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This summary is written by Priyanka Cholera, MKES College of Law, Mumbai University.

The Guest: Somya Singh, Founder of Avant-Garde Communications, her areas of Expertise include, IBC matters, Real Estate Matters, Debt Recovery, PR, and Clientele Management.

The Host: Anubhav Garg, Management Trainee at LawSikho.

What is Information Utility? how significant it is for IBC filing?

Let us first understand how did IBC make it to the headlines, within 4 years of its implementation? an overview of the past 30 years of cases before IBC show us that, the legislation for Banking, laws. economic offenses, Financial crimes were scattered all over the place. there was SARFAESI, DRT, PMLA, etc. there was a lack of integration for these said subject matters. it has been a popular opinion that all laws were tilted towards the debtors. After the introduction of IBC, we have one umbrella where the Rights of Financial Creditors, rights of Operational Creditors, Rights of the Debtors, etc. Quoting Mr. Pawan Kumar  Executive Director, IBBI, IBC is comprised of four pillars, vis. Adjudication Authority i.e. the NCLT, IBBI, insolvency professional, and last but not the least Information Utility. 

Unlike the other Laws in our country, Information Utility was not borrowed or given to India but  Britishers. It is one of its kind. Information utility is a repository, where information is collected,  authenticated, verified, and handed over to the head of state. The insolvency laws around the world are stringent but they do not have a forum that has it all, one just needs to have an ID and password to access data regarding your debtor. None of the countries has it, India is the first country to have this system. 

The non-performing assets of the country are taking a steep high causing losses to the bank. Despite the ordinances and the RBI regulations, the situation remains unchanged. to curb the non-performing asset it was the need of the hour to have a platform that puts Debtor and the Creditor at par. where both parties can authenticate information as well as counter, question, or resolve disputes without going for the legal dispute resolution which might consume more resources and time. The whole mechanism is based on taking information from one party about the default and showing the same information to the other party in the dispute. If either party disagrees with the information provided then they can proceed with the resolution. Information Utility can be understood as a dispute resolution system for both financial or operational creditors and company debtors. it also acts as an Evidence bearing instrument. 

With technology, there are some pros and cons too. any person with the right credentials and a working internet can access the Credit Health of any company. Before NeSL, there were services dedicated to determining the Civil Score of the Company. However Civil Score doesn’t have the Credibility NeSL does, because NeSL not only collects information but also confirms it with the other party. only after it is authenticated the data becomes accessible. For Instance, DigiLock, it stores the data but cannot access it, in similar fashion IU stores the data for the company, and the data cannot be disputed once it is authenticated. Due to IU, the litigation proceedings become much faster than it used to be because only authenticated data is uploaded. 

When does information utility (IU) become a key pillar in IBC?

Back in the or Before IU ’90s, any information regarding companies was not easily available or authenticated. India has produced nearly 50 Unicorn start-ups until now, in this situation the Financial Creditors like Banks or NBFC or Foreign Investors need to know about the companies they will be investing in. Another Example of Tycoon Vijay Mallya, who had taken loans from 17 Banks tells the importance of these Information Utility Services. In 2019 itself, there has been $15 Billion of Foreign Investment, suppose those countries want to know the present status of their Debtor’s finances, that information will be easily accessible through IU. There is also a facility available to creditors, that is if any of its debtors is in Default, there will be a message sent to all creditors about their finances and also empower them with the right to comment on it.

To understand Information Utility better, let us take an example. Company A has taken a loan of Rs. 2 Crs from State Bank and has paid only Rs. 1,10,00,000. The State Bank will update the NeSL portal about these defaults. Company A will be given 3 notices with intervals of 3 days in between each, about their defaults and a chance to explain themselves. If the company affirms the default, then it will be considered Authenticated. If the Company refuses the default accusations by State Bank then it will be considered to be Disputed. And if the company doesn’t respond at all, then the Status of Default becomes deemed to be Authenticated. Any company with capital more than Rs. 30 Crs can be an IU Company. On NeSL, one can store data approximately at Rs.12/Mb for nearly 18, as Lawyers invest a huge amount in stationery itself,  hence technology proves to be a great resource for saving time and money.

From the above example, we can understand that IU assists the adjudication process and helps escalate it with all the information provided about the status of Default. It is also pushing the entire country to Credit discipline. With all the scams the country is witnessing, where companies take loans from several sources and refuse to give it back by saying there were few ‘bad business decisions’. That approach needs to change. And IU with its Digital Signature service ensures that all the debtors authenticate the information they add and don’t refuse later. Hence the requirement of Acknowledgement in Section 18 of the Limitation Act is fulfilled. This makes IBC Procedural as well as Substantial law. In the bigger picture, IBC is helping the economy to thrive, due to IU everything is in black and white.

Is access to IU information available to third parties?

