INTRODUCTION: SILENCE UNDER THE INFORMATION UTILITY

In a recent case of Air Wave Technocrafts Private Limited vs Voltas Limited, the NCLAT refused the claim of the creditor, since the debts were time-barred, undermining the role of IU in the insolvency proceedings. The Insolvency and Bankruptcy Code, 2016 ( hereinafter “The Code”) was introduced with the objective of consolidating all the insolvency proceedings under one roof for both corporate and individuals with the aim of maximising the value of the assets. Section 9 of the Code clarifies the process by which a creditor initiates the corporate insolvency resolution process when the corporate debtor is unable to make timely payments. Later, Information Utility (hereinafter IU) was introduced to address the issue of the non-availability of financial information. The IU acts as a repository of the information that helps in preventing disputes and delays in the proceedings. However, there is a procedural gap where the debtor can withhold confirmation on financial information about the debt uploaded by the creditor, which can defeat the very objective of IU, to provide swift insolvency proceedings.

Can a mechanism within the institution that is limited to verification but lacks any legally meaningful effect contribute substantively to being the evidentiary basis of an insolvency system?

This blog will Firstly, critically examine the limited role of IU under the insolvency proceedings, Secondly, analyse how the IU confirmation gap enables the debtor from defeating the core promises of swift insolvency proceedings, Thirdly, global comparison of the framework regarding debt acknowledgement, Lastly, it suggests reforms to give IU authentication a legal and meaningful effect without hampering the debtor’s right.

WHEN VERIFICATION FELL SHORT: THE IU DISCONNECT

The introduction of the Information Utility under the Insolvency and Bankruptcy Code, 2016, demonstrates a deliberate effort by the legislation to mitigate information asymmetry in insolvency proceedings. Sections 213 to 216 of the code regulate the submission of the information and its method of submission, as well as the rights and obligations of the person uploading the information. However, the statutory language indicates that the information utility was not intended to function as a determining authority but as a facilitator for factual clarity regarding the debt information to help the adjudicating authority regarding the proceedings under Sections 7, 9 and 10 of the Code. Regulation 21 of the IBBI (Information Utilities) Regulations, 2017 (hereinafter “The Regulations”) provides the framework to update the status of authentication of the information to be recorded by the IU.  The lacuna lies in the table given under Regulation 21 to update the status of authentication of information. At first, if the information uploaded by the creditor is confirmed by the debtor, then its status will be updated to Authenticated, and the same can be used as evidence in the proceedings. Secondly, if the debtor disputes the information, the status will be updated to Disputed. Everything seems fair till here, but at the last stage, when the debtor doesn’t respond even after three reminders, the status will be updated to deemed to be Authenticated, and the same serves no purpose in making the proceedings swift. It has been a consistent trend in tribunals, where the information having the status of deemed to be authenticated is not given much weight, and it is considered that the silence of the debtor can’t create legal consequences unless the statute explicitly provides. The information submission is a unilateral process by the creditor, and the same can’t be imposed upon the debtor. In the absence of any authoritative mechanism to require a debtor to either confirm or dispute the uploaded information by the creditor, the IU framework undermines its own objective of a participatory information mechanism and functions as a largely one-sided repository of creditor data. By allowing debtor silence to carry no legal consequence, the IU framework enables strategic delay and misuse when viewed through the lens of the Limitation law.

THE STRATEGIC USE OF NON-CONFIRMATION AND LIMITATION

While IU authentication facilitates evidentiary clarity, it cannot be equated with acknowledgement under Section 18 of the Limitation Act, 1963, unless a legislative consequence is attached. The framework governing the IU provides three options to the debtor in response to the information uploaded by the creditor: confirmation, Dispute, or Silence. While the former two options come with certain procedural outcomes, holding silence over the information has no consequences. This system enables the corporate debtor to strategically abstain from engaging in the IU proceedings by neither confirming nor disputing the debt information, thereby safeguarding the potential legal defences for the future.  The non-confirmation is used to escape from the debt liability through the provisions of the Limitation Act, 1963, as section 18 requires a written and signed acknowledgement to revive the time limit and to revive the limit under section 19, there should be payment (Half or full) or payment of interest on a debt before the expiration of the limitation time period. The debtor deliberately chooses not to respond, to ensure that no acknowledgment of the debt is created, the limitation period is not extended or revived, and a time-barred defence remains available at the stage of insolvency proceedings. In the recent case of Air Wave Technocrafts Private Limited vs Voltas Limited, the creditor had uploaded the information of the debt on the IU, but it was neither acknowledged nor disputed by the debtor. Later, during the insolvency proceedings, reliance was placed on the information uploaded on IU; however, the Hon’ble Tribunal rejected the creditor’s contention, stating that mere administrative filing of the information without an acknowledgement from the debtor does not extend the limitation period under the Limitation Act, 1963. The exploitation of non-confirmation highlights a systemic inconsistency between IU processes and the law of limitation. A brief comparative analysis highlights how consequences are attached to inaction in more mature systems.

GLOBAL COMPARISON: CONSEQUENCES OF SILENCE

Global insolvency practice suggests a clear principle: debtor silence must carry consequences. The approaches adopted in the United States and Singapore stand in sharp contrast to India’s IU regime

Under the U.S. Bankruptcy system, 11 U.S. Code § 502 states that a claim or interest is allowed after the creditor has filed proof of the claim, unless the debtor disputes it. In this system, the debtor gets a chance to dispute the claim, but there is no option of being silent on the claim without any adverse action. This keeps the debtor active in proceedings, since failure to comply with the procedure within a time frame can have significant legal consequences, such as the claim being allowed by default.

Under the Insolvency, Restructuring and Dissolution Act 2018 of Singapore, Section 312 of the act provides a 21-day timeline for the debtor to respond after a statutory demand is served by the creditor, adhering to the prescribed manner. If the debtor has neither complied with it nor applied to the court to set it aside, then the debtor is presumed to be unable to pay the debt within the meaning of Section 311 (1) c. The grounds for a bankruptcy application are given under Section 311 of the Act, and non-compliance or ignorance of the debtor regarding statutory demand can be a ground for insolvency proceedings, which enables the creditor to move forward with the insolvency proceedings.

The examination of rules regarding silence on debt from the jurisdictions of the United States and Singapore, and then juxtaposing them with Indian’s Information Utility provisions, reveals that the latter is unusual to the extent of having no consequences for silence. The framework in the US and Singapore is not similar to that of the Information Utility in India, but can be considered as a counterpart for the same.

WAY FORWARD: BRIDGING THE IU GAP

The deficiencies exposed in the current Information Utility framework call not for its abandonment, but for calibrated procedural reforms that assign meaningful consequences to debtor inaction without diluting statutory safeguards.

The first and foremost practical procedural reformation could be adding proof of the debt while submitting the information about on IU, as it will help the creditor at a later stage. In the next procedural overhaul, there should be an amendment under Regulation 21 of the IU Regulations, 2017, having certain consequences for the strategic abstention from responding to the creditor’s claim, hence compelling the debtor to either confirm or dispute the claim, leading to swift insolvency proceedings. When the debtor chooses not to respond after the definite timeline, the rebuttable presumption of correctness will be created favouring the creditor, and the same is not equated with acknowledgement within the meaning of section 18 of the Limitation Act, 1963.  The presumption is made rebuttable to safeguard the interest of the debtor, so it can be challenged by the debtor during the proceedings with substantial proof. At last, a clear judicial pronouncement will be beneficial in removing the irregularities in the current framework.

Bridging this gap is essential for the IBC to truly achieve its goal of a swift and efficient insolvency resolution process.