In today’s digital economy, a company’s customer database can be one of its most valuable business resources. Unlike factories, buildings or physical equipment, databases are intangible, yet they may contain substantial commercial value. This raises an important question in insolvency proceedings: Can a corporate debtor’s database be treated as an asset forming part of the liquidation estate under the Insolvency and Bankruptcy Code, 2016?
The issue becomes particularly complicated when the database contains personal information belonging to customers. While a company may have invested considerable resources in collecting, organising and analysing such information, that does not necessarily mean it owns the underlying personal data.
Indian insolvency law has not yet produced a definitive judicial answer to this question. However, the broad language of the IBC and existing principles relating to intangible property provide a basis for examining whether a company’s database could qualify as an asset.
Why Customer Databases Matter in Insolvency
When a company enters liquidation, its assets are collected into the liquidation estate so that they can be realised and distributed in accordance with the law.
Traditionally, these assets included property, machinery, receivables, intellectual property and other identifiable rights. With businesses increasingly operating through digital platforms, customer databases and related digital resources can also carry considerable economic value.
The liquidation of Jet Airways illustrates some of the difficulties involved. Its frequent-flyer business, JetPrivilege, held information relating to a large number of travellers. However, uncertainty surrounding ownership and privacy restrictions made it difficult to realise the value associated with the database.
A similar issue arose during the liquidation of Net4India, where customer and domain-registration information was not treated as part of the realisable estate in the same manner as physical infrastructure.
These examples demonstrate that the legal treatment of commercial databases during insolvency remains unsettled.
What Does the IBC Say About Property?
Section 3(27) of the Insolvency and Bankruptcy Code gives the term “property” a very broad meaning. It covers money, goods, actionable claims, land and every description of property located in or outside India. It also extends to various present, future, vested and contingent interests connected with property.
The provision is not restricted to physical objects.
This broad statutory language creates room for considering certain forms of digital and intangible commercial interests as property.
Section 36 of the IBC is also relevant because it identifies the assets that form part of the liquidation estate. The provision includes assets over which the corporate debtor has ownership rights and recognises intangible interests, including intellectual property and contractual rights.
On this reasoning, a database developed by a company through its own investment, technology and organisational processes could potentially be regarded as an intangible commercial asset.
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Does a Company Own the Personal Data in Its Database?
This is where the issue becomes more complicated.
A customer database may contain names, telephone numbers, transaction records and other personal information. The fact that a company possesses or processes such information does not necessarily mean that the company owns the personal information itself.
A company may instead have permission to collect and process such information for specific purposes, subject to contractual obligations and applicable data-protection requirements.
Therefore, a distinction needs to be made between the personal information contained in a database and the database structure created by the company.
The latter may include:
- The database architecture
- Data organisation and indexing
- Search and classification systems
- Aggregated information
- Analytical models
- Business-generated insights
- Software and systems used to manage the database
These elements may result from the company’s own investment and intellectual effort. The legal question can therefore be framed differently: rather than asking whether the company owns every piece of personal information, the issue is whether it owns the commercial database and infrastructure that it created around that information.
How Indian Property Law May Apply
Indian courts have previously recognised that property does not necessarily have to be physical.
In Jilubhai Nanbhai Khachar v. State of Gujarat, the Supreme Court discussed property in broad terms, while State of West Bengal v. Subodh Gopal Bose treated property as involving a collection of rights that can be enforced.
These decisions were not concerned with corporate databases or insolvency proceedings. Nevertheless, they demonstrate that the absence of a physical form does not automatically prevent something from having the characteristics of property.
The question is therefore whether the rights associated with a corporate database are sufficiently identifiable and enforceable to bring it within the broad concept of property under the IBC.
What Other Indian Cases Indicate
There is currently no Indian insolvency judgment directly determining whether a corporate debtor’s database forms part of its liquidation estate.
