1.introduction To The Project: 1.1 Unicitral Model Law On Ica
1.introduction To The Project: 1.1 Unicitral Model Law On Ica
1.introduction To The Project: 1.1 Unicitral Model Law On Ica
The model law is not binding, but individual states may adopt the model law by incorporating
it into their domestic law (as, for example, Australia did, in the International Arbitration Act
1974, as amended).
The model law was published in English and in French. Translations in all six United Nations
languages now exist.
Note that there is a difference between the UNCITRAL Model Law on International
Commercial Arbitration (1985) and the UNCITRAL Arbitration Rules. On its website,
UNCITRAL explains the difference as follows: "The UNCITRAL Model Law provides a
pattern that law-makers in national governments can adopt as part of their domestic legislation
on arbitration. The UNCITRAL Arbitration Rules, on the other hand, are selected by parties
either as part of their contract, or after a dispute arises, to govern the conduct of an arbitration
intended to resolve a dispute or disputes between themselves. Put simply, the Model Law is
directed at States, while the Arbitration Rules are directed at potential (or actual) parties to a
dispute."
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acceptable text. However, they cannot object to a decision being recorded and have no right to
vote.
The Commission draws up, and updates as necessary, a list of international organizations with
which UNCITRAL entertains a long-standing cooperation and which have been invited to
Commission sessions. In addition, the Secretariat may be requested by the Commission or its
subsidiary organs to invite a specific organization to the relevant session. It may also receive a
request from an organization to be invited to a session, or it may itself take the initiative to
invite an organization on the basis of its assessment of the relevance and potential contribution
of the organization concerned to the proceedings of the relevant session. In such cases, the
Secretariat shall inform the member States of the Commission. Where an objection is raised,
the decision will be taken by the Commission.
The goal is to achieve in sum a balanced representation at the sessions of the major viewpoints
or interests in the relevant fields in all areas and regions of the world, with the purpose of
assisting UNCITRAL to formulate legal texts. The status of a non-governmental organization
with ECOSOC has not been a decisive factor in granting requests for invitation.
Procedures:
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An interested organization meeting the above criteria may wish to send an official letter
requesting to be invited to sessions of UNCITRAL or its particular working group(s) to the
Secretary of UNCITRAL at [email protected]. The letter should be on the organization's
letterhead, signed by an authorised official of the copy of, or a web link to, the statute of the
organization or other official documents confirming the organization's legal personality and
status of an NGO.
The reports and, where issued, summary records and the digital recordings of the sessions are
made publicly available on the UNCITRAL website after the session concerned. They allow
any organization or person to follow both the deliberations leading to the adoption of an
UNCITRAL text and the reasons for the policy decisions and drafting reflected in each text. In
order to create an environment that allows open and frank discussion on technical questions, it
has been the practice in UNCITRAL not to allow live-streaming of UNCITRAL meetings
relating to the preparation of normative texts (whether at Commission sessions or in meetings
of working groups).
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In addition to member States, all States that are not members of the Commission, as well as
interested international organizations, are invited to attend sessions of the Commission and of
its working groups as observers. Observers are permitted to participate in discussions at
sessions of the Commission and its working groups to the same extent
1.4 OVERVIEW
Historical Background
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The UNCITRAL Model Law on cross-border insolvency was adopted on 30th May 1997 with
an objective to assist States in addressing instances of cross-border insolvency in a modern,
harmonized and more effective way.
The Commission in 1995 agreed to establish a Working Group to develop model legislation
relating to cross-border insolvency. The next progressive step was drafting of the Model
International Insolvency Co-operation Act (MIICA). Over the next two years the blue print of
the Model Law was developed at meetings of the Working Group, comprising representatives
from 36 UNCITRAL countries, 40 observer states, in consultation with 13 international
organizations representing practitioners, judges and lenders.
The Working Group on Insolvency presented its finalized text to the UNCITRAL in the annual
session of 1997.
There has been continuing development of insolvency law since the formation of UNCITRAL
Model Law in 1997. Spearheaded by the UNCITRAL, the Model Law has now gained broad
acceptance among many nations.
The Legislative Guide on Insolvency Law and the Practice Guide on Cross-Border Insolvency
Cooperation has considerably advanced the ambit of the Model Law in the recent past.
Today, recommendations of the UNCITRAL Legislative Guide on Insolvency Law and World
Bank Principles for Effective Insolvency and Creditors Rights Systems together form primary
component of the Insolvency and Creditor Rights Standard (ICR).
Most recently, UNCITRAL has adopted new recommendations relating to the treatment of
Enterprise groups in insolvency to be published as Part-III8 of the Legislative Guide on
Insolvency Law.
Key Principles
The key principle on which Model Law is based is "respect to the differences among national
laws" and "non-insistence on substantive unification of insolvency law‟.
