Written by Muskan Khandelwal & Deepansh Jain The authors are 4th-year students pursuing BBA. LLB (Hons.) at Symbiosis Law School, Pune.
Introduction
By applying the notion of IUs in letter and spirit, the Insolvency and Bankruptcy Code, 2016(hereinafter referred as “Code”), has caused a paradigm change. The primary job of Information Utilities (hereinafter referred as “IUs”) is to provide data on debts and defaults that is of a high quality and has been certified. This data provided by IUs is also significant for public policy. It has been hypothesized that the efficiency of the IU might be increased by switching to a system of data storage, processing, and dissemination that is more open and takes advantage of the most recent technology developments. The blockchain technology, which possesses cryptographic tools of block creation that provide preservation, accessibility is ideally suited for the establishment of the fundamental tool that will underpin the functioning of IUs . The advantages of a blockchain-powered network are outweighed by the minor difficulties that may occur from using this technology. The corporate sector would benefit from blockchain technology's improved functionality and application if it were applied to IUs. Blockchain is the ideal solution for IUs for facilitation of financial information in an immutable and unfalsifiable manner. Moreover, it has the potential to greatly increase the usefulness of information.
A Review of Contemporary Discourse
Improving information symmetry across all stakeholders is expected to result in a fundamental shift brought about by information utilities.
A fundamental shift has been brought by information utilities as discussed in “Information Utilities: A Key Pillar of Insolvency Proceedings”. IU has taken a step towards the fulfillment of the Code’s Preamble by bringing uniformity and symmetry in collection and utilization of financial information. The purpose of the IUs is to make the insolvency proceedings less informationally asymmetrical. IUs support the Code's goal of achieving consistency in transactions and transparency, guaranteeing that information symmetry does not negatively impact the stakeholders' interests as envisioned by the Bankruptcy Law Reforms Commission Report. However, IUs are yet to demonstrate their supremacy as a credit information analytics organization as it is the case with any new organization. The researcher talks about various methods through which the supremacy can be achieved.
Blockchain: Breakthrough technology
There is currently an abundance of research indicating that blockchain technology may be employed independently of crypto currency. The blockchain's underlying technology enables better levels of efficiency and accuracy. A blockchain is typically characterized as a decentralized ledger that stores information in unchangeable digital blocks that are digitally encrypted to ensure the constant involvement of all stakeholders. Using blockchain technology, any form of ledger may be created. It has been accepted by a lot of reputed organizations such as the Organization for Economic Cooperation and Development (OECD)[and NASSCOM that the blockchain creates everlasting financial records which has tremendous economic value and is trusted amongst all the concerned parties.
The applicability of Blockchain in the Economic World
Since the beginning of Blockchain it has received a lot of attention and popularity. Many organizations have been testing its feasibility in sectors other than cryptocurrency. For instance, a lab has been set up by the World Bank in 2017 to examine the advantages of using blockchain in speeding up the cash disbursement process. Niti Aayog and the World Economic Forum have predicted that Blockchain is going to change the economic world in a few years
Analysis
The National E-Governance Services Limited (hereinafter referred as “NeSL”) is the first and only IU in India. It was incorporated in the year 2017 and in this short period, it has surpassed all the expectations regarding its usefulness to the process of insolvency and the ongoing expansion is suggestive of favorable consequences for the credit economy.
However, the stakeholders' unwillingness to interact with the organization stems from a lack of trust in financial information as a result of fears about its abuse and leakage. Lack of popularity may also be attributed to a lack of trust among stakeholders, which includes not only Insolvency Professionals but also creditors and corporate debtors, and given that the information is financial in nature and is shared in a confidential and sensitive manner, this has significant implications. According to the authors, the Information Utility, even though having a strong concept, has been unable to create the required trust, confidence, and support from the same stakeholders that it is supposed to serve. As a result, the very future of the Information Utility is in danger.
Blockchain: Concept
Roughly explained, a blockchain is a ledger book that documents event after event in a way that makes it impossible to change the initial data. Information is kept on blocks that are continuously added to a chain in a chronological order without enabling any current information to be changed.
The following are the benefits of using blockchain:
Reason behind using Blockchain
IUs would be more efficient and productive if they used blockchain technology as their operational foundation. Information utilities hold the financial data of businesses and financial institutions, and they may also receive confidential information that has repercussions for the whole industry.[9] Such circumstances make data security more crucial for preserving system transparency, guaranteeing data integrity from network users, and avoiding unauthorized access. The most suitable functional instrument that an IU can use to increase its functional capabilities is blockchain. Since blockchain technology cannot be changed, it offers the ideal solution for use in the IU.
The key benefit of blockchain is its capacity to use cryptographic procedures to achieve consensus among participants in the ledger. As a result, a distributed trust network of means of exchange is created as there is no longer a requirement for a centralized power or mediator. A single entity cannot authorize new contributions to the ledger or change already made data entries. Eradicating the requirement for a trusted centralized party may improve network security, transaction costs, and efficiency.
Integration: Blockchain & IU
It is crucial to note that the researcher is not in any way criticizing the NeSL Information Utility's chosen medium of operation since there is no conclusive proof that the technology used is to blame for the system's poor functionality. However, it is certain that NeSL has not been adopted as a viable information utility, with stakeholders' lack of confidence being the most significant factor. It is essential that a mid-course corrective procedure be used if the establishment of Information Utility is to succeed. The researcher makes the argument that the NeSL, in particular, and Information Utilities, generally, should use blockchain technology because of the advantages it offers in terms of developing a reliable infrastructure for financial data collecting, storage, and distribution.
Once blockchain is deployed, an IU will be a member with the same usage and access rights as any other member, making it the sole regulator whose presence and acceptability among stakeholders is dependent on openness and fairness of operations, building great trust in the institution. Information Utility will be responsible for governing and regulating the blockchain, as opposed to acting as an active mediator seeking to resolve the resulting conflict. Information Utility realm does not need a genius, simply a neutral and dependable facilitator with the authority to impose laws is sufficient. The blockchain is a trustworthy intermediate technology. The essential distinction between a blockchain's technology and IU's technology is the efficiency and reliability created by the process's openness. If blockchain technology were applied, the Information Utility institution would be extremely efficient, accessible, and freely governed.
Conclusion
The basic issue that the Indian insolvency system is dealing with is a lack of agreement on the figures stated by persons participating in the entire process. Furthermore, in order to address this vexing issue, the Code established a system to assure openness, validation, and effective verification of data (financial in nature) in the form of Information Utilities.
But it was determined that the idea of Information Utility as a whole failed to meet its goal, thus the authors came to the following conclusion in order to discover a plausible solution:
● A technical change in the form of blockchain is necessary to assure accountability and transparency in order to improve the efficacy and use of Information Utilities and reinforce confidence.
● Due to the decentralized nature of the blockchain system, the spread of false or unreliable information is stifled, which speeds up the settlement of disputes on an open network.
● Because of the improved accessibility and availability of data among the stakeholders, the blockchain approach will also assist & boost the efficiency and efficacy of the credit ecosystem.
So, it is safe to say that integrating blockchain as a core functional component into Information Utility will make it more useful and approachable to its constituents in terms of storing, retrieving, and distributing financial data inside the country's corporate credit economy.
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