What Is Information Utility Under IBC 2016

The insolvency and Bankruptcy Code 2016 has laid down a more streamlined path in order to make sure that the resolution regarding insolvency can be handled properly. However, there are much verification involved and amidst all of this, information verification plays a major factor. Therefore, information utility under IBC 2016 is one of the most important factors within this code.

This comes in light of the National E-Governance Services Ltd (NeSL), which is India’s first information utility, or IU.

Information Utility: The definition

Information utility is a network of interconnected information. This network’s job is to store financial data like the following:

1. Borrowings
2. Default
3. Security Interests.
4. And several other financial details of several business firms.

The IU then uses the information to perform the following:

1. Procuring financial information for the businesses
2. Maintaining the financial information of businesses
3. Providing and supplying financial information businesses
4. Providing and supplying financial information to the Adjudicating authorities (The NCLT and/or the DRAT), Insolvency professionals, and the shareholders.

Information utility: The importance

The importance of IU of information utility is to perform the following:

1. Providing high quality verified and properly authenticated information about the debts and defaults.
2. Providing the above information as per the working group report on IU that was published by the MCA.
3. Playing a key role in storing, processing and maintaining the financial information for the registered user.
4. As a consequence of the 3rd point, IU aids the lenders in making sound decisions regarding the credit transaction.
5. Similarly, the debtors become cautious regarding their credit information.
6. The financial information can be used as an evidence of bankruptcy before the NCLT.

How is IU governed?

Governing the IU is a combined effort of Insolvency and Bankruptcy Code 2016 and IBBI regulations 2017. The IBBI or the Insolvency or Bankruptcy Board of India is responsible for handling the following:

1. Registration of IUs
2. Cancellation of IUs.

How does Information utility help with the Insolvency resolution process

It is a mandatory responsibility of the financial creditors to provide the financial information to the Information utility. When the insolvency process is underway, this utility assists the proceedings by acting as a centralized information hub to access the company data. That said, entering the financial data in the IU has not been made mandatory for the Operational creditors. In such case, the utility’s effectiveness in dealing with the insolvency process becomes subjective to the extent of data that the operational creditors provide to it.

The Challenges of UI

Now, the responsibility of entering the data into the IU is left to the operational/financial creditors and corporate debtors. However, this causes an issue of how accurate the data is. The entire matter of insolvency is a sensitive one. Therefore, the following two challenges are present:

1.  It is not far-fetched to think that the information entered would be biased, and unauthentic.
2. Due to the above-mentioned bias, data sharing might is resisted against.
3. The digital platform comes with its fair share or piracy and data theft vulnerabilities, and IU is no exception.

Information Utility, as a whole, is a good concept and the ease of reaching the insolvency resolution due to this is quite welcoming. However, the system needs to be more robust and authentic information should be entered at all times in order to make this utility effective.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.