I believe it is myopic to look at initial failings of a new law: NeSL’s S. Ramann
One of the cornerstones of the new insolvency framework is information utilities, which will store data on borrowing, default and security interest with safeguards like authenticating the terms of contract. In an interview, S. Ramann, managing director of National e-Governance Services Ltd (NeSL), India’s first information utility (IU) for bankruptcy cases, talks about the importance of sharing financial information. He also said that it is myopic to look at the failings of a new law. Edited excerpts:
The information utility (IU) had to face initial issues in gathering information from Reserve Bank of India (RBI)-regulated entities. This led to RBI coming out with a clarification. Could you give us a sense of the issues and does the RBI clarification help?
The legal position is very simple. There are three sections in the IBC which deal with sharing of financial information by creditors with the IU. When we read these provisions together it is very clear that the intent of Parliament was to mandate sharing of financial information by financial creditors with the IU and it was kept optional for operational creditors. The real significant issue is that other stakeholders and even other regulators would take time to understand and appreciate the implication of each section. The way IBBI (Insolvency and Bankruptcy Board of India) has helped immensely is in getting the IU set up. We have also been working with mutual funds, banks to bring to their notice the benefits of the IU. Within a very short time the government and IBBI had taken up this issue in the FSDC (Financial Stability and Development Council) meeting. Consequent to that there was an agreement between all the regulators. Even RBI has come out with a very clear circular for the banks to share the information with the IU.
What about other regulators, do you see any cooperation from them?
Sebi (Securities and Exchange Board of India) has made clear to its regulated institutes that they have to utilize the benefits of the IU. IU provides a legal evidence benefit for creditors, which is directly admissible to any NCLT (National Company Law Tribunal). After finding that we were facing issues at the bank level we went to meet the IRDAI (Insurance Regulatory and Development Authority of India) chairman. He agreed with the principle and merits of the law wholeheartedly. So if any insurance companies were to raise a doubt that can we or should we share the information with the IU, then the regulator would have a very clear response.
The inter-regulatory play is all the more vital with the companies and entities being regulated by various regulators such as Reserve Bank of India, Sebi, IBBI, ministry of corporate affairs and Competition Commission of India (CCI). In your view, has there been any friction or has it been smooth sailing?
The most important aspect is that the regulators talk freely and candidly about these matters. There will always be differing, opposing views. So, the best (way) is to come out with conclusions after hearing all the views. Even though initially they (the views) may seem conflicting, (they) will certainly be resolved. The ultimate goal is to take the economy forward.
It is one year since the IBC became operational. How would you rate the results of the code?
It has attempted to create a new institutional framework for the defaulting or failing companies. It is a comprehensive code that prevents defaulters from retracting their position of default and this is why IBC is so vital and different from previous provisions and Acts. The code is neutral to all the financial creditors though banks remain a dominant part; bond defaults, credit notes among others are also becoming increasingly important. With the IBC being operational and enhancement in the capacity of NCLT, there has been nothing but successes so far. I believe it is myopic to look at the (initial) failings, as any new law and institution will take a bit of time to evolve and for the people and participants to adjust to it. Therefore, the government has been very correct in the appointment of the review committee which will look into improving the code further.
So far in some of the judgments of the Tribunals, Appellate and the Supreme Court we have seen that the courts had to set jurisprudence based on the interpretation of the provisions. Do you think that there is room for the Code to evolve and leave little room for interpretation?
There are going to be a variety of interpretations that go towards making the Code more successful and easy to implement and thereby allowing a variety of participants to come in making it easy for them to use the law. The courts have done a tremendous job in coming out with rulings that will ensure a harmonious way forward for the code. As far as timelines are concerned it is too early to judge or assess that the timelines are being adhered to. Some more time is needed for the ecosystem to evolve and then make an assessment of the pit falls.
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