Yes, anybody can have access to the website. extending the previous case study, Company A has a team of counsels helping them with legal disputes. The team will have access to the portal to know what information is being circulated by the creditors. The Creditors and Investors have access to the information. in case of disputes, Insolvency professionals can have access to it. There are many forthcoming cases in NCLT by homebuyers against the Real estate companies. the reason for the dispute could be illustrated as Company  B is a construction company that builds residential spaces. The company instead of completing The project it took money for, from buyers and banks, started to work on other projects. Information about not finishing projects or sinking money of homebuyers will be broadcasted to other creditors and as a result, other homebuyers or Creditors can make a well-calculated decision about investing money in the future. 

NeSL is a Union government company comprising of 13 banks, 3 insurance companies, and one debenture treaty. Since the IU has begun more than 76,00,000 Crore of data has been added to the IU. And according to a Circular passed in December 2018, where banks were asked to insert data about their creditors. with the information that has been instilled, it has helped more than 600 cases until now with their proceedings. on 12th of May 2020, a notification was released which said that henceforth it is compulsory to furnish the information about the corporate debtor which is available with the IU, along with Section 7 or else your matter won’t be admitted. Earlier the cases would take up as long as a year to be admitted. But after the May 12 notifications, the process has speeded up many folds as the debtor confirms or refutes the allegations in a short period. The NCLT and IBBI are insisting on a situation where all the cards are on the table. India has a history of the Vicious cycle of money laundering and delayed justice, but now due to IBC and Utility, these cycles are breaking for good. People can’t run away with money anymore because the information about the debtor is easily available as well as proving someone’s default.

How does IU contribute to the Dispute Resolution Mechanism?

IU offers a Dispute Resolution Mechanism as, if any two parties have contradicting information, they can settle down and solve it or discuss it. Even though Arbitration has a similar modus operandi, it is very costly and many times either or both parties are not satisfied with the award and they move to Court. Hence IBC proves to more efficient in Dispute Resolution. Because one Debtors default is being broadcasted to all its creditors,  Hence the Corporate debtors would be disciplined as it will be answerable to all creditors at once. Under IU all the resolution is performed by itself because the debtor will come forward and explain or resolve the default because he can risk losing all other creditors. 

Due to IU, there are no blind spots anymore. During Pandemic all small scale entities have been hit hard economically, and presently they might have default payment due to lack of cash flow. But if their previous transactions are proved to be default-free, then the creditability of such enterprises will not be questioned.

Professionals will be benefited from IU?

Shortly, we can expect IU to provide us with information about the mismanagement of companies we can expect to be part of Due Diligence as well. As discussed earlier, IU is also used to determine a Company’s creditworthiness. Hence IU can be used in M&A or Venture investments because at the end of every creditor wants to know how well have you handled your money. The information on IU about any company will never be questioned, hence Corporate Counsels will research on IU about the company they will be dealing with. IBC Lawyers as well as Insolvency professionals as well.  Company Secretaries as well as Chartered Accountants who are engaged in Financial Audits of companies will also benefit from IU. Even the Legal Counsel in Government organizations will be benefited. 

Even Counsels of Company Debtors will be given a platform to put their argument across any allegations of default and have a chance of defending their company. 

What is the Authenticity and Security of Information on IU?

Presently, it is being managed by TATA Securities and until now there have been no mishaps. IU comes with its flaws, even though the benefits of IU are lucrative one has to understand, that sensitive financial information is available on a Public Platform accessible by everyone. Hence there is a threat of data theft or breach. 

Digital Signature cannot be used by anyone without the Right Credentials or consent. Hence its authenticity cannot be questioned. And IU gives both parties a chance to explain their side of the story. They can either accept the Creditor’s accusations or Challenge it. Hence information is confirmed and authenticated. 

Is NeSL prejudice towards creditors? Can corporate debtors file information under IU?

Before IBC was implemented, it was the impression that laws were tilted towards debtors’ benefit. Debtors would do default and run away and the financial creditors would end up chasing these debtors for their money. 

After IBC it might seem like all the Creditors are Lobbying against the Debtors. But that notion is untrue because the debtors are given a fair share of chances to establish dispute or sleep on the rights. 

What is the Default of Records under IBC? What is Credit Facility Report?

As soon as one has a default of records they have reported to it about the sequence of events, e.g. Day 1- Information was filled by creditors, day-2  Email being sent to Corporate Debtor, Day -3 Email being received by the Corporate Debtor, so on and so forth.

Credit Facility Report is generated by IU which is comprising of Credit Monitoring. Once Consent of the Debtor is attained, after the compliance of IBBI regulation, all the information regarding the Defaults with all the Creditors will be Broadcasted. 

What is the Samadhan Portal for MSME? How it be coupled with IU to help stakeholders with defaults of Payments? 

The operational creditors are Manufacturers, Traders, etc, who have a financial cycle of one month, hence any default in payment leads to slowing down of business for them. Hence it was the need of the hour to have a portal where the defaults are reported immediately as well been taken care of. It generates a demand notice on behalf of the Operational creditor, Hence the Samadhan was formed under the MSME, it follows a similar mechanism of IU under IBC.  These Demand notices have proven to be far more effective compared to traditional methods of money recovery. It also saves time for Courts.

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