Cross-border insolvency was long imagined as a space governed by cooperation and mutual trust, where courts across jurisdictions would recognise each other's proceedings to preserve value and impose some order on corporate failure. The UNCITRAL Model Law, which underpins India's proposed Insolvency and Bankruptcy Code (IBC) Part Z, rests on this assumption, that recognition and coordination ultimately serve everyone's interests. India's move in this direction, following the Insolvency Law Committee's recommendations in 2018 and the work of the Cross Border Insolvency Rules/Regulations Committee in 2020, reflects that same impulse. Yet the world in which Part Z will now operate is very different from the one in which the Model Law was drafted, with geopolitics increasingly shaping financial decisions in ways legal frameworks did not fully anticipate, and with clear consequences for Indian insolvency practice.
For Indian banks, cross-border insolvency is no longer a niche concern. Exposure to multinational corporate groups, overseas subsidiaries, trade finance instruments, and external commercial borrowings has increased steadily. Recognition of foreign insolvency proceedings can materially affect recovery prospects, enforcement strategy, and the timing of value realisation. At the same time, banks operate within a dense web of obligations relating to sanctions compliance, correspondent banking relationships, payment and settlement systems, and regulatory supervision. While Part Z does not apply to financial service providers notified under section 227 of the IBC, banks are frequently involved as creditors, lenders, and intermediaries in cross-border insolvency processes, and are therefore directly affected by how the framework is applied in practice.
Part Z of the Insolvency and Bankruptcy Code contemplates recognition of foreign main and non-main proceedings based on the debtor's centre of main interests (COMI), and enables cooperation between Indian and foreign courts and insolvency professionals. Importantly, Part Z also retains two significant filters. The first is reciprocity, under which the Central Government may notify jurisdictions to which the framework will apply. The second is the exception of, closely aligning with that of principles under private international law where Indian institutions can refuse recognition of such global policies which are in direct conflict with our municipal laws.
Traditionally, public policy in cross-border insolvency has been read in a narrow and careful way, with courts across jurisdictions turning to it only in limited situations such as procedural unfairness, denial of natural justice, or clear cases of fraud. The CBIRC report broadly follows this understanding, placing its emphasis not on wide judicial discretion but on the technical exercise of identifying the debtor's centre of main interests as the primary gateway for recognition. At the same time, the public policy exception itself is not closed or exhaustively defined, and while neither the Model Law nor Part Z spells out geopolitical or regulatory concerns in so many words, the open-ended nature of the provision leaves room for courts to take account of such factors when they surface in real cases and shape the practical operation of cross-border insolvency.
Trade wars and financial sanctions are only one of the many, and not always the most visible, ways in which geopolitical considerations begin to seep into questions of recognition and cooperation, because sanctions in their contemporary form are no longer contained within the familiar language of trade restrictions, but spill outward, almost inevitably, into banking operations, correspondent relationships, and the everyday functioning of cross-border payment systems, so that even in situations where Indian law itself does not formally restrict or prohibit engagement, financial institutions involved in insolvency-related transactions continue to find themselves exposed to secondary sanctions and the accompanying, and often more unsettling, risk of reputational harm, operating in a space where uncertainty is not an exception but a constant condition.
National security concerns may not always be named as such, yet they sit over this space all the same, particularly in sectors seen as sensitive, where insolvency proceedings involving companies with foreign ownership or control tend to attract closer attention that is rarely stated in clear terms. From a banking point of view, this attention does not usually take the form of a direct bar or a formal objection placed on record, but instead gathers slowly through higher due diligence requirements, ongoing and sometimes uneasy exchanges with regulators, and closer watching of how funds move across borders. These pressures may never fully appear in the text of insolvency proceedings themselves, yet they continue, in quieter and less visible ways, to influence when recognition is given, delayed, limited, or quietly withheld across borders.
Payment systems and settlement infrastructure add yet another layer of complication to cross-border insolvency, because these processes are rarely confined to court orders alone and often depend on the movement of funds, interim arrangements, and coordinated action across multiple jurisdictions, and once they pass through international payment systems, banks are required to navigate shifting regulatory expectations on a continuous basis. As a result, very practical issues relating to settlement, remittance, or clearing can shape how effective cross-border cooperation actually turns out to be, sometimes limiting what can be achieved in practice even after legal recognition has formally been granted.
Under Part Z, jurisdiction is laid out in a relatively clear and structured manner, with applications concerning Indian corporate debtors being placed before the NCLT bench that has jurisdiction over the registered office, while matters involving foreign entities are, as recommended by the CBIRC, to be handled by the Principal Bench of the NCLT. Within this framework, adjudicating authorities are also given the space to cooperate with foreign courts and foreign representatives, including at an early stage of the insolvency process, and the CBIRC specifically recognises that such cooperation may be necessary even before formal recognition is obtained, allowing foreign representatives to seek cooperation while requiring them to apply for deemed authorisation from the Insolvency and Bankruptcy Board of India alongside or soon after making such applications.
From where practitioners sit, it is already clear that cross-border insolvency under Part Z will not work as a neat, technical box-ticking exercise, because courts will increasingly be asked to balance the promise of cooperation and predictability against regulatory pressures and systemic risks that flow from the wider financial environment, and this balancing act should not be mistaken for a retreat from the Model Law itself. It is simply an acknowledgment of how insolvency actually works on the ground, within banking systems, payment networks, and regulatory frameworks that cannot be switched off when a foreign proceeding seeks recognition.
The author is an Assistant General Manager (Law) at Union Bank of India.
Views are personal.