A commendable feature of the Act is green lighting the formation of Information Utilities (IU) by the government.

By- Rajesh Narain Gupta

The passing of the Insolvency and Bankruptcy Code, 2016 was hailed as a key step in expediting exit outcomes for creditors and stressed businesses by doing away with a primordial, multi-layered legal setup that was largely unsuccessful in dealing with corporate insolvency and debt recovery cases, resulting in large-scale delays. A commendable feature of the Act is green lighting the formation of Information Utilities (IU) by the government. These entities would act as data repositories and perform the task of authenticating and disseminating financial information to debtors. The aim of IUs is to obliterate information asymmetries and fill in the gaps for creating a much-needed information bulwark which would fast-track the resolution of insolvency cases.

Data integrity and security remain the core aspect of making the IU a functional success. A sophisticated security infrastructure will need to be put in place by the government to ensure that data is not leaked and compromised. Debtor information in the database and its correctness are of paramount importance. Its authenticity and verification need to be a fool-proof process through the deployment of appropriate data screening methodologies and practices. This, in turn, can go a long way in speedy disposal of disputes.

A key point to be considered here is that the government has made a policy decision for the constitution of IUs, but its efficacy as a reliable information database can only be ensured through the formation of a strong and credible IU infrastructure. The aggregation of information of the assets, both movable and immovable, charged/mortgaged with lenders on a single platform makes dissemination a herculean task. In order to tackle this problem, the IU infrastructure needs to be effectively streamlined and it needs to be determined that the veracity of information in the database is as per prescribed norms.

The Insolvency and Bankruptcy code also stipulates involvement and coordination of several overlapping agencies like the Debt Recovery Tribunal (DRT) and the National Company Law Tribunal (NCLT) in resolving insolvency disputes within a definite time-frame. This necessitates the submission of data to multiple agencies by financial entities, but it can be a complicated and time-consuming task. In order to ensure that data submission to multiple working agencies is a smooth process, they will have to develop cohesive work synergies and ensure that there is correct reporting of charges of borrower assets, avoiding duplicity of facts.

Norms for IUs under the Insolvency and Bankruptcy Board of India (IBBI) clearly state that an IU should have a compliance officer who shall ensure that the code provisions are in order and in the event of non-compliance, he shall report the same to the IBBI. Clear guidelines need to be constituted to ensure that a person of impeccable credentials, not bearing any bias towards any party, is appointed to the post. Norms further state that a public company with a net worth of at least `50 crore is eligible to set up information utilities. It needs to be noted here that a public company does not have any vested interest in promoting the interest of parties who are being heard in dispute adjudication proceedings. They need to perform their duty in a non-partisan and neutral manner.

The IUs are crucial to the quick disposal of insolvency cases and in their absence, adjudication of cases would be delayed inordinately if it falls on the NCLT to ascertain whether there has been a default. The IU can act as a crucial agent in providing information as regards creditors’ claims which will facilitate the formation of a creditors’ committee within 14 days from the date of a case registration, as per IBC stipulations.

As the repositories of financial information, the IUs are performing a crucial task in assisting in resolving insolvency cases in a time-bound manner and help in the financial rehabilitation of distressed businesses.

The author is Managing partner, SNG & Partners.