Enforcement Directorate Steps Up Scrutiny of IBC Frauds, Flags Collusive Resolutions and Large Haircuts

New Delhi, Sep 19 (KNN) The Enforcement Directorate (ED) has directed its zonal offices to step up scrutiny of suspected frauds under the Insolvency and Bankruptcy Code (IBC), including alleged collusive resolution processes involving disproportionately large haircuts that enable defaulting promoters to re-acquire assets.

At its 36th Quarterly Conference of Zonal Officers in Bengaluru on September 14-15, ED Director Rahul Navin directed officials to identify red flags in such cases and initiate independent investigations under the Prevention of Money Laundering Act (PMLA) against alleged masterminds, according to the agency.

ED to Examine IBC Resolution Process

The agency has identified potential malpractices 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.

Officials have been asked to obtain copies of applications filed by resolution professionals relating to preferential, undervalued, fraudulent and extortionate transactions, and file intervention applications before the National Company Law Tribunal (NCLT).

The move comes amid scrutiny of cases where creditor banks have reportedly accepted haircuts of up to 97-99 per cent of admitted claims, followed by alleged transfer of ownership to entities linked to defaulting promoters.

IBC-PMLA Legal Interplay Under Review

The ED 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, alongside the ED's attachment powers under the PMLA.

The agency said an illustrative case discussed at the conference involved ED intervention before the NCLT that resulted in the recall of an order initiating the corporate insolvency resolution process.

ED to Expand PMLA Operations

The directions are part of a broader effort to strengthen the agency's investigation of economic offences. The ED's 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 restructuring, targeted for rollout from January 1, 2027, will also create 50 PMLA zones and five dedicated FEMA zones.

The agency aims to reduce the investigation lifecycle from the current four-five years to around 18 months.

(KNN Bureau)