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A Study on Doctrine of Public Policy under Cross Border Insolvency – By K Yamini Reddy and Devendra Sai Kumar Musunuri

That several potential issues related to cross-border insolvency have been identified in the extensive research on the subject in recent years. An important question is whether these issues are acknowledged in all nations and if their judicial systems and insolvency administrators are capable of promptly addressing them. The effective execution and synchronisation of cross-border insolvency proceedings rely on two contrasting perspectives. Firstly, the universalist approach advocates for a comprehensive platform that addresses all insolvency law matters. Secondly, the territorialism approach prioritises domestic interests, potentially disregarding the concerns of all creditors. The efficient facilitation of cross-border bankruptcy should be based on the principles of modified universalism and the objective of promoting collaboration between domestic courts, while also considering justice and local public policy.

A Study on Doctrine of Public Policy under Cross Border Insolvency

K Yamini Reddy
Second Year, LL.M.-IBL Student of NALSAR & IICA

Devendra Sai Kumar Musunuri
Second Year, LL.M.-IBL Student of NALSAR & IICA

Table of Contents


Chapter 1: Understanding the theoretical foundations of approaches under CBI

1.1.     Five approaches of Cross-Border Insolvency

1.1.1.     Universalism
1.1.2. Modified Universalism
1.1.3.     Territorialism
1.1.4.     Cooperative Territorialism
1.1.5.     Universal Proceduralism.

Chapter 2: Public Policy Exception: Boon or Bane

2.1.     Model- Law ‘s interpretation of Public Policy Exception
2.2.     United States Bankruptcy Law and Public Policy

2.2.1.     Constitutional Privacy Rights—In re Toft
2.2.2.     Due Process Rights- In re Sivec SRL
2.2.3.     Foreign Main Proceedings- In re Gold & Honey

Chapter 3: Public policy Exception in India: ILC Report

Chapter 4: Conclusion and Suggestions


The rapid development in trade, commerce and investments globally has led to a rise in the number of corporate organisations that operate in many countries, with businesses, assets, debtors, and creditors spread across different nations. With growth come’s the problems, today if we see from Lehman brother’s collapse in 2008[1] to the outbreak of novel Corona Virus firms such as Jet airways, Avianca Airlines, Amtek Auto, Videocon Industries, Essar Steel, Diamond offshore drilling and many more companies led to global economic crisis. Hence, it has been accepted by many businessmen and lawyers there is a dire need of common set of insolvency regulation mandates that is applicable globally during such failures.

According to the World Bank[2], when courts and administrators work together in international insolvency proceedings, it helps in achieving certain objectives such as maximising the value of the debtor’s assets worldwide, protecting the rights of debtors and creditors, and ensuring fair administration of the proceedings. The true difficulty for administrators, policy makers, and insolvency practitioners lies in discovering and embracing universally applicable ways to achieve this goal. So, in the first part of the paper, the researcher concentrates on understanding why is it difficult to adopt such universal laws, when there is dire need of cooperative insolvency resolution globally.

However, we can assume that UNICITRAL’S Model law, European insolvency regime and U.S Bankruptcy code has come to the rescue of the situation to certain extent. If we consider India, the country has not adopted any governing principles pertaining to cross-border issues, despite the recommendation made by Insolvency Law committee in its 2018 report to adopt Model Law.  However mere adoption doesn’t solve the issues, the adoption of laws also come’s up with certain challenges and one such challenge is the principle of “Public policy” which is recognised by all the major insolvency regimes. The second section of this paper is about the principle of public policy with respect to India, US, UK and Singapore’s cross border Insolvency principles. Finally, the researcher concludes by examining whether such principal hamper’s the objective of cross-border insolvency regime or protects the same.

Key Words:  Global Economic crisis, World-Wide Assets & Creditor’s, Cross-border issues, Model Law, Principle of Public Policy.

Research Question

  1. How should be the principle of Public Policy, understood and applied across jurisdictions?
  2. Whether the exception of Public Policy, can be manifestly applied by all the nations across world or not?

Objective of the Study:

  • This study is made with the intention to understand the scope of the public policy exception, because it acts as a safeguard to protect the interests of the domestic creditors
  • Further, the study aims to comprehend the concept of the “public policy exemption” as it pertains to the Model Law, U.S Bankruptcy Law and the DPZ.
  • The final section of the report thoroughly examines the “public policy exemption” in the DPZ, and compares India’s stance with that of other nations.
  • Understand whether this exception is applicable to all the countries irrespective of having a bilateral agreement between them, through some judicial interpretations.

