Bankruptcy code being misused by firms facing insolvency, govt tells apex court

“Unfortunately, IBC platform is nowadays being misused like anything. You get all the assets undervalued then you indulge in a kind of auction, which is also completely a pre-planned game. Somebody from the family or close friends comes and buys it,” said the CJI

2 min readNew DelhiFeb 5, 2026 05:57 AM IST

Bankruptcy code being misused by firms facing insolvency, govt tells apex court

Solicitor General Tushar Mehta conveyed this to a three-judge bench presided by Chief Justice of India Surya Kant.

The Centre on Wednesday told the Supreme Court that it is “seriously considering” looking at the alleged misuse of proceedings under The Insolvency and Bankruptcy Code, 2016, by companies facing insolvency.

Solicitor General Tushar Mehta conveyed this to a three-judge bench presided by Chief Justice of India Surya Kant while it was hearing a petition for probe into the alleged bank frauds involving Reliance Anil Dhirubhai Ambani Group (RADAG).

Appearing for petitioner E A S Sarma, Advocate Prashant Bhushan told the bench, also comprising Justices Joymalya Bagchi and Vipul M Pancholi, that a group company, which had dues of over Rs 47,000 crore, was sold for a mere Rs 455 crore “to the brother’s company.”

The CJI then said, “Unfortunately, IBC platform is nowadays being misused like anything. You get all the assets undervalued then you indulge in a kind of auction, which is also completely a pre-planned game. Somebody from the family or close friends comes and buys it.”

Mehta said, “The government of India is also seriously considering this issue in IBC. I am a part of the discussion so I cannot say much but it is under very serious consideration.”

The CJI pointed out that such matters are coming to the court everyday.

The SG said that “the haircut is phenomenal”. Haircut in IBC proceedings refers to the difference the creditors have to give up from their claim in the event of the company being unable to repay it.

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Bhushan said, “The bankruptcy is declared by the very company which is facing bankruptcy.”

The CJI said that it is not just a voluntary declaration. “Then your own people evaluate you and that evaluation is not even 1-10% of the actual market value,” the CJI added.

He also expressed doubts on the role of resolution professionals, saying, “I am observing every day, their conduct is also not overboard.”