ED Flags Bankruptcy Code Frauds, 'Disproportionate' Haircuts as Thrust Areas

The 99.97% Haircut That Explains a Falling Recovery Rate India's IBC recovery rate for creditors has fallen from 37% in FY25 to just 20% in FY26 - the lowest in five years.

That aggregate number is where most coverage of this story stops. Kavitha's question is different: what specific mechanism is dragging that average down and who benefits when it does?

One Case, One Mechanism Look at Subhash

Chandra's personal insolvency settlement: an NCLT order approved repayment of ₹6.25 crore against admitted claims of ₹22,006.57 crore - a haircut of roughly 99.97%. That's not a rounding error in a recovery statistic; it's the exact mechanism the ED says is dragging the national average down, case by case.

And the promoter in question isn't a passive bystander in that number - he's often the one positioned to benefit from it.

How the Loophole Actually Works The

ED's own list of "recurring malpractices" reads like a mechanism diagram: circumvention of Section 29A (which is supposed to bar defaulting promoters from bidding on their own company), inflation of related-party claims to dilute genuine creditors' voting power and manipulation of the Committee of Creditors that approves the final haircut. Put together, a promoter who allegedly sank a company can end up voting, through related entities, to accept a steep haircut - then re-acquire the stripped company through the very resolution process meant to protect creditors from exactly that outcome.

The Legal Fault Line Nobody Resolves Cleanly This is

where Section 32A creates real tension. It grants a "clean slate"

• immunity from prior offences - to whoever the resolution process hands the company to, precisely so genuine new buyers aren't scared off by a target's past. But when the "new" buyer is functionally the old promoter operating through related parties, that same immunity becomes the shield the ED is now trying to see through using PMLA attachment powers, against IBC's own Section 14 moratorium.

Why the Aggregate Number Matters Again

Zoom back out: a 20% recovery rate isn't just bad luck for banks - it's public money, since most of these creditors are public sector banks recovering depositors' funds. Every case where a promoter re-acquires assets through a manipulated haircut is a transfer from that recovery pool back to the person who caused the loss in the first place.

For GS3 aspirants, the real exam-relevant tension here isn't "resolution versus recovery" as textbook framing - it's how a law built to protect legitimate buyers from a debtor's past can be reverse-engineered by the debtor themselves.