Authors: Mr. Samir Malik (Partner), Mr. Varun Kalra (Senior Associate) and Mr. Pranav Khanna (Associate)
Introduction
At the time of the enactment of the Insolvency and Bankruptcy Code, 2016 (“IBC”), provisions regarding Information Utilities (“IU”) were included to establish a robust institutional framework for collecting and verifying information on financial defaults. IUs are projected to be of the pre-insolvency process and to serve as the centralised repositories of financial information about debtors, reducing information asymmetry and providing an authenticated “Record of Default” to insolvency professionals and adjudicating authorities, thereby facilitating the admission of insolvency.
In an earlier development, the Hon’ble NCLT, by an Office Order dated 12.05.2020, imposed a mandatory requirement upon financial creditors to file a Record of Default with an IU as a condition precedent for filing applications under Section 7 of the IBC, and further sought to apply this requirement retrospectively. However, the Hon’ble Calcutta High Court declared the decision as ultra vires in the ruling of Univalue Projects Pvt. Ltd. & Anr. v. Union of India & Ors[1].
In this article, we endeavour to deal with the legal framework governing Information Utilities, judicial interpretation of the NeSL certificate requirement, and the practical challenges arising from the divergence between registry practice and tribunal rulings.
Understanding the Requirement for Record of Default:
Under Section 7(1) of the IBC, a financial creditor, on the occurrence of a default, may, either by itself or jointly with other financial creditors, file an application for initiating the Corporate Insolvency Resolution Process (“CIRP”) against a corporate debtor, before the Adjudicating Authority. The Adjudicating Authority must ascertain the existence of default from IU records or such other evidence furnished by the financial creditor under Section 7(3), within 14 days of receipt.
A certificate issued by NeSL constitutes a “Record of Default” and serves as prima facie evidence of the existence of default. Regulation 20(1A) of the IU Regulations, amended with effect from 14.06.2022, requires a financial creditor to file information of default with the IU before filing an application for initiation of CIRP under Section 7 or Section 9 of IBC. Upon receipt of such information, the IU shall process and issue a record of default in accordance with Regulation 21.
Policy Rationale Behind Information Utilities:
The introduction of IUs under IBC was not merely procedural but also structural. Prior to the IBC, insolvency/winding up proceedings were frequently delayed at the threshold stage due to disputes regarding the existence, quantum, and date of default, with financial creditors relying on disparate documentation, often leading to contested factual inquiries.
Information Utilities were envisaged as neutral, regulated repositories capable of authenticating financial information through structured verification. The objective was to minimise factual adjudication at the admission stage and bring certainty and efficiency to the insolvency process, in furtherance of the IBC’s time-bound framework.
The 2022 amendment to the IU Regulations sought to reinforce this objective by encouraging uniform reliance on IU-certified defaults. However, the amendment did not alter the statutory position under Section 7 of the IBC, which continues to recognise alternative evidence of default.
The conundrum of the mandatory default requirement:
In a recent decision in Vijay Kumar Singhania v. Bank of Baroda[2], of Hon’ble NCLAT, while deciding a question of admission of a corporate debtor into CIRP, held that NeSL certificate cannot be the sole requirement for establishing debt, notwithstanding Regulation 20(1A) of the IU Regulations (amended on 14.06.2022).
However, Section 7 of the IBC and related rules remain unchanged, permitting submission of alternative evidence of default. While a NeSL certificate serves as prima facie evidence of default, it cannot be treated as the sole requirement for establishing debt. Equally, Regulation 20(1A) should not be interpreted as mandating the rejection of applications lacking a NeSL Certificate. This position was also affirmed by the Hon’ble NCLT in State Bank of India v. Anupriya Management Pvt Ltd[3] and Canara Bank v. Syska E-Retails LLP[4]
Notwithstanding this settled judicial position, in our experience before the Hon’ble NCLT, the Ld. The Registry of various NLCTs continues to raise objections at the filing stage for non-submission of a NeSL certificate, treating it as mandatory under Regulation 20(1A). This contradicts consistent views held by the Hon’ble NCLT and NCLAT. Moreover, the Ld. Registry enforces a strict 7-day timeline for curing defects, with permission to re-file twice, placing immense pressure on applicants when obtaining the NeSL certificate can take significantly longer.
Implications of the Contradictory Directives on the Litigant/Applicants:
The Ld. Registry’s 7-day limit for curing defects is commendable as it streamlines workflow and discourages frivolous petitions. However, on a realistic level, obtaining the NeSL certificate can take between 30 to 35 days, and in some cases close to 2 months, making it nearly impossible for applicants to adhere to the strict 7-day deadline. As a result, many petitions are deemed defective for failing to meet this timeline.
A further complication arises from the limitation period. When an application is rejected for failure to cure defects within the stipulated time, applicants are compelled to file afresh, with the limitation period being computed from the date of such fresh filing. This creates a precarious situation wherein applicants may find themselves barred by limitation, thereby compounding the procedural difficulties they already face.
This situation gives rise to a triangular confusion among the Hon’ble Tribunals, litigants, and the Ld. Registry. While the Hon’ble Tribunals have consistently held that the NeSL certificate is not mandatory, litigants find themselves caught in a procedural dilemma when the Ld. Registry’s requirements conflict with these judicial pronouncements.
Conclusion
Records of default were introduced to expedite insolvency proceedings under the IBC. However, contradictions between judicial interpretation and registry practice regarding NeSL certification have created procedural hurdles for applicants. This discord between Tribunals, Registries, and Information Utilities undermines the IBC’s time-bound framework.
Addressing these inconsistencies is imperative to ensure a fair and efficient insolvency framework. Clear procedural alignment, either through authoritative practice directions or regulatory clarification, is essential. Introducing flexibility in defect-curing timelines and recognising alternative evidence of default in line with statutory provisions would go a long way in reducing hardship faced by litigants and restoring coherence to the insolvency process. Additionally, the operational infrastructure of Information Utilities requires significant improvement. In our experience, the NeSL platform has frequently encountered server outages and technical disruptions, further delaying the issuance of certificates
[1] 2020 SCC OnLine Cal 1452
[2] (2024) 252 Comp Cas 627
[3] 2024 SCC OnLine 34
[4] 2025 SCC OnLine NCLT 2758
Disclaimer: This article represents our understanding and interpretation of the relevant laws as on the date hereof and is provided without expressing any opinion, advice, or recommendation. The interpretations set out herein are subject to change, and there can be no assurance that any regulator, authority, or judicial body will concur with or adopt a position consistent with our views expressed in this article. This article is furnished solely for academic and informational purposes and should not be construed as legal advice or relied upon for any purpose whatsoever.