Rethinking urban land records: A case study of Mumbai

by Gausia Shaikh and Diya Uday.

Introduction

A well functioning market is identified by the ease of doing business. This connotes both the ease in conducting transactions as well as low transaction costs. Ease of doing business in any market is inhibited by the lack of adequate information about the traded good. Land markets are no different.

In fact, they pose unique challenges that contribute to information asymmetry. Firstly, land is not a homogeneous product. Each parcel is unique with a particular set of locational and physical attributes (Catherine Farvacque, 1992). In addition to this, each land parcel also carries with it unique rights and obligations of which a typical buyer has little knowledge. Secondly, in India, land is a State subject under the Constitution. From a governance perspective, it means that the legal and organisational framework pertaining to land is determined by each State. For instance, land records in Maharashtra are maintained under the Maharashtra Land Revenue Code, 1966 while the equivalent legislation in Rajasthan is the Rajasthan Land Revenue Act, 1956. Therefore, the range of information on land parcels maintained by each State is not necessarily uniform.

A purchaser is therefore compelled to bear high transaction costs both in terms of money and time to obtain information about the land parcel. This is done by conducting a due diligence of the title to the land parcel. It involves the painstaking process of first obtaining all relevant records pertaining to a parcel of land from various government departments and then reviewing the information to ascertain the rights and obligations that flow from it. Often these records are missing crucial information that will affect a purchaser's buy decision. Even when information is available, the insufficiency of information related to a land parcel in a consolidated manner is a cause for concern. Buyers therefore tend to rely on information contained in contracts pertaining to the land as a source of information. Further, purchasers also feel the need to publish a notification of their intent to buy the land parcel in local newspapers, for good measure.

In this article, we first set out the various types of cadastres. We then highlight the policy of countries to move away from maintaining fiscal cadastres. We analyse the position in India and highlight the need to move towards multi-purpose cadastres. We support this with a case study on urban cadastres in Mumbai.

The shift away from fiscal cadastres

The contents of cadastres are motivated by the purpose for which they are created. Globally, there are three types of cadastres:

• Fiscal: These are designed for property tax purposes and contain information like the identification of the land owner(s), value of the land and description of the land parcel.
• Legal or juridical: These are designed to record ownership, legal interests in land and conveyancing matters.
• Multi-purpose: Apart from the information mentioned in the fiscal and legal cadastres, these include a wide range of spatial and non-spatial information that support land registration, land markets, socio-economic activities and land use management (Mukarage, 2016).

Historically, in countries governed by feudal agrarian systems such as India, political, economic and social success was largely judged by the extent of land and the effectiveness of revenue collection. Land taxes were an important source of revenue of the State (Powell, 1892). Therefore, the earliest forms of land records or cadastres were fiscal records.

With increased complexity of the land market, countries such as Switzerland have tended to shift from fiscal to multi-purpose cadastres. In fact a cadastre itself is now defined as "A parcel based, and up-to-date land information system containing a record of interests in land (e.g. rights, restrictions and responsibilities). It usually includes a geometric description of land parcels linked to other records describing the nature of the interests, the ownership or control of those interests, and often the value of the parcel and its improvements." (International Federation of Surveyors (FIG)). Simply, this means a multi-purpose cadastre.

In India, land record reform has been central to policy discourse. Centrally Sponsored Schemes such as the Computerisation of Land Records (CLR) & the Strengthening of Revenue Administration and Updating of Land Records (SRA&ULR) were issued as an attempt at curing information asymmetry as a means to maintaining better land records. In 2008, these schemes were modified into the Digital India Land Record Modernisation Programme (DI-LRMP) the three major components of which are (i) computerisation of land record (ii) survey/re-survey and (iii) computerisation of registration.

While these initiatives are steps towards ensuring the accuracy of the information contained in existing records and ease of access to the records, there has been a lack of focus on the adequacy of the information captured in existing records. This could be attributed to the fact that even today, the primary purpose of recording information about land parcels is land revenue collection. In the following section we make a case for moving towards a multi-purpose cadastres. We do this by analysing existing urban records in Mumbai.

A case study of urban cadastres in Mumbai

The cadastral system in Maharashtra consists of two major elements: a Cadastral Map (CM) and a Record of Rights (ROR) linked to each land parcel. There are two types of RORs in Maharashtra: the 7/12 extract, which is used in peri-urban and rural areas and a property rights card (PRC), which is used in urban areas.

For revenue purposes, urban areas in Mumbai are divided into two regions: Mumbai City and Mumbai Suburban regions. Each of these regions consists of multiple divisions. All land parcels in these divisions are identified by survey numbers. Information about the land parcel represented by each survey number is recorded in an urban cadastre or PRC. We conducted a case study of these urban cadastres in Mumbai. We do so with two main objectives. First, to verify if the existing cadastres are in line with the legal framework governing such cadastres. Second, to analyse whether the information being recorded is sufficient to enable a sound buy-sell decision.

Methodology - We first randomly picked five area divisions from each Mumbai City and Mumbai Suburban (sample divisions). This was done from the drop down list of divisions available on the website of the Mumbai City Collectorate (MCC) and the website of the Mumbai Suburban District, respectively. The five divisions we selected from Mumbai City were (i) Colaba, (ii) Byculla, (iii) Girgaon and (iv) Mazgoan (v) Sion. The five divisions selected from Mumbai Suburban were (i) Mulund, (ii) Kurla, (iii) Bandra, (iv) Andheri and (v) Malad.We then selected one of our sample divisions from the drop down list on each of these websites. After this, we entered a random survey number to generate a PRC for a parcel of land. This was repeated thrice for each sample division, in both Mumbai City and Mumbai Suburban in order to access PRCs for three separate land parcels within each sample division. Our total number of observations were therefore 30 PRCs (15 for Mumbai City and 15 for Mumbai Suburban). Our findings are set out below.

Findings - In each case above, we examined the heads of information to be entered in the PRC under the following themes:

1. Information to be maintained under the Maharashtra Land Revenue (Village, Town and City Survey) Rules, 1969 (Rules) - The Rules set out the fields of information required to be recorded in the PRC. This information can be classified into three main themes. First, property identification which includes details such as the cadastral survey number, location of the property and the name of the division in which the property is situated. Second, assessment information which includes information such as the collector's number, the collector's rent roll number and ground rent due to the government. Third, holder's history which has details of the holders of the property.
   

   We find that not all the fields of information required to be recorded in the PRC by law are in fact recorded. In addition to not recording this information, the template of a PRC does not even have allocated sections to record this information. A summary of our findings is set out in Table 1. Table 1 sets out our findings on whether PRCs have a provision/place holder to record all information mandated to be recorded under the Rules.

   Table 1: Information to be compulsorily recorded

   S.No.	Information to be recorded	Whether provision to record (Mumbai City)	Whether provision to record (Mumbai Suburban)
   1.	Survey number	Yes	Yes
   2.	Area	Yes	Yes
   3.	Tenure	Yes	Yes
   4.	Particulars of assessment or rent paid to the government	No	Yes
   5.	Particulars of when the assessment or rent paid to the government is due for revision	No	Yes
   6.	Easements	No	Yes
   7.	Holder in origin of the title, so far as traced	Yes	Yes
   8.	Other remarks	No	Yes
   9.	Date	No	No
   10.	Transaction volume number	No	No
   11.	New holder	Yes	Yes
   12.	Attesting lessee	No	Yes
   13.	Encumbrances	No	Yes

   
   
2. Information which would aid a sound buy-sell decision - To ascertain the ideal fields of information which should be recorded to aid an efficient buy-sell decision, we have relied on the definition of a cadastre set out by the FIG, referred to above. We have accordingly classified the information into three broad heads:
   
   
   1. Recording of interests in the land: Under this head, the FIG includes recording of rights, responsibilities and restrictions. Under each head we list relevant fields of information in the context of the Indian market. For example there is no provision to record possession rights in the PRC.
   2. Map and description of boundaries: Currently, the boundaries of the parcel are not recorded in the PRC. A person looking at a PRC has no way of knowing where the parcel of land is in fact situated. In modern cadastres, the boundaries are set and described using the latitude and longitude description of the land parcel. Further, in Mumbai, the CM in respect of a parcel of land is not available as part of the PRC. Neither is a copy of the CM available online. In order to obtain a copy at present, a purchaser or parcel holder is required to make a physical application to the Survey and Settlement Department.
   3. Valuation and improvements: Currently, property rates are available in the ready reckoner, which is a government issued booklet on area wise property prices. For the purpose of determining the fair market value of the land, the ready reckoner takes into consideration not only the location of the land but also the buildings on the land. This information is currently not recorded in the PRC. Similarly, the other factors that affect the valuation of the land such as development potential or the floor space index (FSI) available in respect of the parcel of land and its proximity to roads are also not recorded. This information is important as it directly affects the economic value of the land and is likely to affect a decision to transact in a parcel of land.

