Section 240C and the ‘Blank Cheque’ Problem in Cross-Border Insolvency

[Kartik is a student at Dr BR Ambedkar National Law University.]

It was in 2019, during the insolvency of Jet Airways (India) Limited, which already had an administrator of its Dutch assets appointed, when the National Company Law Appellate Tribunal (NCLAT) did not have any statutory provision in place to fall back upon. In Jet Airways (India) Limited v. State Bank of India (Jet Airways), the NCLAT designed an ad hoc cross-border insolvency mechanism, adopting certain features from the UNCITRAL Model Law on Cross-Border Insolvency 1997 (Model Law) despite India never having adopted it. India was deemed the center of main interest of the debtor, allowing the Dutch administrator to participate in committee of creditors meetings without voting rights. For a jurisdiction that prides itself on time-bound, statute-driven insolvency resolution, this was improvisation dressed up as adjudication.

Seven years and one amendment later, Parliament has finally spoken, Section 240C has been introduced through the Insolvency and Bankruptcy Code (Amendment) Act 2026 (2026 Amendment) into the Insolvency and Bankruptcy Code 2016 (IBC), giving way to a formal cross-border insolvency scheme in India. The problem is that Section 240C is not providing any framework per se. Instead, it leaves the entire matter in the hands of the Central Government, to be developed later through the rules yet to be notified by this date. This piece argues that the manner in which Section 240C has been drafted is more than just an ordinary administrative delegation and can lead to the delegation of the essential legislative function, making the Indian cross-border insolvency regime, for now, on a blank cheque.

The Decade of Improvisation

Until now, cross-border insolvency under the IBC has been governed by two narrow provisions: Section 234 empowers the Central Government to enter into bilateral agreements with foreign nations for enforcement of the IBC in respect of assets located outside India; Section 235 permits the resolution professional to apply to the National Company Law Tribunal (NCLT) for a letter of request to a foreign court. Neither provision has been of any practical use in light of the fact that no single bilateral agreement has been entered into under Section 234 in almost a decade. Tribunals have had no choice but to improvise where necessary. In Macquarie Bank Limited v. Shilpi Cable Technologies Limited, the Supreme Court has interpreted the term person under Section 3(23) of the IBC to include persons resident outside India, allowing for the participation of foreign creditors in the process. In Stanbic Bank Ghana Limited v. Rajkumar Impex Private Limited, the NCLT has recognised an insolvency application based on a decision by an English court, despite there being no explicit authority granted by the IBC to do so. And in State Bank of India v. Videocon Industries Limited (Videocon), the NCLT Mumbai has gone one step further, consolidating the insolvency proceedings in relation to thirteen inter-connected Videocon group companies, despite the absence of any statutory provision for group insolvency in the first place, a judicial workaround which has been separately codified in a 2026 Amendment through Section 59A.

It is because of this very reason that the 2018 Insolvency Law Committee, appointed by the Ministry of Corporate Affairs, has recommended that India should adopt the Model Law with certain local modifications. More specifically, the Insolvency Law Committee drafted an entire chapter, referred to as the Draft Part Z, for inclusion within the IBC. This draft was not merely some vague policy recommendation. It clearly identified foreign proceedings, introduced a centre-of-main-interests test distinguishing between main and non-main recognition, made provision for an automatic moratorium in respect of main proceedings, and included a public policy exception. The Cross-Border Insolvency Rules and Regulations Committee consulted on the draft text again in 2020, refining it further. By the time Parliament sat down to legislate in 2025–26, a fully worked-out draft had existed for over seven years.

What Section 240C Actually Says

Draft Part Z was not passed as a law by Parliament. Rather, Section 240C confers authority upon the Central Government to frame rules to provide for the procedure and conditions relating to cross-border insolvency proceedings, which includes recognition of foreign proceedings, relief following recognition, and judicial cooperation — restricted to notified classes of corporate debtors and notified jurisdictions, with power to adapt the IBC or the Companies Act 2013 as required. What is conspicuous is everything it omits. There is no statutory definition of foreign proceeding, no centre-of-main-interests test, no suggestion of whether the recognition gives rise to automatic relief or discretionary relief, and no public policy exception set out in the parent statute. Even the choice of which countries' insolvency orders India will engage with is left to executive notification, without parliamentary debate on the point. All of these are policy questions that were already settled by Draft Part Z, and which Section 240C reopens for rule making.

