The Insolvency and Bankruptcy Code (IBC), 2016, through its umbrella framework, has proved to be a useful legislation with consolidated laws to solve insolvency issues. In this context, while highlighting the burgeoning rationale of export control clauses in conjunction with the Indian insolvency regime, modelling the very recent Go First’s insolvency mandate, one also proposes recommendations to settle the tussle between the same.
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PURSUANT to the United States of America (USA)’s earnest interest to open doors to foreign trade in India, the first meeting was scheduled for May, 2023 under the US–India Strategic Trade Dialogue, aiming to discuss export control regulations with regards to dual use items.
The amenability of such American export control regulations posit a definitive regulatory route vis-à-vis disclosure standards as far as exporting specific product classes are concerned, which pertinently include the Export Control Classification Number (ECCN) and the Export Administration Regulations (EAR99) as provided under the Commerce Control List (CCL) and 15 CFR § 772.1 EAR respectively.
Treading through cross-border insolvency: Revisiting Sections 234 and 235 of the IBC
A conjunctive reading of Sections 234 and 235 of the IBC, portrays a coherent model for navigating through cross-border insolvency in India. However, the ambit of these provisions has been a point of contention while factoring into the applicability of Bilateral Investment Treaties (BITs) as against Section 238, (which is a non obstante clause of the Code), wherein the verbiage of the same furnishes a conflicting procedural pentagon.
The Jet Airways insolvency was one of the first cross-border insolvencies that India witnessed wherein several challenges were faced due to the lack of clarity with respect to overseas insolvency frameworks.
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Firstly, the Jet Airways insolvency was one of the first cross-border insolvencies that India witnessed wherein several challenges were faced due to the lack of clarity with respect to overseas insolvency frameworks. Primarily, the legitimacy of parallel proceedings in two distinct jurisdictions and operational extent of a foreign resolution professional (FRP) were in question in the case. The National Company Law Appellate Tribunal (NCLAT), with the onus of issuing appropriate coordination directions, did not grant the FRP the right to vote in the CoC, but granted impetus to the same to attend meetings, to the extent it prevents any potential overlap of powers.
Further, the case of Videocon Industries Ltd dealt with whether a resolution professional (RP) in India could take control of the assets of a foreign subsidiary of a company undergoing a corporate insolvency resolution process (CIRP) in India. The court examined Sections 18(f) and 23(2), which relate to the powers of the RP and ultimately ruled that the RP cannot take control of assets of a foreign subsidiary if those assets are subject to EAR export regulations.
Along such lines, the National Company Law Tribunal (NCLT) in the Bhushan Steel Ltd case ordered that all of Bhushan Steel’s assets, including those in the US, be frozen amidst an ongoing CIRP in India. In response, when the US government objected to the same on the grounds of the case being subject to US export control regulations, NCLT lifted the asset freeze. But the case highlighted the difficulties of coordinating cross-border insolvency proceedings and the importance of taking export control laws into account when dealing with insolvent companies in India.
With the growing salience of Indian jurisprudence tracing the transversal between insolvency and American export control regulations, these cases struck chords of an existing tussle between the same, calling for an urgent need to revisit such a misadventure.
Modelling the Go First mandate: Debunking its export control conundrum
The NCLT, vide an Order dated May 10, 2023, admitted Go First airline’s voluntary proceedings for the CIRP, acting promptly at such a watershed movement wherein a national carrier itself has approached the tribunal in a voluntary capacity instead of a creditor doing so.
The case of Videocon Industries Ltd dealt with whether a resolution professional in India could take control of the assets of a foreign subsidiary of a company undergoing a corporate insolvency resolution process in India.
With liabilities accruing to the tune of ₹11,463 crore, the airline has sought an interim moratorium on its monetary obligations and further aims to file a suit against Pratt & Whitney (P&W), an American aerospace manufacturing company, in various jurisdictions, on the grounds of deficiency in goods (i.e., engines) sold, claiming US $1.1 billion in damages.
Against such a background, it must be noted that the engines shall be covered in Category 9 of the Commerce Control List (CCL) under ‘Aerospace and Propulsion’ bearing the effect of two pertinent American export control clauses: ECCN and EAR99. Such an inclusion questions the very deposition of cost proceedings against P&W for compensating “lost revenues and additional expenses” since Go First itself should have considered the effect of export control implications and undertaken its regulatory due diligence at the very preliminary stage.
Furthermore, the very ‘presumption of approval’ concept in India reinforces the applicability of the validated end user (VEU) mechanism (which grants India special status) for authorising foreign trade along such lines, bolstering concerns with regards to the affixation of damages in this case thereof.
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Since the Go First insolvency conundrum is notably first of its kind, NCLT shall have the binding forte to clear the air between a knitted framework of Indian insolvency, export control clauses, employee retention and debt restructuring. This must be done by propounding a well-reasoned litmus test to arrive at a fair settlement, without turning a blind eye to the Indian precedent and its cross-border veracity.
Chalking a proposed solution through an international perspective
A plausible solution to navigate through the aforementioned floodgates would be to remodel such an existing binary through the fundamental caveat of an international perspective. In this regard, India must lend credence to Canada’s Foreign Representatives Protocol wherein the local country must have the presence of foreign representatives which stand accredited to the country that imports goods to the same; including bilateral and multilateral postings.
Since the Go First insolvency conundrum is notably first of its kind, NCLT shall have the binding forte to clear the air between a knitted framework of Indian insolvency, export control clauses, employee retention and debt restructuring.
Further, the aspect of technological readiness levels (TRLs) as highlighted in the European Union’s (EU) Dual Use Consultation Paper can be taken into earnest consideration when dealing with the maturity levels of high-yield technology goods and allied imports of spare parts.
Lastly, a level-playing corroboration of India’s present insolvency regime with bilateral and inter-state treaty arrangements can be modelled with that of the United Nations Commission on International Trade Law (UNCITRAL) to bring some legislative clarity on paralleling overseas insolvency with export control implications in this regard.
India must lend credence to Canada’s Foreign Representatives Protocol wherein the local country must have the presence of foreign representatives which stand accredited to the country that imports goods to the same; including bilateral and multilateral postings.
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These recommendations can help regulate quality control, harmonise security risks and obliterate deficiency concerns at the very nascent stage of facilitating foreign trade in India, underlying the garb of IBC’s regulatory prowess.
The way forward
All in all, while the proposed notion of the US–India Business Council (USIBC) seems to be a welcome move to the larger discourse of international trade in India, the ideal recourse would be to rethink such a framework in the interest of both insolvency vis-à-vis takeover inefficiencies, which cushion the implicit export licensing pipelines.
In addition, a mandatory positioning of oversight mechanisms ought to be of utmost importance to regulate the modalities that are likely to arise out of such exports, which include quality control, export objectives, monetary thresholds as per product classes, security clearances, and prospective and proliferation sanctions.
A level-playing corroboration of India’s present insolvency regime with bilateral and inter-state treaty arrangements can be modelled with that of the United Nations Commission on International Trade Law to bring some legislative clarity on paralleling overseas insolvency with export control implications.
In conclusion, for the US–India Strategic Trade Dialogue to achieve its target of US $500 billion by 2024, a humble discernment must be furnished by squaring off a ‘two-way trade’, calling for reformatory conscience at the earliest.
