As per the scheme of the Insolvency and Bankruptcy Code, 2016 (“Code”), an application for initiation of corporate initiation resolution process (“CIRP”) can be filed by the debtor itself or by a financial or operational creditor. The Code provides for filing of record of default recorded with the Information Utility (“IU”) as evidence of default, along with other specified documents.
Information Utilities (“IUs”) were introduced under the Code as repositories of financial information pertaining to a debtor. The IUs receive, authenticate and maintain financial information in relation to defaults. The intent in setting up such IU is to facilitate and expedite the admission and claim process under the Code. The Insolvency and Bankruptcy Board of India (Information Utilities) Regulation, 2017 (“IU Regulations”), inter alia, set out the manner in which the IUs would function, including the process of authenticating and maintaining records of default. However, filing of record of default with the IUs was not mandatory for maintaining applications under Section 7 and 9 of the Code and other documents, as specified, could be relied upon to prove default by a debtor. The law on this was well settled[1].
Ambiguity post introduction of Reg. 20(1A)
The IU Regulations were amended on June 14, 2022[2], wherein inter alia Regulation 20 (1A) was introduced, which provided that “Before filing an application to initiate corporate insolvency resolution process under section 7 or 9, as the case may be, the creditor shall file the information of default with the information utility and the information utility shall process the information for the purpose of issuing record of default in accordance with regulation 21”.
In furtherance of Regulation 20 (1A), the principal National Company Law Tribunal (“NCLT”) had also issued a notification dated April 3, 2023[3] (“Notification”), directing all petitioners who had filed applications under Section 7 or Section 9, to comply with Regulation 20 (1A) of the IU Regulations and produce the record of default issued by the IU (i.e., National E-Governance Services Limited) at the earliest for effective hearing of their cases.
The aforesaid Regulation 20 (1A) and subsequent Notification effectively made filing of IU reports in Section 7 and 9 applications compulsory. Whereas the Code and the rules provide that a creditor can rely on other documents, as specified, to prove the default.
Ambiguity put to rest – NCLAT
The National Company Law Appellate Tribunal, New Delhi[4] (“NCLAT”), dealt with the issue of compliance with Regulation 20 (1A) of IU Regulations (“Regulation 20 (1A)”) and compulsory filing of IU reports in Vijay Kumar Singhania v. Bank of Baroda and Anr[5] (“Judgment”) while dealing with an application under Section 7 of the Code.
In the facts of this case, the National Company Law Tribunal, New Delhi[6] (“NCLT”), had admitted an application under Section 7 of the Code (“Admission Order”) against Cygnus Splendid Limited (“Corporate Debtor”). The Corporate Debtor had filed an appeal before the NCLAT and its primary contention was that since the financial creditor had not filed the IU report with its application in accordance with Regulation 20 (1A), the Admission Order was liable to be set aside. The NCLAT rejected the contention made by the Corporate Debtor and upheld the Admission Order. The NCLAT held that Section 7 (3) (a) gives financial creditors the liberty to either furnish the record of default issued by the IU or any other evidence of default as prescribed.
While examining Regulation 20 (1A) of the IU Regulations, the NCLAT held that regulations must be consistent with the provisions of the Code and the rules. Regulations that are not in consonance with the Code and the rules cannot be implemented or enforced. On this reasoning, the NCLAT held that compliance with Regulation 20 (1A) is not mandatory. The decision of the NCLAT was appealed before the Supreme Court. The Supreme Court by its order dated August 29, 2024, dismissed the appeal and did not interfere with the Judgment.
Our view
The view taken by the NCLAT is in complete consonance with the Code and the rules. By the Judgment, the NCLAT has made it clear that filing of IU reports is not mandatory for maintaining CIRP applications and default can be proved by relying on other documents as well. Having said that, IU filing is significant for expeditious admission of a debtor under CIRP, as well as for avoiding prolonged disputes in relation to claim process. Therefore, filing of IU reports is greatly beneficial for timely resolution and should be promptly undertaken.
For further information, please contact:
Animesh Bisht, Partner, Cyril Amarchand Mangaldas
animesh.bisht@cyrilshroff.com
[1] Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17); Neelkanth Township and Construction Pvt. Ltd. v. Urban Infrastructure Trustees Limited (2017 SCC OnLine NCLAT 860); Univalue Projects Pvt. Ltd. v. The Union of India & Ors (2020) 3 CAL LT 438 (HC); Fidus Finance Private Ltd. v. Elena Power and Infrastructure Ltd. (IB) 356 (ND) 2021; Bank of India v. VVF (India) Limited (IB)331/MB/C-II/2020)
[2] Inserted by Notification No. IBBI/2022-23/GN/REG085, dated 14th June, 2022
[3] Information Utility order dated 3.4.2023.pdf (nclt.gov.in)
[4] Vijay Kumar Singhania v Bank of Baroda & Ors. (Comp App (AT)(INS) No. 1058 of 2023) dated December 13, 2023
[5] Supreme Court in Civil Appeal (Diary No.) 5768 of 2024
[6] Bank of Baroda v. Cygnus Splendid Limited (Company Petition No. (39(ND)/2023) dated July 26, 2023
