Dutch Order on Jet Airways: UNCITRAL Model Law the Need of the Hour?

[Syamantak Sen and Vivek Badkur are third-year law students at the National Law Institute University, Bhopal]

The State Bank of India, Gaggar Enterprises and Shaman Wheels, a few of the many creditors of the grounded Jet Airways, i.e., the corporate debtor, filed petitions before the Mumbai bench of the National Company Law Tribunal (NCLT) under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking initiation of the Corporate Insolvency Resolution Process against the debtor. It is pertinent to note that no one appeared on behalf of the debtor. All such petitions were clubbed together for hearing.

During the hearing on 20 June 2019, the NCLT was informed that insolvency proceedings against the debtor have already been initiated through an order of the Noord-Holland District Court dated 21 May 2019.^[i] The Court appointed Mr. R. Mulder, who filed an application as an intervenor in the petitions being heard by the NCLT, to administer the bankruptcy process through such order.

The NCLT declared the Dutch Order a nullity ab-initio for various reasons through its order dated 20 June 2019. The NCLT also initiated the insolvency process in India and appointed an Interim Resolution Professional (IRP). The debtor owes around 8,700 crore rupees to banks, 10,000 crore rupees to operational creditors and 4,000 crore rupees in salary and statutory dues. The IRP would be submitting a status report every two weeks starting from 05 July 2019.

The NCLT made observations regarding the inapplicability of section 13, section 14 and section 44A of the Code of Civil Procedure, 1908. The inapplicability of these provisions, which relate to the enforcement and recognition of a foreign judgment, has to do with the nature of the proceedings. An order initiating insolvency proceedings is not a money decree which requires recognition and enforcement.

The NCLT would instead rely upon the substantive provisions of the IBC. This process would ultimately lead them to section 234 and section 235 of the IBC. The intervenor contended that even though sections 234 and 235 have not been notified by the Government of India, there is no bar under the IBC for the NCLT to recognise the insolvency proceedings in a foreign jurisdiction, i.e., the Netherlands. Sections 234 and 235 deal with agreements with foreign countries and letters of requests to a foreign country during the insolvency proceedings, where the assets of the debtor exist outside India. The NCLT, however, held that since these statutory provisions have not been notified, they are not enforceable and as such it could not recognize the Dutch Order initiating insolvency proceedings against the debtor.

Such a decision seems to be legally sound. Even if section 234 were enforceable, it is applicable only when the assets of a debtor are situated in a foreign country with which reciprocal arrangements exist. The Indian Government has no such reciprocal arrangement with the Dutch Government. Therefore section 234 would have been inapplicable regardless of its enforceability.

The intervenor also contended that two parallel proceedings are likely to obstruct smooth and uninterrupted proceedings since they shall stand in the way of expeditious outcome of the process. However, such an argument is without merit as the Dutch Order was for a company registered in India and the sole jurisdiction to pass such an order lies with the NCLT.

It is pertinent to note that the NCLT’s hands were tied. It could not recognize the Dutch Order as it is not empowered to do so. Moreover, it could not stay the present proceedings against the debtor as the same would mean jeopardizing the recovery of dues of multiple Indian creditors. Time is of the essence in any insolvency resolution process, especially the ones where the sums involved are very high, such as this one. The ruling was a result of the Indian Government not adopting the UNCITRAL Model Law on Cross-Border Insolvency (UNCITRAL ML).

The UNCITRAL ML is the key to recognition of any foreign judgement concerning insolvency law in Indian Courts. The UNCITRAL ML facilitates adequate flexibility for seamless integration with domestic insolvency law and a robust mechanism for international cooperation. The latter is especially important when insolvency orders are passed by Indian Courts against Foreign Multinational Companies. The Indian Government has been treading the conservative path by not opening the doors to insolvency judgments of foreign courts. However, it has recently sought to adopt the UNCITRAL ML, necessitated by the need to improve the ease of doing business in India. The present controversy could have been entirely avoided had the UNCITRAL ML already been implemented in India as then both the Indian and the Dutch creditors could be parties to a synchronized insolvency resolution process. It would be in the best interest of the Indian Government to expedite the adoption of the UNCITRAL ML.

– Syamantak Sen and Vivek Badkur

^[i] Hon’ble Noord Holland District Court, Trade, Sub-district and Insolvency, Petition Number: C/ 15/288017/ FT RK 19/540R.