Minimum paid-up capital for information utilities pegged at Rs 60 crore

The minimum paid-up capital for information utilities (IUs), which are companies to be set up under the Insolvency and Bankruptcy Code to keep records of defaults and debts of those seeking insolvency protection, will be Rs 60 crore, if recommendations of a working group are accepted.

The group suggested that the authorised capital of the utilities should be Rs 75 crore. 

The working group, which came out with draft rules on IUs, said the foreign direct investment limit for these companies should be 49 per cent. 

Insolvency and Bankruptcy Board of India Chairman MS Sahoo told Business Standard the final rules for IUs would be finalised by the end of March. 

The working group said since the concept of IUs was a novel one, there was no benchmark to decide the capital required. “The closest benchmark is the credit information industry. Here, the minimum authorised capital for CICs is Rs 30 crore, as mandated by the CIC Act of 2005. The Act also requires CICs to maintain a minimum paid-up capital of Rs 15 crore,” it said. 

One approach could be to set the same thresholds for paid-up capital for IUs as for CICs. 

However, the group felt it more prudent to set the minimum authorised capital at Rs 75 crore and the minimum paid-up capital at Rs 60 crore initially, to be changed based upon public comments.

Since 100 per cent FDI was allowed in the case of CICs, there was little reason to introduce FDI barriers for IUs, the working group said. However, it suggested an FDI limit of 49 per cent, also to be changed on public feedback.

It also recommended that IUs may list on the bourses, and if some of them went bankrupt, an exit management plan should be in place as also a mechanism to transfer data from one IU to another. The working group said it should be mandatory for financial creditors to submit data on debt, while operational creditors need not make any disclosures on operational debt. An operational debtor is one who provides goods and services to the corporate debtor, including goods and employees.

The working group said financial creditors should mandatorily submit any information that was directly linked to the case. However, it isn’t mandatory to submit company balance sheets or cash flow statements.

Aiming at providing authentic information in the database, the working group recommended that the debtor and creditor must authenticate the information. However, where the debtor challenges the information provided by the creditor, the information should still be taken as authenticated if the creditor and host financial institution authenticate it. 

“This prevents the debtor from holding the process hostage, while preserving the evidentiary value of records in the IU,” the report added.

According to the recommendations of the committee, disclosures will remain confidential until the interim resolution professional is appointed. The committee suggests that the IBBI establish a technical committee comprising representatives from all IUs to impose standards for the information flow in IUs. 

The committee said having multiple identification marks for debt could give rise to fraud. “If one record is filed with the permanent account number (PAN) of an individual and another with his passport number, it will not be possible to recognise that both the records are about the same individual. A debtor can exploit this,” the report pointed out.

The challenge is to decide upon an identification key, or a collection of such keys, that uniquely identify a person, and map this identity to one or more digital signatures of that person. The group suggested that the technical committee should device this unique number.