The insolvency regulator’s move could speed up authentication of debtor defaults, admission of cases before NCLT
Insolvency regulator IBBI has now taken a crucial step to hasten the process of authentication and verification of information of default by borrowers for bankruptcy cases.
It has now strengthened the role of an information utility (IU) by allowing it to to access the data of MCA-21 database and CERSAI portals to speed up the process of debtor default authentication.
With data such as contact number, e-mail ID and address of a debtor, an IU can without any wastage of time intimate the debtor that default has been filed against it and that the borrower should perform the authentication process required under the law.
“An IU can target the borrower much better after the latest move”, said an insolvency law expert. A defaulting debtor cannot deny receipt of an email.
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).
By ensuring access of MCA-21 and CERSAI portal data to an IU, the Insolvency and Bankruptcy Board of India (IBBI) is also providing the mechanism for smooth passage and admission of cases to the National Company Law Tribunal (NCLT), another insolvency law expert said.
The Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is a central online security interest registry of India. It was created mainly to check frauds in lending against equitable mortgages. The idea is to tackle situations where people would take multiple loans on the same asset from different banks.
With IBBI enabling the concept of deemed to be authenticated, the concerned case can be directly admitted to NCLT, thereby helping the Tribunal to close the matter (for admission) in 14 days. The insolvency law now says that if 14 days period is not adhered to for admission, then the NCLT has to record the reason for not doing so within the stipulated period.
Deemed to be authenticated
Till recently, many borrowers were ignoring the message of the IU asking them to come and authenticate the debt default as per the contractual obligation with the lender.
“Many borrowers were simply ignoring it. Now with constructive notice given by the IU after relying on MCA21 or CERSAI portal data, if the borrower were to still ignore the message—then IU could mark it as deemed to have been authenticated”, an expert said.
The default broadcast introduced by IBBI under regulation 21 (for information utilities) has emerged as a powerful tool. It had raised the fear factor in the class of borrowers.” The ultimate fear that IBC has created is the loss of management. It is such a big fear that anything we do to dwell on those fears and bring discipline to borrowers is good news”, an expert who did not wish to be identified said.