Central agencies are intensifying their scrutiny of the Insolvency and Bankruptcy Code (IBC) process, focusing on alleged misuse and bid rigging before the National Company Law Tribunal (NCLT). Recent actions by the Enforcement Directorate (ED) highlight the growing concerns surrounding irregularities in insolvency proceedings.
The ED recently arrested Amit Katyal, a close associate of former railway minister Lalu Prasad Yadav, in connection with a real estate fraud case involving undervalued land sales and bid manipulation. This arrest underscores the ED's commitment to clamping down on financial irregularities within the IBC framework.
Investigations have revealed collusion between bank officials, resolution professionals, and buyers, leading to significant financial irregularities. According to the agency, land belonging to an insolvent real estate company was sold at a grossly undervalued price through a manipulated bidding process involving intermediaries. Raids conducted by the ED in Delhi and Gurugram led to the seizure of ₹50 lakh in unexplained cash from intermediaries, including an NCLT lawyer, and digital evidence of proposed illicit arrangements and bid rigging.
The ED's investigation has also revealed that homebuyers were deliberately kept uninformed, and that a secured creditor accepted a substantial haircut despite the appreciation in property value. Evidence collected during the search revealed manipulation of the bidding process through predetermined and artificially suppressed bids, including one bid submitted by the middleman advocate himself, indicating clear collusion and bid rigging. Digital data recovered from mobile phones contained draft invoices reflecting proposed illicit and unaccounted consideration, indicating arrangements for illegal gains outside the IBC/NCLT framework and without the approval of creditors or homebuyers. The case was related to Universal BuildWell and its promoters for non-completion of real estate projects and for cheating homebuyers.
The ED's action underscores a serious crackdown on financial irregularities and alleged corruption within the NCLT and IBC ecosystem. The agency's investigation focuses on the undervalued sale of an asset belonging to Universal Buildwell Pvt. Ltd. after the company underwent the Corporate Insolvency Resolution Process (CIRP). The investigation revealed that a parcel of land was sold at a throwaway price, despite its market value being significantly higher than the proposed sale value, suggesting an attempt to profit illicitly from the process. The raids targeted several individuals and entities, including middlemen not part of the formal Insolvency process, the Resolution Professional (RP), NCLT advocates, and the property buyer, RDB Infrastructure and Power Ltd.
The investigation also pointed to potential negligence on the part of the Resolution Professional. Crucially, homebuyers, who had a direct stake in maximizing the asset value, were allegedly deliberately kept uninformed, as revealed by seized materials. The original resolution plan, approved following the IBC process, had directed certain assets to be handed over to homebuyers while the remainder was to be liquidated.
In a separate case, the National Company Law Appellate Tribunal (NCLAT) addressed allegations of bid-rigging in the auction of Atlas Alloy. The NCLAT dismissed the claim, emphasizing that suspicion is not evidence and screenshots are no substitute for hard data. The tribunal underscored the importance of transparency and value maximization in liquidation processes, while also cautioning against unfounded accusations.
