- Enforcement Directorate will review IBC cases with large haircuts and asset re-acquisition by promoters
- ED flagged concerns like Section 29A circumvention, CoC manipulation, and inflated related-party claims
- ED plans tribunal interventions and probes under the Prevention of Money Laundering Act
The Enforcement Directorate will scrutinise Insolvency and Bankruptcy Code (IBC) cases linked to disproportionately large haircuts where promoters re-acquire assets, according to a press relase by the agency.
ED flagged possible circumvention of Section 29A, CoC manipulation, inflated related-party claims and asset stripping. It further plans to intervene before Tribunals in relevant cases and initiate independent probes linked to Prevention of Money Laundering Act.
The agency has asked officials to identify red flags and obtain details of preferential, undervalued, fraudulent and extortionate transactions.
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Prior to this, the Insolvency and Bankruptcy Board of India (IBBI) flagged the misuse of IBC for purposes apart from insolvency resolution or liquidation.
The regulator, in a circular issued on September 9 instructed Insolvency Professionals (IPs) to remain vigilant for signs that the insolvency process could be serving fraudulent or malicious purposes. The board said it had received information from law enforcement and regulatory agencies regarding such cases. The alleged misuse includes mitigating tax liabilities and enabling the closure or merger of companies without regulatory scrutiny.
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It also comprises of mitigating investigations, prosecutions and penalties under various laws. Monetising or ring-fencing assets could also indicate potential misuse, the regulator said.
IBBI highlighted cases where the Corporate Insolvency Resolution Process (CIRP) is initiated by a single creditor, or where debt is assigned to a single creditor shortly before initiation, and that creditor subsequently dominates the Committee of Creditors.
The regulator also highlighted clusters of connected companies entering CIRP within a similar timeframe. Common promoters, directors or addresses, as well as inter-lending, could indicate such connections.
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