Why integrating technology platforms is essential for quickening insolvency resolution

Access to integrated data would reduce the time taken for admission of insolvency applications and will reduce the burden of the NCLTs.

By Dhananjay Kumar and Abhishek Mukherjee 

Finance Minister Nirmala Sitharaman, in the Union Budget speech of 2024, promised certain breakthrough changes in the IBC. The proposed changes, being introduction of an ‘integrated technology platform’ and increasing the capacity and number of tribunals (whether its NCLT, appellate tribunal or DRTs), are aimed to address the key problem plaguing debt recovery and insolvency processes, which is time taken in resolving disputes or completing proceedings.

While the impact of IBC has been substantial, the delays caused at various stages right from admission of insolvency applications till conclusion of a corporate insolvency resolution process (CIRP) have impacted the ‘time bound process’ objective of IBC and possibly resulted in erosion of value for stakeholders. Hence, these proposals are timely.

Comprehensive technological intervention for the IBC was first proposed in a consultation paper released by the MCA in January 2023 which suggested integration of the fragmentated information structure amongst the various institutional pillars.

Fragmented platforms

Currently, the National Company Law Tribunal (NCLT), the Information Utility (IU), IBBI (being the regulator) and the ministry of corporate affairs (MCA) appear to operate on separate technological platforms resulting in information asymmetry among stakeholders.

For example, NCLT’s portal manages e-filings, case status and orders; the IBBI portal has information repository for insolvency professionals (IPs) and their compliance reporting, case monitoring and orders, resources/publications for the public and CIRP related information; IU (NeSL) is the repository of debt and default related information; and the MCA 21 portal contains information relating to charges, directors and other financial and compliance related data of a company.

However, there is no interoperability/interaction amongst these portals/platforms causing information asymmetry, data duplication, compliance issues, delays and impact on decision making. Therefore, there is certainly a need for (in the words of IBBI Chairperson) a ‘single source of truth’ that will increase the overall efficiency of the IBC ecosystem.

Need for one-stop data source

The NCLTs, while examining a Section 7 application (of the Insolvency and Bankruptcy Code), should be able to use all other information available in relation to the company. Access to such integrated data would reduce the time taken for admission of insolvency applications and will reduce the burden of the NCLTs by disposing off cases in an expeditious manner.

Such a one-stop access to all the data pertaining to the company will also speed up the RP taking full control of the affairs of the company. Availability of an integrated platform and easy access to data will aid in faster decision making by the committee of creditors (CoC), improve possibilities of an interim finance and will also incentivize resolution applicants to submit better commercial proposals to the CoC, thereby resulting in value maximization and timely conclusion of a CIRP process. Similar automated systems can also be deployed for early identification of stress by using pre-determined indicators pertaining to the financial, operational and compliance records of the company.

However, this will involve proper planning and preparation to ensure that the interface is easily accessible (without any data duplication or disparate data) but at the same time ensures data security as well as addresses confidentiality concerns.

The case for segregating insolvency court

The need for additional tribunals (both NCLT and DRT) and segregation of a company court and insolvency court has been the demand of the stakeholders for a while now.  Almost 21,000 cases are pending before the 15 NCLT benches with around 13,000 cases under IBC and rest being cases under the Companies Act.

Situation before the DRTs is astonishingly dismal with over 2 lakh pending cases. The situation at the DRT prompted one of leading private sector banks to approach the Supreme Court requesting for urgently filling up of vacancies in the DRTs as 18 out of 39 DRTs didn’t have permanent presiding officers. What is needed at the moment is not only increase in the numerical strength to unclog the logjam but also to build adequate infrastructure (including technology based) and improvement in expertise to handle complex matters.

Reforms expected

Few other amendments that are expected by the industry to achieve quicker insolvency resolution include (i) making the prepack regime available to all companies (now available only for MSMEs) with certain tweaks such as reduced procedural formalities for initiation of the process as well as incentivizing the debtors to use this tool by reducing the approval thresholds, (ii) reduce the involvement of NCLT in fast track CIRP cases, and (iii) introduction of the out of court settlement mechanism poised to be a creditor-led resolution process with minimum interference of the NCLT.

Achieving a faster insolvency resolution is the hallmark of an effective financial regime as it ensures improving liquidity and availability of resources for the market by quick turnaround or closure of a business. The proposals made in this Budget demonstrates the Government’s clear intent to boost investor confidence.

(Dhananjay Kumar is Partner (Head-Insolvency&Restructuring) and Abhishek Mukherjee is Partner, Cyril Amarchand Mangaldas.) 

Views are personal and do not represent the stand of this publication.