The best practices in business require the establishment faith of fulfilment of obligations by the transacting parties. However, change in circumstances may often hinder the proper discharge of the duties undertaken by the parties. Situations such as insolvency and bankruptcy of one party not only obstruct the desired performance of the agreed promises but render the other party helpless for the losses it may suffer to that account.

Monitoring regime

The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) has been introduced with the aim of making availability the credit more transparent by maximizing value of the assets in a time-bound manner. It restores the faith in the judicial mechanism and prevents the unscrupulous debtors from escaping the repayment of their debts by taking recourse to insolvency.

The Insolvency and Bankruptcy Board (hereinafter referred to as “IBBI”) is the regulatory authority bestowed with the responsibility to ensure efficacious implementation of the fundamentals laid down under the IBC.

Insolvency Information Utilities Regulations

An Information Utility (hereinafter referred to as “IU”) stores financial information that serves to establish defaults as well as verify claims expeditiously and thereby assist in completion of transactions under IBC. In order to enable the IBBI for administration of IU in accordance to the IBC the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 (hereinafter referred to as the “IU Regulations”) were brought forth. The IU Regulations provide for eligibility criteria, technical standards, guidelines, for the performance of core services and other services by IUs. Enumerating the duties to be performed under law, the IU Regulations aid in authentication and verification of information to be stored with the IU, registration of users, data integrity and security, porting of information, inter-operability among IUs, grievance redressal mechanism, etc.

Modification of Information Utilities Regulations

For the purpose of better enforcement of the of the principles of the IU Regulations as per the terms of IBC, the Insolvency and Bankruptcy Board of India (Information Utilities) (Second Amendment) Regulations, 2018 (hereinafter referred to as “Amendment Regulations”) were issued on October 11, 2018. Some of the features of the Amendment Regulations are stated below:

  • Regulation 9 –  Composition of the Governing Board.

(1) The Governing Board shall consist of - (a) managing director; (b) independent directors; and (c) shareholder directors:

(2) The managing director shall not be considered either an independent director or a shareholder director.

(3)   Any employee of an information utility may be appointed as a director on its Governing Board in addition to the managing director, but such director shall be deemed to be a shareholder director.

(4) The number of independent directors shall not be less than the number of shareholder directors:

(5) An independent director shall be an individual-

(a) who is a person of ability and integrity;

(b) who has expertise in the field of finance, law, management or insolvency;

(c) who is not a relative of the directors of the Governing Board;

(d) who has or had no pecuniary relationship with the information utility, or any of its directors, or any of its shareholders holding more than 10%. of its share capital, during the immediately preceding 2 financial years or during the current financial year;

(e) who is not a shareholder of the information utility; and 

(f) who is not a member of the Board of Directors of any of the shareholders holding more than ten per cent. of the share capital of the information utility.

(6) An independent director shall be nominated by the Board from amongst the list of names proposed by the information utility.

(7) An individual may serve as an independent director for a maximum of two terms of three years each or part thereof, or up to the age of seventy years, whichever is earlier.

(8) The second term referred to in sub-regulation (7) may be subject to a satisfactory performance review of the first term by the Governing Board.

(9) A cooling off period of three years shall be applicable for an independent director to become a shareholder director in the same or another information utility.

(10) The directors shall elect an independent director as the Chairperson of the Governing Board.

(11) A director, who has any interest, direct or indirect, pecuniary or otherwise, in any matter coming up for consideration at a meeting of the Governing Board or any of its Committees, shall as soon as possible after relevant circumstances have come to his knowledge, disclose the nature of his interest at such meeting and such disclosure shall be recorded in the proceedings of the Governing Board or the Committee, as the case may be, and the director shall not take part in any deliberation or decision of the Governing Board or the Committee in respect to that matter.

  •  Regulation 9A –  Managing director.

(1) An information utility shall, subject to the guidelines issued by IBBI from time to time, determine the qualification and experience, manner of appointment, terms and conditions of appointment and other procedural formalities associated with the selection and appointment of the managing director, subject to the condition that-

(a) an individual shall be selected as managing director through an open advertisement in all editions of at least one national daily newspaper;

(b) an individual at the time joining as managing director shall not be above the age of 55 years, which may be relaxed by the Governing Board up to sixty years, after recording reasons therefor; and

(c) an individual shall not serve as managing director after he has attained the age of 65 years.

(2) The appointment of an individual as the managing director shall be for a tenure of not less than 3 years but not exceeding 5 years.

(3) An individual may serve as managing director for a maximum of two terms.

(4) The process of appointment for the second term as managing director shall be conducted afresh.

(5) The appointment and remuneration payable to the managing director shall be approved by a compensation committee constituted by the Governing Board

(6) The appointment, renewal of appointment and termination of service of the managing director shall be subject to prior approval of IBBI.

(7) The managing director shall be liable for removal or termination of services by the Governing Board, with the prior approval of IBBI, for failure to give effect to the directions, guidelines and other orders issued by the Governing Board or IBBI, or the rules, the articles of association or bye-laws of the information utility or on the ground of misconduct or incapacity to continue in office.

(8) The IBBI may suo motu remove or terminate the services of the managing director, if it deems fit, in the interest of stakeholders of the insolvency resolution process or in the public interest, after giving a reasonable opportunity of being heard.

  • Regulation 9B. – Compliance to the revised regulations 9 and 9A are required to be made within one year from the date of commencement

The Information Utility ecosystems facilitate the speedy disposal of insolvency resolution process to prevent denying of justice to bonafide creditors which may be jeopardized due to the apparent inability of the debtor. The modifications support the setting up of an infrastructure ascertaining adherence to the law of the land.