INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (INFORMATION UTILITIES) REGULATIONS, 2017 – PART I

[Mr. M. GOVINDARAJAN]

In exercise of the powers conferred by sections 196, 209, 210, 211, 212, 213, 214, 215, 216 read with section 240 of the Insolvency Bankruptcy Code, 2016 (‘Code’ for short), the Board make the regulation called as ‘Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 (‘Regulations’ for short) to provide a frame work for registration and regulation of information utilities in terms thereof, vide Notification No. IBBI/2016-17/GN/REG009, dated 31.03.2017.  These regulations came into effect from 01.04.2017.

Information

Regulation 2(h) defines the term ‘information’ as financial information as defined in section 3(13) of the Code.  Section 3(13) of the Code defines  the expression ‘financial information’ in relation to a person, as one or more of the following categories of information-

• records of the debt of the person;
• records of the liabilities when the person is solvent;
• records of assets of person over which security interest has been created;
• records, if any, of instances of default by the person against any debt;
• records of the balance sheet and cash flow statements of the person; and
• such other information as may be specified.

Utility

In computers, a utility is a small program that provides an addition to the capabilities provided by the operating system.

Registration

Section 209 of the Code provides that no person shall carry on its business as information utility without a certificate of registration issued in that behalf by the Board.   Section 2(23) of the Code defines the term ‘person’ as including-

• an individual;
• a Hindu Undivided Family;
• a trust;
• a partnership;
• a limited liability partnership; and
• any other entity established under a statute

and includes a person resident outside India.

Eligibility for registration

Regulation 3 provides that a public company only is eligible to register as information utility and-

• its sole object is to provide core services and otherservices under these regulations and discharge such functions as may be necessary for providing these services;
• its shareholding and governance is in accordance with Chapter III;
• its bye-laws are in accordance with chapter IV;
• it has a minimum net worth of ₹ 50 crores;
• it is not under the control of person(s) resident outside India;
• not more than 49% of its total voting power or its paid up equity share capital is held, directly or indirectly, by persons resident outside India;
• the person itself, its promoters, its directors, its key managerial personnel and persons holding more than 5% directly or indirectly, of its paid up equity share capital or its total voting power, are fit and proper persons.

Fit and proper persons

For determining whether a person is fit and proper, the Board may take into account of the relevant considerations, including-

• integrity, reputation and character;
• absence of conviction by a court of an offence;
• a person may be considered fit and proper if he has been sentenced to imprisonment for a period of less than six months;
• a person shall not be considered fit and proper if he has been sentenced to imprisonment for a period-

• of not less than six months, but less than seven years and a period of five years has not elapsed from the date of expiry of the sentence; or
• seven years or more;

• absence of restraint order, in force, issued by a financial sector regulator or the Adjudicating Authority; and
• financial insolvency.

Application for registration

A person eligible for registration as information utility may make an application to the Board in Form A.  The following documents are to be attached with the application-

• the memorandum of association;
• the articles of association;
• the bye-laws;
• the business plan; and
• the exit management plan of the applicant.

The fee payable is a non refundable of ₹ 5 lakhs.  The Board shall acknowledge the receipt of the application within seven days of its receipt.

The Board shall examine the application and give an opportunity to the applicant to remove the deficiencies if any in the application.  The Board may require the applicant to submit, within reasonable time additional documents or clarification that it deems fit.  The Board may require the applicant to appear within reasonable time before the Board in person, or through its authorized representative for clarifications required for processing the application.

If the Board is satisfied, after such inspection or inquiry as it deems necessary, that the applicant-

• is eligible for registration;
• has the technical competence and financial capacity required to function as an information utility;
• has adequate infrastructure to provide services in accordance with the Code;
• has in its employment, persons having adequate professional and other relevant experience to provide services in accordance with the Code; and
• has complied with the conditions of the certificate of registration,

he may grant a certificate of registration, to the applicant as an information utility in Form B, within 60 days of the receipt of the application.  The time limit of sixty days will exclude the time given by the Board for removing the deficiencies or presenting additional documents or clarifications or appearing in person.  The registration may be subject to such terms and conditions as may be specified. 

