Information Utility- The Untapped Pillar of IBC, 2016
A. Four Pillars of the Code:
There are four pillars housing the complete infrastructure of the Insolvency and Bankruptcy Code, 2016 (Code) namely, the Adjudicating Authority (National Company Law Tribunal and Debt Recovery Tribunal), the Insolvency and Bankruptcy Board of India (IBBI), the Information Utilities (IUs), and the Insolvency Professionals (IPs). However, even after a passage of more than 3 years since the enactment of the Code, Information Utility continues to be the least utilised despite having an indispensible role to play in limiting the time period in the Insolvency Resolution process.
B. NCLT Order mandating utilisation of IUs under the Code:
The National Company Law Tribunal (NCLT) has recently on May 12, 2020 by way of an ‘order’ directed that the Financial Creditors moving the National Company Law Tribunal (NCLT) for initiation of insolvency process would have to henceforth mandatorily file ‘default record’ from information utility (IU). No new petition would be entertained without the record of default under Section 7 of the Code. NCLT has also directed that the authorised representatives/ parties in the cases pending for admission under Section 7 of IBC will have to file default record from an IU before the next date of hearing. The said Order of the NCLT effectually advances the spirit of provisions governing the IUs i.e., achieving time efficiency in the Insolvency Proceedings. Consequentially, it has now become mandatory for the lenders/creditors as well as the borrowers/debtors to understand the concept of IUs and their functioning. This article, thus, explores the structure of the IUs and how and at what stages one can cogently utilize its services.
C. What is Information Utility (IU)?
In simple terms an IU is a neutral two way communication platform (between the creditors & debtors) acting as a custodian of data having evidentiary value.
An IU is an entity which is registered under Section 210 of the Code, for the purpose of providing Core Servicessuch as accepting, recording authentication & verification of the financial information submitted by a person (Corporate/Operational Debtor or Insolvency Professional) and providing access to the information stored with the IU to persons as may be specified to give effect to several provisions of the Code thereby making the Insolvency Resolution Process under the Code more time efficient.
The term “financial information”, in relation to a person, means(a) records of the debt of the person; (b) records of liabilities when the person is solvent; (c)records of assets of person over which security interest has been created; (d) records, if any, of instances of default by the person against any debt; (e) records of the balance sheet and cash-flow statements of the person; and (f) such other information as may be specified.
D. Objective behind IUs under the Code:
The objective behind information utilities is to provide high-quality, authenticated information about debts and defaults. Therefore, this not only saves time in deciding the applications to be filed for initiation of CIRP before the Adjudicating Authority but also aids the Insolvency Professionals in verifying claims and smooth functioning of the entire Insolvency Resolution Process.
E. Information Utitlity – under the Code:
The Code provides that the financial creditor shall, along with the application for initiating insolvency inter alia must furnish record of the default recorded with the information utility or such other record or evidence of default as may be specified; and the Adjudicating Authority shall, within fourteen days of the receipt of the application, ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor. The Operational Creditors may also similarly rely upon such records available with the IUs for proving occurrence of default. However, considering the nature of transactions giving rise to the “Operational Debts” and the scope of defences available to a debtor in case of Operational Debts, the IU records are not of much value. It is for this very reason that it is mandatory for the Financial Creditor to submit financial information and information relating to assets in relation to which any security interest has been created with the IU. However, the same is optional for the Operational Creditor.
The Period of 14 days for deciding an application for initiating CIRP has although been held to be directory, but in order to give effect to purpose of the Code, the Courts have insisted upon following the time limits as strictly as possible. Availability of such authenticated information about debts and defaults stored with the IUs will help the Code achieve its goal of meeting the timelines provided therein.
The Interim Resolution Professional & the Liquidatorvested with the management of the corporate debtor has been provided the authority to access the electronic records of corporate debtor from IUs having financial information of the corporate debtor. This will also help the IRP/Liquidator in verification of claims as well as the COC in taking quick decisions about the financial position of the Corporate Debtor.
The provisions under the Code and the IBBI (INFORMATION UTILITIES) REGULATIONS, 2017 (Reg. 2017) in relation to this untapped pillar of the Code, if given complete effect, would bring the actual time efficiency in the CIRP which was anticipated by the drafters of the Code.
F. Evidentiary Value of Financial Information Stored with IUs:
The Constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016 including role of IUs was challenged before the Hon’ble Supreme Court in the case of Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. It was argued that the certificate of an IU being in the nature of a preliminary decree issued without any hearing and without any process of adjudication is bad in law. The Apex Court while upholding the validity of the IU observed that apart from communicating the information of default to all parties and sureties to the debt, the IUs has to expeditiously undertake the process of authentication and verification of information, which will include authentication and verification from the debtor who has defaulted. This being the case, coupled with the fact that such evidence, is only prima facie evidence of default, which is rebuttable by the corporate debtor, makes it clear that the challenge based on this ground must also fail.
