The Enforcement Directorate has announced a systematic review of Insolvency and Bankruptcy Code (IBC) cases linked to disproportionately large haircuts where promoters re-acquire assets. ED Director Rahul Navin directed officials to re-examine collusive resolution cases involving large haircuts through which promoters re-acquire assets at the agency's three-day high-level meeting of special directors in Bengaluru. According to The Times of India, the ED has flagged possible circumvention of Section 29A, CoC manipulation, inflation of related-party claims, asset stripping and artificially large haircuts through which promoters regain control of assets as areas of concern. The agency plans to intervene before Tribunals in relevant cases and initiate independent probes linked to the Prevention of Money Laundering Act. The directions were issued during a three-day meeting of the agency's special directors in Bengaluru, with the issue identified as one of the agency's core operational thrust areas. As per The Economic Times, an ED official acknowledged that "it is a serious problem and often clashes with our investigations. Companies often take shelter under IBC to escape prosecution. There are instances where related parties have bought back the company through resolution process, effectively handing over the company to people who sunk it."
The ED has instructed officials to identify red flags and obtain details of preferential, undervalued, fraudulent and extortionate transactions. As reported by the agency, this comprehensive approach aims to address potential misuse of the insolvency resolution process. Zonal offices have been asked to identify red flags, obtain copies of applications concerning preferential, undervalued, fraudulent and extortionate transactions from resolution professionals, file intervention applications before tribunals and initiate independent investigations under the Prevention of Money Laundering Act against alleged masterminds. The agency has also directed its units to coordinate with state police and other law enforcement agencies, fast-track trials and aggressively pursue the restitution of attached and confiscated assets to legitimate victims. Each region has been asked to identify at least 10 high-profile cases for completion of trial and conviction within six to eight months, with cases pending for more than 10 years to be placed on a dedicated monitoring register for monthly review. According to The Economic Times, the agency has also flagged mandatory valuation of all confirmed attached properties by government-approved valuers and highlighted cases where companies sometimes take shelter under the IBC to escape prosecution.
The Insolvency and Bankruptcy Board of India (IBBI) had flagged the misuse of IBC for purposes apart from insolvency resolution or liquidation in its September 9 circular. According to the regulator, creditors recovered ₹2.47 lakh crore from 1,077 cases resolved under the IBC between FY2021-22 and FY2025-26, against approved claims of about ₹9 lakh crore. The recovery rate was 20% in FY26, compared with 37% in FY25, 28% in FY24, 39% in FY23 and 24% in FY22. One notable case involves Essel Group founder Subhash Chandra, where an NCLT order on August 25 allowed him to settle his personal insolvency proceedings by paying ₹6.25 crore against admitted claims of ₹22,006.57 crore. On September 1, a five-member special bench of the NCLT stayed the settlement order. The Central Bureau of Investigation (CBI) has booked Chandra over a mismatch in stated income while standing guarantee for a loan from LIC Housing Finance and during insolvency proceeding after the loan went into default. The ED is set to soon file a case in the matter, according to officials. The Subhash Chandra settlement highlights a larger concern over deep haircuts under the IBC, where creditors often recover only a fraction of what they are owed. The central debate around the IBC is whether it should prioritise reviving distressed companies or maximising recovery for creditors, with the government maintaining that the Code's primary objective is "resolution, not recovery".
IBBI highlighted specific patterns that indicate potential misuse of the insolvency process. As reported by the regulator, these include clusters of connected companies entering CIRP within a similar timeframe with common promoters, directors or addresses, as well as inter-lending arrangements. The board noted that monetising or ring-fencing assets could also indicate potential misuse, emphasizing the need for enhanced vigilance by insolvency professionals. The ED is examining alleged fraudulent re-acquisition of assets through the NCLT process and possible manipulation of voting through front entities forming a majority in a Committee of Creditors. The agency has also directed mandatory valuation of all confirmed attached properties by government-approved valuers and highlighted cases where companies sometimes take shelter under the IBC to escape prosecution. According to The Economic Times, the ED has identified recurring malpractices including circumvention of Section 29A, inflation of related-party claims, manipulation of the Committee of Creditors, asset stripping and artificially large haircuts through which promoters regain control of assets. Recent cases show ownerships of some linked bankrupt companies were allegedly transferred to front entities after creditor banks took haircuts for up to 97-99% of the admitted claims.
The ED director addressed significant legal challenges in IBC-PMLA cases during the conference. A special session on the subject examined the "interplay between the IBC and the PMLA" and analyzed the legal tension between the moratorium under Section 14 and the immunity under Section 32A of the IBC on the one hand and attachment powers under the PMLA on the other. The session identified recurring malpractices including circumvention of Section 29A, inflation of related-party claims, manipulation of the Committee of Creditors, asset stripping and artificially large haircuts through which promoters regain control of assets. Navin also ordered a review of ED's requests related to international cooperation, extradition and fugitive management. The ED chief also spoke about the agency's references to state police forces seeking to register predicate offences being ignored sometimes, as has been seen in Kerala and Tamil Nadu in the past. Navin recommended the creation of joint teams with state police as well as using the police's powers under the Bharatiya Nagarik Suraksha Sanhita (BNSS) to attach properties. The decision to crack down on alleged cases of fraudulent re-acquisition of assets through NCLT has come at a time when ED is looking into prominent cases, with the agency now initiating money laundering investigations against chief protagonists of resolutions which are prima facie dubious but were cleared by National Company Law Tribunal (NCLT).