   In Table 2 we set out a list of desired fields of information and analyse whether or not these are captured in the PRCs for sample divisions.

   Table 2: Information required to aid a sound buy-sell decision

   S.No.	Information	Whether provision to record (Mumbai City)	Whether provision to record (Mumbai Suburban)
   A.	Record of interest in the land
   	1. Rights
   	(i) Ownership	Yes	Yes
   	(ii) Possession	No	No
   	(iii) Easement	No	Yes
   	2. Responsibilities
   	(i) Payment of taxes	Yes	Yes
   	3. Restrictions
   	(i) Charges	No	Yes
   	(ii) Disputes	No	No
   	(iii) Restrictive covenants	No	No
   B.	Maps and boundaries	No	No
   C.	Valuation and improvements
   	(i) Structures on the land	No	No
   	(ii) FSI	No	No
   	(iii) Transferable development rights	No	No

Miscellaneous observations

Our case study also revealed several inconsistencies and deficiencies in the information recorded in the PRC. Some of our observations are as follows:

1. Lack of uniformity: We have observed that the templates of PRCs in Mumbai Suburban and Mumbai City differ. This means that even the fields of information captured in PRCs within Mumbai differ based on where the parcel of land is located. For instance, the PRC of a parcel of land in Mumbai City does not have a provision to record easements on the land whereas the PRC for a parcel of land located in Mumbai Suburban does.
2. Poor recording: The PRCs in Mumbai Suburban region revealed that, even though there is a provision for recording the information mandated under the Rules, such information was not always recorded under the specific provision. For instance, in 7 out of 15 cases, we observed that easementary rights were not recorded. Similarly in case of encumbrances and attesting lessees we observed that in 6 cases, respectively, this information was not recorded. In fact the PRC of one parcel of land only recorded 2 out of 13 fields of information i.e. survey number and particulars of rent.
   
   In addition to not having the required fields, the PRCs in Mumbai City did not even record information for the existing fields.
   
3. Ambiguity in recorded information: We observed that there is lack of uniformity in the manner in which information is recorded. For instance where there is no information to be recorded in a given field, this is recored as "nil" in Mumbai City and a "-" in Mumbai Suburban. For instance the sample revealed that in Mumbai Suburban 8 out of 15 PRCs recorded "-" in the field for easements. Further in some cases the field is left empty leaving it to the reader to infer whether this is a mistake on the part of the recording officer or a there is no information to record.
   

   We also observed that in some cases of PRCs in Mumbai City, where there is no specific field for recording certain information, the information is recorded under a different head. For instance, "attestting lessees" are recorded in the ownership column in PRCs (with the mention that they are attesting lessees). The problem with this is that where there is no lessee, there is no information stating clearly that there is no lessee on the land. Again, it is left to the interpretation of the reader to decide whether there is no lessee or there is in fact a lessee and this information has not been recorded.

Recommendations

Our study reveals that the PRC as a cadastre in Mumbai, is far from being an ideal record. The new policy objective ought to be the creation of greater information symmetry in the land market to enable informed and intelligent buy or sell decisions. Based on our case study, we suggest the following:

1. Recording information mandated under the law: Our findings (Table 1) reveal that the current format of PRCs in Mumbai City does not have the provision to record certain heads of information that are mandated under the law. As a first step, authorities must ensure that the format of the PRC is in consonance with that set out under the law.
2. Increasing the scope of information recorded in a PRC: Our analysis of the PRC has revealed that the information recorded in the PRC is far from adequate for making an informed buy or sell decision. The scope of information recorded in the PRC must be increased to include relevant information such as disputes in relation to the land, mortgages and the development potential of the land as set out in Table 2.
3. Adopting uniformity in recording information: It is recommended that uniform practices of recording information be adopted. For instance, where there is no information to be recorded, it must be depicted by "nil" only and must not be left empty or be represented wth "-". Similarly, information must be recorded under the appropriate head in the template.
4. Moving towards a multi-purpose cadastre: The State of Maharashtra still maintains PRCs for the primary purpose of collection of revenue, as is evident from the property details currently recorded in the PRC. The growth of investment in real estate has led to a point where maintenance of a multi-purpose cadastre is the need of the hour for two reasons. First to ensure that all information pertaining to a land parcel is available in a consolidated manner at a single source. Second, to ensure that buyers are presented with all relevant information about the land parcel. This maybe achieved through the integration of databases maintained by relevant authorities. For instance, orders passed by civil courts, tribunals and other quasi-judicial institutions affect interests in a land parcel. For a complete, accurate and up-to-date picture of the interests appurtenant to the land parcel, it is essential that the outcome of such orders is immediately notified to the City Survey office. Further, pendency of proceedings before judicial and quasi-judicial bodies or lis pendens also has ramifications on the rights and interests to a land parcel. It is therefore advisable that such judicial and quasi-judicial bodies automatically update PRCs to reflect such encumbrances.
5. Integrating textual and spatial records: As a step towards achieving multi-purpose cadastres, we recommend that CMs and PRCs be integrated to form a single record. As of today, the CMs and PRCs are maintained by different offices. The aim again is to consolidate all relevant information about a land parcel in one document. For instance, this would mean that every time a land is sub-divided and a new map is drawn for the land parcel, it must become part of the PRC.

References

1. Badarinza, Balasubramaniam and Ramadorai, The Indian Household Savings Landscape, 2017.
2. Farvacque and McAuslan, Reforming urban land policies and institutions in developing countries, 1992.
3. Constitution of India, 1950.
4. Dale and Mclaughlin, Land Information Management, An introduction with special reference to cadastral problems in Third World countries, 2000.
5. Department of Land Resources, The National Land Records Modernisation Programme (NLRMP) Guidelines, Technical Manuals and MIS, 2008-2009.
6. Ministry of Urban Development, Draft model guidelines for urban land policy, 2007.
7. Expert Committee, Government of India, Land titling - A road map, 2014.
8. Federation Internationale des Geometres, FIG Statement on the Cadastre, 1995.
9. Mukarage, Investigating the contribution of land records on property taxation: a case study of Huye District, Rwanda, 2016.
10. Powell, Land systems of British India, 1892.

 

Gausia Shaikh and Diya Uday are researchers at IGIDR.

Author: Gausia Shaikh

Gausia Shaikh is a researcher at the Indira Gandhi Institute of Development Research.

On this blog:

• Rethinking urban land records: A case study of Mumbai, 1 November 2018.
• Do digitised land records mirror reality?, 13 June 2018.
• Digitising land record management in Maharashtra, 8 December 2017.
• Watching India's insolvency reforms: a new dataset of insolvency cases, 30 August 2017.
• A critique of RBI's proposal to regulate pre-paid payment instruments in India, 1 May 2017.
• Weaknesses of recent moves on capital controls for outbound capital flows, 29 October 2016

Do digitised land records mirror reality?

by Sudha Narayanan, Gausia Shaikh, Diya Uday and Bhargavi Zaveri.

The World Bank's EoDB rankings estimate that it takes 53 days to register a property transaction and update the revenue records in Mumbai, and that the costs of such registration and updation aggregate to 7.6% of the property value. The corresponding numbers in OECD countries are 22.3 days and 4.2% of the property value. These rankings evaluate India's land administration systems on several parameters, such as the quality of the infrastructure for maintaining land records, the transparency of information and the dispute resolution mechanism. They rank India in the bottom quartile on these aspects.

Weak infrastructure for land record administration undermines property rights (DeSoto (2000)), and has an overall impact on growth (Deininger and Feder (2009)). Building sound infrastructure for maintaining land records assumes great significance in developing countries like India, where land accounts for a significant proportion of a household's asset portfolio. To improve the quality of such infrastructure, the central government rolled out two (2) centrally sponsored schemes across India in the late 1990s. Through wide-scale digitisation, the schemes aimed to achieve more accurate land title records and better service delivery to the citizen. The schemes were merged in 2008 and subsequently renamed as the Digitial India Land Records Modernisation Program or DILRMP. Such state-led interventions to define property rights in land have often been termed simplistic. Equally, they have been criticised for compromising local realities and existing institutional arrangements (Easterly (2008)). At the same time, the benefits of such approaches in allowing better enforcement of property rights and the consequential easier access to credit and capital, have also been widely acknowledged (Deininger and Feder (2009)). The jury is, therefore, out on the impact of a top-down approach towards improving land titling.

