IBBI IBC Misuse Circular 2026: Six Indicators and IP Due Diligence
Updated: 5 days ago
Updated 8 October 2026 | PGT & Associates
IBBI’s final Circular IBBI/CIRP/105/2026, dated 9 September 2026, asks insolvency professionals to remain alert to misuse of CIRP or liquidation. It identifies six illustrative indicators, requires context-sensitive enquiry where warranted, and requires an application to the Adjudicating Authority when the professional forms a view on reasonable grounds that the process may serve a fraudulent or malicious purpose other than the resolution of insolvency or liquidation of the corporate debtor.
This article previously discussed the 14 August draft and a nine-red-flag framework. The current article addresses the final September circular. Readers should use the final circular rather than treat the consultation draft as the operative guidance.
The six illustrative indicators in the final circular
A single creditor initiating CIRP, or receiving debt shortly before initiation, then dominating the CoC; scheduled banks and public financial institutions as defined in section 2(72) of the Companies Act, 2013 are excluded from this particular indicator.
Connected corporate debtors entering CIRP close together with overlapping CoCs.
Limited competition or a recurring resolution applicant across connected debtors.
Recoveries grossly disproportionate to admitted claims without proper valuation support.
Links to fraud-related regulatory or enforcement proceedings.
Substantial related/group funding despite absent operations, with inadequately supported write-offs or doubtful/NIL classification.
The list is illustrative and not exhaustive. These are indicators for enquiry, not automatic findings of fraud. The circular recognises that genuine financial distress and ordinary commercial activity can also produce such circumstances.
What an insolvency professional must do
Assess the available records holistically and enquire further where warranted. If review produces reasonable grounds to consider that the process may serve a fraudulent or malicious purpose other than the resolution of insolvency or liquidation of the corporate debtor, apply to the Adjudicating Authority with the relevant facts and material, identifying the indicators and explaining the reasoning. The circular does not itself decide the directions the Authority should give.
Practical evidence checklist for finance teams
The following checklist is suggested preparation, not an additional statutory filing form. It can help the responsible professional understand the commercial story behind the records.
Keep debt-origin documents, subsequent assignment papers and the transaction chronology together.
Map group links and related-party balances consistently across ledgers, bank records and supporting approvals.
Retain the material explaining valuation assumptions and recoverability rather than relying on an unexplained accounting label.
Separate an allegation, an open proceeding and an adjudicated finding when describing litigation history.
Record explanations that support genuine commercial distress as carefully as facts that raise concerns.
For example, a common registered address is a starting point for checking relationships, not a conclusion that the entities colluded. A sound working file should show what was checked, the records available, the explanation obtained and the matters still unresolved.
Why directors and creditors should care
Contemporaneous records help distinguish a commercially explainable transaction from an unexplained pattern. A corporate finance team can organise supporting evidence for the insolvency professional, but should not substitute its own assurance for the professional’s enquiry.
Creditors should preserve the documentary history of their claims and any assignment. Resolution applicants should be ready to explain the commercial basis of participation. These are practical documentation suggestions; the article does not promise immunity, approval of a resolution plan or termination of proceedings.
Frequently asked questions
Does one indicator establish misuse?
No. The circular expressly calls for a contextual assessment and warns against treating any indicator alone as conclusive.
Is this still a consultation draft?
No. This article describes the final circular dated 9 September 2026. The August consultation is historical background.
Does the circular automatically terminate CIRP?
No. It requires the professional to approach the Adjudicating Authority in the specified circumstances and seek appropriate directions. It does not prescribe automatic termination.
Does every case require a forensic audit?
The circular calls for further enquiry as warranted from the available records. It does not impose a universal forensic-audit requirement.
Related reading
Source and scope
Primary source: IBBI Circular IBBI/CIRP/105/2026 dated 9 September 2026, linked above. Reviewed on 8 October 2026. This article covers that circular; it is not an exhaustive account of subsequent case law or every remedy under the IBC.
General professional information only. Apply the current law and case-specific advice before taking action.
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