The much-awaited Insolvency and Bankruptcy Code 2015, which aims to resolve cases of corporate and individual bankruptcy, does not have provisions to deal with cross-border insolvency.

In its present form, the legislation is not equipped to deal with cases — such as that of Kingfisher Airlines chief Vijay Mallya — where a debt defaulter has assets overseas.

“Ideally, it should be part of the Code, but as of now it is not, because cross-border insolvency resolution requires an existing ecosystem and infrastructure, which has to be put in place,” TK Viswanathan, head of the Bankruptcy Law Reform Committee (BLRC), which formalised the draft law, told BusinessLine .

“Also, (providing for) cross-border insolvency would require Resolution Professionals of foreign companies to participate in proceedings in India. This is not allowed at present,” he said, adding that “we don’t have a body to recognise them.”

Currently, the Code is being examined by a Joint Parliamentary Committee (JPC), which has sought an extension.

Expressing the hope that the Code will be passed in the current session of Parliament, Viswanathan said it will require at least three months for the whole mechanism to be in place.

The JPC is understood to have raised the issue of cross-border insolvency with the BLRC and made certain suggestions, including the need to secure information on an insolvent debtor’s overseas assets.

Centre need only amend Bill

Asked about the options available to incorporate cross-border insolvency provisions, Viswanathan said, “Even if the Bill is passed in its current form, the government can move an amendment.”

Even if an insolvent debtor is not an Indian citizen, so long as his assets are in India, the cross-border insolvency provision would apply, Viswanathan said. In cases of cross-border insolvency, liquidation proceedings of the country that is the “centre of main interest –– where the principal base of business is located” –– takes dominance over other proceedings.

“This requires mutual cooperation…We just have to accede to the UNCITRAL (United Nations Commission on International Trade Law) Model Law,” he said.

The Code in Mallya’s case

In fact, the Mallya case would have played out differently had the Code been in place; it would have changed the entire basis of diagnosing the sickness, he said.

In Mallya’s case, the enterprise has become terminally ill and cannot be revived at all. But if the Code had been in force, the employees could have triggered insolvency by moving court.

Operational creditors such as suppliers of goods and workmen could also have filed a petition for insolvency, “and then they would have seen to it that the case did not reach this stage”.

When an insolvency resolution is admitted by the tribunal, the creditor takes over, he said. An Independent Resolution Professional takes over the management of the company from the promoter and the directors. “There is no scope for the promoter to stay in control of the management and siphon off money or indulge in asset stripping”.

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