Moot Proposition

1. Metafax Data Analytics India (hereinafter referred as MFDAI) is a public unlisted company incorporated on 26th June, 2006 under the Companies Act, 1956. It is an affiliate of Meta Corporation, a multinational Company (commonly known as the Metafax Group). Headquartered in Sweden, Metafax Group’s revenue as of 31st March, 2021 stood at approximately INR 6,536 Cr and is a major contributor and critical to the Financial Markets and Credit Data Analytics program in India. MFDAI is claimed to be India's most relied Credit Information Company since its launch in early 2006 and generates annual revenue to the tune of INR. 600 Cr. In India, MFDAI is engaged in the business of ‘data’, ‘analytics’ and ‘technology’, besides contributing to the financial health of the credit market in India. MFDAI holds a Certificate of Registration as a Credit Information Company in India. The other companies which hold a Certificate of Registration in India include Credit Bureau Analytics Ltd. (CBAL), Multi-clear Data Bureau Ltd. (MCDBL) and Credit Data Corporation of India Ltd (CDCIL) (hereinafter collectively referred as “CICs”)

2. The CICs enable a fair, consistent and responsible lending environment thereby, preventing fraud and increasing capital flow and liquidity in the markets. CICs maintain credit-related information of ‘individuals’ and ‘companies’. The credit- related information pertains to loans and credit cards. The data is sourced by the CICs from their ‘member institutions’ at periodic intervals. The ‘data’ is then transformed into ‘information’ by means of data analytics to create ‘Credit Reports’. The Credit Report reflects a summary of credit worthiness of an individual or a company by virtue of categorization of their Credit Report which then summarily reflects their respective Credit Scores. The CICs also act as a central database for Credit Information of individuals and companies, for the market regulator. While the CICs are not permitted to lend or make any direct lending decisions, they provide the Credit Score and Credit Report based on the analytics to banks and other financial institutions, which is then used as the basis to either accept or reject a loan and/or credit card application, based on creditworthiness.

3. In India any Credit Card, Personal Loan, Home Loan, Auto Loan, Consumer Durable Loan or any other form of ‘Credit’ or ‘Loan’ necessitates a favourable Credit Score generated by CICs such as MFDAI, CBAL etc. In this connection the Federal Reserve Bank of India (FRBI) requires that: “Banks/FIs should include in their credit appraisal processes/loan policies, suitable provisions for obtaining Credit Information Reports (CIR)s from one or more CICs so that the credit decisions are based on information available in the system.”

4. As per the CICs, the Credit Score is calculated based on the credit behavior. It ranges between 300- 900 and a score above 700 is generally considered “ideal”. The higher the Credit Score the better the chances of getting a loan. Several Committee Reports in India and overseas, including that of the World Bank suggests that Credit Information is very essential to lend fairly, consistently, responsibly, and more importantly to prevent fraud.

5. Venkatesh Ramaswamy, is a Non-Residential Indian (NRI) and ‘Professor’ at the Agriculture University of Dubai. He is an expert, regularly consulted on revamping the agricultural sector in the testing terrains of the Middle East and is also an advisor to the Gulf Cooperation Council on the subject. Prior to moving to Dubai, Mr. Ramaswamy served as a Professor at the Agricultural University, Bengaluru in Karnataka, India and is a recipient of several prestigious awards and honors for his implementation of ‘sustainable farming models’ across the nation. Currently his regular source of Income (i.e., Salary from his Teaching Assignment amounting to 22,500/- Dirhams) is not taxable, as per the applicable law in India. However, he regularly files his income tax returns (ITR) in India.

6. Coming from a family of farmers, his philanthropy extends to the cause of farmers and sustainable farming. Inclined to his roots in India, he treats it as his moral responsibility to contribute portions of his income to the education of Indian farmers. His contributions are usually by way of donations to educational institutions and Self-Help Groups in the agriculture sector in India. Mr. Ramaswamy leads the way for his generation with a simple lifestyle and contributes immensely to the society.

7. In December 2021, Mr. Ramaswamy was invited by the Government of Karnataka as the Chief Guest to the annual conclave on ‘Sustainable Farming and Agriculture Credit Schemes’ to share his ideas on the subject. Mr. Ramaswamy accepted the invitation as it would also allow him to spend time with his family and ailing parents at Bengaluru, Karnataka. To avoid exposure of himself and his family to the looming pandemic, Mr. Ramaswamy decided to buy an economy class 4- wheeler (Car). The cost of the Car amounted to INR. 12,00,000/-.

