The Insolvency and Bankruptcy Board of India (IBBI) has changed the way defaults are authenticated and recorded under the insolvency and bankruptcy code (IBC). A notification by the board has outlined a framework under which if a debtor disputes a default, the Information Utility (IU) will put it in a separate category called “Information of Dispute”. In cases where a debtor confirms a default, an authenticated “Record of Default” will be issued.
This is a crucial step because the dispute handling is a fairly ambiguous process under the IBC, and the latest amendment resolves this by ensuring that there’s a transparent and formal process to record and communicate disputes. This also impacts the initiation of insolvency proceedings.
“The amendments to the IU Regulations seek to enhance the evidentiary robustness and reliability of IU records by dispensing with the concept of ‘deemed authentication’ and introducing a distinct and verified mechanism for recording information relating to disputed debts,” said Anjali Jain, partner (insolvency & banking practice) at Areness.
To be sure, IU is a centralised entity that collects, stores, authenticates and manages financial and debt-related information.
Further, the amendments allow the IU to still authenticate the undisputed portion of a debt in case a debtor disputes only part of the default amount or the dispute relates only to non-financial information. This change is likely to speed up the insolvency proceedings which often face delays due to trivial disputes, strategic litigation, and frivolous appeals raised by defaulting companies and promoters to stall the process.
The other major amendments introduced by IBBI relate to the voluntary liquidation, wherein the companies can now exit voluntary liquidation process if they are able to meet certain conditions. By inserting a new Regulation 42, IBBI allows termination of voluntary liquidation proceedings if the company can provide the rationale behind the termination, and give a declaration that the termination will not affect the interest of any stakeholder.
“Upon termination of the voluntary liquidation proceedings under sub-section (5C) of section 59 of the Code, the appointment and term of the liquidator shall stand terminated, the liquidator shall cease to exercise any powers or functions under these regulations, and no further action shall be taken under these regulations in respect of the voluntary liquidation proceedings,” the notification said.
Experts said that the revisions to voluntary liquidation give practical effect to the recently-enacted amendments to section 59 of the IBC by prescribing a thorough framework for termination of voluntary liquidation proceedings.
In a separate notification, the board has broadened the composition of its disciplinary committee. For instance, the disciplinary committee was previously required to comprise whole-time members of IBBI. With the latest amendment, it can now consist of one or more persons as provided under Section 220 of the IBC.
Experts said that this practically expands the pool of individuals who can be part of the disciplinary committees. “Amendments to inspection and investigation regulations also strengthen the oversight of insolvency professionals, promoting greater accountability and compliance,” said Subodh Dandawate, associate director (regulatory advisory) at Nexdigm.