NEW DELHI: The government has proposed to keep financial service providers out of the ambit of cross-border insolvency laws. The draft legal framework for cross-border insolvency cases released on Wednesday by the Ministry of Corporate Affairs proposes to keep businesses whose resolution is governed by a special law or whose insolvency significantly affects public interests out of the scope of the law.
“Many countries exempt businesses providing critical financial services, such as banks and insurance companies, from the provisions of cross-border insolvency frameworks,” argues the government in the draft framework.
The government may in future also notify any other entities that should be excluded from the application of cross-border insolvency provisions. The draft framework also excludes pre-pack insolvency resolution process from the ambit of cross-border insolvency law.
However, the new law would be applicable on personal guarantors as per the draft rules. When the Insolvency Law Committee had first contemplated its cross-border report in 2018, the provisions of the code had been notified with respect to corporate debtors, and hence the committee had recommended the cross-border rules to be applicable only to corporate debtors. But now that the personal insolvency laws are in place, the committee suggests immediate application of the cross-border law to personal guarantors as well.
The draft framework also proposes that all benches of the National Company Law Tribunal (NCLT) and Debts Recovery Tribunals (DRTs) may have jurisdiction to adjudicate applications under the new law.
This would mean that cross-border proceedings arising in respect of corporate debtors that have registrations in India will be dealt with at the NCLT bench having jurisdiction over the registered office of the corporate debtor. Cross-border applications regarding any person incorporated with limited liability outside India may be dealt with by the Principal Bench of the NCLT.