Cross-border Corporate Insolvency Law in India: Dealing with Insolvency in Multinational Group Companies—Determining Jurisdiction for Group Insolvencies

 -Vikalpa: The Journal for Decision Makers

The Indian insolvency regime has undergone a sea change in the last three years resulting in a more conducive creditor-friendly environment in the context of distressed companies. The change in the regime has led to an increased presence of multinational companies (MNCs) in the country.

Such MNCs have existence across borders, resulting in an array of creditors, both domestic and foreign. But when these companies are part of a business group (multinational enterprises [MNEs]), can the creditors satiate their unpaid debt from one company through the assets of another associate company?

The answer to this question is complicated because on the one hand lies the doctrine of ‘separate legal personality’ which is the foundation of the entire structural regime of corporate law, while on other lies the exceptional circumstance wherein group companies may be considered to be a single entity. This problem is further complicated when the parent/associate company is situated outside India.

The world is the oyster for the MNEs while they stretch their roots in different countries and are regulated by different local laws. They may choose these destinations for various reasons including for tax savings, ease of business, relaxed regulatory laws, etc., but they continue to work in a coordinated manner to earn huge profits.

While the companies are subject to local laws when they commence and carry on their business, insolvency of companies poses a problem at a unique tangent.

While companies are local, their assets and creditors may not be. The question arises about which law should govern the insolvency of these companies? It gets further complicated when such insolvencies are in the context of multinational groups wherein the web of inter-corporate transactions, control and management is a complex web.

Before we raise issues of insolvency resolution of MNEs, we must first find a suitable definition for our subject matter because Indian corporate law has none so far.

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