The Essential Legislative Function Problem

It is not prohibited by Indian constitutional law to have delegated legislation in place. However, the seven judges' bench of the Supreme Court in the case of In re The Delhi Laws Act 1912 set the limit. Although the legislature can delegate the task of making detailed rules (or conditional legislation), it should never delegate its essential legislative function, namely the determination of legislative policy and its enactment into a rule of conduct. The court allowed provisions for extending existing laws with modification. However, a provision for amending and repealing existing laws was declared as excessive delegation. Later decisions, including Harishankar Bagla v. State of Madhya Pradesh, introduced a more practical standard: delegation was valid until the parent statute lays down some guiding policy, however broad, that confines the executive's rule-making power.

Section 240C is hard to reconcile even with this relatively forgiving standard. There is no such thing as textual anchoring of the provision, i.e. no reference to the Model Law, no provision that rules should take account of the centre-of-main-interests test or anything else that could be regarded by a court as a policy choice made by Parliament. What Section 240C delegates is not detail but the policy itself. Whether India adopts a universalist approach (single main proceeding, assisted in other jurisdictions) or a territorial one (each jurisdiction protecting its own assets) is exactly the kind of policy decision that took up an entire report by the Insolvency Law Committee.

Section 240C is far from an exceptional piece of draftsmanship. The 2026 Amendment does something structurally identical for group insolvency. It introduces a new Chapter V-A, established by Section 59A, allowing the Central Government to make rules on coordination of proceedings concerning groups of companies linked by the presence of control or significant ownership, without adopting a substantive test developed by NCLT Mumbai in Videocon for the determination of the circumstances under which companies may be regarded as one economic entity. In other words, Parliament had a couple of easy-to-use templates (a chapter in the Draft Part Z and judicial test in Videocon) and it used the delegation without content in both cases. The only safeguard available in both situations is that rules must be placed before Parliament before being notified. Yet, laid-before-Parliament rules are rarely discussed in practice and can be annulled only retroactively.

None of it means that Section 240C will be necessarily declared unconstitutional. Indian courts traditionally demonstrate their deference to the technical and economic delegations, sometimes stretching themselves in order to find an implied policy and keep a statute intact. Nevertheless, passing the test of constitutionality is a fairly low bar to clear. The more important argument here is a normative one -- about what good lawmaking should look like. Practice of other jurisdictions demonstrates that the legislation of the policy and the delegation of details is quite practicable. Cross-Border Insolvency Regulations 2006 of the United Kingdom and Chapter 15 of the US Bankruptcy Code adopt the substantive architecture of the Model Law (centre-of-main-interests test, distinction between main and non-main proceeding and automatic relief) directly into the primary legislation. Insolvency, Restructuring and Dissolution Act 2018 of Singapore goes even further, its courts applying it in a quite liberal manner, which is widely considered to contribute to making Singapore the Asian preferred venue for restructuring. If India genuinely aspires to that role, as suggested by various official statements related to the 2026 Amendment, an unnotified and content-free rule-making power speaks the opposite language to the cross-border creditors and investors.

Conclusion

Section 240C ends the fiction that India has no cross-border insolvency framework, but it does so only on paper. Until rules are notified, and there is at present no indication of when that will happen, Indian tribunals remain exactly where the NCLAT stood in Jet Airways: improvising, case by case, with borrowed vocabulary and no statutory ballast. The more useful reform Parliament could still make, even now, is a modest one — amend Section 240C to state, on its face, that rules made thereunder shall have due regard to the UNCITRAL Model Law and the centre-of-main-interests test already developed in Draft Part Z. That single addition would convert a blank cheque into conditional legislation properly so called, and would cost Parliament nothing it has not already spent seven years drafting.