NCLT Order on Net4India is killing 70000 + customers and needs immediate modification

NCLT and the Finance Minister are in opposition

While we were discussing the problems of 70000 plus customers of Net4India who are using the domain name registration service or web hosting service or e-mail server service or secured server etc, honourable Minister of finance Smt Nirmala Sitaraman was answering a query in the Parliament on 19th September 2020 where she expressed that the Bankruptcy code was not intended to be merely a recovery mechanism but a program to enable industrial recovery.

The NCLT order on Net4India which was sent to me yesterday however indicates that the bench consisting of Mr M.M. Kumar and S.K.Mohapatra in its order dated 8/3/2019 based on a petition by State Bank of India has done precisely what Mrs Nirmala Sitharaman said was not the objective of the Bankruptcy code.

This order ought to have been a matter of public discussion since it affected a very large number of customers who enjoy the rights under the Consumer Protection Act. According to the website of Net4India, there are over 5 lakh customers while the ICANN indicates that there were 73000 domain name registrants under Net4India. Whatever may be the correct figure, it is large enough and it is a fact that NCLT had no idea of how its order would affect these 70000+ customers.

NCLT was literally blind in looking at the problem only as an application from SBI to recover its borrowings of about Rs 194 crores. It has just seen whether there was a loan, whether it was not repaid and simply issued an order. Its 30 page order  does not make any mention of what is the business of Net4India and what would be the consequence of its order.

The applicant namely Edelweiss Asset Reconstruction Company has filed the application under Section 7 of the Insolvency and Bankruptcy Code 2016 proposed one Mr Vikram Bajaj as the Resolution Professional, a Chartered Accountant and Company Secretary by profession.

According to the order, Net4India established in 1985 approached SBI in 2002 and was granted a loan which after several enhancements became an NPA of Rs 194 crores. SBI filed a recovery proceedings which is pending at Lucknow DRT.

In the meantime Edelweiss invoked the Bankruptcy code under which NCLT issued an interim order appointing a Resolution Professional Mr Vikram Bajaj. A public notice was also released on the sale of a property and the status of the sale is unknown.

No Notice to Customers

In all these development, neither NCLT nor the RP made any attempt to keep the customers of Net4India informed. No notice was displayed on the website of the company and no individual notice was served on individual creditors of the company. Many of these customers have placed advance deposits with the company and are creditors.

The entire proceedings have been done in a suspicious manner as if to take over the property of the company by vested interests. A separate investigation is required to find out if there is any real estate mafia involved in the transaction.

Considering that the business of Net4India was a money spinner, it is inconceivable that it ran up a debt of Rs 194 crores without an active negligence from SBI. Hence how the debt arose in the first place and how the NCLT ignored the DRT pendency and went ahead with its order culminating in the sale of immovable property is a matter fit for CBI investigation and investigation by the vigilance department of SBI.

While the investigation whether this is another Vijay Mallya type of Banking fraud is a separate issue flagged for the Ministry of Finance to consider, we would like to highlight certain failures of the NCLT and the RP in the issue of and execution of the order which disrupted the critical business of over 70000 domain name registrants who registered their domain names with Net4India and many more who used the other services so that the system is improved in the long run.

NCLT did not value Data

It is clear from the order that NCLT chose to ignore the impact of the proceedings on the customers of Net4India and also the value of the “Data” that was inside the servers which were housed in the building which is now up for sale.

It is a common principle that when a building with tenants are sold, the tenants would be given sufficient notice and time to shift out. But in this NCLT order, the service users who have parked their web assets including some on which there could be IPR, have been frozen without notice.

This is a violation of the fundamental right of the Citizens. NCLT does not have any right to forcibly close down my business nor confiscate  my web assets. RP had no right to cause the services to be disrupted. It is possible that NCLT and RP may say that they have not prevented Net4India to continue its services. But this is not a matter of finding an excuse. NCLT and the RP must take the responsibility for the damage they have caused to all the customers of Net4India.