The biggest risk of a centralised approach towards digitisation is that the digitised records will not reflect reality (Bromley (2009)). In May 2017, we undertook a field study to ascertain the extent to which the DILRMP had been implemented in Maharashtra (link, link). One of the main purposes of the field study was to ascertain the extent to which the digitised records mirrored the ground reality on recording aspects such as parcel size, land use, ownership, possession and encumbrances. In this article, we summarise our findings from the field study on this specific question.

We find that for the sample land parcels under study, the records largely accurately reflect the names of the owners as well as the purposes for which the land was being used. However, there are greater disrepancies with respect to the parcel area recorded in the digitised record and the actual boundary area of the parcel. We also find disrepancies with respect to the encumbrances recorded in the digitised records and those purporting to actually exist with respect to a given parcel. Finally, we find low levels of public awareness of the digital means available to obtain or rectify property records. These findings hold insights into the aspects of the land record digitisation initiative that need to be improved for true impact.

Methodology

We studied 100 parcels spread across five villages and two Tehsils. The selection methodology is explained below:

1. We selected two sample Tehsils, namely, Mulshi and Palghar, for this leg of the study. These Tehsils are mainly peri-urban locations with relatively high land transaction intensity and some prevalence of land litigation.
   

   Given our focus on the DILRMP, the sample tehsils are those where the programme had been implemented, in part, if not in full. While both Mulshi and Palghar fit these criteria broadly, they also differ in significant ways. Mulshi has been the focus of intensive effort by the state government, designated as a model tehsil where twelve (12) villages were selected for pilot implementation of the entire bouquet of interventions relating to digitisation. In contrast, Palghar tehsil represents a somewhat typical tehsil in terms of implementation attention.

2. Within these two tehsils, we first randomly selected five (5) villages from the roster of census villages. Within each village, the goal was to pick ten (10) parcels that were not located in abadi, industrial areas, forest or wastelands. The parcels would be at least 0.3 hectares in size in rural areas, and at least 500 sq m in urban or peri-urban areas. Our goal was to ensure that some of these parcels were transacted in the past two (2) years.
   

   In reality, not all the villages we picked had a transaction intensity desirable for the project. We, therefore, selected five (5) villages each in Mulshi and Palghar, which, according to the department, had seen a lot of transactions in the past twelve (12) months. Where we did not get enough parcels per village, we included more villages. Often, parcels of the desired size were not available. Nor was it the case that the owners of all the parcels we picked were willing respondents. This meant that the final selection of parcels for the survey departed from our original stratified random sampling methodology. Given that the purpose of the survey is to garner insights into the implementation of the DILRMP, the sample parcels offer adequate material for the purpose, with the above caveats.

What did we corroborate?

For all the parcels in the sample, we recorded information about the parcel from the revenue records (i.e. 7/12 extracts) on the following five aspects: (1) ownership; (2) possession; (3) encumbrances; (4) area; and (5) land use. We then went to the parcel to corroborate the information so recorded.

Four of these five parameters were verified on the ground via personal interviews through a structured questionnaire and local inquiries. The verification of the fifth parameter, namely area, was done by measuring the parcel using e-Trex GPS devices as well as ETS by trained staff. The e-Trex involves a perimeter walk around the parcel, the ETS uses laser technology to mark corners of the polygon representing the parcel.

For those parcels which had been transacted in the last five (5) years, we also surveyed the respondents about their experience with interfacing with the department and their own perceptions of the current system and how citizen experience can be improved. We supplemented individual respondent surveys with focused group discussions (FGDs) in the premises of the sub-registrars in both Mulshi and Palghar.

What did our sample look like?

Our individual respondent sample is described below:

Percentage of respondents who
Are females	24
Are the owners themselves	92
Are the relatives of the parcel owners	4
Acquired (purchased/inherited) in the past 3 years	62
Percentage of samples which
Are agricultural land	93
Are encumbered	28
Have multiple owners	61

We conducted FGDs with a fairly wide variety of stakeholders, including:

1. Residents : Residents of both Mulshi and Palghar Talukas were interviewed to gain a practical understanding of how processes work in the relevant Taluka, inefficiencies in these processes and the effect of digitisation, in their interaction with various sections of the revenue and land administration.
2. Revenue Officers : Revenue officers were interviewed to understand the status, good practices and deficiencies in the system, before and after digitisation initiatives.
3. Other Stakeholders : In addition to the above cohorts, we also interviewed lawyers, brokers and agents, and land surveyors. While lawyers were asked specific questions with respect to the effect of digitisation on legal processes associated with land transactions, the questions to brokers and agents focused on the efficiency of land transaction processes, before and after digitisation. The questions to surveyors focused on the efficiency, accuracy and hardships involved in measurement, re-survey and drawing up of maps.

Findings

Table 1 summarises our findings on the extent of corroboration between land records and ground reality. The first row indicates the total number of land parcels studied. The subsequent rows indicate the number of parcels for which the land records reflected the ground reality.

Table 1: Concordance between land records (RoR) and ground reality

Attribute	Mulshi	Palghar	All
Total number of parcels	50	52	102
Ownership	49	52	101
Possession	48	48	96
Encumbrance	27	17	54
Land use classification
Agricultural land in both RoR and on-ground	44	47	91
Agricultural land in RoR but non-agricultural or mixed on-ground	2	1	3
Non-agricultural land in both RoR and on-ground	2	2	4
Non-agricultural uses but agricultural in RoR	1	2	3

Table 1 shows that with respect to ownership, we saw a high degree of concordance between the information on the land records and the on-ground reality. In all except one case, we were able to identify an owner who was mentioned in the revenue records, and in 92% of the cases, we interviewed the owner. As with ownership, for the sample parcels, the land records, by and large, accurately reflected the actual possession. In general, with respect to shared ownership, except for parcels which have been sub-divided by an order of a revenue authority, possession of specific areas is not reflected in the revenue records.

We did not find the same level of concordance as regards encumbrances. The encumbrances reflected in the land records did not match the parcel holder's response of the encumbrance on the land parcel. The revenue records only reflect encumbrances associated with loans. We also saw a general reluctance to share financial information (28% of the respondents did not respond to encumbrance related questions, 1% of them explicitly stated they did not want to share this information, and around 8% did not seem aware of any encumbrance).

Overall, 95% of the land conformed to the land classification and use as reflected in the revenue records. Only six parcels did not so conform - three were designated as agricultural land in the revenue records, but were either non-agricultural or mixed use in reality and three others were deemed non-agricultural in the revenue records but were being cultivated in reality.

We found significant discrepancies in the area recorded in the 7/12 and our measurement of the actual land parcel. Although the ETS is deemed to have greater accuracy than the hand-held GPS device, for both measures, about half of all the sample parcels showed a deviation of more than 20% of the area mentioned in the revenue records. Table 2 summarises our findings on the extent of concordance between the parcel area recorded in the revenue records and the actual area. As with Table 1, the first row indicates the total number of parcels surveyed and the subsequent rows indicate the percentage of deviation from the area recorded in the revenue records.

Table 2: Concordance between recorded and actual area of land parcels

Margin of difference with hand held device
Number of parcels	50	50	100
within 1%	1	2	3
within 3%	8	6	14
within 5%	12	9	21
within 10%	21	11	32
within 20%	28	21	49
Margin of difference with ETS device
within 1%	8	2	10
within 3%	12	5	17
within 5%	18	7	25
within 10%	20	14	34
within 20%	27	25	52

Reasons for the disrepancies

Our report shows that the digitised records do not mirror reality with respect to recording encumbrances and area of land parcels. There are several reasons for this. For instance, we find that while banks and other credit institutions diligently inform the revenue records office of the creation of an encumbrance, the details of satisfaction are not communicated as regularly. Also, the revenue records reflect the loan amount for which the land parcel is encumbered. The repayment of installments of the loan are not communicated to the land records offices, which is one of the reasons for the discrepancy between the details of encumbrances recorded in the land revenue records and in reality.

A natural answer to the above problem is providing incentives to creditors to update details of encumbrances in the revenue records. Borrowers generally do not update the details of the encumbrances on their land owing to a variety of reasons such as the difficulty of accessing the land records offices. This problem can be resolved more easily by incentivising borrowers to update the details of their encumbrances to the revenue records offices. For example, the ability to intimate the satisfaction of a loan electronically, may deliver quicker outcomes on this front.

