The Supreme Court raised sharp concerns over what it described as widespread abuse of the Insolvency and Bankruptcy Code (IBC), warning that distressed companies are gaming the process to offload assets at steep undervaluations to insiders. Hearing a PIL linked to alleged bank frauds by Anil Dhirubhai Ambani Group (ADAG) companies, the Court flagged systemic risks to creditor recovery and market integrity, and ordered a deeper probe into possible bank collusion.
The Bench, led by Chief Justice of India Surya Kant and comprising Justice Joymalya Bagchi and Justice Vipul Pancholi, was considering a petition by former Union Secretary E.A.S. Sarma seeking a court monitored investigation into alleged bank loan frauds exceeding Rs.40,000 crore by ADAG entities. Counsel for the petitioners pointed to massive dues, running into tens of thousands of crores, being resolved through insolvency at a fraction of their value, with assets allegedly ending up with related parties. Senior counsel for the ADAG promoter countered that insolvency resolutions were still pending. The Solicitor General acknowledged that the government is examining concerns around IBC misuse.
Calling the trend alarming, the CJI observed that the IBC platform is being exploited to depress valuations and orchestrate insider acquisitions, stating, “Unfortunately, the IBC platform is now being misused like anything… somebody from the family or the close friends comes and buys it.”
The Court noted it was witnessing such patterns “routinely,” where voluntary insolvency declarations are followed by evaluations far below market value. The Bench also criticised the CBI for clubbing multiple bank complaints into a single FIR, remarking that this approach “does not seem to be in conformity with the procedural law,” as each complaint constitutes a distinct transaction.
Consequently, the Court directed the CBI to examine potential collusion by bank officials as part of its investigation.
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