Conditions of registration

The  certificate of registration shall be subject to the conditions that the information utility shall-

• abide by the Code;
• abide by its bye-laws;
• at all times after the grant of certificate continue to satisfy the requirements;
• pay a fee of ₹ 50 lakhs to the Board within 15 days of receipt of intimation of registration from the Board, as applicable;
• pay an annual fee of ₹ 50 lakhs to the Board, within 15 days from the end of every year from the date of grant of registration;
• seek prior approval of the Board for-

• the acquisition of shares or voting powers by a person, which taken together with paid up equity shares or voting power, if any, held by such person, entitles him to hold more than 5%, directly or indirectly, of the paid up equity share capital or total voting power;
• a change of control;
• a merger, amalgamation or restructuring;
• sale, disposal, or acquisition of the whole, or substantially the whole, of its undertaking;
• voluntary liquidation, dissolution, or any similar action involving the discontinuation of the business;;

• intimate the Board if a person holding more than 5%, directly or indirectly, of its paid up equity share capital or total voting power ceases to hold at least 5%, directly or indirectly, of its paid up equity share capital or total voting power, within 15 days from such cessation;
• take adequate steps for redressal of grievances;
• take over information stored with other information utilities on the directions of and in the manner directed by the Board, and provide core services to their users; and
• abide by such other conditions as may be stipulated by the Board.

Rejection of application

If after considering an application, the Board is of the prima facie opinion that the registration ought not to be granted  it shall communicate the reasons for forming such opinion within forty five days of the receipt of the application, excluding the time given by the Board for removing the deficiencies, presenting additional documents or clarifications or appearing in person.  The applicant shall submit an application as to why its application should be accepted within fifteen days of the receipt of the communication of the said order to enable the Board to form a final opinion.

After considering the explanation, if any, given by the applicant, the Board shall communicate its decision to-

• accept the application along with the certificate of registration; or
• reject the application by an order, giving reasons thereof

within 30 days of receipt of explanation.

Renewal of registration

The Board may renew the certificate of registration to the applicant.  An information utility seeking renewal of registration shall, at least six month before the expiry of its registration make an application for renewal in Form A along with a non refundable application fee of ₹ 5 lakhs.  The Board shall acknowledge the receipt of the application.  After considering the application the Board is of the prima facie opinion that the registration ought not to be renewed or renewed with additional conditions, it shall communicate the reasons for forming such an opinion within 45 days of receipt of the application, excluding the time given by the Board for removing the deficiencies, presenting additional documents or clarifications or appearing in person.  The order rejecting an application for renewal of registration shall require the information utility to-

• discharge any pending obligations;
• continue its functions till such time as may be directed, to enable its users to transfer information stored with it to another information utility; and
• comply with any other directions as considered appropriate.

In-principal approval

Any person who seeks to establish an information utility may make an application for an in-principle approval, demonstrating that the conditions are satisfied, along with a non refundable application fee of ₹ 5 lakhs.  If the Board is satisfied, after such inspection or inquiry as it deems necessary that-

• the applicant is a fit and proper person; and
• the proposed or existing company which may receive registration would be able to meet the eligibility criteria

it may grant in-principal approval which shall be valid for a period of not exceeding one year and be subject to conditions as it deem fit.

During the validity of in-principal approval, the company may make an application for a certificate of registration as an information utility to the Board but shall be required to pay the application fee for registration.

Cancellation of registration

The Board may, by an order, suspend or cancel the certificate of registration granted to an information utility on any of the following grounds-

• that it has obtained registration by making a false statement or mis-representation or any other unlawful means;
• that it has failed to comply with the requirements of the regulations made by the Board;
• that it has contravened any of the provisions of the Act or the rules or the regulations made there under;
• on any ground as may be specified by regulations.

No order shall be made unless the information utility concerned has been given a reasonable opportunity of being heard.  No such order shall be passed by any member except whole time members of the Board.

Against this order any information utility may prefer an appeal to the National Company Law Appellate Tribunal.

Obligation of Information Utility

An information utility shall provide such services as may be specified including core services to any person if such person complies with the terms and conditions as may be specified by regulations.

For the purposes of providing core services to any person, every information utility shall-

• create and store financial information in a universally accessible format;
• accept electronic submissions of financial information from persons who are under obligations to submit financial information in such form and manner as may be specified by the regulations;
• accept, in specified form and manner, electronic submissions of financial information from persons whointend to submit such information;
• meet such minimum service quality standards as may be specified by regulations;
• get the information received from various persons authenticated by all concerned parties before storing such information;
• provide access to the financial information stored by it to any person who intends to access such information in such manner as may be specified by regulations;
• publish such statistical information as may be specified by the regulations;
• have inter-operatability with other information utilities.

Submission of financial information

Any person who intends to submit financial information to the information utility or access the information from the information utility shall pay such fee and submit such information in such form and manner as may be specified by these regulations.

A financial creditor shall submit financial information and information relating to assets in relation to which any security interest has been created, in such form and manner as may be specified in the regulations.

An operational creditor may submit financial information to the information utility in such form and manner as may be specified.

Rights and obligations of persons submitting financial information

A person who intends to update or modify or rectify errors in the financial information submitted, he may make an application to the information utility for such purpose stating reasons there for, in such manner and within such time as may be specified.  A person who submits financial information to an information utility shall not provide 6 such information to any other person except to such extent, under such circumstances, and in such manner, as may be specified.