Had Net4India been a Bank, would not the NCLT taken steps to ensure that the rights of other depositors are protected?. The Government of India recently amended the cooperative bank’s law to enable such intervention in case of winding down of a cooperative Bank. The same principle should have applied here also.

Had Personal Data protection Act been in place, the Data Protection Authority would have come into reckoning before this order was issued.  Now Net4India and NCLT as well as the RP have not accounted for the “Data” as an asset and whether it was an asset which was covered by the mortgage deed and whether NCLT had any right to confiscate the data as part of the Asset reconstruction exercise.

In case the data had been valued, perhaps the decision that Net4India was insolvent itself would have been considered as incorrect. Hence NCLT has defaulted in the basic evaluation of whether Net4India was solvent or not since it did not value the data sitting inside the servers of net4India. The order is therefore wrong ab-initio.

It is also possible that NCLT and the RP were not even aware of the value of data they were immobilizing in the process of this asset reconstruction. Despite Naavi.org highlighting this, the MeitY has also not realized how the valuable data is being dumped aside in a locked building in the sale proceeds.

If tomorrow the company closes down, the RP may sell the Computers along with the data residing there in without even worrying about the confidentiality of the information which would be “Sensitive Personal Information”.

This is the Voice of 70000 customers of Net4India

We are now raising the voice of the 70000 plus customers of Net4India that NCLT and the RP have caused disruption of their respective business for which there would be a claim of damages and this group of customers need to be considered as a major creditor of Net4India entitled to the proceeds of any asset realization.

A Core group of the affected persons today met virtually and decided to form a “Forum of Net4India Customers” and take up a legal fight against those who ignored the interests of the customers and are going ahead with the distribution of assets within a closed group by misleading the NCLT which may be ignorant of how a “Going Concern” involved in critical internet services can wind down its operations.

The biggest question that arises is why it did not occur to the NCLT that there are thousands of customers whose web assets would be frozen if they are not transferred out to an alternate service provider before the building is locked down.

The ICANN has been talking individually to some and perhaps allowing some transfers to happen on privileged basis without extending the benefits to common people. MeitY has not woken up to the fact that the “Critical infrastructure asset” of the country is at stake. The CERT In and the National Security Advisor, Mr Ajit Doval have not recognized that there is a national security interest involved here.

It is to be recognized that Net4India has been in business since around 1998 when I first registered a domain name and most of the old timers which may include Banks and others might be having their domain names registered with Net4India. Now if all of them have to close down their shop because of the NCLT order, then national interests are at stake.

An evaluation of the impact of the closing down of the Net4India operations should have been conducted by NCLT before it issued the interim order. It should have invited a public objection after proper advertisement across the country and individual notices to all the customers before acting on the complaint.

In the Data Protection Scenario, NCLT has caused a large scale harm to data subjects (even forgetting the corporate entities who suffer loss of business), by not issuing individual notices to all individual customers and not securing their interests as a “Data Fiduciary”. While the proposed PDPA has some exemptions for the tribunals, the ITA 2000 does not spare any organization that causes wrongful loss to an entity by contravention of Section 43 and 43A of ITA 2000.

We can explore if the RP Mr Vikram Bajaj may be held liable for the wrongful loss of the tens of thousands of data subjects and service users and how the NCLT will bear the vicarious responsibility.

These are issues which have been flagged for the first time in India and there is a need for a complete review of the way NCLT has handled this issue.

We therefore urge NCLT to immediately modify its order and appoint a technical team under the guidance of NIXI to ensure that all data in the Net4India servers are secured and made operational so that the services such as domain name transfers, changes in domain name related information, the e-mail services and hosting services are commenced without any further delay.

The core team of suffering customers of Net4India have therefore decided to form  the “Forum of Net4India Customers” and represent their requirements to the appropriate forums.

All those customers who are interested in joining in this fight may kindly contact Naavi for more information.

Naavi