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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 record of default under Section 7 of the Insolvency and Bankruptcy Code ( IBC), the NCLT has said in a new directive.
NCLT has also directed that authorised representatives/ parties in the cases pending for admission under Section 7 of IBC to file default record from an IU before next date of hearing.
An information utility is basically a repository of electronic evidence. It is an information network that stores financial data like borrowings, default and security interests among others of firms. In India, National e-Governance Services Limited ( NeSL) in mid-2017 became the first IU for bankruptcy cases under the insolvency and bankruptcy code (IBC).
A record of default is nothing but a statement of default on a particular loan and facility. With the latest NCLT move, the entirety of an IU as an integral part of the process to establish default and allow immediate admission before such a Tribunal is now complete, say experts.
It may be recalled that the Corporate Affairs Ministry (MCA) had about four months back internally taken a decision that there is a need to make IU evidence mandatory in insolvency admission matter. Today, NeSL —which started its journey in September 2017–has information of loan details of 100 per cent of corporates in India. It is sitting on data of Rs 76 lakh crore of corporate borrowing outstanding.
As of end April this year, 220 financial institutions including 75 banks, 147 NBFCs and 2 debenture trustees have uploaded data on NeSL.
Reacting to the latest NCLT move making record of default from an IU mandatory, S Ramann, Managing Director & CEO, NeSL said: “We are satisfied that the Information Utility is playing its part as per the design of the IBC”.
NeSL was incorporated on June 2016 as a Government company. The equity of NeSL is fully owned by financial institutions— public sector holds 65 per cent of the equity. There are 17 shareholders—13 banks, 3 insurance companies and 1 depository.
Vidisha Krishnan, Partner, MV Kini & Co, a law firm, said that till date the default record from IU was not mandatory and even other documents or evidence were sufficient to demonstrate a default. However, now it has been made compulsory vide the latest direction, she added.
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