Rajah Of Vizianagaram vs Official Receiver, Vizianagaram, 1962 AIR 500.
2 In Re: Girish Bank Ltd, AIR 1959 Cal 762.
Galva Steels vs. DF Deutsche Forfait, 2017 139 CLA 185.
The Research looks at the validity of the Judgement
passed by the National Company Law Appellate Tribunal vis-à-vis prior
judgements passed by the Judiciary with a view to identifying the extent of the
deprivation of rights caused to the foreign trade creditors, if any. It further
looks at the rights of foreign trade creditors in the Insolvency Legislations
of the British and the US. It also looks at solutions to address this
particular issue so that this matter can be easily understood by all.
This leads to a clear discrimination as the rights of
foreign trade creditors are at a level below that of the local, in this case
Indian trade creditors have the benefit of local banks which in a way leads to
the exclusion of foreign trade creditors from the insolvency process.
Foreign trade creditors are placed at a huge
disadvantage under the procedure of corporate insolvency resolution process
(CIRP) of a company due to various recent judicial decisions taken by the
National Company Law Appellate Tribunal. Already provisions of the IBC entail
that a corporate applicant must furnish details of the bank statement at time
of applying for initiation of CIRP. The whole process has become prejudiced
against the foreign trade creditors as via an order of the National Company Law
Appellate Tribunal in Uttam Galva Steels vs. DF Deutsche Forfait3,
the Tribunal interpreted section 3 (14) of the IBC to conclude that for the
purposes of the IBC, such bank statements can only be from an Indian bank or
financial institutions and not from banks and financial institutions outside
India. This leads to a situation where a trade creditor who does not have a
bank account with an Indian bank or financial institution will not be able to
satisfy this requirement and thus irrespective of a default in the payment, the
foreign creditor is unable to initiate corporate insolvency proceedings unless
a statement from an Indian Bank or Financial Institution is attached.
The advent of Insolvency and Bankruptcy Code 2016
(IBC) has effected a change in the law
as the Code has all the power to ensure winding up of a company on default of a
debt to either financial or trade creditors. By omitting provisions from the
Companies Act regarding inability to pay debts as a ground of winding up from
the Companies Act, it is only under the IBC that a trade creditor can seek to
wind up the debtor.
During insolvency proceedings, there exist many type
of creditors which also comprise foreign nationals, hereby referred to as
foreign creditors, who too have a stake and an interest in the winding up
proceedings. The Hon’ble Supreme Court has upheld their right to participate in
insolvency proceedings and opined that there existed no difference between the
Indian and Foreign Creditors in the recovering the assets of the Company.1 It
further held that the foreign creditors had every right to participate in the
insolvency proceedings. Thus, it is a judicially settled position that foreign
creditors cannot be discriminated during insolvency proceedings,2
indeed, they have just as much right as anyone else to participate and recover