IBBI lists six red flags of IBC misuse; insolvency professionals must apply to the Adjudicating Authority where the process serves a fraudulent purpose — Circular 105
IBBI says it has information from law enforcement and regulatory agencies that the IBC framework is, in certain cases, being misused for purposes other than insolvency resolution or liquidation. Circular No. IBBI/CIRP/105/2026 dated 9 September 2026 gives insolvency professionals six illustrative indicators to watch for and requires an application to the Adjudicating Authority where, on reasonable grounds, the process appears to serve a fraudulent or malicious purpose.
Key facts
- In force
- Circular dated 9 September 2026
- Who it affects
- Insolvency professionals, IPEs and IPAs; creditors, resolution applicants and promoters of corporate debtors in CIRP or liquidation
- What it is
- Clarified
- Section
- Insolvency
- Published
- 9 September 2026
In 30 seconds
- Misuse cited by IBBI includes mitigating tax liabilities, closing or merging companies without regulatory scrutiny, mitigating investigations, prosecution and penalties, and monetising and ring-fencing assets.
- Six indicators are listed; they are illustrative, not exhaustive.
- No indicator by itself is conclusive — some may arise in genuine financial distress or the ordinary course of business.
- On noticing an indicator, the IP should make further enquiry from the records available in the ordinary course of the CIRP or liquidation.
- Where the IP forms a view on reasonable grounds, the IP shall apply to the Adjudicating Authority, setting out the indicators, the material relied on and the reasons.
हिंदी में सार
IBBI ने परिपत्र IBBI/CIRP/105/2026 (9 सितंबर 2026) में कहा है कि कुछ मामलों में IBC का इस्तेमाल दिवाला समाधान के बजाय कर देनदारी घटाने, बिना जाँच कंपनियाँ बंद/विलय करने या संपत्ति बचाने जैसे उद्देश्यों के लिए हो रहा है। दिवाला पेशेवरों के लिए छह संकेत गिनाए गए हैं — जैसे CoC पर हावी अकेला लेनदार, जुड़ी हुई कंपनियों का एक साथ CIRP में आना, कम बोलीदाता। कोई एक संकेत अपने आप में निर्णायक नहीं है; उचित आधार पर राय बनने पर पेशेवर को न्यायनिर्णायक प्राधिकरण में आवेदन करना होगा।
Why the circular was issued
Circular No. IBBI/CIRP/105/2026 dated 9 September 2026 is addressed to all registered insolvency professionals (IPs), insolvency professional entities and insolvency professional agencies. IBBI says it has received information from law enforcement and regulatory agencies that, in certain cases, the framework under the Insolvency and Bankruptcy Code, 2016 is being misused for purposes other than insolvency resolution or liquidation of the corporate debtor.
The instances it names: mitigating tax liabilities; closure or merger of companies without regulatory scrutiny; mitigating investigations, prosecution and penalties under various statutes; and monetising and ring-fencing assets.
IPs, the circular notes, have access to the corporate debtor’s books and records and to the proceedings of the committee of creditors (CoC), and are well placed to spot such indicators in the ordinary course of the process.
The six indicators
| # | Indicator |
|---|---|
| (a) | CIRP initiated by, or debt assigned shortly before initiation to, a single creditor who then dominates the CoC — other than a scheduled bank or a public financial institution as defined in section 2(72) of the Companies Act, 2013 |
| (b) | A cluster of corporate debtors with common promoters, addresses, directors or inter-lending, taken into CIRP within a proximate timeframe with overlapping CoC composition |
| (c) | Minimal competitive participation in the resolution process, or a common resolution applicant recurring across connected corporate debtors |
| (d) | Realisation to creditors grossly disproportionate to admitted claims, unsupported by a proper valuation exercise |
| (e) | Linkage of the corporate debtor or its group to an order or ongoing proceeding of another regulator, enforcement or investigating agency concerning fraud |
| (f) | Substantial loans, advances or investments to or from related/group entities despite absence of operations, written off or shown as doubtful/NIL without adequate basis |
How the indicators are to be read
The list is illustrative and not exhaustive. The circular is careful to add that some of these indicators may also arise in cases of genuine financial distress or in the ordinary course of commercial operations. They flag circumstances that warrant closer examination; no indicator, by itself, is to be treated as conclusive of misuse. An indicator assumes significance when, on a holistic and contextual assessment, it suggests that the CIRP or liquidation may be serving a fraudulent or malicious purpose.
What insolvency professionals have to do
- Stay alert to the indicators, and to other circumstances of a similar nature.
- Enquire further, as warranted, on the basis of the records and information available in the ordinary course of the CIRP or liquidation process.
- Apply to the Adjudicating Authority where, on reasonable grounds, the IP forms the view that the process may be serving a fraudulent or malicious purpose other than resolution of insolvency or liquidation. The application sets out the relevant facts and materials and seeks such directions as the Authority may consider appropriate under the Code.
- The application should identify the indicators noticed, the material relied upon and the reasons for forming the view.
The circular is issued under section 196 of the Code. It applies in both CIRP and liquidation, and does not state a separate commencement date.
Questions and answers
What misuse of the IBC is IBBI concerned about?
Use of the framework for purposes other than insolvency resolution or liquidation — the circular mentions mitigating tax liabilities, closure or merger of companies without regulatory scrutiny, mitigating investigations, prosecution and penalties under various statutes, and monetising and ring-fencing assets.
Does one red flag mean the process is fraudulent?
No. The circular says no indicator, by itself, should be treated as conclusive of misuse, and that some indicators may arise in genuine financial distress or in the ordinary course of commercial operations.
What must an insolvency professional do on noticing an indicator?
Undertake such further enquiry as may be warranted, based on the records and information available in the ordinary course of the CIRP or liquidation process.
When does the IP have to approach the Adjudicating Authority?
Where the IP forms a view, on reasonable grounds, that the process may be serving a fraudulent or malicious purpose other than the resolution of insolvency or liquidation of the corporate debtor. The application should identify the indicators, the material relied upon and the reasons.
Is a bank-led CIRP covered by the single-creditor indicator?
The first indicator excludes a scheduled bank or a public financial institution as defined in section 2(72) of the Companies Act, 2013.
Published 9 September 2026. Updated 6 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.