{"id":124688,"date":"2026-09-16T11:17:16","date_gmt":"2026-09-16T05:47:16","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=124688"},"modified":"2026-09-16T11:17:16","modified_gmt":"2026-09-16T05:47:16","slug":"insolvency-and-bankruptcy-code-ibc-under-the-scanner","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/insolvency-and-bankruptcy-code-ibc-under-the-scanner\/","title":{"rendered":"Insolvency and Bankruptcy Code (IBC) Under the Scanner"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>Insolvency and Bankruptcy Code (IBC) Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Enforcement Directorate (ED) has identified <\/span><b>frauds and malpractices<\/b><span style=\"font-weight: 400;\"> in insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016 as a key operational priority.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Its focus comes amid concerns that the insolvency process can sometimes be <\/span><b>manipulated <\/b><span style=\"font-weight: 400;\">to enable promoters or related parties to regain control of distressed assets at artificially low valuations, causing large losses to creditors.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>The Subhash Chandra Case<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The issue gained prominence following the National Company Law Tribunal (NCLT)\u2019s August 25 settlement order in the Subhash Chandra case<\/span><b>.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In this case, personal insolvency proceedings were allowed to be <\/span><b>settled for \u20b96.25 crore<\/b><span style=\"font-weight: 400;\"> against admitted claims of \u20b922,006.57 crore.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A five-member NCLT special bench subsequently stayed the order on September 1.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>ED Identifies Key IBC Fraud Risks<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">At its 36th Quarterly Conference of Zonal Officers, held in Bengaluru on September 14\u201315, the ED highlighted the need to uncover fraud under the <\/span><b>IBC <\/b><span style=\"font-weight: 400;\">and Prevention of Money Laundering Act (<\/span><b>PMLA<\/b><span style=\"font-weight: 400;\">).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The agency identified recurring malpractices such as &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Circumvention of<\/span><b> Section 29A<\/b><span style=\"font-weight: 400;\"> of the IBC to enable ineligible promoters or connected parties to participate in resolution.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Inflation <\/b><span style=\"font-weight: 400;\">of related-party claims, potentially influencing the distribution of insolvency proceeds.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Manipulation of the Committee of Creditors (<\/span><b>CoC<\/b><span style=\"font-weight: 400;\">).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Asset stripping before or during insolvency proceedings.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Artificially large <\/span><b>haircuts<\/b><span style=\"font-weight: 400;\">, allowing promoters or related parties to regain control of assets at substantially reduced prices.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Section 29A<\/b><span style=\"font-weight: 400;\"> is intended to prevent defaulting promoters, wilful defaulters and specified connected persons from bidding for the assets of their own companies during insolvency.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>The Problem of Deep Haircuts<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A central concern is the extent to which creditors recover their dues through the IBC process.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Between FY2021-22 and FY2025-26, 1,077 cases were resolved, with creditors recovering about \u20b92.47 lakh crore, equivalent to an average recovery of <\/span><b>around 29% <\/b><span style=\"font-weight: 400;\">of admitted claims.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Recovery rates have also fluctuated significantly, <\/span><b>for example<\/b><span style=\"font-weight: 400;\">, 24% in FY22; 39% in FY23; 28% in FY24; 37% in FY25; and 20% in FY26.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The decline to 20% in FY26, the lowest in five years, has intensified <\/span><b>concerns about asset valuation<\/b><span style=\"font-weight: 400;\">, transparency and creditor recovery.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Banks have pointed to <\/span><b>divergent <\/b><span style=\"font-weight: 400;\">valuation <\/span><b>methodologies<\/b><span style=\"font-weight: 400;\">, inadequate accounting of assets and limited transparency as factors that may contribute to excessive haircuts.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Resolution vs Recovery &#8211; The Core Debate<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The IBC&#8217;s primary objective is resolution of distressed businesses rather than merely recovery of outstanding debt.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Reviving a viable company as a going concern can preserve employment, productive capacity and economic value.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, excessively low recoveries raise questions about whether the process is adequately protecting creditors and preventing value destruction.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>The challenge<\/b><span style=\"font-weight: 400;\"> is therefore to balance &#8211; Insolvency resolution \u2192 preservation of economic value \u2192 maximisation of creditor recovery \u2192 prevention of abuse of the process.