Prateek: Hello everyone, I am Prateek Kumar, Partner in the Dispute Resolution practice at Khaitan & Co. Today, we are turning our attention to a subject that sits at the intersection of commercial reality and legal reform — Insolvency in India, viewed through a global lens and in context of the contemporary issues that we see evolving through the present global scenario. We will be diving into how these issues in the current insolvency regime stack up against more mature systems and discuss some of the cross-border developments — and frictions — that are shaping the conversation today.
Joining me is my colleague, Raveena Rai, Partner in the Dispute Resolution practice.
Raveena: Thank you, Prateek. Always a pleasure. Let me start with a quick background.
In 2016 IBC consolidated a patchwork of laws into a single, time-bound, creditor-in-control framework. And almost a decade on, the data tells an interesting story. IBC has resolved several large-stressed accounts, recovery rates have improved meaningfully, and perhaps most importantly, it has changed borrower behaviour. The threat of losing control of the company is, in many cases, a stronger discipline than any recovery mechanism we have had before.
Prateek: Absolutely! But that said, the regime is far from perfect. We are witnessing palpable issues that are being faced in global times and are seeing novel ways in which various jurisdictions are dealing with the same. In this context, what becomes relevant is that the Indian cross border insolvency regime is not notified as a law and is being developed in courts. Leaving ample room for uncertainty.
Sections 234 and 235 of the IBC contemplate bilateral arrangements with other countries and letters of request to foreign courts, but in practice, neither provision has been operationalised. India has not adopted the UNCITRAL Model Law, and the Draft Part Z — recommended by the Insolvency Law Committee in 2018 and revisited by the CBIRC in 2020 and the MCA in 2021 — is still awaiting enactment.
Raveena: You’re right. This is genuinely consequential. A recent piece by Clifford Chance describes the region as moving into a phase of the “haves and the have-nots” — jurisdictions that have adopted the Model Law and can engage in flexible, coordinated cross-border restructurings, and those that have not. Malaysia enacted its Cross-Border Insolvency Act in July 2025. Thailand is moving towards pre-packaged rehabilitation. India risks being left behind unless Part Z is taken up.
Prateek: And we have seen, precisely how painful the absence of that framework can be. To give an example, there has been an instance where offshore lenders were attempting to recover a huge investment against an Indian group. The borrower entities were spread across multiple countries like the United States, the United Kingdom, Singapore, and India; and the promoter was based out of Dubai. Here, the lenders were also pursuing investigations into alleged siphoning of funds through related entities.
Raveena: You are absolutely right. In this case, a Chapter 11 proceeding was initiated for the US holding entity, which in a Model Law world would have been the natural anchor — recognition in Singapore and the UK would have followed relatively quickly, asset-tracing and freezing relief could have been coordinated. Instead, the lenders had to litigate on multiple parallel tracks. In India, there was no statutory route to give the US trustee or the foreign representatives any direct recognition. Recovery dragged on. Assets that could have been frozen quickly under a coordinated framework remained accessible to the promoter group.
Prateek: There is one more cross-border issue that has been front of mind for the disputes bar this year — the intersection between the IBC and international sanctions regimes. The NCLT Ahmedabad's order earlier this year in the CJ Shah & Co. matter put that question squarely on the table. The facts, very briefly — Flint Group India had withheld payment to its supplier, CJ Shah & Co., after CJ Shah was placed on the US OFAC sanctions list. CJ Shah then initiated insolvency proceedings under Section 9 of the IBC as an operational creditor. The NCLT held that foreign sanctions cannot be used as a defence to avoid payment of operational dues and allowed the petition to proceed. While an appeal is pending, the outlook of NCLT is being taken as a guiding principle by many companies who are in a similar situation.
Raveena: That puts companies in a genuinely difficult position. Pay, and risk secondary sanctions exposure in the US or Europe. Withhold, and face a CIRP petition in India where the sanctions designation is not recognised as a defence. Even the conservative option of depositing the disputed amount in court is unattractive, because the funds could be released to the sanctioned counterparty in the course of the proceedings. This itself could trigger sanctions exposure.
Prateek: And this leads us very naturally into a broader theme — what I would call insolvency in a wartime economy. Because cases like these are not happening in isolation. It is happening against a backdrop a volatile global commercial environment we have seen since the financial crisis — and arguably since the second world war.
