[Opinion] The Information Utility – The IP’s Personal Assistant

[2022] 140 taxmann.com 220 (Article)

Synopsis

The IU has comprehensive information about the debt of corporates, use of the IU, can help at every stage of the CIRP.

Information Utility: The fourth pillar of the IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) is commonly known to rest on four pillars. The three pillars the IBBI, the AA and the IP are fairly well known as they are often in the news. The fourth pillar is a little less known but equally important and is the Information Utility or the IU. As on date National E-Governance services Limited (NeSL) is the only IU registered with the IBBI. When the implementation of the IBC commenced, the IU was not ready, so the IBC started with 3 pillars. However, now that the IU is ready with comprehensive information about the debt of corporates, use of the IU, as the fourth pillar can help at every stage of the Corporate Insolvency Resolution Process (CIRP).

The IU: An Indian Innovation

The three pillars draw their inspiration from insolvency legislation in advanced jurisdiction, but the IU has no parallel anywhere in the world. The IU is an Indian innovation, and we should all be proud of it. The other day the team at NeSL was making a presentation on Digital Document Execution (DDE) product and they were asked, if there is there any comparable product in the developed world. The reality is, that today, we no longer need to look at the developed world for inspiration. UPI, the indigenous payment systems has set an example for the world, we also developed our own COVID 19 vaccine when the country needed it most. This is a brave new India, not afraid to innovate and set examples for the world to emulate. When the IU was set up in 2017, there was no precedent to follow, it was all uncharted territory for NeSL. But today, NeSL, as an IU, can make a difference to the credit ecosystem in general and to the insolvency framework in particular.

The ROD can expedite admission of CIRP

At the pre-admission stage of CIRP, use of the Record of Default (ROD) of the IU expedites admission of CIRP by the AA. The ROD of the IU captures all important information required by the Adjudicating Authority to decide if an application for initiation of CIRP can be admitted, like amount of default, date of default, acknowledgement of debt (proposed), pre-existing disputes, details of communication with the debtor and status of authentication. In the matter of Vipul and others v. Teco Industries and others (18th May, 2022), the NCLAT held that in case, the record of IU shows that there is a debt, which is in default, the Adjudicating Authority or Appellate Authority are not required to further examine the record maintained by the IU, more so, when the record of the IU is deemed to be authenticated and no dispute or refution of said record has been done by the Corporate Debtor earlier.

The IU in CIRP

The IU can also assist the IP during the CIRP. The Code provides that all FCs shall submit information to the IU, RBI has issued advisories to banks/NBFCs and ARCs in 2017 and in 2019 to comply with the provisions of the Code regarding submission to the IU. As a result, for the corporate segment almost the entire data submitted by banks/NBFCs/debenture trustees and even some operational credits/private financial creditors is stored with the IU. Verification of claims is one of the responsibilities of the IP, the IP can access the IU and compare it with the claims filed by the creditors, after the public announcement. In EFPO v. Subhodh Kumar Agarwal (NCALT, Company Appeal No 116 of 2022), NCLAT was of the opinion that when the IRP/RP come into knowledge of orders against the Corporate Debtor or notice against the Corporate Debtor of ongoing CIRP, he should be under obligation to include it in the Information Memorandum and bring the same into the notice of the CoC to enable the CoC to take a wholesome view of entire sequence of facts and circumstances. In this case the claims were not accepted as the law still provides for submission of claims to the IU, however, if the IP becomes aware of claims either from the records of the CD or from that of the IU, he can take up with the creditors, bring it to the knowledge of the COC and there can be avoidable litigation.

The legal framework

Sec 17(2)(c) of IBC provides the authority to IRP to access the electronic records of CD from IU having financial information of the CD. Regulations 7, 8, 8A, 9 & 9A of the CIRP Regulations state that existence of debt due to Financial Creditors, Operational Creditors, Creditors in a class, workmen, employees and other creditors may be proved on the basis of records available with IU

Submission of Claims to the IU

The IU Regulations provide that creditors update their claims on a monthly basis and information of default has to be submitted within 7 days. It is possible that in future, the law might provide for submission of claims to the IU. So if a CIRP is initiated on say 15th May, the FC has to simply update the information for 15 days(30th April to 15th May) and submit to the IU. OCs can also submit their claims to the IU after following a simple process of registration which involves identification of the person submitting the information. NeSL already has a DDE platform and gradually as DDE gets popular, even the documents, which are evidence to the creation of debt can be made available to the IP.

IU: A source of undisputed information related to debt

The uniqueness of the IU is that the information stored is not just the creditors’ version of the truth. Information submitted by a creditor is delivered to the concerned debtor who has the option to dispute or accept the same. He can of course choose to ignore the same, but in either case, the details of the IU’s communication with the debtor becomes part of the credit history of the debtor stored with the IU and can be retrieved. In the case of Vipul and others v. Teco Industries [NCLAT, company Appeal 470 of 2022, dated 18-5-2022] NCLAT noted that the corporate debtor “chose to neither reply to the said e-mail nor forwarded them to the appropriate addressee.” It concluded that

“On the basis of these facts and analysis we are inclined to hold that the corporate debtor cannot deny the existence of a financial debt as defined in section 5(8) of the IBC as present in the record of the information utility.”

A reference is also made to Section to 99(3) of the IBC which states that where the debt is registered with the IU, the debtor shall not be entitled to dispute the same. This section is relating to individual insolvency which in any case not yet been notified except for Personal Guarantors to Corporate Debtor, but the intent of the law seems to be v clear. If a debtor was given an opportunity to accept or dispute a debt and he has not done so, he cannot be allowed to dispute it later.

Click Here To Read The Full Article