The Enforcement Directorate (ED) has intensified its scrutiny of suspected frauds arising in insolvency proceedings, particularly cases involving disproportionately large haircuts, alleged manipulation of the Committee of Creditors (CoC), and re-acquisition of assets by erstwhile promoters. The issue was discussed at the 36th Quarterly Conference of Zonal Officers (QCZO) held at the Indian Institute of Management, Bengaluru, on 14–15 September 20261.
ED Director Rahul Navin directed officers to identify red flags in insolvency proceedings and examine whether conduct surrounding resolution processes warrants independent investigation under the Prevention of Money Laundering Act, 2002 (PMLA)2. The ED has specifically identified practices such as circumvention of Section 29A of the Insolvency and Bankruptcy Code, 2016 (IBC)3, inflation of related-party claims, manipulation of the Committee of Creditors (CoC), asset stripping and artificially large haircuts through which promoters may regain control of assets.
The ED’s focus comes against the backdrop of data indicating the scale of haircuts in completed Corporate Insolvency Resolution Processes (CIRPs). An analysis of IBBI data covering 1,164 CIRPs with approved resolution plans found that 564 cases, or 48.5%, resulted in haircuts exceeding 80%. In 355 cases, or 30.5%, creditors recovered less than 10% of their admitted claims, corresponding to haircuts exceeding 90%. The data relates to cases in which resolution plans had been approved up to March 31, 2025. The same IBBI-based analysis noted that, as of June 2026, creditors had recovered approximately 30.56% of their admitted claims through IBC resolutions, while resolutions generated substantially higher recoveries than liquidation in aggregate4.
The ED’s concern is therefore directed not simply at the numerical size of a haircut, but at circumstances suggesting that the insolvency process may have been manipulated to facilitate recovery of assets by persons connected with the defaulting enterprise. The agency has directed its zones to obtain applications concerning preferential, undervalued, fraudulent and extortionate transactions from resolution professionals, intervene before the NCLT where appropriate, and investigate the persons allegedly responsible under the PMLA.
The recent proceedings concerning Dr Subhash Chandra have brought the issue of exceptionally low repayment proposals into sharp focus. In Indiabulls Housing Finance Ltd. v. Dr Subhash Chandra5, proceedings concerning Chandra as a personal guarantor involved claims of approximately ₹22,006.57 crore, against a repayment proposal of approximately ₹6.50 crore, including insolvency-process costs. The proposal therefore represented an apparent reduction of approximately 99.97% when compared mathematically with the claims figure.
Importantly, the ₹22,006.57 crore figure represented claims in the personal-guarantor insolvency proceedings and should not be characterised as a ₹22,000 crore personal loan borrowed by Chandra. The NCLT’s approval of the repayment plan was subsequently placed before a five-member Bench, which stayed the approval and restrained Chandra from alienating his properties. The matter therefore illustrates the continuing judicial scrutiny surrounding exceptionally high haircuts rather than establishing that such a haircut is, by itself, impermissible.
Similarly, the concern assumes particular significance against the backdrop of several CIRPs involving exceptionally high haircuts. IBBI data has recorded exceptionally high haircuts in several CIRPs, including approximately 95.85% in Videocon Industries6, 99.6% in Lanco Thermal Power7 and 92.3% in Jet Airways8. These figures, however, do not by themselves establish fraud; the ED’s present focus is on cases where the circumstances surrounding the insolvency process indicate possible manipulation, diversion of assets or re-acquisition of assets through connected entities.
The QCZO conference specifically examined the legal tension between the moratorium under Section 14 and immunity under Section 32A of the IBC9, on the one hand, and the ED’s attachment powers under the PMLA, on the other.
The central question for enforcement agencies and adjudicatory authorities will remain whether there is evidence of manipulation, diversion or other unlawful conduct surrounding the insolvency process. The developments discussed at the 36th QCZO therefore signal closer institutional attention to the interface between IBC proceedings, creditor recoveries and PMLA enforcement, particularly where insolvency mechanisms are alleged to have been used to facilitate the return of assets to persons connected with the default.
Citations
Expositor(s): Adv. Vatsala Pandit
