Information utility under IBC, 2016

Role of Information Utility

Information Utility under Insolvency and Bankruptcy Code, 2016

Role of Information Utility

Abstract

Information Utility is one of the main pillars in Insolvency and Bankruptcy Code,2016 (henceforth mentioned as IBC,2016). Resolution in a time bound manner is one of the main objectives of IBC,2016 which is now becoming possible and realistic by a great tool which provides the undisputed information as an Information utility.

The first question everyone usually comes across in their mind is ‘Role of Information Utility?’. Mainly because there is always a gap found in the information pertaining to defaults and if not the critical gap, then how much the IU’s information is reliable.

Let us study more about Information Utility as per IBC, 2016. 

Introduction

Definition- “Information Utility (IU) is a professional organization which is registered under Section 210 of the Insolvency and Bankruptcy Code, 2016 whose function is to gather, assemble, accumulate, validate and disseminate financial information from companies and creditors to facilitate insolvency, liquidation and bankruptcy.” (section 210 of IBC,2016)

IU is one of the main pillars of IBC,2016. There are certain laws governing information utilities are section 209 to 216 of the Insolvency and Bankruptcy code, 2016 and Insolvency and Bankruptcy Board of India (Information utilities) regulations, 2017. A person can rely on the information stored in IU before investing and this way it ensures the person’s investment.

Financial information about the non-corporate borrowers is available only from the Income-Tax department and this is not publicly accessible under the Right to Information Act,2005. But the IU which is registered under the IBC helps in overcoming the deficiency.

So basically the role of IU is to provide information which is reliable to facilitate insolvency, liquidation and bankruptcy.

Objectives and Purpose of IU

One of the important objectives of IU is to provide high-quality, authenticated information about the debts and defaults. Therefore, the main purpose behind the IU under the code is that this not only saves the time in deciding the application filed before the adjudicating authority but also helps the insolvency professionals in verifying claims and smooth functioning of the entire insolvency resolution process. 

Prior to any insolvency resolution process, some crucial steps are involved such as to correctly establish the facts as to what assets are available, who the applicants are, and what contracts are in force.

This involves a paper based process and faces its own challenges such as they need to make sure that the documents in hand are true copies. All stakeholders involved in the insolvency or bankruptcy process of the defaulter should have access to the defaulter’s or debtor’s reliable financial information. But a gap in information hampers the existing process and fair negotiations between debtor and creditor. A Lot of time is wasted in determining the existence of debt and default.

Hence to overcome all these challenges, BLRC came up with a solution to digitize all credit transactions and make them available to all the eligible people. Such electronic records would allow quick identification of all the creditors, establishment of the Committee of Creditors and assessment of the viability of the debtor by the committee.

Hence, the IBC came up with the creation of a regulated information industry in the form of IU’s.

Procedure for submission of information/ Mandatory or Optional submission

Procedure for submission of Information to Information utility (step wise)-

  1. Fill up and submit information in Form ‘C’  under Regulation 20 by creditors.
  2. Information received in the form would be sent for Authentication.
  3. After the information received, NeSL will assign a unique identifier to the information and notify the users, the T&C’s of authentication and verification of information and also a consent of the legal framework for giving access to information to the third parties.
  4. Time period shall be given by NeSL to the users to authenticate or disagree all or a part of the information.
  5. Authentication update shall be acknowledged to the submitter of the information.
  6. Person authorized has to affix his Digital Signature or e-sign when information is placed on the platform.
  7. NeSL will then verify the identity of authenticator and further no responsibility of NeSL if any dispute or unauthenticated information given by submitter.

Anyone not satisfied with services 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.

Submission of Information :Mandatory or Optional?

Irrespective of whether the creditor/ the debtor initiates the CIRP under the IBC, 2016, either the creditor or the debtor may use the information available to IU’s to prove default by the debtor.

As per Section 215 of IBC,2016 – (1) Any person who intends to submit financial information to the information utility or access the information from the information utility shall pay such fee and submit information in such form and manner as may be specified by regulations.

(2) A financial creditor shall submit financial information and information relating to assets in relation to which any security interest has been created, in such form and manner as may be specified by regulations.

(3) An operational creditor may submit financial information to the information utility in such form and manner as may be specified.

In short, the financial creditors are obliged to submit the financial information to IU’s. But the code has not stipulated any penalty for not submitting the information.

In this event they might not get the advantage of the quick and easy processes allowed by the IU working mechanism.

Section 215(3) states that it is optional for operational creditors to submit financial data to the IU’s.

The financial information which is required to be submitted to the IU includes-

  1. All the records of the person’s debts
  2. Liability of the person when solvent
  3. Records of all the assets over which security exists
  4. Balance sheet and cash-flow statements of the person
  5. Any legal proceedings by the person against any debt.

Important point to be noted- “the information directly relevant to the determination whether the debt and default exists for the purpose of CIRP should be made mandatory.”

Such information helps to ease out the mechanism of IU for authentication and verifying the information as well as CIRP works out smoothly.

To take out the gap or loop-hole or unreliable information, IU comes into the picture and serves as a boon to the creditors.

Benefits to Financial Creditors –

  1. Authenticated information as evidence
  2. Reduction of asymmetry of information
  3. Digital Document Execution of contracts with digital E-stamping
  4. Reduction of time for retrieval of information about borrower 
  5. Information of default in Operational payments by a borrower
  6. Real time reports for better credit monitoring  (APIs available)
  7. Reduction of delays in legal process 
  8. Integration with e-Court for e-filing of Record of Default 

Benefits to Operational Creditors-

  1. Debts of Operational Creditors are filed digitally for easy retrieval 
  2. Generation of Demand Notice against buyer
  3. Recording of dispute details
  4. Integration with MSME Samadhaan Portal 
  5. Default alerts from other creditors
  6. Authenticated information as evidence
  7. Digital Document Execution of contracts with digital E-stamping
  8. Information of default in Operational payments by a buyer
  9. Integration with e-Court for e-filing of Record of Default

Information as evidence of default by the debtor (case laws)-

The Information and Technology Act, 2000 amended definitions in the Indian Evidence Act, 1872 to include electronic records as “evidence” and also definition of “documents”, “admission” was also amended to include electronic records. 

Hence it can be said that the Electronic records of IU are admissible as evidence.

In Innovative Industries Ltd. V. ICICI BAnk and OrsThe Supreme Court has held that when a corporate debtor commits default of a financial debt, the AA has merely to see the records of the Information Utility or other evidence produced by the financial creditor to prove itself that a default exists.

Also, for the IU record to be conclusive, it should meet the standard level for conclusive evidence as laid in section 31 of the Indian Evidence Act,1872.

Conclusion 

My opinion is that Information utility is widely being used by the creditors, it leads to cementing a foundation of all the information. 

Also, it helps the working of the CIRP smoothly and importantly it helps in completing the CIRP in a time-bound manner.

Undoubtedly, IU helps in the creation of an informative rich environment.It virtually, quickly and easily helps the stakeholders to take a conservative decisions.

Information Utility also helps the new stakeholders to make very informative decisions. 

References-

  1. https://taxguru.in/corporate-law/information-utility-ibc.html
  2. https://ibclaw.in/short-note-on-insolvency-and-bankruptcy-code-2016/
  3. Bare Acts
  4. https://nesl.co.in/
  5. https://ibclaw.in/ibc-case-laws/

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