Resolution in a time bound manner is one of the main objects of the Insolvency and Bankruptcy Code, 2016 which has now become realistic by designing a tool which endeavours to provide the undisputed information called as an Information utility.
In accordance with the legal provisions of National e-Governance Services Ltd. (NeSL), the single station enumerating all financial transactions of lenders granted approval by The Insolvency and Bankruptcy Board of India (“IBBI”), allowing it to become the first information utility (“IU”) under the Insolvency and Bankruptcy Code, 2016 (“the Code”).
The first question that tingles in our mind is that why was there a need to design such a utility service. A critical gap is always found in the information pertaining to defaults. The mantra is “Sooner the stress was known to the creditor the more swift the resolution plan would be”. IU will offer a plate of ready information for the resolution professional and courts helping them too swiftly dispose of the cases accordingly.
It’s been a year since the Insolvency and Bankruptcy code came into force and what has been observed is that lack of information is the major roadblock in the path of the resolution as a vital step would be to correctly establish the facts about what are the assets available, who the claimants are, and what contracts are in force. Traditionally, this has involved paper-based processes, and comes with its own problems, such as the need to ensure that the documents in hand are true copies etc. Advancement in technology and computational power of recent decades has created an opportunity to dramatically reduce the cost and complexity of managing information. In turn, this allows using the information to eliminate delays and frictions in resolving insolvency and bankruptcy with drastically reducing delays and costs.
IU is expected to play the key role as on one hand they store the financial information of the users helping the lenders in taking the informed decision about the credit transaction, on the other hand, it would also make debtor cautious as the financial information is available with the utilities. Its major contribution is in the creation of evidence; the information can also be used as evidence in bankruptcy cases before the NCLT and needless to say, that in many other as well.
Before going further let us first understand that what is information utility???
An Information Utility is a professional organization (which is registered with IBBI under Section 210 of IBC, 2016 as per the eligibility criteria prescribed) that provides high-quality authenticated information about debts and defaults. Access of the same is made available to the Resolution Professionals, Creditors and other stakeholders in the Insolvency Resolution Process so that all stakeholders can make decisions based on the same information.
One of the most important aspects in this is to identify what kind of information is of critical importance and should be available to get resolution in a time-bound manner. For example if the creditor needs to trigger a case they must demonstrate proof of (a)having a liability against the entity, and (b) The entity having failed on a promised payment without this evidence, the adjudicator will refuse to register the insolvency case, or defer the matter until the insolvency can be proved.
Various Categories of Information under Information Utilities:
The categories of information are as follows:
- Reliable and readily accessible records of liabilities of a solvent entity.
- Clear evidence of the instance of default.
- Records of assets that are pledged as collateral against secured credit contracts.
- Reliable and readily accessible records that comprise the balance sheet and cash flow statements of the entity
In order to ensure the credibility and authenticity of information available with Information Utility, certain obligations have been thrusted on the Registered IU, which are as follows:
- To Create and store information in a universally acceptable format;
- To accept electronic submissions of financial information from persons who are under obligation to submit the financial information under subsection (1) of Section 215 of IBC, 2016, in such form and manner as may be specified by Regulations;
- To accept in specified form and manner, electronic submission of financial information from persons who intend to submit such information;
- To get the information received from various persons authenticated by all concerned parties before storing such information;
- To provide access to the financial information stored by it to any person who intends to access such information in such manner as may be specified by Regulations;
- To publish such statistical information as may be specified by Regulations;
- To have interoperability with other information utilities;
Now, who can submit information with information utilities and what is the procedure to submit the information?
Procedure to submit information to Information utility:
While this process of building a nationwide IU moves, certain important Things to be kept in mind to ensure its greater credibility and thus, its use, which are as follows:
- Every registered user is served with an annual statement of all information pertaining to the user;
- Once the information is submitted it can be modified or updated or even an error can be rectified but reason must be stated for the same;
- Authentication of the information is done item-wise for the data:
- The information will be preserved for 8 years from the date closure of debt or from the date of the last update in a debt a/c;
- Anyone not satisfied with services of the offered by NeSL can lodge his/her grievance in the Web-based Grievance Redressal Mechanism enabled in its website. Grievances shall be resolved within 7 working days and the Complainant shall be informed by email;
The utility service is very useful for financial creditor as well as for operational creditors because as and when they are instituting an insolvency process against a defaulting firm at that time the financial data stored with utilities showing the dues owed to the creditor will make it easier for them to prove the same.
CONUNDRUM IN THE LAW RELATED TO IU:
As there is no pain no gain, this service also comes with various challenges and concerns. A real challenge is of getting authentication from the other party (Corporate Debtor). Information will act like an evidence only when it is authenticated because of the sensitivity of the information or resistance in sharing information.
Another area which raises legitimate concerns is with regards to the privacy of such data. There is a risk management framework approved by the NeSL board that deal with the integrity and security of the system and the information and at the same time. It shall look into the procedure to recover the information in case of any unforeseen man-made or natural disaster. A furthermore effective assessment control system should be there to avoid unauthorized access to the systems.
Undoubtedly, it is a great step towards the creation of an information-rich environment. It virtually provides a platform that guides stakeholders to take a more conversant choice.
Internationally also, the importance of resolution rose sharply thereby improving the information structure. The US Treasury has built an Office for Finance Research‟ (OFR) an independent bureau within the United States Department of the treasury that promotes financial stability by looking across the financial system to measure and analyze risks, perform essential research, and collect and standardize financial data. Its job is to shed a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose, and provide policymakers with financial analysis, information, and evaluation of policy tools to mitigate them.
With this, the government has acted as a stepping stone by moving towards making India a better place for domestic and international business community.
The information gap has always acted as a hindrance to an effective resolution. This will now make the process smoother and at the same time NeSL, being the first and the only IU in the Country till date, is expected to fulfill the need for account aggregation by providing a reliable storage and source of information. Information on default, security interest, etc. shall be easily accessed from the entity.
The most important aspect is that all the information shall be stored in a Central server located in India which shall be subject to Indian rules and regulations.
A simultaneous effective working of both the NeSL and the quasi-judiciary will consequently result in an effective working mechanism, while the Code is still in its initial phase of implementation.