IBBI discussion paper of 14 August 2026 proposed guidance for insolvency professionals on fraudulent or malicious initiation of CIRP under section 65; comments closed 24 August
IBBI’s discussion paper dated 14 August 2026 placed a draft circular for comments: nine illustrative indicators that should alert an insolvency professional to fraudulent or malicious initiation of CIRP, and an application to the Adjudicating Authority under section 60(5) read with section 65 where the professional forms that opinion. It was a proposal; the comment period ended on 24 August 2026.
Key facts
- In force
- Proposal only — comment period ended 24 August 2026
- Who it affects
- Insolvency professionals acting as IRP/RP, IPEs and IPAs, members of committees of creditors, resolution applicants, corporate debtors
- What it is
- Comments invited
- Section
- Insolvency
- Published
- 14 August 2026
In 30 seconds
- The paper is dated 14 August 2026; comments were to be submitted electronically by 24 August 2026 — that date has passed.
- It carried a draft circular at Annexure A; the paper described it as explanatory of existing duties, not creating a new substantive obligation.
- The draft listed nine illustrative indicators of fraudulent or malicious initiation of CIRP.
- Proposed recourse: an application before the Adjudicating Authority under section 60(5) read with section 65, in addition to any application under sections 43, 45, 50 or 66.
- The draft said it would take effect immediately and apply to all ongoing and future assignments as IRP/RP.
- IBBI has since issued Circular No. IBBI/CIRP/105/2026 dated 9 September 2026 on due diligence regarding misuse of the IBC framework; its text differs from the draft.
हिंदी में सार
IBBI ने 14 अगस्त 2026 के चर्चा-पत्र में एक मसौदा परिपत्र रखा था, जिसमें CIRP की कपटपूर्ण या दुर्भावनापूर्ण शुरुआत (धारा 65) पहचानने के लिए दिवाला पेशेवरों हेतु नौ संकेत और धारा 60(5) सहपठित धारा 65 के तहत न्यायनिर्णायक प्राधिकरण में आवेदन का रास्ता बताया गया था। यह सिर्फ़ प्रस्ताव था; टिप्पणियों की अंतिम तारीख़ 24 अगस्त 2026 निकल चुकी है। इसके बाद IBBI ने 9 सितंबर 2026 को परिपत्र 105 जारी किया है, जिसकी भाषा मसौदे से अलग है।
Status: a proposal
On 14 August 2026 the Insolvency and Bankruptcy Board of India published a discussion paper titled “Guidance to Insolvency Professionals for Due Diligence to Identify Fraudulent or Malicious Initiation of Corporate Insolvency Resolution Process, and Recourse under Sections 60(5) and 65 of the Insolvency and Bankruptcy Code, 2016”. Its objective was to seek stakeholder comments on a draft circular placed at Annexure A.
Comments were to be submitted electronically by 24 August 2026. That date has passed.
The problem IBBI described
Section 65(1) of the Code empowers the Adjudicating Authority to impose a penalty where the CIRP has been initiated fraudulently or with malicious intent for any purpose other than resolution of insolvency or liquidation. The paper says the Board has received information from law-enforcement and other regulatory agencies that the CIRP framework is, in certain cases, resorted to with mala fide intent — to settle debts outside the ordinary process of recovery, mitigate tax and other statutory liabilities, close or merge companies without regulatory scrutiny, mitigate pending or anticipated investigations, prosecution and penalties, and monetise or ring-fence assets.
It adds that such indicators are not being consistently examined or escalated by insolvency professionals (IPs), which has in certain cases delayed the invocation of section 65.
The draft draws on sections 18, 19(2), 25(2)(j), 60(5) and 65(1) of the Code, regulation 35A of the CIRP Regulations and the Code of Conduct for IPs. The paper states that the proposed circular is explanatory of the scope of an IP’s existing statutory duties and is not intended to create any new substantive obligation.
The nine indicators in the draft
| # | Indicator (illustrative, not exhaustive) |
|---|---|
| (a) | Corporate debtor with no or negligible operations, revenue or tangible assets, and persistently negative net worth |
| (b) | Substantial loans, advances or investments to or from related/group entities despite such absence of operations, written off or shown as doubtful/NIL without adequate basis |
| (c) | Qualified audit opinions or emphasis of matter on recoverability of loans/investments, or on internal-control weaknesses concerning related-party exposures |
| (d) | Linkage to an order or ongoing proceeding of another regulator, enforcement or investigating agency concerning diversion or fraudulent disbursement of funds |
| (e) | CIRP initiated by, or debt assigned shortly before initiation to, a single creditor who then dominates the CoC |
| (f) | A cluster of corporate debtors with common promoters, addresses, directors or inter-lending, taken into CIRP within a proximate timeframe with overlapping CoC composition |
| (g) | Valuers or auditors unable to verify asset classes for want of documents or cooperation |
| (h) | Minimal competitive participation, or a common resolution applicant recurring across connected corporate debtors |
| (i) | Realisation to creditors grossly disproportionate to admitted claims, unsupported by a proper valuation exercise |
What the draft asked of IPs
On noticing any such indicator, the IP was to review it in detail and form a considered opinion. Where the IP was of the opinion that the process was initiated fraudulently or with malicious intent, the IP was to file an application before the Adjudicating Authority under section 60(5) read with section 65 for suitable directions and penalty, in addition to any application warranted under sections 43, 45, 50 or 66.
What readers should do now
The comment window is closed. IBBI has since issued Circular No. IBBI/CIRP/105/2026 dated 9 September 2026 on due diligence by insolvency professionals regarding misuse of the IBC framework. Its wording is not the same as this draft — it lists six indicators, not nine — so IPs should work from the issued circular and not from the draft annexed to this paper.
Questions and answers
Was the draft circular in this discussion paper binding?
No. It was a draft placed for stakeholder comments. The paper’s stated objective was to seek comments on the draft circular at Annexure A.
What was the deadline for comments?
Comments were to be submitted electronically by 24 August 2026. That date has passed.
What does section 65 of the IBC provide?
As the paper describes it, section 65(1) empowers the Adjudicating Authority to impose a penalty where the CIRP has been initiated fraudulently or with malicious intent for any purpose other than the resolution of insolvency, or liquidation.
What action did the draft require from an insolvency professional?
To review the indicators in detail, form a considered opinion and, where the process appeared to be initiated fraudulently or with malicious intent, file an application before the Adjudicating Authority under section 60(5) read with section 65.
Has IBBI issued a final circular?
IBBI issued Circular No. IBBI/CIRP/105/2026 on 9 September 2026 on due diligence by insolvency professionals regarding misuse of the IBC framework. Its text differs from the draft in this paper.
Published 14 August 2026. Updated 8 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.