Scope of the Study:

The scope of the study in understanding the exception of public policy is limited only to three jurisdictions namely US, UK and India with reference made to Model Law.

  • The scope is limited to US, because US is the country which deliberately has used the exception of public policy in many instances.
  • The scope is limited to UK, because though UK has its own EUR regulations, the country has recognized this principle and allowed this exception many a times.
  • The scope is limited to Model law, since there is a narrow interpretation made in this law and the word “manifestly” used in the texts are been written down as it is in the Draft Part Z

Hence, the study aims to understand these jurisdictions in light on judicial interpretations

Chapter 1: Understanding the theoretical foundations of approaches under CBI

The aim of the cross-Border Insolvency (CBI) Law is always to preserve the finically distressed company which has viable future and exit those companies which are no longer financially viable.[3] This exercise is possible only if we have a smooth mechanism with efficient utilisation of resources. There are different economic arguments favouring CBI, some suggest that

  • A cross-border insolvency regime is crucial for economic and financial reasons.
  • A cross-border regime might enhance productivity by releasing idle resources in multiple jurisdictions, perhaps enlarging the asset pool for greater creditor realisation (depending on the model- which will be further elaborated in chapter 1.1).
  • Acts as an effective framework which reduces coordination costs between creditors and judges. This system would reduce ambiguity caused by varying laws and regulations.

Lastly, a cross-border regime might increase investment incentives by eliminating uncertainty. Overall, reducing uncertainty through this cross-border regime is crucial for the institution’s economic performance.

 Prior to delving into the many models by which CBI operates, it is crucial to grasp the process by which CBI proceeds in order to prevent uncertainty of claims. The solution to that problem derives from the idea of Principle of collectivity.[4] This principle of insolvency law allows for the collective prioritisation of various personal or individual claims in order to ensure the survival of the corporate debtor, in keeping the business as a going concern. This ensures the preservation of property and provides certainty for the creditors as well. The notion of collectivity is useful when there is a lack of consistency in how creditors are treated in terms of priority among nations. The priority bestowed upon one kind of creditor may vary from the priority bestowed upon another category of creditor in a distinct jurisdiction. If separate insolvency rules were to be used, it would result in the reverse impact of harmonisation and predictability for the creditors. This would also affect the movement of credit across borders. Therefore, for an effective formulation of Cross-Border Insolvency (CBI) we require uniform laws, now let’s understand different approaches of CBI and find whether such uniform law is applicable or not.

1.1. Five approaches of Cross-Border Insolvency:

According to Reinhard Bork[5] there are five approaches for Cross-Border Insolvency, let’s understand these principles in connection with public policy. Before starting with the concept of Public Policy, let’s understand this concept. Since, the definition for public policy is not defined promptly in any law, let’s derive its meaning from the Arbitration Law, according to Farshad Ghadoosi[6] the doctrine of Public Policy or exception as a mechanism by which public law enters private law and prevents it from achieving its usual legal goals. Although public law is an acknowledged notion in the common law system, it is unclear how it may affect private law. One of the examples can be derived from the Indian contract law[7],  An agreement which is against public policy cannot be enforced by its parties in the court of law. This philosophy of public Law has three discrete components, rather than encompassing a one concept.[8] The three aspects in question are public interest, public morality, and public security. Each of these need a distinct method for its analysis.

Public Interest- It’s calculated by using cost-benefit Analysis, which means that community interest must be balanced with the interest of private parties

Example: Tort Law of Carbide case[9]

Public Morality– This mandates the idea that the judiciary must not mandate enforcement of any measures that may become harmful to the common morality of the people

Public Security– This principle aims to mandate the “states” survival Interest.

When public morality and public security are at stake, private law is incorporated based on the imperative of public policy. Nevertheless, when dealing with situations that involve the third aspect of public interest, courts should often strive to achieve a balance of both private partes and public at large in order to prevent any adverse consequences. Now, let’s understand this concept under different jurisdictions

1.1.1. Universalism:

 It means that there shall be no more than one single insolvency procedure governing the debtor’ s insolvency globally. Universalism refers to the approach taken by a state whose cross-border insolvency law is based on the principle of universalism. In this approach, the state claims that the insolvency proceedings initiated by its official bodies are exclusive and have a worldwide impact. It is formulated from the perspective of the state that initiated the insolvency proceedings and asserts that these proceedings have effects in other countries as well.[10] This type of proceedings mainly concentrates at collecting all the debtor’s assets. This principle is based on the principal of fairness between all creditors.

