Information Utilities 101 And A Primer On Compliance With RBI's Dec. 19, 2017 Notification On Information Utilities

The Reserve Bank of India on December 19, 2017, issued a notification directing all financial creditors to submit financial information and information relating to assets in relation to which any security interest has been created to the National E-Governance Services Ltd (NeSL), which is India's first registered information utility (IU). This article aims to address the fundamental concepts and issues surrounding IUs and to provide insights into how financial creditors can comply with this RBI notification.What are information utilities?In May 2016, the Government of India enacted its first consolidated law on insolvency and bankruptcy, i.e. The Insolvency and Bankruptcy Code, 2016 ("Code"). The Code has been enacted to address and resolve the crisis of growing non-performing assets ("NPA") plaguing India Inc.The Code provides for a corporate insolvency resolution process ("CIRP"). The CIRP begins with an application by the creditor or the corporate debtor on occurrence of a default, and eventually culminates into a resolution plan designed to restructure the debt. The Code stipulates a time period of 180 days for the completion of the CIRP, which if not completed within the prescribed time period, can trigger automatic liquidation of the corporate debtor.The Bankruptcy Law Reforms Committee ("Committee"), while recommending the enactment of the Code, in its report, also noted the need for having accurate and undisputed financial information regarding the insolvent corporate debtor before the commencement of the CIRP against it. The Committee was of the view that under the previous, highly fragmented insolvency framework, substantial time was spent collating and organizing financial information regarding defaulting corporate debtors.To save time, the Committee recommended establishing Information Utilities (IUs) in India. Conceptually, an IU is a company that is in charge of collecting, collating and disseminating financial information of corporate debtors.On March 31, 2017, the Indian insolvency and bankruptcy regulator i.e. The Insolvency and Bankruptcy Board of India ("Board"), enacted the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 ("IU Regulations"), which came into effect on April 1, 2017.Since IUs specifically collect, collate and disseminate financial information, the next question will address the concept of financial information as has been defined under the Code.What is financial information?Financial information in relation to a person (note that the term "person" as defined under sub-section 23 of Section 3 of the Code, also includes a company) has been defined under sub-section 3 of Section 13 of the Code to mean "one or more of the following":"(a) Records of the debt of the person;(b) Records of liabilities when the person is solvent;(c) Records of assets of person over which security interest has been created;(d) Records, if any, of instances of default by the person against any debt;(e) Records of the balance sheet and cash-flow statements of the person; and(f) Such other information as may be specified."Financial Creditors and Information UtilitiesUnder sub-section (2) of Section 215 of the Code, financial creditors have been mandated to submit all financial information and information relating to the assets of any corporate debtor in which they have created a security interest. This information needs to be submitted to the IU in accordance with the IU Regulations.The Code obligates financial creditors to submit financial information to IUs. The term financial creditor has been defined under sub-section 7 of §5 of the Code to mean:"Any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to."Simply put, financial creditor means a person to whom a financial debt is owed by the corporate debtor. This paves way for two questions - one, who is a "person" under the Code? Two, what is "financial debt"?The term "person" has been defined under sub-section 23 of Section 3 of the Code to include:"(a) An individual;(b) A Hindu Undivided Family;(c) A company;(d) A trust;(e) A partnership;(f) A limited liability partnership;(g) Any other entity established under a statute, and(h) A person resident outside India.""Financial debt" has been defined under sub section 8 of Section 5 of the Code to mean:-"A debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes—(a) Money borrowed against the payment of interest;(b) Any amount raised by acceptance under any acceptance credit facility or its de-materialized equivalent;(c) Any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;(d) The amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other...

Information Utilities 101 And A Primer On Compliance With RBI's Dec. 19, 2017 Notification On Information Utilities

Pranav Khatavkar

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