The Model Law also addresses the need for certainty in determining cross-border insolvency
proceedings and the broad discretion to be vested in the courts so as to enable them to derive
practical
solutions to cross-border insolvency issues. The key objectives of the Model Law are very
clearly
mentioned in its Preamble.10 These are as follows-
Co-operation between the courts and the competent authorities in domestic and foreign
countries.
Greater legal certainty for trade and investment.
Fair and efficient administration of cross-border insolvency that protects the interest of
all.
creditors and other interested persons, including the debtor.
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Protection and maximization of the value of the debtor’s assets; and.
Facilitation of the rescue of financially troubled businesses, thereby protecting
investment and preserving employment.
ADOPTED IN INDIA
The Companies Act together with several other statutes like the Sick Industrial Companies Act
(SICA),Banking Regulation Act, Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act, form the flesh and bones of corporate
insolvency laws in India.25 Unlike the UNCITRAL Model which has a very wide ambit of
applicability, these legislations are applicable to corporate entities only.26 While, SICA deals
with the revival and rehabilitation of corporate entities; the Companies Act, 1956 deals with
their liquidation and winding up. In specific cases like insolvency of banking and financial
companies and Non-Banking Financial Companies certain additional requirements under the
Banking Regulation Act and the RBI Guidelines for NBFCs also need to be followed.
Although, some of the key provisions of these statutes reflect principles on which UNCITRAL
Model Insolvency Law is also based upon, the Indian insolvency regime as a whole only
partially adopts the principles of Model Insolvency Law. Instances where Indian laws have
adopted some of the principles of Model Insolvency Law, though implicitly, can be section 583
of the Companies Act 1956 which touches upon the access principle of the Model Law and
provides circumstances in which foreign companies can be wound up in India. Similarly,
SARFAESI Act allows International Finance Corporation or a consortium thereof to exercise
all or any of the rights set out in sub-section 4 of Section 13 of the Act for the security of
interest. Furthermore, the Foreign Exchange Regulation Act, 1973 requires the foreign creditor
to seek approval of the RBI for creation of security in favour of the foreign creditor. The
ordinary rules of ranking as applicable to domestic creditors will be applicable to foreign
creditors too after the permission has been granted and the same rules applicable in relation to
secured or unsecured creditors will apply thereafter. This is in perfect consonance with the
Article 13 of the Model Law which prevents discrimination against foreign creditors. However,
the access principle in India is subject to the principle of reciprocity. India relies on the
reciprocity principle to recognize and enforce foreign proceedings in its territory 28 Sections
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13 and 44A of the Civil Procedure Code, lays down certain specific grounds and provisions on
which a foreign judgment can be recognized or accepted by an Indian Court. In India it is only
those judgements which are from a reciprocating country, as is notified in the Indian Official
Gazette, are recognized. This means that a judgment in rem delivered by a foreign court of a
non-reciprocating territory will not be accepted for the purposes of execution and will
mandatory need filing of a new civil suit in India. In other words, if liquidation proceedings
are initiated against a company outside India, the Indian limb of such company will still be
construed as an independent entity and will not automatically be affected, unless a winding-up
petition is filed before an Indian court. UNCITRAL Model Law does not strictly follow the
principle of reciprocity. Therefore, it can be observed that the access principle only finds its
limited applicability in India.
So far as recognition principle is concerned an insolvency order against an Indian company can
be recognized only when it is passed by the Company Court. Under the existing laws, no
foreign court can declare an Indian company as being wound up and only pass, at the most,
judgment against assets within its jurisdiction. In cases, where an Indian company has assets
outside the territorial jurisdiction of India then depending upon the rules of registration of the
Indian company or branch abroad in a foreign jurisdiction, foreign law may apply.29 The
principle of “cooperation” and “coordination” as enshrined in the UNCITRAL Model Law also
find its limited applicability by being confined only to the reciprocating States. The principle
objective of ensuring relief as enshrined in the relief principle of Model Law find its reflection
in SARFAESI Act which empowers Securitization or Reconstruction Companies to act as an
agent for any bank or financial institution for the purpose of recovering their dues from the
borrower on payment of such fees as may be mutually agreed. These companies can also act
as a Manager or a Receiver for such purposes. In the line of the Model Law which provides for
interim relief in the form of a stay or suspension of actions and proceedings against the property
of the debtor, the Companies Act of India vide section 443 (1)(c) also empowers the Tribunal
to make any interim order that it deems fit on hearing a winding up petition. Furthermore, while
the company is being wound up all the proceedings in any other court on the same matter gets
automatically transferred to the court where winding up proceeding is being carried on. This
acts as a stay or suspension of any actions and proceedings against the property of the debtor.
However, Article 7 of the Model Law provides that a court may make an order either under the
Model Law or under some alternative cross border insolvency law in force in the state in
question. This in essence gives the court power to choose an appropriate remedy.30 The Indian
court does not presently have that option. Thus we find that even the relief principle finds its
limited applicability in India.
