In a previous blog post, we had stated that there exists no statutory regime for recognition of foreign insolvency judgments or proceedings in India. Hence, it remained unclear whether Indian courts would recognise and give effect to foreign insolvency interim orders or judgments.
In 2018, the Ministry of Corporate Affairs[1] recognised the need for a comprehensive legislation for cross-border insolvency and published a draft bill for public consultation. The Bill closely followed the UNCITRAL Model Law on Cross-Border Insolvency (but for some notable deviations including on reciprocity). Further, in 2020, a Cross Border Insolvency Rules/ Regulations Committee was formed to draft a report on implementation of a cross-border insolvency regime. The committee issued its report in 2021[2]. However, India still doesn’t have a cross-border insolvency regime. Recently, the Ministry of Corporate Affairs, in its 100-day plan post the ongoing general elections, has sought to implement cross-border insolvency proceedings under the provisions of the Insolvency and Bankruptcy Code, 2016.[3]
The generic statutory regime for recognition of foreign judgments in India is contained in the Code of Civil Procedure, 1908 (“CPC”). Section 44-A of the CPC provides for enforcement of foreign judgments issued by competent courts in reciprocating (i.e. notified) foreign territories (currently 13 in number, including England), subject to such a judgment not falling within any of the exceptions in Section 13 of the CPC (which includes fraud).
In Alcon Electronics Private Limited v. Celem S.A. of FAO 34320 Roujan, France,[4] the Supreme Court of India had expanded this regime of enforcement of foreign judgments to include interlocutory orders and had held that an interlocutory order given by a foreign court (in this case, being an order of a court in England for costs), should also be given ‘due weight’ by Indian courts, following principles of comity, subject to the exceptions in Section 13. This was, however, not in the context of foreign insolvency proceedings.
The High Court of Delhi, in Toshiaki Aiba v. Vipan Kumar Sharma[5] (“Toshiaki”), recognised a bankruptcy proceeding initiated in the courts of Japan. The court rejected an application filed by the bankrupt to dismiss a plaint filed by the Japanese Bankruptcy Trustee (“Bankruptcy Trustee”) for restoration of certain immovable properties of the bankrupt in India (relying upon his powers under the Japanese Bankruptcy Act), which had been disposed off by the bankrupt. The Tokyo District Court had declared the defendant to be bankrupt, that order was upheld by the High Court as well as the Supreme Court of Japan. Recognising the bankruptcy order, the High Court also accepted that due process was followed by the courts in Japan in passing the orders. The court opined that “…On the face of it, the aforesaid judgment fulfils the requirement of due process and was passed after noting the various contentions raised on behalf of the defendant no.1. Therefore, the aforesaid judgment would be conclusive as to the defendant no.1 being declared bankrupt in Japan and the plaintiff being appointed as the bankruptcy trustee to administer the estate of the defendant no.1, even outside Japan…”[6] In doing so, the court followed (and expanded) the decision of the Supreme Court in Alcon Electronics Private Limited[7], which had held that, “The principles of comity of nation demand us to respect the order of English Court. Even in regard to an interlocutory order, Indian Courts have to give due weight to such order unless it falls under any of the exceptions under Section 13 CPC.”[8] Appeal to the Supreme Court against Toshiaki was withdrawn.
The Delhi High Court made the following key observations:
- An action to administer the assets of a bankrupt, pursuant to a foreign bankruptcy order is not execution of a foreign judgment and therefore, Section 44-A of the CPC has no application; and
- The bankruptcy order and the appointment of the Bankruptcy Trustee by the Japanese court, to administer all assets including those outside Japan, having followed due process and not falling within any of the exceptions in Section 13 will be conclusive. The Court summarised the principle as follows, (Para 26): “The Plaintiff, being the Bankruptcy Trustee appointed by the Japanese court, is seeking the assistance of the courts in India, to administer assets of defendant no. 1 in India. There is no reason why a person who has been declared bankrupt by a foreign court in terms of the law applicable to that jurisdiction, should be afforded protection by the Indian Courts on technical objections being raised with regard to the validity of the foreign judgment. In the modern times of globalization, foreign creditors cannot be treated differently from domestic creditors.”
Toshiaki has paved the way for recognition of interim orders and judgments passed in foreign insolvency proceedings in India, basis principles of comity. This is in contrast to the position in the Indian courts prior to this case.
Toshiaki was followed by the High Court of Telangana in Mahmood Hussain Khan v. Madam Canisia Ceizar[9] (“Mahmood”), in which it was agreed that a person once declared bankrupt by a foreign court cannot be granted protection from a court in India against the orders passed by foreign courts in foreign insolvency proceedings.
In Mahmood, the High Court of Telangana also gave effect to sale of Indian immovable properties conducted in Swiss Bankruptcy proceedings and held the following “…the auction purchaser has obtained the sale certificate with respect to scheduled properties by following the due process of law, through the Insolvency Proceedings in Switzerland. On perusal of the documentary evidence and the legal history of the Insolvency Proceedings in the Courts of Switzerland, it can be seen that the auction sale certificate has been issued by a Court of a competent jurisdiction and thus passes the test of Section 13 of C.P.C.”[10]
Pending a full-fledged cross-border insolvency regime, the approach of the Indian courts have taken a helpful approach following the principles of comity to assist foreign insolvency proceedings. There are good reasons to also apply these principles to corporate insolvency proceedings opened outside India. It is a step in the right direction, given the globalised world we live in.
For further information, please contact:
Dhananjay Kumar Partner, Cyril Amarchand Mangaldas
dhananjay.kumar@cyrilshroff.com
[1] Ministry of Corporate Affairs, Government of India, Insolvency Section File No. 30/27/2018, dated 10-06-2018, https://www.mca.gov.in/Ministry/pdf/PublicNoiceCrossBorder_20062018.pdf
[2] Report on the rules and regulations for cross border insolvency resolution, June 2020, published by Ministry of Corporate Affairs, dated November 23, 2021, https://ibbi.gov.in/uploads/whatsnew/2021-11-23-215206-0clh9-6e353aefb83dd0138211640994127c27.pdf
[3] Companies Act tweak, IBC among MCA’s 100-day plan, Manu Kaushik, Financial Express, April 27, 2024, https://www.financialexpress.com/business/industry-companies-act-tweak-ibc-among-mcas-100-day-plan-3469855/
[4] (2017) 2 SCC 253
[5] Delhi High Court 2022:DHC:1682
[6] Para 23, Ibid
[7] Supra 2
[8] Para 24, Supra 3
[9] AIR Online 2023 TEL 181
[10] Para 42, Ibid