According to Lord Hoffmann[11]– “there should be a single bankruptcy in which all creditors are entitled and required to prove. No one should have an advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated.”

We can find this principle of Ancillary proceeding’s very commonly applied by the English courts who faced many challenges in applying this administrative insolvency principle across the empire, they always were need to ensure that there exist some universal proceedings. In one famous case of an early English case regarding these ancillary proceedings was “In re Commercial Bank of South Australia”,[12]

 According to North J- “the winding-up here will be ancillary to a winding-up in Australia, and, if I have the control of the proceedings here, I will take care that there shall be no conflict between the two Courts, and I shall have regard to the interests of all the creditors and all the contributories, and shall endeavour to keep down the expenses of the winding-up so far as is possible”.

Now, the question arises is that “whether Public-policy works as a restriction for universalist theory of Cross-Border Insolvency or not?

Public-Policy and Universalism: The concept of universalism did not prevail much longer because the idea of universalism is impractical due to the lack of relevant home countries for international borrowers. If the universalist approach is embraced, it will result in widespread forum shopping and rivalry between states and courts for significant international cases. The competition will transfer authority from governments and courts to the managers and specialists of multinational corporations, making the international bankruptcy system uncertain, and endangering global economic advancement.

Public policy exception does not even apply if courts opt for universalism, there will be no restriction or public morality or security. Hence, this principle is widely not opted by the jurisdictions across the world.

1.1.2. Modified Universalism:

Modified universalism is a combination of universalism and territorialism. The concept of universalism is upheld through the implementation of a single primary process. However, it also incorporates territorialism aspects by allowing local courts with established branches to initiate supplementary procedures to safeguard local interests and meet the expectations of creditors. Modified universalism has played a significant role in acknowledging and supporting cross-border bankruptcy procedures in both the United States and the United Kingdom as well. Now let’s understand whether public policy exception makes any difference under this principle

Public Policy and Modified Universalism:

Based on the idea of modified universalism, courts will not take any action that is controlled by the provisions of the other law adopted in their nations if those acts clearly go against the public policy of their state. Hence, courts have the authority to apply the public policy exception in order to deny the recognition of foreign proceedings, redress, or any other action that is required or encouraged by the Model Law. This broad interpretation of the public policy exemption under modified universalism might impede the attainment of the Cross-Border insolvency objectives due to the extensive possible uses it encompasses.

1.1.3. Territorialism

Territorialism asserts that instances of Cross-Border Insolvency (CBI) should be overseen by the courts situated in the jurisdictions where the debtors’ assets are located. This leads to a scenario where several courts have the chance to commence legal actions based on the diverse geographical locations of properties involved in a typical case investigated by the CBI. The jurisdiction to handle the insolvency petition is determined by the location of the debtor’s properties.

1.1.4. Cooperative Territorialism:

The objective of this method is to establish more collaboration among courts in order to effectively restructure debtors from other nations as well. One possible use of the cooperative method is the exchange of information about claims. Courts might collaborate to jointly sell the assets of the Corporate Debtor. This approach focuses on the courts’ responsibility in balancing the local claims and the global nature of the proceedings. Sometimes it is difficult to adopt public policy principle with this type of approach of CBI.

1.1.5. Universal Proceduralism

This method examines the possibility of consolidating the administration of the debtor’s assets. The essence of universal proceduralism is that a single court should have jurisdiction over a cross-border bankruptcy case and should utilise decentralised choice of law principles to determine the substantive rights of foreign creditors. This idea dictates that when a court initiates bankruptcy procedures, it should handle overseas assets and claims in a manner that closely resembles how they would be treated under local law if the insolvency processes were taking place locally.

This theory advocates for the adoption of a certain type of public policy exception by domestic courts but, it would restrict the ability of domestic courts to intervene. This method would not provide the Courts with the flexibility to use public policy exception extensively.

