When a company enters an insolvency process under the Insolvency and Bankruptcy Code, establishing an accurate record of its debts and defaults is among the more critical steps. It’s also among the most time-consuming.
Enter Information Utilities. The idea of such utilities was first mooted by the Bankruptcy Law Reforms Committee two years ago. The proposal was to create firms which stand ready to receive financial information and deliver it upon request. The main task is to provide undisputed information for initiation of the insolvency process. A little over two months ago, National e-Governance Services Ltd. became the first information utility to commence operations.
BloombergQuint spoke to S Ramann, the managing director and chief executive officer of NeSL, to understand the progress made since the launch, whether creditors and debtors are warming up to the idea of sharing information with yet another entity, and how the information housed by utilities such as NeSL will be put to use.
What progress have you made so far in terms of collecting data from creditors and debtors?
NeSL was given the license towards the end of September and we have planned our entire offering towards financial creditors as it is the large group which requires the immediate assistance of an information utility, in terms of being able to better handle its NPAs. We are also reaching out to operational creditors. It is surprising to note that the operational creditors have come forward and used the Insolvency and Bankruptcy Code more than the financial creditors. So, our offering to the operational creditors is already online. We have received interest from 10 odd operational creditors and data has started coming into the IU. From the software perspective, offering to the financial creditor is slightly different from operational creditor. But the regulation, we think, is fairly uniform as it has prescribed Form C in which all submissions will take place.
Information that the IUs are mandated to collect is already being captured in the systems of Registrar of Companies, Ministry of Corporate Affairs and CERSAI. What is the information vacuum that currently exists and how are IUs going to be different from existing systems?
The IU is a legal enabler. In our country, getting a petition admitted in court can be difficult and it can take time. The IU is tasked to hold legal evidence on behalf of the parties to the debt. So, it could be creditor or borrower or guarantor. We are looking at getting parties to the debt to accept the contract i.e there is borrower and there is borrowed amount. There is a security interest in some assets. There is outstanding balance as the contract goes through its journey. All these aspects would be authenticated by both the parties. When I use the term authentication, it is used in terms of the Information Technology Act which is to say that the information will be authenticated with a digital signature, which when read with the Evidence Act, tells that it is admissible in court. So, I do not have defense in court as a borrower to say that this is not my loan or signature. All that disappears. So, I am taking forward the entire admission process to virtually something that could happen in 24 hours. The information comes from the IU, goes to the adjudicating authority and coming from an IU, it is known fully that it is authenticated from both sides and your case is admitted.
The Form C is the way of putting data in. Along with Form C, there are essential documents like the loan agreement, the security interest which will also be put in the IU. As we have talked about security interest, we are in a stage where we are talking to the MCA about the ability to map the database that they hold for security interest with the loan database that we will have. So, we are trying to make it easier for users of the system to not have to upload data in three different places.
Currently, it’s mostly borrowers who contest the loan amount and defaults. Creditors might be more forthcoming in submitting the information to IUs but how will you get borrowers or debtors to submit the data?
At the time, when somebody wants credit from a creditor, they are willing to sign on whatever is required to be signed. One of the things which will come in the paperwork is that debtors will agree to cooperate with creditor on the IU platform. So, that is contractually the thing which the debtor will be bound to. The creditor will provide the data to IU and then the IU will send it forward to the debtor. There is a seven day period, as per regulation, given to the debtor for providing his authentication.
IU is purely a technology piece, it is just electronic data. There is an operational creditor who had sent papers to me and I have had to send it back because I can’t take paper documents. IU will track the behavior of the debtor from the time the link is send to the debtor. So, we have e-mail IDs, SMSs, telephone numbers. We are sending information given to us by creditors to the debtors. It is expected that some debtors will click the link, open it, see what it is, look at the loan, read the particulars, accept it and authenticate. This is the best-case scenario.
You may have other people who will open the link, look at the terms and disagree with some terms. We are providing for dispute to be recorded, once again authenticate it and send it back to us. In such case, it will go back to the creditor such that the creditor can reconcile those differences brought out by the debtor.
The worst-case scenario is where I am the debtor, I receive a link and I do absolutely nothing or I may open the link, look at the fields and do nothing.
So, at the end of the day, the non-cooperative debtor is the person we will like to catch, and we will therefore track his entire behavior on how many times he opened the link, what did he do, how much time he spent on the particular page where he was supposed to authenticate and show that the evidence collected by the IU will be helpful for the creditor at a point of time when he wishes to go to the National Company Law Tribunal to show that there is complete non-cooperation by the debtor who at earlier stage said that he will cooperate and may have authenticated the balances for some period of time but then stopped doing so.
So, it really about presenting this behavior to the court in a analytical matter for the courts to take it forward.
Here below is the full interview.
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