One relevant decision outside insolvency proceedings is Sadhna Shaishav Shah v. Nil, where data stored in an iCloud account was considered in the context of inheritance. The case indicates that Indian law can recognise certain forms of digital data as property capable of having value and being transferred. However, inheritance law and insolvency law involve different legal questions.
Another relevant dispute is Digi Yatra Foundation v. Data Evolve Solutions Pvt. Ltd. before the Delhi High Court. That case concerns competing claims concerning a passenger database, including issues surrounding ownership. The proceedings are commercial rather than insolvency proceedings and have not resulted in a final determination establishing a general rule on database ownership.
Lessons From the Toysmart Case
The United States provides another useful example through the bankruptcy of Toysmart.com.
The company attempted to deal with its customer database during bankruptcy, but privacy commitments made to customers created serious restrictions on its proposed transfer. Ultimately, the database could not simply be sold as an ordinary commercial asset.
The example highlights an important distinction: an asset may have a recognised economic or proprietary character without necessarily being freely transferable.
Therefore, even if a corporate database is regarded as part of the liquidation estate, a liquidator would still have to examine whether its contents can legally be transferred, sold or otherwise monetised.
Impact of the Digital Personal Data Protection Act
The Digital Personal Data Protection Act, 2023 adds another layer to the discussion.
One argument is that a company acting as a Data Fiduciary may possess personal information without actually owning it. This can raise questions about whether such information falls within the exclusion under Section 36(4)(a) of the IBC concerning assets held for another party or assets where ownership has not passed to the corporate debtor.
However, this does not necessarily answer the separate question of whether the database developed by the company itself can constitute an asset.
The company’s database structure, analytical systems, organisation and other internally created components could potentially be distinguished from the personal information supplied by customers.
Asset Status and Lawful Sale Are Two Different Questions
A major distinction emerges from the legal analysis.
The first question is whether a database is an asset belonging to the corporate debtor and therefore capable of forming part of the liquidation estate.
The second question is whether the liquidator can legally sell or transfer the information contained within that database.
These questions should not be treated as identical.
A database may potentially qualify as an intangible asset while privacy obligations, contractual restrictions or data-protection legislation could still prevent the unrestricted sale of the underlying personal information.
This distinction could become increasingly important as more businesses derive their commercial value from digital information rather than conventional physical assets.
What Could Be Included in the Liquidation Estate?
A possible approach would be to distinguish between information supplied by individuals and the commercial database created by the company.
The latter could potentially include:
- Database architecture and structure
- Proprietary indexing and organisation systems
- Aggregated and anonymised analytics, where lawfully created
- Business intelligence generated through the company’s own processes
- Software and systems developed for managing the database
- Contractual rights connected with lawful use of the database
Whether each of these elements can actually be realised would depend on the specific facts, contractual arrangements and applicable data-protection obligations.
The Present Legal Position
At present, Indian law does not provide a definitive judicial ruling stating that every corporate database is an asset capable of being sold during liquidation.
The IBC’s broad definition of property provides an argument in favour of recognising certain database-related rights as intangible assets. At the same time, personal data belonging to individuals cannot automatically be treated as property owned by the corporate debtor merely because the company collected or processed it.
The more legally sustainable approach may therefore be to distinguish the personal data itself from the database, systems, organisation, analytics and other intellectual or commercial interests created by the corporate debtor.
Ultimately, this issue is likely to require judicial clarification as insolvency law increasingly encounters businesses whose principal value lies in digital assets.
The question of whether a corporate debtor’s database can form part of the liquidation estate sits at the intersection of insolvency law, property law and data protection.
The broad wording of the IBC potentially supports treating certain database-related interests as intangible assets. However, ownership of the underlying personal information and the legality of transferring that information remain separate issues.
Until Indian courts directly decide the matter in an insolvency proceeding, the legal position remains unsettled. What is increasingly clear, however, is that digital assets can no longer be ignored when assessing the value of modern businesses undergoing insolvency or liquidation.