Insolvency regulator IBBI proposed to strengthen the information provided by information utilities (IUs) so as to speed up the admission process for corporate insolvency and resolution process (CIRP) in the National Company Law Tribunal (NCLT).
Delays in admission of applications in NCLT has been cited as one of the main reasons for delay in the insolvency resolution process in the country. The Standing Committee on Finance too had highlighted in its report that delays in admission of applications in NCLT were causing delays to the IBC process.
An IU is an information network that stores financial data like borrowings, default and security interests among others of firms. In India, National e-Governance Services (NeSL) in mid -2017 became the first IU for bankruptcy cases under the insolvency and bankruptcy code (IBC).
As per Insolvency and Bankruptcy Code (IBC), the admission process should ordinarily be completed in 14 days from the date of filing application.
Huge delays
However, there are large delays in admission of applications and it is now proposed to amend the regulatory framework to attain the objective of enhancing the effectiveness and acceptability of the record of default (ROD) issued by an information utility, thereby speeding up the process of admission application to initiate CIRP.
The IBBI has now issued a discussion paper on ‘enhancing effectiveness of Information utility‘ that among other things proposes to streamline the format of information of debt/default. Public comments on the discussion paper have been invited by April 29.
The discussion paper proposes to expand the list of documents evidencing the debt or default information in the Form C to include “records of acknowledgment of debt by the debtor”. The documents to be uploaded as evidence for ‘debt’/ or ‘default of debt’, have been specified by the IBBI in Form C. Documents which show acknowledgment of debt by the debtor will assist in faster admission of applications.
Experts welcome move
Commenting on the discussion paper, Manmeet Singh, Partner, Saraf and Partners, said that the amendments proposed would go a long way in mitigating the delays caused in admission of insolvency petitions on account of time required to establish the existence of default.
The amendments recognize that the statement furnished by scheduled banks, which are based on audited books, stand on a different footing and therefore must have better recognition for the purpose of recordal of debt by the Information Utility, he said. This move is also consistent with the Bankers’ Books Evidence Act, 1891. Further, the proposed amendments will also result in effective information sharing regarding the filing of a petition with the other participants in the system, he added.
Sushmita Gandhi, Partner, IndusLaw, said “Streamlining the role of information utilities can indeed speed up the process of admission of insolvency petitions. The proposal to include record of acknowledgement of debt with the IU is a much needed change which could sift grain from the chaff and speed up the process of the adjudication authority”.
Kumar Saurabh Singh, Partner, Khaitan & Co, said that the amendments proposed by IBBI through the discussion paper are to streamline and operationalise IU in an effective way which can create objectivity and cut the time lag in admission process.
“To that extent this is a welcome step. However the success of this process would ultimately depend on how promptly NCLTs are able to dispose of applications filed under IBC taking assistance of IU infrastructure which is expected to host/store robust information about credit default in an accurate way”, Singh said.
Dhrupad Vaghani, Associate Partner, Economic Laws Practice, said that the discussion paper targets an imperative issue, the importance of timelines under the IBC, and to effectively extend the use of IU in reducing the delays in admission of applications for CIRP.
Meghna Mishra, Senior Partner, Karanjawala & Co, said that the proposed amendments will help in achieving the objective of the IBC for resolution of the corporate debtors in a time-bound manner for maximization of value of assets of such debtors.
Through the proposed amendments the IBBI has made yet another endeavour to streamline the whole resolution process and align the proceedings before the NCLT in consonance with the objectives of the IBC and achieve the same, she added.