Chapter 2: Public Policy Exception: Boon or Bane

This chapter addresses three components. In sub-chapter 2.1 of this chapter, the researcher focuses on the UNICITRAL Model Law on Cross-Border Insolvency. They provide an overview of the exemption of Public Policy included in Article 6 of the Model Law and discuss how other countries have implemented this provision. The next sub-chapter, 2.2., of this chapter focuses on how the United States has incorporated the Model Law into Chapter 15 of its Bankruptcy legislation. In chapter 2.3, the researcher provides a comprehensive analysis of how courts have implemented the public policy exception.

2.1. Model- Law ‘s interpretation of Public Policy

As the Model Law is a non-binding framework, countries must pass laws to make it legally enforceable. Countries have the authority to decide whether and to what degree they want to include the provisions of the Model Law in their own laws. The purpose of the Model Law is to streamline collaboration between courts and insolvency representatives in various jurisdictions and to empower insolvency representatives to request and receive acknowledgment of their insolvency procedures from other countries.[13]

Furthermore, it regulates bankruptcy processes that encompass the majority of debtor firms in various circumstances. The Model Law governs several aspects, including: (1) a request from a foreign proceeding seeking recognition; (2) a request from a court or administrator in a State that has adopted the Model Law seeking recognition of an insolvency proceeding initiated under the laws of that State; (3) the coordination of simultaneous proceedings in multiple States; and (4) the involvement of foreign creditors in insolvency proceedings occurring in a State that has adopted the Model Law.

The Model Law also sets forth standards for assessing whether a foreign proceeding will be acknowledged as a primary proceeding, a secondary action, or neither. The consequences of this resolve differ according on the categorization of the foreign proceeding. For example, when we have a close look at the provisions of Article 20 of the Model Law states that when a foreign main process is recognised, specific relief is automatically granted. The initial remedy provided is the suspension of individual creditors’ proceedings against the debtor. Another option for relief is to get a stay of execution against the assets of the debtor. The third remedy option entails the suspension of the debtor’s ability to transfer or encumber its assets. In addition, Article 21 grants the court the authority to provide discretionary remedies in order to safeguard the debtor’s assets or the interests of the creditors, after a foreign main proceeding or non-main process has been acknowledged. Discretionary relief in this context refers to the ability to halt legal proceedings or temporarily prevent the debtor from using their assets as collateral. It also involves providing access to information about the debtor’s assets and debts, appointing someone to manage those assets, and any other relief that is allowed by the laws of the relevant state. When deciding whether to provide or refuse assistance, the court must ensure that the rights and well-being of the creditors and all individuals involved, including the debtor, are sufficiently safeguarded. The court has the authority to impose restrictions on the relief it grants, and it can alter or end that remedy if asked by any affected individual. The Model Law further suggests that local courts and insolvency representatives collaborate with overseas courts or foreign representatives.

Now, speaking about the public policy exception under Article 6 of the Model Law, which states that. The court has the authority to decline to take an action that is controlled by this Law if the action would clearly go against the public policy of this State. [14]

If we have a closer look at Article 6 of Model Law, it’s neither defining public policy but manifestly baring its applicability on a nation if at all it’s against the nation’s public policy. The Model Law also differentiates between two distinct notions of public policy. It is observed that an increasing number of legal systems acknowledge a distinction between the concept of public policy in relation to domestic laws and the concept of public policy in the context of international cooperation and acceptance of foreign laws. The Model Law acknowledges that the concept of international public policy is interpreted more narrowly than domestic public policy. This recognition is based on the notion that a wide definition of international public policy would impede international cooperation among nation states.

Moreover, the Guide to Enactment clarifies that the term “manifestly,” commonly used in various international legal texts to qualify the expression “public policy,” serves to highlight the need for a narrow interpretation of public policy exceptions. It emphasises that Article 6 can only be invoked in rare situations that involve crucial matters of significance to the enacting State. States that have adopted the Model Law have incorporated the public policy exception of Article 6 in three different manners: (i) by adopting the precise language of Article 6, (ii) by enacting a modified version of Article 6 that excludes the term “manifestly” in their public policy exception, or (iii) by adopting a distinct but related provision.

Australia, Colombia, England, Mauritius, New Zealand, and South Africa have included Article 6 into their insolvency legislation verbatim. These countries depend on the phrase “manifestly” to emphasise the need for a strict interpretation of the public policy exception. These countries adopt the public policy exemption to be applied only in rare cases that involve concerns of fundamental importance.

