IBBI Releases Discussion Paper on Fraudulent CIRP Initiation: Obligations of Insolvency Professionals Under the IBC, 2016
Overview
On 14th August 2026, the Insolvency and Bankruptcy Board of India (IBBI) released a Discussion Paper inviting stakeholder feedback on a proposed draft circular aimed at strengthening the role of Insolvency Professionals (IPs) in detecting and reporting fraudulent or malicious initiation of the Corporate Insolvency Resolution Process (CIRP). The guidance draws upon existing statutory provisions under the Insolvency and Bankruptcy Code, 2016 ("IBC" or "the Code") and seeks to consolidate obligations already binding on IPs — without introducing any new substantive duties beyond what the law already mandates.
The deadline for submitting comments electronically is 24th August 2026.
Background and Purpose of the Discussion Paper
The Insolvency and Bankruptcy Code, 2016 was designed to facilitate time-bound resolution of financially distressed entities. However, as the framework has matured, regulatory experience and feedback from enforcement agencies have highlighted a growing concern: certain parties are allegedly misusing the CIRP mechanism for purposes entirely unrelated to genuine debt resolution.
IBBI has, in this context, received intelligence from law-enforcement bodies and other regulatory authorities suggesting that the CIRP framework is being exploited in select cases with malafide intent — including for:
- Settling debts outside standard recovery channels
- Mitigating tax and statutory liabilities in an unauthorized manner
- Facilitating the closure or merger of companies while bypassing regulatory scrutiny
- Reducing exposure to pending or anticipated investigations, prosecutions, and statutory penalties
- Ring-fencing or monetising corporate assets without legitimate justification
Given that IPs have direct access to the books of account, financial records, and proceedings of the Committee of Creditors (CoC), IBBI considers them uniquely positioned to identify early warning signs of such abuse. The Discussion Paper, therefore, proposes a draft circular (Annexure A) that consolidates the relevant legal provisions and provides an illustrative, non-exhaustive list of indicators that IPs must remain vigilant about.
Statutory Framework: Key Provisions Governing IP Duties
The draft circular highlights several provisions of the Code and associated regulations that collectively impose a non-delegable duty on IPs to examine and escalate indicators of fraudulent or malicious CIRP initiation:
Relevant Sections and Regulations
Section 18of the IBC — Imposes a duty on the IP to gather comprehensive information relating to the assets, finances, and operations of the corporate debtor.Section 19(2)of the IBC — Empowers the IP to seek directions from the Adjudicating Authority (AA) in cases where the erstwhile management fails to extend cooperation.