India’s insolvency regulator issues new guidelines urging professionals to vigilantly detect signs of abuse in bankruptcy proceedings, reflecting a bid to reinforce the integrity of the insolvency system amid rising concerns over misuse.
India’s insolvency regulator has told insolvency professionals to look more closely for signs that the bankruptcy process is being used for reasons other than genuine resolution or liquidation, after receiving intelligence from law enforcement and other agencies about possible abuse.
In a circular dated September 9, 2026, the Insolvency and Bankruptcy Board of India said the Insolvency and Bankruptcy Code may in some cases be used to reduce tax liabilities, avoid regulatory scrutiny, sidestep investigations or penalties, or help promoters and related parties protect assets. The board said professionals should not treat any one warning sign as proof of wrongdoing, but should carry out further checks where several indicators appear together.
Among the warning signs the board highlighted are cases in which insolvency is triggered by a single creditor, or where debt is assigned shortly before a filing to a lone creditor other than a scheduled bank or public financial institution, allowing that creditor to dominate the committee of creditors. It also pointed to clusters of companies with common promoters, directors, addresses or inter-lending links entering insolvency within a short period, especially where the creditor committees overlap.
The board said other signs include weak competition in the resolution process, the same bidder repeatedly appearing across related cases, recoveries that are wildly out of line with admitted claims without a convincing valuation basis, and links to fraud-related proceedings involving other regulators or enforcement agencies. It also flagged large loans, advances or investments in related entities that have later been written off, or treated as doubtful or worthless, without a clear basis.
According to the circular, these indicators are only illustrative and not exhaustive. The board said insolvency professionals must make a “holistic and contextual assessment” of the facts and, where they reasonably suspect misuse, approach the adjudicating authority with the relevant material and seek directions under the code.
The latest move builds on the board’s earlier emphasis on tighter scrutiny in insolvency cases. In November 2025, it issued a separate circular reinforcing due diligence under Section 29A of the Insolvency and Bankruptcy Code, including detailed disclosures by resolution applicants and a fuller compliance note from resolution professionals to the committee of creditors. Together, the measures suggest a sharper regulatory focus on keeping the insolvency system open to genuine distress cases while closing off routes that could be used to game the process.
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