Raveena: Indeed. The data is striking. Western Europe is heading into a fourth consecutive year of rising insolvencies. We can see that effectively there are three converging drivers, namely the prolonged Russia-Ukraine conflict, tensions in West Asia and the South China Sea, and the threat of a full-fledged trade war.
Prateek: The legal response across Europe has been instructive. Ukraine itself has had to fundamentally rethink its insolvency law since 2022. From January 2025, it introduced a preventive restructuring procedure aligned with the EU's Restructuring Directive. Critically, since 2023, Ukrainian courts have had the power to deny or close bankruptcy proceedings if the debtor can demonstrate that non-performance was caused by the war. In 2025, the Supreme Court of Ukraine confirmed that existing proceedings can also be closed on that basis.
Raveena: That is a fascinating doctrinal move. It is effectively a war-related causation defence to insolvency — and judicial practice remains inconsistent, because each court has to assess the causal link between the debtor's distress and the conflict. But the very fact that the question is being asked, openly and at the level of the Supreme Court, tells you how seriously the system is grappling with wartime stress.
Prateek: On the sanctions-insolvency overlap specifically, the UK has gone further than most. From May 2025, UK insolvency practitioners are formally required to report to the Office of Financial Sanctions Implementation any dealings with sanctioned persons and any suspected breaches. OFSI has also issued — and repeatedly extended — specific general licences authorising insolvency-related payments for designated entities. The GTLK insolvency licence is the most prominent example.
So, the UK approach is essentially to build sanctions-awareness into the insolvency framework itself — through reporting obligations, through general licences for legitimate restructuring activity, and through a body of OFSI guidance that practitioners can rely on. The Indian framework, by contrast, has none of this. Our IBC was drafted in a relatively benign global environment, and it does not contemplate the possibility that the parties before the NCLT may be subject to overlapping foreign regulatory regimes.
Raveena: Which is why CJ Shah matters so much. It is, in effect, the first time an Indian tribunal has had to grapple with the wartime-era reality that a counterparty's status can change overnight by virtue of a designation issued thousands of miles away. And the answer the NCLT has given — that this is irrelevant to the IBC analysis — may be doctrinally clean, but it is commercially and geopolitically untenable in the long run.
Prateek: And it is not just sanctions. Indian companies with exposure to Russia, to Ukraine, to West Asia, to the Red Sea shipping corridor — all of them are dealing with payment delays, supply-chain ruptures, insurance withdrawals, and currency convertibility issues that did not exist three years ago. Each of those can quickly become a Section 9 trigger if a counterparty decides to push. We are going to see more of these matters, not fewer.
Raveena: And the legislative response will have to follow. Whether that takes the form of a war-causation defence on the Ukrainian model, or a sanction carve-out, or simply a more sophisticated reading of the “pre-existing dispute” doctrine under Section 9 — something will have to give. Otherwise, we risk a situation where Indian companies are penalised for complying with international law.
Prateek: India's IBC has transformed domestic insolvency resolution in under a decade, but its cross-border framework remains un-notified, leaving Indian courts ill-equipped to coordinate with mature Model Law jurisdictions. The NCLT's order in CJ Shah & Co. has further exposed the absence of any sanctions-aware adjudication under the IBC, placing companies in an untenable bind between US/EU sanctions exposure and Section 9 liability in India. With global insolvencies rising amid war, sanctions and supply-chain shocks, the next phase of reform — Part Z, group insolvency, expanded pre-packs and wartime-sensitive adjudication — will determine whether India keeps pace with regimes designed to absorb geopolitical disruption.
Raveena: Insolvency law is, ultimately, an instrument of capital allocation. Markets that resolve distress quickly and predictably attract more capital, on better terms. The IBC has moved India significantly in that direction, but the global yardstick keeps shifting — and it is shifting in the direction of regimes that can absorb sanctions, supply-chain shocks, and geopolitical disruption without breaking.
Prateek: Very well put, Raveena. That brings us to the end of our conversation. The IBC has been a transformative piece of legislation, but the next chapter — particularly on the cross-border and wartime-economy front — is still being written. We will be watching closely.
Thank you for joining me, Raveena.
Raveena: Thank you, Prateek. A pleasure as always.