Thus, it is clear from the aforesaid judgment of the Apex Court that the record of default with the IUs is only a prima facie evidence of default and the same can still be rebutted by the corporate debtor on the ground that the debt was not due and not otherwise.
G. Registration & Structure of IUs:
A Public Company having minimum net worth of fifty crore rupees, shall be eligible to be registered as an information utility whose sole object is to provide core services and other services under the Regulations, and discharge such functions as may be necessary for providing these services. No person can function as an IU without having a certificate of registration from IBBI.
H. Submission & Retrieval of Information:
A person shall register itself with an information utility for(a) submitting information to; or (b) accessing information stored with any of the information utilities. Upon registration of a person under sub-regulation, the IU shall intimate it of its unique identifier.Different parties to the same transaction may use different information utilities to submit, or access information in respect of the same transaction: A user may access information stored with an IU through any IU.
Procedure for submission – verification/authentication – retrieval of financial information
Information of Default & its Authentication: An IU shall expeditiously undertake the process of authentication and verification of information of default as soon as it is received and deliver the information of default to the debtor seeking confirmation of the same. The IU will remind the debtor at least three times for confirmation of information of default by hand, post or electronic means at the postal or e-mail address. In case of no response from the debtor, IU will allow three days each time for the debtor to respond.
On completion of the aforesaid process, the IU shall record the status of authentication of information of default as indicated in the Table below:
Response of the Debtor
Status of Authentication
Colour of the Status
Debtor confirms the information of default
Debtor disputes the information of default
Debtor does not respond even after three reminders
Deemed to be Authenticated
After recording the status of information of default under sub-regulation (3), the IU shall communicate the status of authentication in physical or electronic form of the relevant colour, as indicated in column (4) of the Table thereof, to the registered users who are- (a) creditors of the debtor who has defaulted; & (b) parties and sureties, if any, to the debt in respect of which the information of default has been received.
Who can access the Information?: An IU shall allow the following persons to access information stored with it-
(a) the user which has submitted the information;
(b) all the parties to the debt and the host bank, if any, if the information is of the categories in section 3(13)(a), (c) and (d);
(c) the corporate person and its auditor, if the information is of the categories in section 3(13)(b) and (e);
(d) the insolvency professional, to the extent provided in the Code;
(e) the Adjudicating Authority;
(f) the Board;
(g) any person authorised to access the information under any other law; and
(h) any other person who the persons referred to in (a), (b) or (c) have consented to share the information with.
(2) An IU shall in all cases enable the user to view- (a) the date the information was last updated; (b) the status of authentication; and (c) the status of verification while providing access to the information.
(3) An IU shall provide information to the Adjudicating Authority and Board free of charge.
How long an IU shall preserve the information submitted to it?
It is mandatory for the IUs to preserve old records for a period of 8 years from the date of closure of loan. An IU may permanently delete records of debt where the last updation date is earlier than 8 years.
I. Security of the Financial Information & Regulating the IUs:
It is mandatory for an IU to make adequate arrangements, including insurance, for indemnifying the users for losses that may be caused to them by any wrongful act, negligence or default of the IU, its employees or any other person whose services are used for the provision of services under these Regulations.
The Regulations of 2017 provides for constitution of a Regulatory Committee to oversee the information utility’s compliance with the Code.It is further mandatory for each IU to have a Grievance Redressal Policy to deal with any grievance from – i. any user; or ii. any other person or class of persons as may be provided by the Governing Board in respect of its services.
Disciplinary proceedings: Any person aggrieved by the functioning of an insolvency professional agency or insolvency professional or an IU may file a complaint with the IBBI. Based on the findings of an inspection or investigation, or on material otherwise available on record, if the Board is of the prima facie opinion that sufficient cause exists to take actions permissible under section 220 of the Code, it shall issue a show-cause notice to the IU. In case the disciplinary committee is satisfied that sufficient cause exists, it may impose penalty upon the IUs and even may suspend or cancel its registration.
J. National e-Governance Services Ltd (NESL)– India’s First & only Information Utility (IU)
In spite of notification of the Information Utilities Regulations& the provisions of Code relating to IUs, coming into effect from 1 April 2017, only one information utility (IU) – National E-Governance Services Limited (NeSL) was registered only on 25th September 2017. The equity of NeSL is fully owned by financial institutions. There are 17 shareholders—13 banks, 3 insurance companies and 1 depository.
The figures coming out in the Annual Compliance Certificate 2019-20 of NeSL shows a good success rate in the implementation of the IU so far. As per the certificate, as on 31.3.2020, the number of users Registered as Financial Creditors: are 383, as Operational Creditors are 543 & as IPs are: 378. Pertinently, 72,571 Financial Debtors and 461 Operational Debtors are registered as Users and have accessed the information submitted by their creditors.
