the best interests of all the stakeholders concerned and can result in effective maximisation of value of assets in similar cases and in prevention of parallel proceedings.