Although the British Virgin Islands, Canada, Greece, Mexico, Serbia, Montenegro, and South Korea have approved laws based on Article 6 of the Model Law, they have deleted the phrase “manifestly.” The removal of “manifestly” in these situations does not indicate an omission from the Model Law, but rather a semantic decision to exclude adjectives and adverbs from law. These countries’ laws differentiate between domestic and less restricted foreign public policy. Foreign proceedings are not subject to the same level of public policy compliance as domestic proceedings. A foreign contract that would be unlawful under domestic public policy may be enforced due to international comity considerations.

Japan and Poland have implemented Article 6 of the Model Law by substituting the phrase “public order” or “public peace” for “public policy” to define the specific situations in which acts may be restricted under this provision.

Though there is no definition for the word Public Policy the word “public order” is frequently used in the domestic private international law of several States, particularly in civil law jurisdictions. In this particular situation, the word refers to several exemptions that allow a court to reject or not enforce a judgement, or apply foreign legislation to an ongoing legal case, because the judgement or law contradicts a more essential principle of the court where the case is being heard. Similarly, the French notion of “ordre public”, which corresponds to the concept of “public order” or “public policy” in United States common law, exemplifies the regulations implemented by states to safeguard the fundamental principles of their society. While the extent of restrictions on “public order” laws may differ among States, courts often adopt a narrow approach when evaluating these rules. They frequently conclude that only measures that safeguard a State’s most essential principles meet the criteria of public order.

2.2. United States Bankruptcy Law and Public Policy:

In 1895, the US SC established that a court has the authority to decline the enforcement of a non-US judgement if it contradicts a public policy of the US.[15] In the case of Hilton it is held that describing centre of main interest as a “The voluntary action of a nation, which is offered and cannot be accepted when it goes against its policies or harms its interests.”

While the exemption may seem broad in principle, US courts have interpreted it narrowly and have seldom applied it in practice. A court cannot reject the implementation of a non-US judgement only based on the fact that it conflicts with local public policy. Instead, for a US court to refuse to enforce a non-US judgement, it must determine that the judgement goes against a significant proclaimed public policy that impacts a basic interest of the jurisdiction.

So, the US Courts Uniformly construe § 1506 to apply only when fundamental policies of the United States are at risk. United States is the country which has deliberately used this exception. Now let’s understand this principle from 5 judicial interpretations which took this exception.

2.2.1. Constitutional Privacy Rights—In re Toft

 This case of In re Toft[16], the Bankruptcy Court for the New York denied a German court order granting the foreign representative access to debtor emails kept on US servers. The German court issued the foreign representative an “Ex-Parte Mail Interception Order”, allowing interference with the debtor’s postal and electronic mail without notice. Chapter 15 allows foreign representatives to investigate a debtor’s assets, affairs, rights, responsibilities, and liabilities. Chapter 15 defines this remedy as discretionary. US courts often balance the need for debtors’ personal financial information disclosure with their privacy concerns.
The Bankruptcy Court for the Southern District of New York accepted mail interception orders as routine under German law, but declined to implement them in the US due to violations of US public principles. The bankruptcy court rejected the request for Chapter 15 recognition of the German action because it was clearly against US public policy. The Constitution of a State has consistently recognised that some rights are policy issues that can properly invoke the use of a public policy exemption.

2.2.2. Importance to due Process – In re Sivec SRL:

Due process and notice are key features of US law for parties involved in judicial proceedings. In re Sivec SRL[17] shows that a bankruptcy court may reject a foreign case if creditors are denied notice or a hearing. In this case, Sivec entered an Italian liquidation process. Zeeco, a Sivec creditor, was not informed about the Italian lawsuit. Zeeco did not provide a proof of claim against Sivec in the Italian process. Years later, Zeeco sued Sivec in the Eastern District of Oklahoma for contract violation. Sivec submitted to the court’s jurisdiction and filed a Chapter 15 petition to recognise the Italian liquidation case and halt the Zeeco breach of contract action. The bankruptcy court ruled that denying Zeeco the ability to litigate its contract claim would violate the country’s fundamental rights to notice and hearing. The court ruled that Zeeco’s due process rights required lifting the stay and allowing the Oklahoma suit to continue to judgement. Constitutional rights are regularly recognised as acceptable grounds for public policy exceptions. This public policy dispute included constitutionally protected rights to notice and hearing. The court refused the foreign representative’s plea for relief under Section 1506, consistent with previous foreign courts citing public policy exclusions.