A COMPARATIVE ANALYSIS
The underlying objectives on which the insolvency regime in both UK and India is based on
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Restoring the debtor company to profitable trading where this is practicable;
Maximize the return to creditors as a whole where the company itself cannot be saved
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Establish a fair and equitable system for the ranking of claims and the distribution of
assets among creditors involving a redistribution of rights.
In UK, Section 14 of the Insolvency Act 2000 gives the Secretary of State power to enact the
Model Law, with or without modification, by secondary legislation approved by resolution of
each House of Parliament. Pursuant to this power, the Cross-Border Insolvency Regulations
2006 (the “Regulations”) have been enacted, effective as of 4 April 2006.Unlike India, which
is yet to implement UNCITRAL Model Law on Insolvency, UK has tried to stay as close to
the Model Law as possible and ensure consistency, certainty and harmonization with other
States enacting the Model Law. The laws in UK depart from the Model Insolvency Law only
when it is necessary to give way to the established local requirements.32 Regulation 2 of the
Cross-Border Insolvency Regulations 2006 provides that the Model Law in the form set out in
Schedule 1 to the Regulations shall have the force of law in Great Britain. Regulation 3 lays
down that British insolvency law is to apply with any modifications necessary for the purpose
o of giving effect to the Model Law.
Therefore, it can be observed that UK has perfectly used the combination of EU Regulations
and the UNCITRAL Model Law as a tool to leave less room for local interests to influence
outcomes in disproportionate ways and come up in the line of international standards set by the
UNCITRAL Model Insolvency Law. On the contrary, India is still far behind on the path of
development of its insolvency laws as per the international standards. Although, it is said that
India is seriously considering adoption of the UNCITRAL Model Law on Cross-Border
Insolvency, the researcher does not find anything substantial in the Companies Bill, 2011 which
can emulate the approach adopted by UK to give effect to the Model Insolvency Law.
CONCLUSION
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The Model Law provides procedural framework to facilitate more effective and harmonized
disposition of cross-border insolvency cases where an insolvent debtor has assets or debts in
more than one State. The most notable feature of the Model Law is that it does not mandate a
substantive unification of laws and respect the differences among national laws by allowing
the implementing states to modify it according to their specific needs. The entire law is based
on four key principles, viz. the access principle, the recognition principle, the relief principle
and the co-ordination principle. However, it is to be noted that the UNCITRAL Model law
does not strictly follow the reciprocity principle. India on the other hand relies on the
reciprocity principle to recognize and enforce foreign proceedings in its territory. Although,
one can find traces of the international standards set by the Model Insolvency Law in several
provisions of SICA, SARFAESI and the Companies Act, the researcher did not find sufficient
and holistic adoption of UNCITRAL Model law principles by the Indian insolvency regime.
The relevant Acts rather deal with the same in a very peripheral way. Moreover, even the
proposed amendment of Companies Act 2011 does not offer anything substantial which can
overhaul the current insolvency regime and unleash reforms to bring the Indian laws in the line
of the international standards. The same principles of Model Law which find their effective
implementation in UK have not even been contemplated in the proposed Amendment to the
Companies Act in India. Unlike, UK and the United States, India does not have a single
comprehensive legislation dealing with insolvency laws. The relevant laws are scattered around
separate provisions of the Companies Act, SICA, Banking Regulation Act, and SARFAESI
Act. SICA has already been proved ineffective because of procedural and legal delays, misuse
of its protection and poor enforcement mechanism.
BIBLIOGRAPHY
Primary Sources
Acts and Statutes
UNCITRAL Model Law on Cross-Border Insolvency, U.N. Doc. A/RES/52/158 (1997)
UNCITRAL Legislative Guide on Insolvency Law, 2005
UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation
Sick Industrial Companies (Special Provisions) Act, 1985
The Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002
The Companies Act, 1956
The Companies Bill, 2011
UK Insolvency Act, 2000
Cross-Border Insolvency Regulations 2006
Books
Wessels B., CURRENT TOPICS OF INTERNATIONAL INSOLVENCY LAW (Kluwer, London,
2004), also available at
http://books.google.co.in/books?id=4jZs91yOOoAC&pg=PA100&lpg=PA100&dq=princ
iple+of+reciprocity+in+cross+border+insolvency&source=bl&ots=OEEeEu7kUk&sig=C
5pEVsNnbQzRbEZubCvMOZFUvGk&hl=en&ei=dvdaTsLbNMXKrAfDxtTPCg&sa=X
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&oi=book_result&ct=result&resnum=9&ved=0CFAQ6AEwCA#v=onepage&q=principl
e%20of%20reciprocity%20in%20cross%20border%20insolvency&f=false
Electronic Resources
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