IBBI Proposes Due-Diligence Guidance for Insolvency Professionals to Flag Fraudulent or Malicious CIRP Initiation
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What has changed
The Insolvency and Bankruptcy Board of India has released a discussion paper proposing guidance for Insolvency Professionals on due diligence to identify possible fraudulent or malicious initiation of the Corporate Insolvency Resolution Process.
Why IBBI is proposing the guidance
IBBI says information received from law-enforcement and regulatory agencies indicates that CIRP has in some cases been used with mala fide intent, including to settle debts outside ordinary recovery processes, mitigate tax or statutory liabilities, avoid regulatory scrutiny, blunt investigations or penalties, and monetise or ring-fence assets.
What the draft circular would require
The draft highlights existing duties under Sections 18, 19(2), 25(2)(j), 60(5) and 65 of the IBC, Regulation 35A and the Insolvency Professional Code of Conduct. IBBI describes the proposed circular as explanatory and says it is not intended to create a new substantive obligation beyond existing provisions.
The draft lists illustrative warning indicators, including negligible operations or assets, suspicious related-party loans, qualified audit observations, links to enforcement proceedings, creditor dominance after a recent debt assignment, clusters of connected corporate debtors entering CIRP, inability of valuers or auditors to verify assets, weak competitive participation and recoveries grossly disproportionate to admitted claims without proper valuation support.
Recourse where abuse is suspected
Under the proposal, where an Insolvency Professional forms the opinion that CIRP was initiated fraudulently or maliciously for a purpose other than resolution or liquidation, the IP should approach the Adjudicating Authority under Section 60(5) read with Section 65 for suitable directions and penalty, in addition to applications that may be warranted under Sections 43, 45, 50 or 66.
Comments due by August 24
IBBI has invited comments from Insolvency Professionals, agencies and entities, CoC members, resolution applicants, creditors, corporate debtors, personal guarantors, investors, legal practitioners, academics and other stakeholders. Comments may be submitted electronically through IBBI's Public Comments facility by 24 August 2026.
Useful official links
Key takeaway
The proposal is a current IBBI consultation with a near-term August 24 deadline and practical implications for insolvency professionals, creditors, CoC members, auditors and restructuring advisers.
