ED to scrutinise IBC cases with large haircuts, promoter re-acquisition of assets

The Enforcement Directorate (ED) has identified frauds under the Insolvency and Bankruptcy Code (IBC), including cases involving disproportionately large haircuts that may enable promoters to regain control of assets, as a key operational focus for its zonal offices.

At its 36th Quarterly Conference of Zonal Officers held in Bengaluru on September 14-15, ED Director Rahul Navin directed officials to re-examine collusive resolution cases involving large haircuts through which promoters re-acquire assets, according to an ED statement.

The agency identified several potential malpractices in the insolvency process, including circumvention of Section 29A of the IBC, inflation of related-party claims, manipulation of the Committee of Creditors, asset stripping and artificially large haircuts through which promoters regain control of assets.

The ED said its officers have been directed to identify red flags in such cases and obtain copies of applications filed by resolution professionals relating to preferential, undervalued, fraudulent and extortionate transactions. Officials have also been asked to file intervention applications before the National Company Law Tribunal (NCLT) and initiate independent investigations under the Prevention of Money Laundering Act (PMLA) against the alleged masterminds.

The agency also examined the legal interplay between the IBC and PMLA, particularly the moratorium under Section 14 and immunity under Section 32A of the insolvency law on one hand, and the ED's attachment powers under the PMLA on the other.

The ED's focus comes amid scrutiny of insolvency resolutions involving steep haircuts for creditors.
The ED's latest directions are part of a broader effort to strengthen its investigation of economic offences. The agency said its recently approved cadre restructuring will increase its sanctioned strength from 2,029 to 3,256 posts and expand its functional units from 131 to 241. The rollout is targeted from January 1, 2027.

The restructuring will also create 50 PMLA zones and five dedicated FEMA zones. The ED aims to compress the investigation lifecycle from the current four to five years to around one-and-a-half years.

The agency said the IBC-PMLA session at the conference also discussed an illustrative case where ED intervention before the NCLT resulted in the recall of an order initiating the corporate insolvency resolution process.