India: cross-border insolvency and debt recovery challenges

India’s expanding economy continues to attract foreign investment, necessitating a legal system that effectively safeguards these investments. This article explores and analyses the legal mechanisms available to foreign investors/creditors within the Indian judicial and insolvency framework. The dispute between Indian ed-tech giant Byju’s and its American creditor, GLAS Trust Company LLC (GLAS Trust), elucidates the complex enforcement landscape foreign investors encounter in India when tackling with insolvency and debt recovery proceedings.

Background of the Dispute

Byju’s, an Indian ed-tech company once valued at $22bn, raised $1.22bn through a Term Loan B (TLB) in 2021, with GLAS Trust acting as the collateral agent on behalf of the lenders. Alleged defaults in 2023, including missed payments and financial reporting issues, led GLAS Trust to initiate enforcement measures in both Delaware and India to recover the loan. However, the dual proceedings quickly illustrated the difficulty of aligning enforcement across borders, as each jurisdiction applied different rules for creditor rights and recovery processes. While GLAS Trust sought a ruling in the US, since the majority of Byju’s assets were in India, it had to navigate India’s distinct regulatory environment, compliance requirements and procedural hurdles for effective enforcement.

In India, GLAS Trust’s efforts became even more complex due to ongoing local proceedings, specifically a settlement in the insolvency petition filed against Byju’s by the Board of Control for Cricket in India (BCCI), which is the central regulatory body for the Indian National Cricket Team. In the teeth of GLAS Trusts’ claim was BCCI’s insolvency petition which was allowed by the concerned Regional Bench of the National Company Law Tribunal, which lead to the appointment of an interim resolution professional to manage the day-to-day affairs of Byju’s since the erstwhile management and director(s) stood suspended. The suspended board members of Byju’s approached the appellate authority and therebefore BCCI and Byju’s agreed to settle their disputes in view of the settlement offer made by one of Byju’s suspended director Mr. Riju Raveendran. A disgruntled GLAS Trust challenged the settlement, arguing it circumvented financial creditors’ rights. After an interim stay pending hearing, in October 2024, the Supreme Court reinstated the proceedings, reinforcing the IBC’s mandate of collective creditor protection. In order to enforce their rights as creditors, GLAS Trust was required to manoeuvre the existing enforcement framework and choose which mechanism or combination of mechanisms, as described and analysed below, would be most relevant and effective. 

Key Enforcement Mechanisms in India

1. Insolvency and Bankruptcy Code (IBC), 2016

The IBC provides a structured process for creditors, including foreign investors, to initiate insolvency proceedings against debtors, offering a streamlined, time-bound approach for asset recovery. As done by GLAS Trust, creditors may initiate the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC by filing an application with the National Company Law Tribunal (NCLT) upon default by the debtor. If admitted, the creditor is then included in the Committee of Creditors (CoC), giving them a say in the debtor’s resolution plan and protecting their interests during the insolvency proceedings. Foreign creditors may also request NCLT to recognize foreign judgments or proceedings, especially in cases of joint ventures or assets in multiple jurisdictions. In the Byju’s matter GLAS Trust was tasked with doing precisely this by convincing the Hon’ble Supreme Court that an order by an American Court restraining Byju’s and its promoters from alienating assets in America were the very assets which Mr. Riju Raveendran was using to monetize and settle the BCCI dispute.

The IBC has significantly enhanced creditor rights, allowing foreign investors to be treated at par with domestic creditors, which strengthens their enforcement options. However, the Byju’s case also highlights practical challenges within the IBC process, such as procedural delays due to backlogs in the NCLT. These delays can undermine the IBC’s intended efficiency, as many cases exceed the 330-day resolution timeline, and high-profile cases often experience judicial interventions 'that add to the complexity of reaching timely resolutions. Despite these challenges, the IBC’s inclusion of provisions against fraudulent and undervalued transactions protects creditors from asset dissipation.

2. Recognition of Foreign Judgments by Indian Courts

The recognition of foreign judgments in India is governed by Section 13 of the Code of Civil Procedure, 1908 (CPC). For a foreign judgment to be enforceable, it must come from a competent court, adhere to due process, be conclusive, and not conflict with Indian public policy as highlighted in the case of Daimler Financial Services India Pvt. Ltd. v. Hyundai India Leasing and Finance Ltd.

Additionally, if the judgment originates from a country recognised by India as a reciprocating territory under Section 44A of the CPC, enforcement is relatively straightforward, and the judgment can be executed as a domestic decree. However, for judgments from non-reciprocating territories, a fresh suit must be filed in India based on the foreign judgment, adding further procedural steps to the enforcement process. Additionally, creditors may seek interim reliefs, such as injunctions to prevent asset dissipation, and orders for the attachment and sale of the debtor’s assets to satisfy the debt. However, procedural delays make civil court enforcement a less attractive option unless other mechanisms are unavailable.