The area-related discrepancies are driven predominantly by the lack of awareness of the parcel owners of the true extent of the parcel. There were several cases where the white stone markers, typically installed on the ground to demarcate boundaries, were missing. In other cases, where the parcel was a part of a larger parcel earlier, the owner mentally treated the larger parcel as the relevant one. Demarcation was not done in most cases - with multiple owners, those who were cultivators used mutual understanding of the area to cultivate their piece of the larger parcel. The same understanding seemed to prevail between neighbours in most cases. Most did not feel the need to measure and demarcate the plot. Unless there was an impending sale, it seemed that demarcation and subdivision was routinely avoided. In essence, this issue emerges as a deep concern. Several people also brought up the issue of measurement. In Mulshi, where resurveying and measurement often led to conflicts because the measure did not match the records, they resolved it informally amongst themselves.

Currently, while the settlement and survey office is in the process of conducting re-surveys in parts of Maharashtra, the re-survey exercise is time consuming and difficult, owing to a variety of factors such as constraints on the survey equipment and personnel, and disputed land. This requires scalable solutions involving regular surveys and re-surveys of land. The government should consider technological as well as outsourcing solutions, such as those adopted for surveying land in parts of Africa, for their suitability and adaptability in Maharashtra.

Conclusion

The household level field survey described in this article serves as a template for a larger audit system for assessing the effectiveness of programs such as the DILRMP. The outcomes of the survey would be richer if it also entailed questions pertaining to citizens' experiences with digitised registries and also examined questions of access. As with all good audit exercises, the findings can act as a feedback loop for the administration in the design or implementation such initiatives. The quantitative and qualitative findings generated by such surveys will go a long way in pre-empting future errors and discontent that is often associated with such top-down initiatives.

References

De Soto, H., 2000. The Mystery of Capital. Basic Books, New York.

Klaus Deininger and Gerhson Feder (2009). 'Land Registration, Governance, and Development: Evidence and Implications for Policy'. 24 The World Bank Research Observer, vol. 24 (2), 233-266.

Easterly, W 2008. Institutions: Top Down or Bottom Up? American Economic Review, Papera and Proceedings 98(2):95(9).

Danier Bromley. Formalising property relations in the developing world: The wrong prescription for the wrong malady, Land Use Policy 26 (2008) 20-27.

 

Sudha Narayanan is faculty at IGIDR. Gausia Shaikh, Diya Uday and Bhargavi Zaveri are researchers at IGIDR.

Digitising land record management in Maharashtra

by Sudha Narayanan, Gausia Shaikh, Diya Uday and Bhargavi Zaveri.

The 2006 Hindi film Khosla ka Ghosla narrates the story of one K.K.Khosla, who buys land on the outskirts of a city to only later find it squandered to squatters. Anecdotally, the story of K.K.Khosla represents the story of many plot buyers in India, for whom the idiom "possession is ninth-tenths of the law", is a harsh reality. Many of the problems associated with this idiom are a direct outcome of incomplete and inaccurate land title records.

Clear and accurate land title records underpin the protection of property rights in any state. Despite the state having conventionally monopolised the function of maintaining and updating land records, until the late 1990s, land titling systems was not the world's "sexiest" topic and got sparse attention from policymakers (Zasloff 2011). As one of the participants at an IGIDR roundtable on Land And Access to Finance described it, a posting in the land revenue administration is commonly regarded as punishment posting for government officials. However, since the 1990s, the connection between clean title records and access to finance and overall economic development, has gained traction.

A new study on digitising land record management in Maharashtra

In India, the central and state governments have been making concerted efforts at improving the land record management systems and the delivery of clean title records to citizens. Many of these initiatives have largely focused on the digitisation of land records and have been launched under the auspices of the Digital India Land Record Modernisation Programme (DILRMP), formerly known as the National Land Records Modernisation Program.

In a report released in the public domain on 13th November, we record our findings of a field study in Maharashtra, which was aimed at understanding (a) the extent to which land record administration had been digitised; and (b) the efficiency of service delivery of accurate land title records to citizens. We designed this study in collaboration with two other institutions, which conducted similar studies in Himachal Pradesh and Rajasthan respectively. For the purpose of our study, we studied digitisation' of the following aspects:

1. existing land records;
2. the process for recording or effecting a change of interests in land;
3. the process for retrieval of copies of land records; and
4. the inter-connectivity between the different offices of the state administration that maintain land records.

Absence of a centralised repository of title records

We find that in India, the land records administration systems pre-date independence, and have been largely driven by considerations involving the collection of land revenue, as opposed to the delivery of clean and accurate title records to the public. Although there are State-wise variations, land records in every State are generally spread across three offices of the State administration:

1. Deeds (contracts) registering the transfer of land (and built-up area) are maintained by the offices of sub-registrars (SROs) under the
   Registration Act, 1908.
2. Revenue records showing ownership and other interests in individual land parcels are maintained by the revenue records offices under the revenue codes enacted by States. Revenue records are commonly referred to Record of Rights (RoRs) for rural land and Property Register Cards (PR cards) for urban land in Maharashtra.
3. Cadastral maps of villages and land parcels are maintained by the survey offices, which are responsible for conducting State-wise land surveys and parcel-wise boundary demarcation. Cadastral maps are generally made for each village.

Currently, these offices are only partially interconnected, and the level of interconnectedness also varies from to state to state. The absence of a comprehensive repository of information pertaining to the characteristics (such as permitted usage and current built-up status), ownership and all other interests created in respect of a land parcel, leads to incomplete or inconsistent land records. Further, it reduces the efficiency of service delivery of land records to the end-consumer. Consequently, buying and selling land and built-up area is more time consuming and expensive relative to other assets such as securities.

State, Tehsils and parcels

Our study investigated the abovementioned components of digitisation at three levels:

1. State level: At the state level, we studied the extent to which the land record management system has been digitised in the state. For this, we largely relied on state-reported data. We conducted in-person interviews with officials of the revenue ministry of Maharashtra. We also relied on the data reported by the Maharashtra Government in a Management Information System maintained by the Central Government to track the State-level progress of the Digital India Land Record Modernisation Program (DI-LRMP).
2. Tehsil level study: For the purpose of land revenue
   administration, Maharashtra is divided into six revenue divisions comprising of 36 districts, 181 sub-divisions, 358 Tehsils (referred to as Talukas in Maharashtra) and 44,855 villages. After conducting a state-level study in the first leg of the study, we narrowed down two sample Tehsils, Mulshi and Palghar located in Maharashtra. This exercise focused at understanding the extent of digitisation at the level of the sample Tehsils.
3. Parcel level study:We further narrowed our focus to individual land parcels in the sample Tehsils, and studied 100 land parcels spread across 10 villages in each of the two Tehsils. This leg of the study aimed at comparing the land records of the sample parcels with the ground reality. The 100 sample parcels were selected through a stratified random sampling methodology. We inspected each land parcel in the sample and interviewed the owners and persons in possession of the land parcels. We asked questions such as whether a person claiming to be the owner on the ground was reflected as the owner in the records, whether the land was being utilised as per its classification in the land record. We also measured each parcel in the sample to ascertain the discrepancies between the area of the parcel as reflected in the land records and the area on physical measurement of the parcel.

This article gives an overview of our findings on the status of digitisation of land records in Maharashtra at the state level and the service delivery by the land record administration at the level of the Tehsils.

Digitisation of existing records:

Revenue records

We find that currently, throughout Maharashtra, RoRs are prepared digitally, that is, there are no hand written RoRs in Maharashtra, except for one Tehsil. Tables 1 and 2 show that Maharashtra has made significant progress on the digitisation of RoR, with the RoRs of three hundred fifty-seven out of three hundred fifty-eight Tehsils having been digitised and stored on state level servers. This has, however, not been accomplished for eighty-three villages of Jivati Tehsil in the Chandrapur District.

Table 1: Digitisation of RoRs in Maharashtra

Total Number of Tehsils	358
Number of Tehsils in which the RoRs have been digitised	357
Number of Tehsils for which the RoRs are stored digitally	357

 

Table 2: Digitisation of RoRs in Mulshi and Palghar

	Digitised (as a % of the total RoRs in the Tehsil)
Mulshi	100
Palghar	92

It is important to distinguish digitisation from scanning processes. In Tables 1 and 2, digitisation refers to the creation and storage of the RoR in a text-searchable digital format.

Cadastral maps

The digitisation of CMs may or may not be preceded by a survey or re-survey of the land. A survey of agricultural land, using traditional survey techniques such as plane table, in Maharashtra, was conducted before independence. The Maharashtra Government has not conducted a state-wide re-survey of agricultural land since independence. Non-agricultural land located in a village, town or city with a population exceeding 2000 persons, is commonly referred to as "Gaothan land" (abadi areas). A state-wide survey of gaothan areas has never been conducted. Table 3, which summarises our findings on the status of digitisation of cadastral maps, shows that very little progress has been made on this front.