K. IBBI Circular Approving MCA 21 & CERSAI as a Repository
Regulation 21 of the IBBI (Information Utilities) Regulations, 2017 provides that for the authentication and verification of the Information of default the IU shall deliver the information of default or the reminder, as the case may be, to the debtor either by hand, post or electronic means at the postal or e-mail address of the debtor-
(i) registered with the IU by him, failing which,
(ii) recorded with any other statutory repository as approved by the Board, failing which,
(iii) submitted in Form C of the Schedule
Initially, many borrowers/Debtors were ignoring the communications sent by the IU seeking the authentication/verification of the debt/default as per the contractual obligation with the Creditors/lenders. IBBI vide its Circular dated 07.09.2019 for the purposes of foresaid regulation 21(2)(c)(ii) approved the MCA 21 database of the Ministry of Corporate Affairs and the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) registry as repositories.
MCA21 is an e-Governance initiative of Ministry of Company Affairs (MCA), Government of India that enables an easy and secure access of the MCA services to the corporate entities, professionals and citizens of India. Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is a central online security interest registry of India formed under the provisions of Chapter IV of SARFAESI Act for the purpose of registration of security interests created on movable and intangible assets such as accounts receivables, book debt, and hypothecation as well as to start registration of all other types of mortgages used in India.
The IBBI circular dated 07.09.2019 is a crucial step to accelerate the process of authentication and verification of information of default by debtors for Insolvency cases. It has now strengthened the role of IUs by allowing it to access the data of MCA-21 database and CERSAI portals to speed up the process of debtor default authentication. Due to availability of the authenticated data on MCA-21 & CERSAI of the registered email and office addresses and the concept of “deemed authentication” in case of no response even after three reminders from the borrower/Debtor, the efficacy of the IUs has been increased substantially, thereby aiding the Adjudicating authority in strictly adhering to the timelines stipulated under the code for admitting an Insolvency Petition.
L. Suspension of Fresh Initiation of Insolvency Proceedings up to One Year Depending Upon the Covid-19 Pandemic Situation
The Ministry of Finance and Corporate Affairs has recently on 17.05.2020 announced suspension of fresh initiation of insolvency proceedings up to one year depending upon the COVID-19 pandemic situation. The Finance Minister also announced that the debts incurred due to COVID-19 Lockdown will not be treated as “default” under the insolvency and Bankruptcy Code, 2016. An appropriate Ordinance to bring in to effect the aforesaid provisions is yet to be promulgated. The aforesaid announcement immediately after the recent amendment of increasing the threshold for initiating the Insolvency Proceedings from INR 1Lakh to INR 1 Crores indicates that the Government is taking all possible measures to prevent the MSMEs from yielding to the COVID-19 pandemic.
IU is an essential pillar of the Code, and without IUs in place it would become a practical challenge for the Adjudicating Authority & IRPs to follow the time lines under the Code. IUs are a two way communication platform for ready information for the IPs and Adjudicating Authority by helping them in isolating completely frivolous and baseless claims/defences.
RBI, vide its notification dated 19.12.2017 had advised all financial creditors regulated by RBI to adhere to the relevant provisions of IBC, 2016 and IBBI (IUs) Regulations, 2017 and immediately put in place appropriate systems and procedures to ensure compliance to the provisions of the Code and Regulations. Further, the Regulations governing the IUs and NeSL has been in existence for more than 2 years now, however, this pillar (IUs) of the Code still remains far from achieving its goal of maximum time efficacy in the entire Insolvency Resolution Process. The Order dated 12.05.2020 passed by the NCLT shall go a long way in giving complete effect to the IUs and utilising it in the most efficient way to achieve the goals of value maximization and timely resolution stipulated under the Code.
Section 3(21) of Code
 Section 213 of Code & Reg. 17 of IBBI (INFORMATION UTILITIES) REGULATIONS, 2017
 Section 3(9) & 214 of Code
 Section 3(13) of Code
 Section 7 of Code
 Section 9 of Code
 Section 215(2) of Code
 Section 215(3) of Code
(2017) 16 SCC 143
 Section 17 of Code
 Section 37 of Code
 (2019) 4 SCC 17
 Section 210 of Code r/w Reg. 3
 Section 209 of Code
 Reg. 18
 Reg. 19
 Reg. 21
 Reg. 23
 Clause 2.9 of IBBI Guidelines
 Reg. 31
 Reg. 10
 Reg. 12
 Section 217 of Code
 Reg. 41 r/w Section 220 of Code
 See http://www.nesl.co.in/.
 Reg. 21
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Very well drafted. Excellent work.
Would have been better if references provided would be explained briefly.
Sir, thank you for your valuable inputs. It will take some time before the provisions governing IUs can be given full effect. Only with time, the structure and regulations governing IUs may be amended in light of practical difficulties which will be faced by stakeholders. We will come up with difficulties faced in practice in a followup piece. This article intends to give an introductory understanding of the structure of the IUs and how and when one can utilize its services.
The article lacs understanding of the problems of non institutional lenders. If information utility is used only very formal institutional lending will be covered. Every one knows indian lending mechanism is not that mature and intitutionalised
Excellent article. Well researched !