The Supreme Court of India has raised concerns about the misuse of the Insolvency and Bankruptcy Code (IBC), specifically highlighting instances of significant undervaluation of assets and sham auctions. The court is seeking a thorough investigation into these practices.

During a hearing on Wednesday, a bench led by Chief Justice Surya Kant, along with Justices Joymalya Bagchi and Vipul Pancholi, voiced alarm over the considerable "haircuts" taken by creditors during IBC proceedings. The court's attention was drawn to the case of Reliance Communications, where the company, with outstanding dues of ₹47,000 crore, was acquired for a mere ₹455 crore by Reliance Jio, raising questions about the fairness and transparency of the process.

Solicitor General Tushar Mehta acknowledged the Supreme Court's concerns, stating that the Indian government is seriously examining the issues arising within IBC proceedings. While Mehta refrained from providing specific details due to his involvement in ongoing discussions, he assured the court that the matter is receiving serious consideration at the appropriate levels.

Advocate Prashant Bhushan, who brought the Reliance Communications case to the court's attention, pointed out the stark discrepancy between the company's outstanding dues and the final sale price, which amounted to approximately 1% of the total debt.

The court observed a pattern of companies voluntarily declaring bankruptcy and then being evaluated by "friendly valuers" at significantly reduced values, sometimes as low as 10% of the market value. The bench also expressed concerns about the conduct of resolution professionals, suggesting that their actions may not always be above board.

Senior Advocate Mukul Rohatgi, representing the Anil Ambani group, defended the sale of Reliance Communications as a public process, regardless of the buyer's identity. However, the CJI-led bench countered by stating that IBC proceedings are increasingly being misused, with assets being undervalued and sold in sham auctions to family members or friends in a pre-planned manner. The court noted that such cases are becoming increasingly frequent.

The Supreme Court's observations underscore the potential for abuse within the IBC framework, where companies may exploit the process to dispose of assets at undervalued rates, thereby prejudicing the interests of creditors. The court's call for investigation reflects a commitment to ensuring the integrity and effectiveness of the IBC in resolving insolvency cases and protecting the rights of all stakeholders.