8. After making a down payment of INR. 4, 25,000/-, Mr. Ramaswamy applied for a loan of INR 7, 75,000/- from the bank through his NRI Account. The Banker sought his Aadhaar, PAN Card and Income Certifications (attested by the Consulate) and Income Tax Returns (ITR), duly filed in India. On assessment and verification, the documents were found to be in order and satisfactory for the disbursement of the loan. As part of the regulatory requirement to disburse loans, the Banker then proceeded towards seeking the “Credit Score” of Mr. Ramaswamy from the CICs. MFDAI and other CICs reported Mr. Ramaswamy’s Credit Score as: -1 (i.e., minus one).

9. Mr. Ramaswamy has never applied for a loan or held a credit card to this day. The Credit Report of CICs cited lack of “credit worthiness” resulting in rejection of the loan application. Several other Bankers and Non-Banking Financial Companies (NBFCs) were approached and none of these financial institutions would consider Mr. Ramaswamy’s application favorably. To his surprise, he found that his financial stability and ability to repay the loan was substantially higher than the majority of the Indian population and yet, his loan was rejected.

10.As planned, Mr. Ramaswamy attended several farmers’ meets and the state conclave. On 21st December, 2021, Mr. Ramaswamy received a call from his wife that his father, Mr. Gurunath Ramaswamy, was taken to the hospital due to breathlessness and chest congestion. On reaching the hospital, Mr. Gurunath Ramaswamy passed away due to pneumonia and a drastic drop in his oxygen levels. The entire family tested positive for Covid-19. Mr. Ramaswamy’s mother also passed away from the same complications in a few days. Mr. Ramaswamy, thought that his decision to not purchase the car and his constant movement using public transport and constant travel may have led to him and his family contracting Covid.

11. Intrigued by the term used to reject his application, Mr. Ramaswamy further researched on the term that bothered him the most- “credit worthiness”. What Mr. Ramaswamy uncovered was that his eligibility for a loan is determined by his Credit Score which is computed by the CICs, which are authorized by the FRBI. The CICs source data from Banks, NBFCs and such other lenders, to assess the ability of an individual to repay the loan. Mr. Ramaswamy gathered that: as he had never borrowed in the past, there was no history or data to assess his credit worthiness and as such the Credit Score may have reflected as -1. Simple questions that Mr. Ramaswamy could not find answers were:

a. Whether the Credit Score of large defaulters who were examined prior to sanctioning their loans still resulted in Non- Performing Assets (NPAs)?

b.What happens to the farmers, who depend on agricultural loans? It was imminent that a farmer in India, would also be subject to the “credit worthiness”, which Mr. Ramaswamy was subjected to?

c.Whether Loan applications of street vendors, small businesses etc. all fall under the remit of credit worthiness even if these loans were as low as INR 10,000/-?

12. Apparently, it seemed as an inherent flaw in the system as Mr. Ramaswamy’s research progressed. He further gathered that CICs inter alia relied on “repayment history”, “credit balance and utilization”, “duration of loan”, “nature of the loan i.e. short- term and long-term” etc. Thus, taking a loan, then displaying financial discipline and continuously honoring the payments resulted in a better score. Another news article stated that ‘New Credit enquiries’ i.e., multiple enquiries for Credit Score from a Credit Information Company would also negatively impact the Credit Score.

13. Mr. Ramaswamy shared the above findings from his preliminary research with a Social Activist and Advocate, Ms. Pallavi Mistry. Ms. Mistry would then relate the matter to her clients, mostly farmers from adjacent villages, seeking help to secure loans for their upcoming seasonal cultivation. Most of the farmers contributed to the region by receiving several accolades from the government and the business sectors for a sustainable farming model, which Mr. Ramaswamy had helped implement during his days at Bengaluru. However, they were unable to secure loans and none of them were aware of the reason for such rejections. Both Ms. Mistry and Mr. Ramaswamy met with Branch Managers of Banks and Financial Institutions in the area and were informed that the farmers’ loan applications were rejected on account of their very poor ‘credit score’. While some farmers were also shown to have defaulted in the preceding year, the fact that these loans were waived by the Government of Karnataka, were not considered while arriving at the Credit Score. Some of the farmers were also first-time borrowers who never had taken a loan and were self-reliant, due to their sustainable farming model. However, while they would seek loan for agricultural land, to scale up their activities or for advanced equipment, the loan application is either rejected on account of a lower Credit Score or alternatively the Banker would seek very high interest rates than the prevailing interest rates in the market. Even the loans offered under various Schemes of Government of India, would fall within the ambit of the requirement of credit worthiness. This meant a farmer, street vendor or small businesses seeking loan for INR 10,000/- would also require the ideal credit worthiness.

