Cooperation or Control? How Draft Part Z Conditions India's Cross-Border Insolvency Reform

[Arihana is a student at National Law School of India University.]

Can a cross-border insolvency regime be successful if it does not cross every border? India’s proposed insolvency framework raises precisely this question. India’s current framework, in practice, is a dead letter of law. Sections 234 and 235 of the Insolvency and Bankruptcy Code 2016 (IBC) make cross-border insolvency proceedings dependent on bilateral treaties. Assets located outside India remain beyond reach of the Indian law. The Insolvency and Bankruptcy (Amendment) Bill 2025 attempts to bridge this gap through Section 240C, which enables the Central Government to operationalise Draft Part Z. Draft Part Z adopts the UNCITRAL Model Law on Cross-Border Insolvency 1997 (Model Law) which gives foreign creditors statutory recognition and a clear route to relief.  Clause 15 allows a foreign representative to apply directly to the NCLT for recognition, and  Clause 20 triggers an automatic moratorium once a foreign main proceeding is recognised, thereby addressing the problem of asset dissipation. But Draft Part Z does not extend to all jurisdictions. Two features significantly restrict its scope. First, Clause 1(4)(a) imposes a mandatory reciprocity requirement: the new law applies only where the other jurisdiction has also adopted the Model Law. Second, as per Clause 1(5), the Central Government has the power to decide which debtor classes and jurisdictions will be covered by the new framework through executive notification. Together, these two clauses ensure that recognition under Draft Part Z is not a legal entitlement. It is a political decision. This paper therefore asks whether this approach was necessary and what India gains or concedes by adopting it.

Was Reciprocity Inevitable?

Clause 1(4)(a) restricts recognition to jurisdictions that have adopted the Model Law which, at the time of the Insolvency Law Committee’s recommendations, covered roughly 62 States. Non-adopting jurisdictions simply fall outside the new framework which leaves the problems of the current regime prevalent for cases involving them. Moreover, the Model Law itself imposes no such requirement. States are free to adopt it with or without a reciprocity condition. India’s choice to include the reciprocity requirement was therefore deliberate and not compelled. But it is only one part of the picture. Along with it is the notification power under Clause 1(5), which gives the Central Government power to choose, by executive notification, which qualifying jurisdictions will actually be recognised and which classes of debtors the framework will cover. Recognition therefore does not arise solely from the statute; it ultimately depends on whether the executive decides to activate the framework for a particular jurisdiction. This is a meaningful distinction. It means that even where a state has adopted the Model Law, cross-border relief remains dependent on the government’s political willingness to formalise such proceedings. 

This is also an institutional choice. In the United Kingdom, courts retain power to recognise and assist foreign insolvency proceedings which allows them to respond to the specific circumstances of each case. In contrast, the Indian framework allows the executive to filter which cross-border relationships will be recognised. Courts can only engage in cross-border cases if the government has already recognised a particular jurisdiction. As a result, cross-border cooperation becomes a political process rather than one guided by judicial discretion. Whether that reflects necessary caution or excessive control remains open to debate. It simply assumes that executive filtering is the right model which will fix the problems of the current cross-border insolvency framework.  What clearly shows, however, is a preference for cooperation with other countries only when that it is mutual and balanced, rather than recognising foreign insolvency proceedings on its own without expecting similar treatment in return.

What does India Gain and Concede? 

Grounding recognition through reciprocity provides certain advantages. It protects India from one-sided participation and provides predictability within the circle of adopting states. If not, Indian courts might have to acknowledge foreign proceedings in countries that would never return the same courtesy to Indian proceedings. The notification requirement also allows the government to exercise administrative oversight. Limiting recognition to notified jurisdictions prevents Indian courts becoming accessible to all jurisdictions, regardless of the nature or reliability of the legal systems involved. From a political perspective, the reciprocity requirement helps the government frame cross-border insolvency cooperation as a balanced and reciprocal partnership between countries, rather than entertaining a situation where foreign jurisdictions are leveraging the Indian framework, however Indian proceedings do not stand on the same footing in their jurisdictions. 

However, these benefits come with trade-offs. What India concedes is lies in what it leaves untouched. Assets situated in non-adopting states remain outside the new framework and are vulnerable to the problems that the current cross-border insolvency proceedings face. This indicates that only the circle of reciprocal states is affected by the automatic stay under Draft Part Z. Once assets are situated in jurisdictions beyond that circle, the possibility of cross-border moratorium dissolves. This limitation may also create strategic behavior among creditors. If creditors know that assets exist in non-reciprocal jurisdictions, they may initiate parallel proceedings in those countries. Because the Indian moratorium will not apply there, creditors may attempt to gain priority by acting outside the coordinated insolvency proceedings. This could result in partial cooperation and multiple parallel proceedings because some jurisdictions may not recognise the Indian insolvency proceeding and countries may handle the insolvency separately rather than jointly. Moreover, aggressive creditors may rush to other jurisdictions to enforce their claims early.

From a practical lens, courts and insolvency professionals across jurisdictions are under no obligation to coordinate which can lead to conflicting orders and assets may be handled inconsistently. Coordination in cross-border insolvency is essential because it allows the business of the corporate debtor to be preserved as a going concern and the assets are managed in a value-maximising manner. Lack of coordination can lead to diverging outcomes, with one country may liquidate the assets and another preferring restructuring it. This fragmentation often results in assets being sold separately instead of as a whole. For resolution applicants, who seek clarity and control over debtor’s assets, a fragmented proceeding creates risks. The inability to secure all assets and possibility of facing litigation abroad reduces attractiveness of the resolution process. As a result, potential applicants may either lower their bids or refrain from participating altogether. 

A second concession lies in the conditional nature of the reform itself. The effectiveness of Draft Part Z does not only depend on the strength of the Indian cross-border framework, but also on the legislative choices of foreign countries.  Coordination will only be possible when another country has adopted the Model Law and has been notified by the Central Government. Where neither condition is satisfied, the framework remains inactive. In this sense, the reach of India’s cross-border insolvency regime is partially determined by external factors.

By tying recognition in reciprocity, Draft Part Z rejects the possibility of extending recognition more broadly, even where safeguards such as public policy or procedural fairness could protect domestic interests. Instead, the framework mirrors the limit created by uneven global adoption of cross-border insolvency regimes.

Conclusion

The central question raised by Draft Part Z is not whether it improves India’s cross-border insolvency framework. It plainly does. The more difficult question is whether its limited reach is an unavoidable feature of cross-border insolvency or a boundary consciously drawn by the legislature.

Cross-border insolvency is inherently interdependent. No jurisdiction can implement global coordination of insolvency proceedings only by making domestic reforms. The effectiveness of any cross-border regime depends on the willingness of other states to participate. Therefore, uneven adoption of the Model Law across jurisdictions has become the reality of the contemporary global insolvency landscape. Yet, Draft Part Z does more than operate within that reality; it codifies it. By grounding reciprocity as a condition for recognition, it does not attempt to overcome fragmentation through one-sided openness. Instead, it conditions recognition on mutuality, either through adoption of the Model Law or through shared commitment and fruitful partnership. 

This approach is justifiable. It preserves executive control, protects against unequal participation and ensures that cross-border cooperation with mutual commitment. At the same time, it guarantees that the current cross-border insolvency regime will continue to apply to insolvencies involving assets in non-adopting jurisdictions. As a result, Draft Part Z represents progress, but progress that remains geographically limited. Thus, this reform is deliberate, limited and contingent.