Now Reading: IBBI asks insolvency professionals to flag suspected CIRP abuse
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IBBI asks insolvency professionals to flag suspected CIRP abuse
The Insolvency and Bankruptcy Board of India has proposed requiring insolvency professionals to examine signs of fraudulent or malicious initiation of the Corporate Insolvency Resolution Process and approach the adjudicating authority under Sections 60(5) and 65 of the Insolvency and Bankruptcy Code where warranted. The discussion paper, issued on August 14, seeks stakeholder comments.
The Economic Times reports that indicators may include negligible operations, related-party exposures, regulatory proceedings, a dominant single creditor in the Committee of Creditors and connected companies entering CIRP together. Its legal experts cautioned that applications should not rest on suspicion alone and that legitimate transactions must not be treated as abuse. ETCFO reports professionals broadly welcomed the proposal, saying it would make insolvency professionals active safeguards against engineered filings, while also warning that the indicators cannot presume fraud. The proposed circular remains open for feedback.
Indian Opinion Analysis
The two reports differ mainly in emphasis. ETCFO presents the proposal as a needed shift towards active gatekeeping, citing alleged use of moratoriums and friendly creditors to obstruct scrutiny or regain assets. The Economic Times focuses instead on evidentiary limits, warning that a compliance duty could encourage defensive filings and misclassify ordinary distressed financing. Both accounts accept that IPs must investigate, but neither treats the listed indicators as proof by themselves. The practical issue is how adjudicating authorities will distinguish commercial distress from engineered insolvency, and what threshold will support a Section 65 application. Stakeholder feedback on the August 14 paper is the next point to watch.
Coverage: 2 sources, 1 pro-government, 1 government-critical
Sources (2): legal.economictimes.indiatimes.com (government critical), cfo.economictimes.indiatimes.com (pro government)
This story was synthesised by AI from the 2 sources linked above. Methodology and corrections.
Updated: this story now draws on 2 sources.