14. Ms. Mistry also recollected that she recently bought a car and availed a loan. She was cited by her Banker that her credit score was at 799 in February, 2019 and the Bank would charge a higher interest of 7.25%. In the normal course if the credit score was above 800, the interest rate on her Car Loan would be at 6.90%. The difference was that of 35 basis points. While she had not paid much attention to the figures, it was found that a loan for a period of 5 years would have cost her a considerably lesser interest payment. Soon after Ms. Mistry’s discussions with Mr. Ramaswamy, she further investigated and sought to examine her current Credit Score. It was informed that she would not be eligible to get a Credit Score free of cost as she had already exhausted her right to avail one free “annual credit report and credit score” as mandated by FRBI. On paying a fee, Ms. Mistry found from her Credit Report that her Credit Score had deteriorated to 595. The report stated that the deterioration occurred since there was considerable delay in payment of the Car Loan EMIs. But, Ms. Mistry had diligently made her EMI payments since February, 2019 and did not default even once. The Credit Report stated that Ms. Mistry was supposed to make her EMI payment on 10th of every month, and the Data reflects that she had delayed her payment by 5-6 days every month since February 2019. On enquiry with her Bank, she learnt that the delay in payment was due to non-payment of INR 2/- or INR. 3/- every month. As of date the total over-due was INR 36/-. Ms. Mistry raised the matter with her Banker, and the Banker stated that it was a technical issue in adjustment of ‘penny amounts’. The Bank had made an error while computing and adjusting the interest component for every month. However, the ‘repayment history’ as conveyed by the Bank to the CICs reflected the technical error as an ‘overdue delay’ and apparently deteriorated the “credit worthiness” of Ms. Mistry.

15. On 21st December 2021, the Banker at the behest of Ms. Mistry and Ms. Mistry herself wrote to the CICs, providing details and evidence of the technical error and sought rectification of the Credit Score. While a resolution was promised within 30 days, the CICs maintained that it had not received any information from Ms. Mistry’s Banker and that the Credit Score would only be rectified post confirmation from her Banker. The CICs demanded that it would only consider information from the ‘nodal officer’ of the Bank who was appointed as per the Membership criteria of the CIC. Ms. Mistry’s email to them enclosing the evidence (Letter issued by the Branch Manager) would not suffice nor would the CIC provide to Ms. Mistry the contact details to which the Bank is required to send the details of rectification, citing their internal policy. To this day, Ms. Mistry’s Credit Score remains a Mystery. As checking her Credit Score, would cost a fee and ‘multiple enquiries’ would deteriorate the Credit Score, Ms. Mistry felt the matter requires a different approach. Ms. Mistry also learnt that the CICs had a commercial feature of a subscription model for affluent consumers, in which case one could pay and receive details of their “creditworthiness”. The subscription fee would be at INR. 500/- for a month, INR 800/- for 6 months and INR 1300/- for a year.

16. Certain laws in India such as the Aadhaar Act, in the recent past have invited a wide array of discussions in the Parliament and even resulted in landmark judgements. Mr. Ramaswamy and Ms. Mistry found it disturbing that “credit worthiness” and “privacy” related issues found little highlight, even when large defaulters continued to flee the country and large companies contributed to the Non-Performing Assets (NPA) plaguing the financial system in the recent past. That, while ‘credit history’, as a tool of assessment and analytics was continuously pursued by the CICs, despite being Personal Information, very little was known to the general strata of society. It was evident that the majority of the Indian population often met with difficulties or rejections of financial assistance in times of their need.

17. Mr. Ramaswamy decided to forego the loan application but decided to submit the findings of his report with a copy marked to the Chief Minister’s office, Prime Minister’s Office, Ministry of Finance, Ministry of Agriculture, Government of India and the FRBI. At Bengaluru, Ms. Mistry’s office continued to pour in with calls for help and assistance.

18. Seeing the continued reporting of such issues plaguing the economically challenged, Mr. Ramaswamy raised his concerns due to the depriving nature of the term ‘Credit Worthiness’ and the subsuming issue of ‘Privacy’. Highlights of his report inter alia questioned the inadequate application of the precedents on ‘right to privacy’ on the legislation governing CICs; the inherent flaw in the CICs data analytics model; cost of Credit Reports; exploitation of Personal Information by CICs etc. He submitted a detailed report elaborating these concerns to the Chief Justice of India. The Supreme Court taking suo moto cognizance of the matter has issued notice to the relevant parties.

*Note:

This Moot Problem is intended purely to be a work of fiction to enable students of law to prepare and argue a case before a Court/ Tribunal. The problem is drafted for the exclusive use of the School of Legal Studies, CMR University without any limitation whatsoever and the intellectual property solely vests with it. Any resemblances to real persons, living or dead, or to legal persons (including companies) or to institutions, governments or courts are purely coincidental.

*Note:

· The Participants are required to frame their own issues.

· The Participants are required to prepare their submissions from both sides.

· The relevant laws in India as applicable to Credit Information

· Companies shall be explicit for the submissions.