Table 3: Digitisation of cadastral maps
	Digitised (as a % of total CMs)
Maharashtra	3.79
Mulshi	7.59
Palghar	1.44

Here too, while 100% of the maps held by the state government have been scanned, Table 3 denotes the maps which are 'digitised' after vectorisation.

A pilot re-survey with modern survey techniques

Recently, the State Government initiated a pilot re-survey of agricultural land in twelve villages, using modern survey techniques and equipment such as such as High Resolution Satellite Imagery (HRSI), Electronic Total Station (ETS) and Differential Global Positioning System (DGPS), in the Mulshi. We have been informed that the pilot has been completed and the State Government has proceeded to digitise maps of these re-surveyed villages. The RoRs of these re-surveyed villages are also in the process of being revamped to integrate the geo-co-ordinates and aerial images, of the individual land parcels. Figures 1 and 2 contain images of a hand-written RoR and a revamped digitised RoR with geo-co-ordinates and an aerial image of the land parcel integrated in it.

Fig 1: Hand-written RoR

Fig 2: Sample RoR generated from the pilot re-survey in Mulshi

The sample RoR in Fig.2 is a remarkable development in land record administration, as it integrates textual and spatial information pertaining to a specific land parcel in a single document maintained by the state.

Digitisation of the process of recording a change of interest in land

There are two processes involved in recording a change of interest in land. First, registration of the deed (contract) under which the change of interest is recorded. The Registration Act, 1908 mandates the registration of certain land transactions such as sales and mortgages, and requires the physical appearance of the parties to a contract before the SRO for the registration process. In 2013, Maharashtra made certain amendments to the Registration Act to allow registration through electronic means and issued rules to allow the e-registration of certain documents such as leave and license agreements.

While the State Government has undertaken three initiatives for digitising different stages of the registration process, the process can only be completed by physically attending the SROs, except for leave and license agreements in respect of built-up property. Table 4 summarises the status of digitalisation of each process involved in a land transaction, and gives a comparative overview of Mulshi and Palghar Tehsils.

Table 4: Status of digitisation of the registration process

Stage	Mulshi	Palghar
Title search	Not digitised	Not digitised
Determination of stamp duty	Digitised	Digitised
Payment of stamp duty and registration fees	Digitised	Digitised
Preparation of the transfer document	Digital facility available only for leave and license agreements in one SRO	Digital facility available only for leave and license agreements
Application for registration	Digitised in one SRO	Digitised
Verification of identity and documents	Digital verification of identity done for leave and license agreements in one SRO	Digital verification available only for leave and license agreements
Getting photographed	Digital facility available only for leave and license agreements in one SRO	Digital facility available only for leave and license agreements

The second process involves the updation of the RoR. In most
states, the RoR is prima facie evidence of interests created in respect of land. We find that while the data-entry processes at the revenue offices have been digitised entirely, the process of applying for updation of RoRs continues to remain paper-based. Table 5 gives an overview of the status of digitisation of each phase of updation of RoR. While Table 5 gives a comparative overview of our findings in Mulshi and Palghar Tehsils, it represents the status of digitisation of the process for updating the RoR across Maharashtra:

Table 5: Digitisation of the process for updating RoRs

Task	Mulshi	Palghar
Application for updating the RoR	Not digitised	Not digitised
Data entry for updating the RoR	Digitised	Digitised
Generation of a notice inviting objections	Digitised	Digitised
Certification by the circle officer	Not digitised	Not digitised

Digitisation of the process for retrieval of copies of land records

Easy access to title records is one of the fundamental tenets of a good land records administration system. We find that while copies of RoRs are easily retrievable from the web by keying in basic details of the land parcel such as the cadastral number, such copies are not certified or digitally signed, which creates challenges for their usage as evidence before courts and other authorities. However, we understand that digitally signed copies of RoRs for a few Tehsils in Maharashtra are available for web retrieval, although we have not been able to retrieve any. The state officials informed us that copies of registered deeds can be retrieved from the web by keying in basic details about the land parcel or the registered deed. However, we have not been able to retrieve any. Cadastral maps are not available for retrieval online. In a nutshell, the process of applying for certified copies of title records continues to be largely physical.

As part of the study, we conducted test checks for retrieving a copy of a document known as Index II (which is a record issued by the SRO containing an extract of the transaction in a registered deed) and RORs. Table 6 contains the results of our test checks for retrieval of land records in Maharashtra.

Table 6: Digitisation of the process for retrieval of land title records

	Online	Kiosk	Office retrieval
Index II	Facility available but we could not retrieve copies	No	Yes
RoR	Yes	Yes	Yes
Cadastral Maps	No	No	Yes

Time for service delivery

We also studied the time taken for delivery of certain services to the citizens, namely: the time taken for registration, updation of land records and retrieval of certified copies of land records. For this purpose, we conducted test checks on randomly picked applications made in the last three years from each of the offices. Tables 7 and 8 contain our findings of such test checks conducted in Mulshi and Palghar Tehsil level offices.

Table 7: Time taken to obtain certified copy of RoRs and CMs

	Minimum (in days)	Maximum (in days)	Average (in days)
RoRs
Mulshi (when original not digitised)	10	68	29.4
Mulshi (when original digitised)	2	2	2.5
Palghar	Same day	Same day	NA
Cadastral Maps
Mulshi	Same day	Same day	Same day
Palghar	Same day	Same day	NA

 

Table 8: Time taken for registration and updation of land records

	Minimum (in days)	Maximum (in days)	Average (in days)
Registration of land transfers
Mulshi	Same day	Same day	NA
Palghar	Same day	Same day	NA
Updation of RoR
Mulshi (sale)	48	170	85.2
Mulshi (succession)	37	287	110.4
Palghar (sale)	38	111	52.6
Palghar (succession)	26	67	47.8
Correction of entries in the RoR
Mulshi	33	311	137.25
Palghar	109	535	269.6

Digitisation of the inter-connectivity between the various offices

As mentioned above, land records are currently maintained across three different departments of the Revenue Ministry. Clean title records require constant co-ordination between these departments. We find that the SROs (where land transaction deeds are registered) and the Talathis (who maintain RoRs at the village-level) are digitally interconnected, so that details of land transactions are regularly intimated to the Talathi, who then initiates the process for updating the RoRs. However, the co-ordination is often affected by breakdowns and power shortages. On the other hand, the connection between the survey department (which is in charge of preparing CMs) and the other two departments is weak. Also, we find that courts, which often pass orders affecting interests in land, are not connected to land records offices.

Way forward

1. Absence of a comprehensive land records repository:
   Title records to a land parcel comprise of the RoR, CMs and registered deeds. All of these are currently maintained by different offices. This inherently creates inefficiencies in the internal management as well as access to title records for the public. Moreover, since these offices are not connected to other forums which are empowered to pass orders affecting rights in relation to land (such as courts, and tribunals), a comprehensive repository reflecting all the interests subsisting in respect of a land parcel, is missing. While digitisation, as is being currently implemented, can increase the efficiency of these silos, the creation of a single repository reflecting all interests in land, will be game-changer.
2. Varying levels of progress in digitisation: We find that while some components of the system are in reasonably advanced stages of digitisation, others are not. For instance, the digitisation of CMs has not seen much progress in the state. Greater progress can be achieved on this front by either dispensing with land surveys for digitisation of CMs, or pursuing alternative survey techniques and easing government contracting processes for conducting surveys. Similarly, the processes of applying for registration, updating mutation entries and boundary demarcation, have not been digitised.
3. Optimising interface platforms for service delivery:
   There is scope for bringing in efficiencies in the interface between the public and the land records administration by implementing some reasonably easy processes, such as allowing them to remotely track the status of their applications for land-related services.
   Even the platforms currently available do not allow land-holders to access copies of title records that will be accepted before judicial forums. For instance, copies of land records, such as the RoR that can be accessed from the web, are neither digitally signed nor certified. While we understand the process of facilitating such access is underway, until such access is fully operationalised, the absence of certified copies would imply that there is no legal sanctity to land title records retrieved from the web.
4. Infrastructure issues: Throughout the duration of our study, we noticed infrastructure issues such as server breakdowns, slow connectivity, power shortages and shortage of survey equipment, which are major contributors to delays in the service delivery. We noticed the absence of good physical office infrastructure in several offices responsible for maintaining land records. For instance, we found that many of these offices lacked basic facilities such as restrooms and other resources necessary for any record-keeping unit such as photocopiers and printers.

Conclusion

The average Indian household holds 77% of its total assets in real estate. Anecdotally, land and fixed assets constitute a significant proportion of secured lending in India. The World Bank's Ease of Doing Business Ranking 2018 ranks India in the bottom quartile for property registration. In short, as per these rankings, critical infrastructure for a land market in India, is at best, poor and at worst, non-existent. The recent focus in India on digitisation of land records administration is admirable and is a step in the right direction towards increasing the overall efficiency of land record administration in India.

