The Enforcement Directorate (ED) has intensified its focus on combating fraud within the Insolvency and Bankruptcy Code (IBC) framework, specifically targeting cases where large creditor "haircuts" may facilitate promoters re-acquiring their own assets. This directive emerged from the 36th Quarterly Conference of Zonal Officers held in Bengaluru on September 14-15, 2026.
ED Director Rahul Navin instructed officials to re-examine resolution cases suspected of collusion, particularly those involving disproportionately large haircuts that enable the original promoters to regain control. The agency has identified several potential malpractices that could undermine the integrity of the insolvency process.
Key Malpractices Under Scrutiny
- Circumvention of Section 29A: This section of the IBC typically bars promoters of defaulting companies from bidding for their own assets.
- Inflation of Related-Party Claims: Manipulating claims made by connected entities to influence the resolution process.
- Manipulation of the Committee of Creditors (CoC): Undue influence on the decision-making body responsible for approving resolution plans.
- Asset Stripping: Illegally selling off assets before or during the insolvency process.
- Artificially Large Haircuts: Creditors accepting significantly reduced payments, potentially to benefit promoters who then re-acquire assets cheaply.
Officers have been directed to identify "red flags" in such IBC cases and obtain copies of applications filed by resolution professionals concerning preferential, undervalued, fraudulent, or extortionate transactions. Furthermore, the ED will file intervention applications before the National Company Law Tribunal (NCLT) and initiate independent investigations under the Prevention of Money Laundering Act (PMLA) against individuals identified as masterminds behind these alleged frauds.
Interplay Between IBC and PMLA
The conference also delved into the complex legal relationship between the IBC and PMLA, specifically addressing how the moratorium under Section 14 and immunity under Section 32A of the insolvency law interact with the ED's powers of attachment under PMLA. An illustrative case was discussed where ED intervention before the NCLT successfully led to the recall of an order initiating a Corporate Insolvency Resolution Process (CIRP).
This heightened scrutiny is part of a broader effort by the ED to strengthen its capabilities in investigating economic offenses. The agency's recently approved cadre restructuring, set to roll out from January 1, 2027, will significantly increase its sanctioned strength from 2,029 to 3,256 posts and expand its functional units from 131 to 241. This restructuring also includes the creation of 50 dedicated PMLA zones and five FEMA zones, aiming to reduce the investigation lifecycle from the current four to five years to approximately one and a half years.