3. Arbitration as an Alternative Enforcement Mechanism

Foreign creditors may initiate arbitration proceedings either in India or a foreign jurisdiction depending on the seat of arbitration chosen. Arbitration also provides a streamlined alternative for cross-border disputes, supported by India’s participation in the New York Convention, which recognises foreign arbitral awards. Creditors can apply to Indian courts for the enforcement of foreign arbitral awards if India is the enforcement jurisdiction. However, under Section 34 of the Arbitration and Conciliation Act, 1996, Indian courts may refuse enforcement if the award contradicts public policy, creating ambiguity for foreign creditors. This has led to delays in past enforcement attempts, underscoring the importance of drafting clear governing law and seat selection clauses into the agreement. Although the Byju’s case did not primarily involve arbitration, incorporating arbitration clauses in similar contracts could mitigate enforcement challenges.

Analysis of the Enforcement Framework

India’s enforcement mechanisms offer foreign creditors various routes, each with distinct strengths and limitations, within the existing legal framework. The IBC provides a structured path for creditors, including foreign investors, to initiate insolvency proceedings and participate equally with domestic creditors. Its time-bound approach and asset protection provisions make it an effective tool for asset recovery in insolvency cases despite delays in the National Company Law Tribunal (NCLT) that can impact its intended efficiency, particularly in high-profile cases where judicial intervention is common. Contractual enforcement through Indian civil courts, though viable, often involves lengthy and costly proceedings due to procedural delays, making it a less appealing choice for foreign creditors unless necessary. Recognition of foreign judgments under the CPC is straightforward for judgments from reciprocating territories, though those from non-reciprocating countries require fresh suits, adding to procedural complexity and costs. Arbitration, bolstered by India’s commitment to the New York Convention, offers an alternative with international enforceability, although enforcement can face delays if contested on public policy grounds.

In multi-jurisdictional cases, the lack of a dedicated cross-border insolvency framework can complicate asset recovery, as seen in the Byju’s dispute. While the need for parallel proceedings in Indian and U.S. courts created fragmented enforcement efforts. The Jet Airways insolvency case serves as a relevant example where the National Company Law Appellate Tribunal (NCLAT) facilitated ad-hoc cross-border coordination, collaborating with Dutch administrators to manage insolvency across jurisdictions. This precedent illustrates that while such solutions exist within the current framework, foreign creditors in multi-jurisdictional disputes may still face significant procedural hurdles and uncoordinated enforcement efforts.

As it stands, the IBC remains the most attractive option in insolvency cases, given its structured approach and creditor protections, while arbitration provides a streamlined solution for contractual claims. Together, these mechanisms present practical, yet occasionally complex pathways for foreign creditors to pursue enforcement in India including reliance on more than one avenue of enforcement.

Challenges Faced by Foreign Creditors

Jurisdictional Complexities: Enforcing foreign judgments requires adherence to Section 13 of the Code of Civil Procedure. GLAS Trust encountered jurisdictional hurdles when aligning enforcement actions across different legal forums, managing proceedings in both Indian and US courts. 

Procedural Delays: Delays in the judiciary hinder timely enforcement, as demonstrated by prolonged proceedings in the Byju’s case. Appeals and procedural challenges can extend timelines, impeding swift creditor remedies. The sheer volume of cases filed in India and the consequent overburdening of courts does not help, especially since commercial matters need to be decided with a certain amount of swiftness and precision.

Regulatory Hurdles: Compliance with regulations including the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) guidelines adds complexity to enforcement and recovery. GLAS Trust’s enforcement efforts were further complicated by evolving RBI regulations impacting the enforceability of specific guarantees. 

A necessary step would also involve ensuring robust contractual clauses. That necessitates well-defined dispute resolution mechanisms, such as arbitration clauses specifying seats and governing laws, can provide clarity and predictability. In this regard it is also recommended to consider including emergency arbitration clauses with avenues to approach other South East Asian countries having robust Arbitral Institutions (for eg HKIAC, SIAC) for urgent reliefs and commercially astute arbitrators.

Conclusion

The Byju’s-GLAS Trust dispute illustrates the complex landscape foreign creditors navigate when seeking to enforce judgements and agreements in India. While frameworks like the Insolvency and Bankruptcy Code (IBC) offer structured mechanisms for resolving insolvency, the Byju’s case underscores significant procedural challenges, regulatory hurdles and jurisdictional complexities that often delay resolutions. The outcome of this dispute will create further precedent enhancing enforcement practices in future cross-border insolvency cases, further protecting creditors’ rights.

The procedural complexities emphasise the need for foreign investors to adopt a more strategic approach, including pre-emptive contractual safeguards, an in-depth understanding of Indian regulatory frameworks and consultations with local legal experts to navigate these intricate pathways effectively. Foreign investors must recognise the evolving nature of India’s legal and regulatory landscape, proactively addressing challenges to protect their interests in India’s emerging and dynamic market.