Even as we seek to improve land records administration through a single-minded focus on digitisation, the next step in this field is to re-think the institution design for the maintenance land records by the state, and re-focus it on service-delivery, as opposed to the collection of land revenue.

References

Jonathan Zasloff, India's Land Title Crisis: The Unanswered Questions, Jindal Global Law Review, Vol. 3, 2011.

 

Sudha Narayanan is faculty at IGIDR. Gausia Shaikh, Diya Uday and Bhargavi Zaveri are researchers at IGIDR.

Watching India's insolvency reforms: a new dataset of insolvency cases

by Sreyan Chatterjee, Gausia Shaikh and Bhargavi Zaveri.

The legal framework for insolvency resolution in India underwent a structural change when the Insolvency and Bankruptcy Code, 2016 (IBC) was passed in May 2016. Once the provisions relating to corporate insolvency were notified (November 2016), the first cases of insolvency started being admitted in the National Company Law Tribunal (NCLT), the quasi-judicial tribunal vested with adjudication powers under the IBC. The final orders on these cases became the first public records of India's new insolvency framework. In a recent working paper titled Watching India's insolvency reforms: a new dataset of insolvency cases, we introduce a new dataset of all final orders passed by the NCLT and the appellate forum, the National Company Law Appellate Tribunal (NCLAT) under the IBC. In the paper, we also illustratively apply the data to answer questions about the economic impact of the IBC and the functioning of the judiciary under it. This blogpost presents some summary statistics on the IBC and our preliminary findings relating to the working of the IBC.

We use information collected from the final orders published by the NCLT in the first six months of operationalisation of the IBC, that is, from 1st December, 2016 until 15th May, 2017 (hereafter, "sample period"). There are 23 fields of information for each case in the data-set. This includes parameters such as, who are the initial users of the insolvency process under the IBC, what kind of evidence are they using to support their claims before the NCLT, the average time taken by the NCLT to dispose off cases, the outcome of the proceedings, reason for dimissal of a case and the variation in admission and dismissal across the nine benches of the NCLT.

Using data to understand the economic impact of the IBC

We apply the data to answer three questions relating to the economic impact of the law:

Does the law improve the balance between rights of the creditors and the firm debtor during insolvency?

The Indian legal regime preceding the IBC conferred weak rights on creditors, especially unsecured creditors. It created scope for the judiciary to intervene in the commerical matters of debt re-structuring. The law itself and the courts and tribunals enforcing it, also exhibited a rehabilitation and pro-debtor bias (Ravi 2015). While the sample period represents the earliest days of operationalisation of the IBC and the current data-set is small to conclusively answer this question, this early data indicates that there has been a shift in the enforcement of creditors' rights under the IBC. Table 1 shows who used the IBC during the first six months of its operationalisation.

Table 1: Who used the IBC?

No. of petitions filed by operational creditors	62
No. of petitions filed by financial creditors	21
No. of petitions filed by creditors	83
No. of petitions filed by debtors	26
No. of unknown applicants	1
Total	110

Of the 110 cases that were disposed off during the sample period, 75 percent of the cases were triggered by creditors. Of these, 75 percent were filed by unsecured operational creditors. This indicates that operational creditors, who hitherto had weak enforcement rights, have taken recourse to the IBC to enforce their claims. There may be multiple reasons for the relatively low number of financial creditors taking recourse to the IBC during the first six months. Anecdotal evidence suggests that firm debtors default to financial creditors the last. Financial creditors may largely be secured creditors who may choose to enforce their claim by realising their security. There was lack of regulatory certainty on provisioning norms for banks and the apprehension of scrutiny by the anti-corruption investigative agencies among bank management. However, in the absence of data on default or the enforcement of security by financial creditors in India, the reason for the divergence in creditor behavior in triggering the IBC is unclear.

Another feature of interest is the behaviour of the debtor. There is a commonly voiced apprehension that the debtor will avoid resorting to insolvency because the IBC moves away from the debtor-in-possession model to a framework where the debtor's board is suspended and the affairs of the debtor are run by an independent insolvency professional. However, contrary to this apprehension, around 24 percent of the petitions in this early six month period have been filed by debtors.

Of the 110 cases that were filed, 50% of them have been admitted by the NCLT and are now undergoing a mutually negotiated debt restructuring process. This shows that unlike the previous regime where the judicial bodies exhibited a pro-debtor bias, there is no explicit admission or dismissal bias for insolvency cases under the IBC.

Within the caveat that these are early days and we still have to observe how these cases get resolved, the observed data suggests that creditors are able to use the new insolvency and bankruptcy regime with increasing confidence compared to the previous regime.

Does the law empower various types of creditors when the firm defaults?

Table 2 shows the kind of operational creditors who took resort to the IBC during the sample period. While majority of the operational creditors are suppliers to the debtor, we find that even holders of decrees are taking recourse to the IBC.

Table 2: Operational creditors who used the IBC

Employees	5
Vendors	43
Others	6
Not known	8
Total	62

Table 3 shows the outcomes of the insolvency cases filed by different kinds of creditors during the sample period. While 43 percent of the cases filed by the financial creditors were dismissed, the percentage of dismissal for operational creditors is slightly higher at 58 percent.

Table 3: Admission and dismissal across different kinds of creditors

	No. of petitions filed	Admitted	Dismissed
Operational creditors	62	26	36
Financial creditors	21	12	9
Debtors	26	23	3
Unknown	1	0	1
Total	110	61	49

A reading of Tables 2 and 3 would indicate that even during the earliest days of its operationalisation, a wide variety of creditors have shown the ability to trigger insolvency proceedings under the IBC. This is in contrast to the previous regime where only a certain subset of creditors were able to trigger insolvency proceedings against firm debtors, and other creditors had to file cases in civil courts.

Does the law empower only large sized debt holders?

Table 4 shows the size of debt claims that have been used to trigger the IBC during the sample period. The table also presents the distribution across the different quartiles, by showing threshold values at three different cut-off points: for the 25th percentile point, the 50th percentile and the 75th percentile point. The 25th percentile point is the value below which 25 percent of the cases will fall, the 50th percentile point is the point below which 50 percent of the cases will fall and so on. Further, this has been done by the different types of stakeholders: financial creditors, operational creditors and the debtor.

Table 4: Debt size litigated under IBC (in Rs.)

Size of debt reported	Corporate debtors	Operational creditors	Financial creditors
Minimum	9,211,106	109,516	3,069,000
25th percentile	98,160,525	1,276,884	15,085,632
50th percentile	435,747,000	3,373,191	172,037,926
75th percentile	128,97,93,692	28,027,382	772,448,220
Maximum	25,800,700,000	1,319,000,000	8,565,257,199
No. of observations	24	54	16

The table shows that the smallest claim to trigger the IBC was filed by an operational creditor with a claim of debt default of Rs.109,516 (or Rs.1.09 lakh). In comparison, the smallest debt against which a financial creditor triggered the IBC was Rs.3,069,000 (or Rs.30.69 lakhs) which was 30 times larger. The maximum debt default claimed by an operational creditor was Rs.1,319 million (or Rs.131.9 crores) while the largest default to a financial creditor was Rs.8,565
million (or Rs.856.5 crores) which was only 8 times larger. This shows that operational creditors, who had considerably weaker rights under the previous regime, had considerably large debt repayments due from firm debtors. Thus, while the IBC is being triggered by creditors on a wide range of size of defaults, most of the cases observed so far (more than 75 percent of the cases) tend to be triggered using debt defaults that are approximately 10 to 100 times larger than the threshold of Rs.100,000 set in the law.

Using data to understand the functioning of the NCLT under the IBC

We find that the published data is ambiguous about behavioural or structural changes in the judiciary to fit within the role defined for it, in the IBC. The information display systems of the NCLT do not give an overview of the entire cycle of a case, and bits and pieces of information are available in the final orders. For instance, while each order specifies the date on which it was passed, several orders do not capture other information critical for assessing the time taken for the disposal of insolvency petitions, such as: the date on which the insolvency petition was filed, the date on which it first came up for hearing. 16 of the 110 orders studied did not reflect the amount of debt or default that was the subject matter of the case. Admittedly, there are more laborous methods to discern the entire life cycle and facts of a given case, such as examining the case records maintained by the registry at the each bench of the NCLT. However, for reasons explained in our paper, we find that these methods will also not help in ascertaining the performance of the NCLT as a whole. This constrains the ability of both the court administration as well as independent researchers to readily assess the performance of the NCLT.

With the limited data that is available from the published orders, we have attempted to answer two important questions about the functioning of the NCLT under the IBC.