2.2.3. Foreign Main Proceedings- In re Gold & Honey:

The Bankruptcy Court for the Eastern District of New York used Section 1506 to prevent international creditors from receiving recognition, as the foreign actions were initiated against US court orders In re Gold & Honey.[18] G&H limited and an associate lodged voluntary bankruptcy proceedings under Chapter 11 petitions in the Eastern District of New York in 2008. Gold & Honey debtors’ creditor, First International Bank of Israel (“FIBI”), was pursuing receivership procedures in Israel. FIBI was told by the US Bankruptcy Court that its activities in receivership proceedings breached the automatic stay and were conducted “at its own peril.” However, FIBI pursued the Israeli receivership and filed for Chapter 15 recognition in the same court as the Chapter 11 case.

The Gold & Honey court prohibited the acceptance of the Israeli receivership, as it would hinder US courts’ ability to implement two key rules and objectives of the automatic stay. The court feared this outcome would encourage parties to violate US public policy while claiming US judicial jurisdiction. The Gold & Honey court rejected recognition without analysing § 1506. The court may have denied recognition under § 1517 to conclude its analysis. The court stated in dicta that recognising the foreign process would be against US national policy.

So, in precise the researcher comes to a conclusion that the he overall context of Chapter 15 establishes that § 1506 serves as a “safety valve” enabling courts to reject the recognition of a foreign judgement or other requests made within the framework of a recognised legal process.

Most US courts only use Section 1506 in rare cases involving significant issues. This approach aligns with § 1506, Chapter 15’s structure, and nonbankrupt courts’ understanding of public policy exceptions in other areas of law. Some US bankruptcy courts consider public policy when deciding to deny recognition, even if there are other reasons for rejection, such as under § 1522 or § 1507(b). Many opinions under Section 1506 are dicta, diluting the intended narrowness of the public policy exemption. Courts should interpret § 1506 narrowly and only apply it if no other provision of Chapter 15 might refuse relief. This technique aligns with Chapter 15 and Model Law drafters’ objectives and reduces disruption from frequent invocations.

Chapter 3: Public policy Exception in India: ILC Report

India does not have a consistent set of rules regarding Cross-Border Insolvency The DPZ has attempted to implement CBI by incorporating several provisions of the Model Law. Clause 4 of the ILC is drafted in a manner that differs from the UNCITRAL Model Law. The section mandates the Adjudicating Authority (AA) to issue a notice to the Central Government (CG) in order to solicit submissions regarding the case. Furthermore, CG has the opportunity to submit an application to the AA, requesting an order to prohibit the execution of a particular activity. If the CG believes that the execution will clearly go against India’s public policy, then it is feasible. The ambiguity regarding the sequence of events to be adhered to is a significant issue with the phrasing of this provision. The lack of clear and consistent use of the term “manifestly opposed to the public policy of India” is a significant obstacle to the execution of this provision.

Let’s understand the principle in the light of Contract Act[19] & Arbitration Law[20]

The scope and understanding of public policy are extensive, and its application is determined solely by the court’s discretion based on agreement and purpose. If a contract is determined to be contrary to public policy, it is rendered void under Section 23 of the Indian Contract Act, 1872. If an agreement is deemed unlawful due to contravening public policy, the individual cannot contest the ruling based on the principle of freedom of citizens to engage in contractual agreements. Section 23 of the Indian Contract Act, 1872 declares that any agreements that impact or hinder the administration of justice would be deemed void. Before applying the theory of public policy, the courts must thoroughly examine the case in order to consider the growth of public opinion and morals.

In India, the concept of public policy is included in Section 34 of The Arbitration and Conciliation Act, 1996, in addition to cross border bankruptcy. Regarding “public policy” under the Arbitration Act of 1996, the Renusagar Power Mills v. General Electricals[21] case is an important decision by the Indian Supreme Court. It established that the public policy of India is a significant factor in this context. The Supreme Court deliberated on whether a narrow or wide interpretation should be applied to the exception of public policy. “It was decided that the exception of public policy must be interpreted narrowly and that mere contravention of the law cannot attract the bar of public policy. Only on three grounds the exception of public policy could be invoked

  1. Contrary to fundamental policy of Indian law
  2. Contrary to the interests of India
  3. Contrary to justice and morality.”

