A good credit score of a person/company is a sine qua non for good credit health and is crucial for a person to avail financial assistance. So maintaining a good credit score is an indispensable activity. A credit information company (CIC) collects and maintains records of an individual’s payments and dues pertaining to loans and credit cards. These records are submitted by the respective banks and other credit institutions to the CIC. This information is then used to create credit information report which is provided to credit institutions in order to access the credit worthiness and capacity of a borrower to repay his loan and advances and discharge his other obligations in respect of credit facility availed or to be availed by him. Inaccurate record of information of a person maintained by credit institutions and CIC may have dire consequences and so it is imperative that accurate reporting be done. Hence, it is important that inaccurate information be rectified according to the procedure prescribed by the law in force.
The Credit Information Companies (Regulations) Act, 2005 was therefore passed to regulate credit information companies and to facilitate efficient distribution of credit rating of an individual. The CIC Act, 2005 further provides for the functioning of CIC, its registration procedure, settlement of dispute, privacy principles and furnishing of credit information. The RBI has further issued Credit Information Companies Regulations, 2006 to facilitate the smooth working of CIC.
However, this act needs to undergo significant amendments to get purge of its lacunae’s. Some of such lacunae’s are highlighted and discussed below: -
Differential treatment of de-registration/ cancellation of registration of CIC: - Section 5 of the CIC Act, 2005 talks about grant of registration certificate to a credit information company by RBI for carrying of business of credit information. It brings down that RBI has the power to grant the registration certificate on fulfilling of certain conditions mentioned therein. Further, if CIC fails to fulfill any of the mentioned conditions then RBI has the power to reject its application. Provided that no application will be rejected without giving the opportunity of being heard.
Sec. 6 throws light on cancellation of registration certificate to a granted company if it: -ceases to carry on the business of credit information, or has failed to comply with the conditions to which certificate of registration was granted, or has failed to fulfill any directions which RBI might have issued, or fails to submit books of accounts and other documents when so demanded by officer. Provided if RBI is of the view that stipulated time be given to company to comply with the conditions or if RBI is of the view that delay in cancelling of registration certificate will be prejudicial and detrimental to public interest, it may then cancel the registration without granting time to company. Further, RBI has to give reasonable opportunity of being heard to a company before cancelling its registration.
Sec 15 of the act provides that credit institution is to be a member of a credit information company. It lays down that every credit institution in existence on commencement of this act shall become member of a CIC within 3 months of commencement of this act and every credit institution which comes into existence after the commencement of this act, shall become a member of a CIC before the expiry of three months from its coming into existence. Further it lays down that no CIC shall refuse to register a credit institution or another credit information company as its member without providing reasonable opportunity of being heard to such credit institution or credit information company, whose application it proposes to reject and recording reasons for such rejection and a copy of such order of rejection shall be forwarded to the Reserve Bank.
The lacunae in this section is that under sec 5 and 6, transparency is maintained for cancelling or refusing to grant certificate of registration to CIC. The RBI under sec. 6 gives reasonable opportunity of being heard to CIC before cancelling or refusing to grant registration certificate. However, sec. 15 nowhere describes about cancelling of membership of credit institution which is already a member of a CIC and the act is also silent that a reasonable opportunity of being heard to be given to the credit institution before cancelling its membership. So, since the act is silent on this aspect, the CIC may cancel the membership of a credit institution without giving reasonable opportunity which in turn may cause colossal losses and may also jeopardize the image of the credit institution. So, this lacuna has to be filled by amending the act wherein a rational provisions regarding cancelling of membership of credit institution should be laid down.
Settlement of dispute under Sec 18: - Sec 18 of the act provides that if any dispute arises amongst credit information companies, credit institutions, borrowers and clients on matters relating to business of credit information and for which no remedy has been provided under this Act, such disputes shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996. It thus lays down that only those disputes should be settled down under this section for which no remedy has been provided under the act. However, in the recent judgment of the Hon’ble Calcutta High Court in Sunil Agarwal v. LIC Housing Finance Limited,2 the petitioner and respondent both erred an error because when there was a remedy available under sec 21, remedy under sec 18 would not have come into picture because recourse of this section can only be taken when no other remedy is available under the act.The facts of the case were that petitioner was a director of a company and one of the employee showing petitioner as a guarantor obtained loan from the LIC housing finance ltd. The employee defaulted in paying the loan and thus LIC supplied inaccurate credit information of petitioner to CIBIL.The petitioner thus moved an application to RBI for settlement of inaccurate credit information but was not entertained by them. The petitioner being aggrieved by this moved to Hon’ble High Court and thus court disposed off the petition by issuing the writ of mandamus directing RBI to settle the dispute.
The high court was of the view that counsel for LIC Housing Finance Ltd, Credit Information Bureau (India) Ltd, and the Reserve Bank of India have not argued that the petitioner’s application under sec. 18(1) referring the dispute between him and the Credit Information Bureau (India) Ltd., was not entertainable by the Reserve Bank of India. On the contrary, counsel for the Reserve Bank of India has submitted that the bank will need at least four weeks for taking a decision in terms of section 18(2) of the Act. For these reasons, the court disposes of the petition.
So it is to be noted since there was a remedy available to rectify the inaccurate information under sec. 21 read with rule 25 of the Credit Information Companies rules 2006, so how can one encroach upon the other remedies which are to be exhausted only when no remedy for same is available under the act. Furthermore, in the event the concerned credit institution or the CIC, does not take steps to redress the grievances of the borrower with respect to his inaccurate credit information, then the said credit institution or the CIC shall be subject to penalties as prescribed under Sec 23 and 25 of the act. Therefore, a dispute pertaining to inaccurate credit information, for which a specific remedy has been provided under the act, cannot be resolved by taking recourse to sec.
18 of the act. Thus, even if a petitioner erred in initiating proceedings under sec. 18 of the act because there were expressed remedies available under the sec 21 of the act, the high court has erred in permitting the initiation of proceedings under sec. 18.
Issue of power of attorney can authorize a person to receive credit information on behalf on another: - Sec 17(2) and 17(4) of the act brings about furnishing of credit information only to a credit information company and to specified user. Now the question here arises is that if bank gives credit information to third person not being for illegal purpose is it against the provisions of the act? If an agreement agrees to one person to collect information on its behalf will it be held valid? The answer to these arose that though such an agreement is legal but act doesn’t provide for it, so information cannot be given.
Further more to this, whether a power of attorney authorizes a person to hold information under this act. The act is again silent to it and thus no information can be given even if a person is authorized by way of power of attorney.
Thus to conclude, this act though has helped to regulate the credit information of person/ companies and the privacy principles which needs to be adhered to, but at the same time it has a number of lacunae’s which needs to be rectified for smooth functioning of credit institutions, CIC.