Does the NCLT function within the timelines set in the law?

The IBC requires the NCLT to dispose off an insolvency petition within 14 calendar days from the date on which it is filed before it. Our dataset captures the following dates in the life-cycle of an insolvency petition: date on which the case is filed (T0), date on which it first comes up for hearing (T1) and the date on which it is disposed off (T2). The amount of time that elapses between T0 and T1 could be attributed to the internal processes of the NCLT in scheduling hearings for a case. Our assessment shows that the NCLT exceeds the timeline of 14 days prescribed by statute. Table 5 summarises our findings.

Table 5: Average time taken for disposal of insolvency petitions by the NCLT

Stage	Number of cases for which data is available	Average time (calendar days)
T0 to T1	12	18
T1 to T2	52	16
T0 to T2	24	24

Table 5 shows that the average time taken from the date of filing the insolvency petition to the date on which it first comes up for hearing, is 18 days. The average time between the date on which it first came up for hearing and the date on which it is finally disposed off, is 16 days. Finally, the average time taken for disposal is 24 days (T0 to T2). This is significantly more than the timeline of 14 days prescribed under the IBC. Currently, the data does not allow us to analyse the reasons for this delay.

Is the role played by the NCLT as visualised within the IBC?

While the law enumerates specific grounds for dismissing an insolvency case and is largely biased towards allowing an insolvency to be triggered if the debtor has committed a default in repayment of an undisputed debt, the NCLT has dismissed petitions on extraneous considerations as well. Table 6 shows the various grounds on which insolvency petitions were dismissed during the sample period.

Table 6: Reasons for dismissal of insolvency petitions

Ground of dismissal	No. of insolvency petitions dismissed
Existing dispute	8
Applicant was not a creditor as defined in the IBC	7
Settled out of court	5
Debt recovery barred by limitation	3
Incomplete application	2
Operational creditor failed to issue statutory demand notice prior to filing the case	2
Others	22
Total	49

A review of a sample of dismissals classified as "Others" in Table 6 shows that the NCLT considers factors not explicitly spelt out in the IBC for dismissing the insolvency petition. For instance, in an insolvency petition filed before the Mumbai bench, the Tribunal recognized that all the ingredients required under the IBC were present to admit the petition. However, the NCLT extended the scope of its inquiry to the balance sheet of the debtor and held that since the debtor had sufficient assets on its balance sheet, it would be unfair and inconvenient for the debtor if the petition were admitted. The NCLT ignored the creditor's argument that the provisions of the IBC do not allow the Tribunal to embark upon a balance sheet analysis.

This indicates that the NCLT seems to be viewing the admission of an insolvency case as an excessively harsh outcome for a debtor. If this trend continues, it may degenerate into a debtor-favouring bias going ahead. Thus, the data shows that the working of the NCLT is not always in line with the letter and spirit of the IBC.

Information gaps in the NCLT orders

We find that there is no standardised format of recording case information. Consequently, several final orders lack in basic information such as the kind of creditor who filed the petition, the claim amount and the date on which the insolvency case was instituted. Our finding on information gaps in the orders of the NCLT is in line with the findings of other research done with respect to the orders passed by the Debt Recovery Tribunals in India (Regy and Roy 2017).

There are three adverse consequences of such information gaps in the NCLT orders. First, the absence of basic information about the case hinders the ability of the NCLT to monitor the efficiency of its own benches. It also constrains researchers from assessing the quality of the procedural requirements and outcomes of the law. Second, this will hinder the ability to identify systemic lapses in the functioning of tribunals and in designing appropriate interventions. Third, inadequate or incomplete data has implications for the overall accountability and transparency of these tribunals to the public, and in the long run, will erode the credibility of the NCLT as an institution.

Finally, the strength of the legal framework ultimately rests on the efficiency of the adjudicator of the law. This is especially so for a procedural law like the bankruptcy law. Structural lapses in the NCLT are likely to cripple the working of the legal framework, reduce the efficiency of resolution and leave the bankruptcy reforms process undone. Fortunately, these are early days yet, and there is scope for
course correction.

Conclusion and way forward

The empirical analysis in our paper, though preliminary, indicates that the IBC is likely to have a structural change in the behaviour of economic agents, as well as in the areas where the NCLT functions as the adjudicator under the IBC. Our exercise of building a dynamic dataset that is geared towards impact assessment, also brings out the gaps in data that courts publish. Our findings on the data gaps, elaborated in greater detail in the paper, will provide a framework for re-thinking the data management and publication systems of tribunals in India.

The ultimate goal of this dataset is to provide a foundation to answer questions on the impact of the IBC and the overall functioning of the Indian bankruptcy regime. The dataset is dynamic and will be updated on a regular basis. As the insolvency cases increase, the dataset will too increase in scope and size. As more data gets published, relevant fields, such as recovery rates and expenses associated with the recovery process, can potentially be integrated into the dataset. This will fuel deeper research on insolvency and credit markets in India. Such data-backed research will support policy interventions in this space in the years to come.

References

The Indian insolvency regime in practice -- an analysis of insolvency and debt recovery proceedings, Aparna Ravi. Economic & Political Weekly, Volume 1, No. 51, December 2015.

Understanding Judicial Delays in Debt Tribunals, Shubho Roy and Prasanth Regy. NIPFP Working Paper 195, May 2017.

Acknowledgement

We thank Susan Thomas for useful discussions and insights on empirics.

 

The authors are researchers at the Indira Gandhi Institute of Development Research.

A critique of RBI's proposal to regulate pre-paid payment instruments in India

by Chetna Batra, Gausia Shaikh and Bhargavi Zaveri.

Demonetisation has reportedly given a fillip to the use of digital pre-paid payment instruments (PPIs) in India. PPIs are stores of value which can be used for the purchase of goods and services. Some PPIs are akin to zero-interest deposits as they allow users to withdraw the money lying in their PPI accounts at any time. Since a bank account can do everything that a wallet can plus earn the consumer some interest, keeping money in a PPI has costs for consumers. However, owing to the demonetisation decision, PPIs' early tie-ups with vendors, the slow penetration of the Unified Payments Interface and a smooth phone-enabled interface, PPIs have seen significant growth over the last few months. Table 1 shows the growth in the usage of PPIs during the three months pre and post demonetisation.

Table 1: M-o-M growth of usage of PPIs in India
Time-period	August 2016-October 2016	November 2016-January 2017
Transaction value	2.1%	30%
Transaction volume	9.6%	20.5%
Source: Reserve Bank of India

Until now, the issuers of PPIs were regulated by RBI as payment system providers under the Payment and Settlement Systems Act, 2007 (PSS Act) and delegated legislation issued by RBI under it. On March 20, 2017, the RBI published a draft Master Direction (DMD), announcing a revised regulatory framework governing the issuance and operation of PPIs in India.

Our analysis shows that the framework proposed in the DMD is out of tune with the broader public discourse and RBI's own objective of moving towards a less-cash economy. It perpetuates bank dominance in the payments eco-system and imposes entry barriers disproportionate to the risks that a PPI business entails. It attempts to protect consumer interests by over-prescribing operational requirements. However, in doing so, it destroys the efficiencies of transacting digitally. More importantly, it defeats the objective of financial inclusion that easy digital platforms were supposed to underpin. It prescribes a new licensing framework that is vague and vests excessive discretion in the hands of the regulator, leading to potential rule of law problems of the kind seen previously in the payments eco-system. We, at the Finance Research Group at IGIDR, submitted written comments on the DMD. The key points of our critique are summarised in this article.

Lack of competitive neutrality

Payment services are different from banking. The former is about clearing and settlement, the latter about accepting deposits and lending (Shah (2016)). World over, payment eco-systems were conventionally dominated by banks. Several jurisdictions have, a while ago, disintermediated payments from banking by mandating an equal playing field between banks and non-bank payment service providers (Watal Committee Report (2016)). The DMD, however, perpetuates the approach of differentiating between banks and non-banks, by allowing the former several advantages over the latter. For instance:

1. Product design: Bank PPI issuers are allowed to issue open-system PPIs, which can be virtually used as debit cards (including for withdrawing money). Non-bank PPI issuers are, however, not so allowed. Jurisdictions such as the UK, USA and South Korea, do not segregate or limit the purposes for which a consumer may use her PPI account. As long as an entity fulfills the uniform eligibility criteria prescribed by the regulator, the product design is left to the PPI issuer.
2. Deployment of funds: Non-bank PPI issuers are required to lock the entire amount deposited with them by PPI account users, in an escrow account with a commercial bank. On the other hand, bank PPI-issuers are not subjected to this requirement and they may lend the money deposited with them by consumers. Thus, while non-bank PPI issuers are subjected to a virtually 100% cash reserve ratio requirement, despite not undertaking lending activity, bank PPI-issuers are allowed to lend the consumers' deposits after accounting for a cash reserve ratio of 4%. Given that both bank and non-banks issuing PPIs undertake the same kind of liabilities to the consumers of their PPIs, and that non-bank PPIs do not lend the deposits made with them, subjecting bank and non-bank PPI issuers to differential cash ratio requirements is discriminatory.
3. Cross border payments: Non-bank PPI issuers are not allowed to undertake full-fledged cross-border payments, which most bank PPI issuers will be able to undertake under their authorised dealership licence.
4. Access to RTGS, NEFT and IMPS: Currently, all payment service providers are not granted access to the central bank's payment systems. Contrast this with clearing corporations in the securities markets, which do not distinguish between applicants for clearing membership, as long as they meet margin requirements. Granting access to payment system providers to the central bank's payments systems would permit them to function seamlessly and innovate to develop cheaper products.

