Filing of Default with Information Utility – Before Sending Notice or Before Filing Application?

 

The Insolvency and Bankruptcy Code, 2016 (“IBC”) created the framework of Information Utilities (IUs) to serve as authenticated repositories of financial information. A record of default from an IU is treated as conclusive evidence under Section 215 of the Code.

A recurring issue for creditors is: Should the default be filed with an IU before sending a demand notice, or only before filing an insolvency application?

Statutory Position

  • Section 215(2) IBC provides that financial creditors shall submit information of default to an IU.

  • Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 ("Application to AA Rules") requires that an application be accompanied by a record of default from an IU “wherever available”.

  • Further, Regulation 20(1A) of the IBBI (Information Utilities) Regulations, 2017, as inserted by Notification No. IBBI/2022-23/GN/REG085 dated 14 June 2022, expressly provides that: “Before filing an application to initiate corporate insolvency resolution process under section 7 or 9 … the creditor shall file the information of default with the information utility and the information utility shall process the information for the purpose of issuing record of default …”

  • This position has also been reiterated in IBBI Circular No. IBBI/IU/59/2023 dated 16 June 2023, which refers to the above regulation and directs that all applications under Sections 7 & 9 must be accompanied by the record of default from an IU.

  • In fact, the NCLT, by general order dated 3 April 2023, directed that all applicants under Sections 7 and 9 produce the IU record of default for their cases to be heard (Circular available here: IBBI Circular PDF).

Judicial Interpretation: Vijay Kumar Singhania v. Bank of Baroda & Anr.

One of the most authoritative rulings on IU filing is the NCLAT decision in Vijay Kumar Singhania v. Bank of Baroda & Anr. (13 Dec 2023):

  • The Court held that Regulation 20(1A) of the IBBI (IU) Regulations, 2017, which mandates filing the information of default with an IU, does not make the IU record the only admissible evidence of default.

  • Financial creditors may rely on other valid proof of default (e.g., bank statements, invoices, correspondence) under Regulation 2A of the IBBI (CIRP) Regulations, 2016 and Rule 4 of the Application to AA Rules.

  • Therefore, absence of IU record alone is not a fatal defect. While IU record strengthens a petition, tribunals will still consider the substantive evidence of default.

This decision underscores judicial flexibility: procedural compliance with IU rules is important, but courts prioritize substance over form when assessing defaults.

Upcoming Change: IBC Amendment Bill, 2025

The IBC Amendment Bill, 2025 now proposes to go a step further:

  • Section 215(3) (which currently says operational creditors may submit financial information to an IU) will be amended to make it mandatory for operational creditors (OCs) to file default information with an IU before filing an application under Section 9.

  • The Bill also empowers IBBI to frame simplified procedures for OCs to comply with this filing requirement.

  • Once implemented, operational creditors will no longer have the option of skipping IU filing. It will become a pre-condition to approaching NCLT.

This change seeks to bring operational creditors at par with financial creditors in terms of procedural discipline, while also reducing disputes on whether a default has occurred.

Before Sending Demand Notice

For operational creditors:

  • The Code mandates issuance of a demand notice (Form 3/4) prior to filing under Section 9.

  • The law does not compel creditors to file the default with an IU before sending the notice.

  • However, where the default is recorded with an IU in advance, the operational creditor can annex it to the notice, providing added evidentiary weight and reducing scope of frivolous disputes.

For financial creditors under Section 7:

  • There is no statutory requirement of sending a demand notice.

  • Filing of default with an IU at the earliest opportunity ensures that the application is defect-free and avoids adjournments where the Adjudicating Authority directs IU verification.

Before Filing the Application

At this stage, IU filing becomes indispensable:

  • The NCLT increasingly insists on a record of default from the IU as part of the Section 7 or Section 9 application.

  • Applications without an IU record are often returned for rectification.

Best Practice

  • File the default with the IU as soon as the account becomes overdue.

  • For operational creditors, issue the Section 8 demand notice supported with IU record.

  • For financial creditors, ensure IU record is obtained prior to filing the Section 7 application.

Conclusion: While filing with IU before sending a demand notice is not a statutory mandate, it is a strategic best practice. In this regard, as discussed above, the Vijay Kumar Singhania judgment clarifies that absence of IU record is not fatal if other evidence of default exists. However, at the stage of filing an application before NCLT, an IU record is practically essential and procedurally efficient.

With the IBC Amendment Bill, 2025 proposing mandatory IU filing for operational creditors, this “best practice” will soon become a statutory requirement.

Proactively filing with IU immediately after default occurs strengthens your application, ensures procedural compliance, and minimizes disputes — now and in the near future once the 2025 Bill is enacted.


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