The perspective of Indian courts about the circumstances in which the exception of public policy may not be used is unambiguous. Nevertheless, the extent of public policy has not been fully determined. The responsibility of determining what is most beneficial for the welfare of the public and implementing appropriate laws lies with statesmen, not the court. Thus, it is the responsibility of the legislature, rather than the court, to establish a definitive comprehension of the extent of public policy and the circumstances under which the exception of public policy may be invoked.

Chapter 4: Conclusion and Suggestions

Hence, the researcher concludes this study with an emphasis starting from chapter 1, that several potential issues related to cross-border insolvency have been identified in the extensive research on the subject in recent years. An important question is whether these issues are acknowledged in all nations and if their judicial systems and insolvency administrators are capable of promptly addressing them. The effective execution and synchronisation of cross-border insolvency proceedings rely on two contrasting perspectives. Firstly, the universalist approach advocates for a comprehensive platform that addresses all insolvency law matters. Secondly, the territorialism approach prioritises domestic interests, potentially disregarding the concerns of all creditors. The efficient facilitation of cross-border bankruptcy should be based on the principles of modified universalism and the objective of promoting collaboration between domestic courts, while also considering justice and local public policy.

Answering my first research question, how should be the principle of Public Policy, understood and applied across jurisdictions, Public Policy- The Model Law is widely regarded as an effective procedural framework for the efficient management of cross-border insolvencies. Insolvency, on the other hand, necessitates the handling of intricate substantive matters in several legal and policy domains across numerous countries. The acceptance of the Model Law appears to be hindered by inherent issues, as seen by the limited number of nations that have accepted it and the varied ways and degrees to which they have done so. So, the researcher suggests Model Law future as a persuasive legislative document for States to include in their national legislation as a valuable reference for resolving cross-border insolvencies without requiring it to be enacted as a binding legislative text.

Answering my second research question, whether the exception of Public Policy, can be manifestly applied by all the nations across world or not, to determine the applicability of the public policy exception in the context of the MLCBI, it is crucial to differentiate between the concept of public policy as it pertains to domestic affairs and the concept of public policy as it relates to international cooperation and the recognition of the effects of foreign laws. Public policy is often interpreted more narrowly in the latter scenario compared to domestic public policy. Through this study, the researcher suggests that in order not deliberately misuse this exception, the model law must mention some tests to understand this concept and it’s usage under CBI.


[1] Jamie Altman, A Test Case; in International Bankruptcy Protocols: The Lehman Brother’s insolvency, (476-478) https://digital.sandiego.edu/ (Last Accessed on 29-02-2024).

[2] The World Bank principles and guidelines for effective insolvency and creditor rights systems (English). Washington, http://documents.worldbank.org/ (Last Accessed on 29-02-2024).

[3] Daoning Zhang, “Theoretical basis of corporate rescue”, Insolvency Law and Mukti National Group Theories, 12- 30 (2020).

[4] Reinhard Bork, Jurisdictional Principles-Principles of Cross Border Insolvency Law, Cambridge University Press, (21-25) 2017.

[5] Id. At 9.

[6] Farshad Ghaddosi, International Dispute Resolution and the Public Policy Exception, Taylor & Fransis Group Publication, 9 (230-233) 2017.

[7] The Indian Contract Act, 1872, §23.

[8] Id. At 11.

[9] M.C.Mehata Vs Union of India., AIR 1987 SC 965.

[10] Reinhard Bork, Jurisdictional Principles-Principles of Cross Border Insolvency Law, Cambridge University Press, (26-27) 2017.

[11] Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2006] UKPC 26

[12] In re Commercial Bank of South Australia (1886) 33 Ch 174.

[13] 6 Andre J. Berends, The UNICITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview, (309-320) 1998.

[14] Id. Art 6.

[15] Hilton v. Guyot, 159 U.S. 113, 165.

[16] In re Toft, 453 B.R. at 189

[17] In re Sivec Srl, 2011 WL 3651250.

[18] In re Gold & Honey, 410 B.R. 357.

[19] The Indian Contract Act, 1872.

[20] The Arbitration & Conciliation Act, 1996.

[21] Renusagar Power Co. Ltd. v. General Electric Co. 1984 4 SCC 679.

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