The DMD also discriminates between existing players and new entrants by allowing existing PPI issuers three years to meet the new minimum networth requirements. This tantamounts to giving a head-start to the existing players, and heightens the overall regulatory uncertainty with respect to the entry of new applicants for PPI licenses.

Disproportionate networth requirements and restrictions on use of funds

Under the existing regulatory framework, PPIs are required to have a minimum paid-up capital of Rs. 5 crores and a positive networth of Rs. 1 crore. The DMD has dispensed with the specific capital requirement, but has increased the minimum positive net worth requirement to Rs. 25 crores. The DMD does not offer any rationale underlying such a five-fold increase. An ongoing minimum networth requirement of Rs. 25 crore is unjustified for the following reasons:

1. Disproportionate to risk: The minimum capital adequacy requirement for a business must cover the risks arising from the failure of the operations of the entity (a) to its consumers; and (b) where an entity is systemically important, to the financial system. PPIs are in the business of accepting money that is callable at par. They neither engage in lending activity nor do they pay interest to their consumers. They are not systemically important. Under the DMD, they are mandated to keep the funds received from consumers locked in an escrow account. Hence, there is virtually no settlement risk arising from the PPI itself. The two other risks that arise from PPI operations are operational failure and fraud. A five-fold increase in networth requirements without computing the risks and costs associated with these two failures, is arbitrary. It also does not take into account alternative methods for risk mitigation. For instance, the fraud-risk can be covered by insurance.
2. Inconsistent with global best practices: Several jurisdictions, such as the UK and Australia, specify a minimum initial capital and an ongoing risk based capital which is proportionate to the outstanding amounts deposited by consumers with the PPIs. Some jurisdictions, such as the UK, create a differentiated category of PPIs with lower or no minimum networth requirements, to foster innovation and competition in the payments space.
3. Restrictions on use of funds: As mentioned above, the DMD mandates non-bank PPI issuers to lock the deposits received by them from their customers in escrow accounts maintained with banks. This tantamounts to a 100% cash reserve requirement for entities which are not in the business of lending. Other countries have mitigated the settlement risk by permitting issuers to invest the funds in liquid and safe securities. For example, Australia mandates that such funds be invested in high quality liquid assets which are free from encumbrances. UK allows PPI issuers to safeguard the customers' money by obtaining insurance.

Mandating an excessive and risk-agnostic minimum networth requirement makes monitoring easy for the regulator, as it provides a 100% protection against failure. However, risk-agnostic capital requirements have the potential to create entry barriers for smaller players and stifle innovation. They increase the costs of services to consumers. The minimum networth requirements for PPI issuers must be proportionate to their operational risk. The 100% cash reserve ratio for PPIs must be dispensed with and they must be permitted to invest the outstanding amounts in safe and liquid securities, such as securities eligible for the Statutory Liquidity Ratio (SLR).

Over-prescriptive operational requirements, but weak on overall consumer protection

While the DMD is over-prescriptive on several operational aspects such as mandating technology-specific measures that PPIs must implement, it is weak on certain fundamental aspects of consumer protection. Instances of these flaws are enumerated below:

1. Paper based KYC for digital transactions: The DMD mandates a blanket full-fledged paper-based KYC process for all consumers. This is inconsistent with the risk-based approach towards KYC that is adopted the world over. A KYC mandate, that is agnostic to the risk associated with the person being KYC-ed, adversely affects both the payment service providers and the consumers. For the former, it implies a manifold increase in the costs of acquiring information. For consumers, it increases the cost of digital transactions relative to cash. Both these effects run counter-productive to financial inclusion and the objective of transitioning to a cash-less society. Moreover, a significant percentage of PPI users would have banking access and would have, therefore, undergone a full-KYC with a bank. Hence, for such consumers, applying KYC requirements for using funds lying in a KYC-compliant bank account is repetitious.
2. Over-prescriptive: The DMD mandates technology-specific anti-fraud measures such as an additional factor authentication for every transaction and separate log-in requirements for non-payment related services offered by PPI issuers. Over prescriptive regulatory requirements run the risk of being excessive and easily circumvented, especially in technology-oriented industries. Since consumers attach a premium to safe and secure payment systems, the private sector is incentivised to implement safe and consumer friendly systems. A principle-based approach towards regulating payments services is, therefore, the norm across countries.
3. Restricted interoperability: The DMD allows only restricted interoperability across payment platforms. For instance, monthly limits are placed on how much consumers can transfer back to the source account which was used to fund the PPI account in the first place. The DMD does not lay down a framework for full interoperability, but leaves it to a future date.
4. Limits on use: A PPI is a pre-paid store of value. The DMD seeks to limit the usage of the stored value and the number of beneficiaries that can be added within a given time interval. The regulatory purpose of such limits is unclear.
5. Ambiguity on usage of data: The DMD is ambiguous on the confidentiality obligations of PPI issuers. In this respect, the RBI is perhaps relying on the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 (IT Data Security Rules), which require service providers to frame a privacy policy. The Ministry of Electronics and Information Technology has also issued draft data privacy rules for the PPI industry. However, the DMD is silent on the minimum standards of data protection that PPIs must offer their consumers. In the absence of an overarching privacy law, it is also unclear who has the jurisdiction to regulate and monitor the privacy policies of regulated entities.

RBI must substitute the proposed blanket full-KYC process with a tiered risk-based KYC structure. Under such a structure, low-risk consumers, such as those whose monthly transaction volumes do not cross a certain threshold, or consumers who are able to link a bank account with their PPI, must not be subjected to the ordeal of a full-fledged paper based KYC process. Medium risk consumers should be allowed to use the AADHAAR-based e-KYC, and high risk consumers alone may be required to undergo in-person and paper-based KYC. The transition from low to high risk may be done on the basis of transaction history. RBI must also revise the operational norms for PPIs by making them principle-based and technology neutral.

Vague licensing procedure

The DMD lays down a new licensing procedure for PPI issuers. So far, the licensing of PPI issuers was governed by the PSS Act. The DMD, without amending the PSS Act, mandates a licensing procedure which significantly departs from that under the PSS Act. While the PSS Act allows RBI to issue regulations for the purpose of implementing the provisions of the PSS Act, a "Master Direction" that does not undergo Parliamentary scrutiny is not legally tenable for specifying a completely new licensing framework.

The new licensing process envisages an "in-principle" approval on the basis of the "prima facie eligibility" of the applicant. The criteria for meeting prima facie eligibility, are undefined, except that applicants and their management are required to meet a "fit and proper" criteria. Financial sector legislation around the world generally have a list of what constitutes `fit and proper', to ensure that a licensing process is not discriminatory owing to vague criteria. Further, the DMD requires applicants to satisfy parameters such as efficiency and other related technical requirements. It is unclear how RBI will measure efficiency for first-time entrants. The DMD allows RBI to impose additional conditions if adverse conditions regarding the entity/promoters/ group come to the notice of the RBI. Undefined additional conditions, which may be imposed on the occurence of undefined adverse conditions, adds to the uncertainty of the licensing process. It also creates a perfect setting for rent-seeking and ad-hoc discrimination among similarly-placed applicants.

A licensing process that is significantly different from that under the PSS Act, requires amendments to the PSS Act, and cannot be specified by a mere direction. A licensing process for PPIs must virtually be on-tap. An unambigious and competitively neutral licensing process is imperative for the development of a dynamic digital payments ecosystem in India.

References :

Ajay Shah, How to make digital payments work, Business Standard, 28 November 2016.

Report of the Committee on the Medium term recommendations to strengthen the digital payments ecosystem (2016) or commonly called The Watal Committee report.

The authors are researchers at the Indira Gandhi Institute of Development Research.