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>IBC-PMLA Legal Tensions<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The ED has also examined the interaction between &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Section 14 of the IBC<\/b><span style=\"font-weight: 400;\"> \u2014 provides a moratorium that temporarily restricts specified legal proceedings against the corporate debtor.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Section 32A of the IBC<\/b><span style=\"font-weight: 400;\"> \u2014 provides specified immunity from prosecution for the corporate debtor and protection for its assets after a qualifying change of control to an unrelated successful resolution applicant.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>PMLA <\/b><span style=\"font-weight: 400;\">\u2014 empowers authorities to attach and confiscate proceeds of crime.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This creates a potential legal tension where an insolvency process could allegedly be used to shield assets connected with money laundering or frustrate criminal investigations.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>ED\u2019s Proposed Enforcement Strategy<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The ED has directed its regional offices to &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Identify red flags <\/b><span style=\"font-weight: 400;\">in insolvency proceedings.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Obtain applications concerning preferential, undervalued, fraudulent and extortionate transactions from Resolution Professionals.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">File intervention applications before tribunals wherever necessary.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Initiate independent PMLA investigations against the masterminds behind fraudulent transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Improve coordination<\/b><span style=\"font-weight: 400;\"> with State police and other enforcement agencies.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Pursue restitution of attached\/confiscated assets to legitimate victims.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Ensure valuation of confirmed attached properties by government-approved valuers.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Alchemist Limited case &#8211; A case study:<\/b><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The ED also cited a case in which its intervention before the NCLT resulted in termination of the insolvency process.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">While the ED was investigating an alleged \u20b91,842-crore financial scandal and money-laundering offences, an operational creditor initiated insolvency proceedings against the company.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The <strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/national-company-law-tribunal\/\" target=\"_blank\">NCLT<\/a> <\/strong>subsequently terminated the CIRP, observing prima facie concerns regarding &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Domination of the CoC by accused group entities;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Alleged layering of funds;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Misuse of the insolvency mechanism;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Potential use of Section 32A immunity to frustrate <strong><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/prevention-of-money-laundering-act-2002\/\" target=\"_blank\">PMLA<\/a><\/strong> proceedings; and<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Lack of a genuine objective of insolvency resolution.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The case illustrates the risk of using the IBC as a<\/span><b> legal channel for siphoning<\/b><span style=\"font-weight: 400;\"> or legitimising illicit <\/span><b>funds <\/b><span style=\"font-weight: 400;\">rather than as a genuine mechanism for corporate restructuring.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Conclusion<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Enforcement must preserve the IBC\u2019s fundamental objective of time-bound resolution and revival of viable businesses, without allowing criminal investigations to unnecessarily undermine legitimate insolvency proceedings.<\/span><\/p>\n<p style=\"text-align: justify;\"><b>Source: <\/b><a href=\"https:\/\/indianexpress.com\/article\/india\/ed-flags-bankruptcy-code-frauds-disproportionate-haircuts-as-thrust-areas-10879648\/\" target=\"_blank\" rel=\"nofollow noopener\"><b>IE<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Enforcement Directorate (ED) has identified frauds and malpractices in insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016 as a key operational priority.<\/p>\n","protected":false},"author":19,"featured_media":124701,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[2945],"class_list":["post-124688","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-insolvency-and-bankruptcy-code-ibc","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/124688","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=124688"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/124688\/revisions"}],"predecessor-version":[{"id":124704,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/124688\/revisions\/124704"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/124701"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=124688"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=124688"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=124688"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}