This article is written by Mohit Garg, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “Information Utility under the Insolvency and Bankruptcy Code”.

Introduction

Insolvency and Bankruptcy Code, 2016, was enacted with the objective of reorganization and resolution in a time-bound manner. The biggest challenge during insolvency proceedings is to gather and consolidate information on the financial transactions of the lender.

In the resolution process, it has been realized that the major roadblock is the lack of information to establish the facts as to what are the assets, who are the claimants and what contracts are in the force.

The Information Utility under IBC is aimed at bridging that gap. The information utility provides information on the financial transactions of the lender in one place, accessible to all.

The importance of information utility can only be understood after having the fair idea of the Insolvency and Bankruptcy Code.

Meaning of Insolvency and liquidation

Insolvency is a rehabilitation mechanism triggered by the inability to repay the debts. The government, lenders and prospective investors work together to revive a company. Once the insolvency process is successfully completed, the company can function normally.

Liquidation is the process or mechanism adopted or used when there is no hope of revival of a company. It results in the distribution of the assets to the creditors. Once the liquidation process is successfully completed a company ceases to exist and is known as winding up of a company.

What is the Insolvency and Bankruptcy Code, 2016?

Insolvency and Bankruptcy Code, 2016 (IBC) is a law which aims at consolidating the existing framework by making one single law for insolvency and bankruptcy. It received the assent of the President on 28th May 2016.

It aims at providing a quick and economically viable solution for resolving insolvencies. It tries to protect the interests of small investors. It makes the process of doing business easier and less cumbersome.

The Code repealed the Presidency Towns Insolvency Act, 1909, and Provincial Insolvency Act, 1920. It amended the Indian Partnership Act, 1932, the Companies Act, 2013, the SARFAESI Act, 2002. The Code also does not allow the Civil Courts to interfere with the application pending before the adjudicating authority.

Need for Insolvency and Bankruptcy Code, 2016

Before the IBC, there were multiple laws overlapping with each other concerned with the insolvency of the individuals and companies in India. The major drawback of the existing laws was that they did not provide effective and timely aid in recovery or restructuring. Consequently, the undue strain was being caused on to the Indian credit system.

Considering the drawbacks of the existing system, the government enacted the IBC. It provides comprehensive insolvency legislation for companies, partnerships, and individuals. It also allows the creditors to assess and make collectively a plan for the revival or speedy liquidation.

The Code provides an institutional framework, having regulators, insolvency professionals, information utilities and adjudicatory mechanisms to provide a time-bound insolvency resolution process and liquidation.

Key Features

The following are the key features of the Insolvency and Bankruptcy Code 2016:

Separate Insolvency Resolution 

The Code provides for separate insolvency resolving procedures for companies, partnerships, and individuals. The maximum time limit for completion of the insolvency resolution process for companies is 180 days, which may be extended by 90 days, provided the majority of the creditors agree. The limit for start-ups, small companies and other companies that are having assets less than of ₹ 1 crore, the resolution process is to be completed within 90 days from the date of request which may be extended by 45 days.

By way of 2019 Amendment, the mandatory upper time limit has been increased to 330 days that includes the time spent in the legal process to complete the resolution process.

Establishment of a Board

The insolvency and Bankruptcy Board of India is established under the Code to regulate the entities registered and to supervise the insolvency proceedings. Chapter 1 Part IV of the Code deals with the establishment, constitution, power, etc. of the board. Section 196 of the Code lays down the functions of the board. The board performs various functions like facilitating the registration of insolvency professional agencies, insolvency professions, and information utilities. 

Insolvency professionals

The Code provides for insolvency professionals who manage the insolvency process. The Code makes registration and enrolment mandatory to act as an insolvency professional. The professional manages the assets, runs the debtor’s business during the moratorium period and helps in reaching a revival plan.

Adjudicatory authority

The Code proposes NCLT to oversee and adjudicate corporate insolvency and liquidation. Appeals from NCLT lies to National Company Law Appellate Tribunal and thereafter to the Supreme Court. DRT is the adjudicatory authority for individuals and partnerships. The appeal from DRT lies to Debt Recovery Appellate Tribunal and thereafter to the Supreme Court.

Establishment of Information Utilities

The information utility is created to collect, authenticate and disseminate the financial information of the debtors with the help of a centralized electronic database. It is a database of consolidated and authenticated financial information related to the assets, loans, etcetera of the debtor. The information is stored on the digital platform making possible to access it from anywhere and at any time. The information available is authenticated and can be used during the Insolvency Proceedings.

Information Utility (IU)

Information Utility is a professional organization, registered under section 210 of IBC 2016, as per the set eligibility criteria to provide authenticated information of debts and defaults of debtors. 

Stakeholders in Insolvency Resolution Process like the resolution professional and creditors have access to enable them to make the proper decision based on the information. Information important for time-bound resolution is made available.

Categories of Information available through IU

The Information Utilities provide the following categories of information:

1. Records of liabilities of a solvent entity.
2. Records and evidence of the instances of default.
3. Details of all the assets pledged against the secured credit contracts.
4. Data related to the balance sheet and cash flow of the entity.

The information by the IU is stored in a universally acceptable format. To provide only the authentic information, the information received from various personas is authenticated by all the concerned parties.

Who can submit the Information and How?

Section 215(2) provides that the financial information and information relating to assets in respect of which any security interest has been created shall be submitted by the financial creditor. It is the duty and not the discretion to submit such information. Financial creditors can be understood as the person to whom a financial debt is owed. E.g. Banks that provide loans to the company.

Section 215(3) provides that the operational creditor can also submit financial information to the information utility. An operational creditor can be understood as the supplier of the goods and services to the firm or company in question.

The information to IU may also be submitted by the insolvency professional, by virtue of Regulation 38(1), with respect to any insolvency, resolution, liquidation or bankruptcy proceedings.

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Procedure to submit information

Under Regulation 20 of IBBI (Information Utilities) Regulations 2017, the information is required to be submitted in Form C. The received information is forwarded for authentication. The information is assigned a unique identified by the NeSL and notifies the user about the same. The user is required to authenticate or may disagree within the prescribed time period. The submitter of the information is notifying about the status of the authentication. The person who authorizes the information is required to affix his digital signatures or the Aadhar based e-sign, then the identity of the authenticator is verified by the NeSL.

Rules Governing the Utilities

Rules and Laws governing the information utilities are laid down in IBC 2016 and IBBI (Information Utilities) Regulations 2017. Insolvency and Bankruptcy Board of India supervise the registration, cancellation, and etcetera of these entities.

National e-Governance Service Limited (NeSL) and the Information Utility

NeSL is an incorporate Union Government Company with the authorized paid-up capital of ₹ 30 Crores. it is owned by leading public financial institutions. It was incorporated to augment the information infrastructure in India. It offers digital services and optimizes governance services. It is the first and the only Information Utility to date. 

Challenges

Getting information from the financial creditors, operational creditors and corporate debtors might be a challenge as there may be resistance in sharing the information. Getting the verification and authentication of information is also another major challenger.

The information is stored in a digital database that exposes it to data theft and piracy. Well-equipped and up to date security system is must to secure the tampering of such insensitive data.

Conclusion

The creation of the information utility is a step towards the information-rich environment. The information is easily accessible at any time from anywhere. Empowering the creditors and lenders to make informed choices and providing all the essential information for an insolvency resolution procedure. The central server is located in India and hence shall be subject to Indian rules and regulations. It provides all the financial information at the disposal of everyone.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.