ED To Probe IBC Cases With Large Haircuts, Promoter Reacquisition Of Assets

The Enforcement Directorate (ED) has identified the “re-examination of collusive resolution cases involving disproportionately large haircuts through which promoters re-acquire assets” as a primary focus area for red-flagging crimes under the Insolvency and Bankruptcy Code (IBC).

The move comes in the context of the National Company Law Tribunal’s (NCLT) August 25 ruling, which permitted Subhash Chandra, the founder of Essel Group, to pay Rs 6.25 crore to conclude his personal insolvency proceedings against admitted claims totalling Rs 22,006.57 crore. A five-member special bench of the NCLT stayed the settlement order on September 1.

At its 36th Quarterly Conference of Zonal Officers (QCZO), held at the Indian Institute of Management in Bengaluru on September 14–15, the ED identified a few “core operational thrust areas,” according to a release. The top item on the list was “unearthing frauds under the Insolvency and Bankruptcy Code and the PMLA (Prevention of Money Laundering Act).”

ED Lists Asset Stripping, CoC Manipulation Among IBC Red Flags

The agency said it had identified recurring malpractices, including asset stripping, manipulation of the Committee of Creditors, inflation of related-party claims, circumvention of Section 29A, and artificially large haircuts through which promoters regain control of assets.

During insolvency proceedings, defaulting promoters, wilful defaulters and connected or related parties are prohibited from bidding for their own company under Section 29A of the IBC.

The agency said illustrative instances were also discussed during the conference. When asked if Chandra’s case had been discussed, an ED officer said, “Many cases were discussed,” without specifying which cases.

An ED official said the misuse of the IBC process was a significant issue. According to the official, companies frequently seek refuge under the IBC to avoid punishment. There have been cases where related parties used the settlement process to buy back the business, thereby returning it to those responsible for its financial distress, the official said.

Steep Haircuts Raise Concerns Over IBC Recovery

The Subhash Chandra settlement has also highlighted concerns over steep haircuts under the IBC, where creditors frequently recover only a small portion of what they are owed. Creditors recovered Rs 2.47 lakh crore from 1,077 cases settled under the IBC between FY2021–22 and FY2025–26. This amounts to an average recovery of almost 29% of admitted claims. Recovery dropped from 37% in FY25, 28% in FY24, 39% in FY23 and 24% in FY22 to 20% in FY26, the lowest rate in five years.

The ED also said it had “analysed the legal tension between attachment powers under the PMLA on the one hand, and the moratorium under Section 14 and the immunity under Section 32A of the Code on the other.”