Information utility under the IBC: 

Information utility under the IBC

Context

  • Recently National e-Governance Services Ltd (NeSL) became India’s first information utility (IU) for bankruptcy cases under the Insolvency and Bankruptcy Code 2016.
  • This registration is valid for five years from the date of registration.

About NeSL

  • NESL is incorporated as a Union Government company and owned by leading public financial institutions. NESL is an information infrastructure institution dealing with critical financial information projects that aim at better serving the financial sector and its stakeholders, besides citizen-centric projects
  • NeSL is owned by State Bank of India and Life Insurance Corporation Ltd., among others

OBJECTIVES of NeSL

National e-Governance Services Limited (NeSL) was incorporated to augment the Information Infrastructure of India with a focus on delivering services for the public, government and public financial institutions.

  • Offer Digital Services — To collaborate with banks and financial institutions to offer digital services to customers that cut across different institutions and create a win-win situation for both.
  • Optimizing Governance Services — To undertake Projects at a national level for optimizing governance services to residents of India through digital modes, including in financial services.
  • Changes In Rural Economy — To support India’s Financial Inclusion Strategy to make significant changes in rural economy

What is an information utility?

  • It is an information network which would store financial data like borrowings, default and security interests among others of firms.
  • The utility would specialise in procuring, maintaining and providing/supplying financial information to businesses, financial institutions, adjudicating authority, insolvency professionals and other relevant stakeholders.

Why is it important?

  • Information utilities is to provide high-quality, authenticated information about debts and defaults.
  • Information utilities are expected to play a key role as they allow storage of financial information of registered users and expeditiously process and verify information received.
  • The database and records maintained by them would help lenders in taking informed decisions about credit transactions.
  • It would also make debtors cautious as credit information is available with the utility.
  • Information available with the utility can be used as evidence in bankruptcy cases before the National Company Law Tribunal.

What are the rules governing these utilities?

  • Information utilities are governed by the Insolvency and Bankruptcy code 2016 and IBBI (Information Utilities) Regulations 2017.
  • The Insolvency and Bankruptcy Board of India (IBBI) overseas aspects such as registration and cancellation of these entities, their shareholding and governance among others.
  • Recently, IBBI eased norms for information utilities, allowing Indian firms listed on stock exchanges to hold 100% in such firms. It also allowed individuals to hold 51% in the utility for a period of three years.

How will the utilities help stakeholders in the insolvency process?

  • Financial creditors (banks which provide loans to the company): It is mandatory for financial creditors to provide financial information to the information utility.
    • When they initiate insolvency proceedings against the defaulting firm (known as corporate debtor), the utilities may help as they would act as a centralised platform for accessing data.
  • Operational Creditor (Suppliers of goods and services to the firm in question): Unlike financial creditors, it is optional for the operational creditor to provide financial information to the utility.

What are the key challenges for these utilities?

  • While the onus is on financial creditors, operational creditors and corporate debtors to provide the required information, procuring authentic information might be a challenge due to the sensitivity involved.
  • There may also, be resistance in sharing information as it is optional for the operational creditor to provide financial information to the utility.
  • There is also risk of exposure to data piracy and data theft
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