ED chief orders action against IBC frauds, large haircuts to promoters

New Delhi: ED director Rahul Navin has directed agency sleuths to step up action in IBC fraud cases involving "large haircuts" that allow promoters to re-acquire assets, and to take alternative steps in cases where police do not register an FIR at its request.

Both issues recently made news after a special National Company Law Tribunal (NCLT) bench barred Essel Group chairman Subhash Chandra from alienating his properties and issued notices to all parties in a case over a proposed settlement that would allow creditors to recover Rs 6.5 crore from his personal estate against claims of Rs 22,006 crore. The CBI later booked Chandra in this instance.

On the delay in police FIRs, especially in Opposition-ruled states, the ED has sent multiple communications under Section 66(2) of the PMLA, asking police departments to file a criminal case based on its findings, but has found a gap.


The agency recently asked the Keralam director general of police to file a case against former chief minister Pinarayi Vijayan and his family members, and the Congress government said it was looking at the legal merits presented by the ED.

Similar requests were made in Tamil Nadu, Karnataka and a few other states.

The Enforcement Directorate chief also asked the investigators to fast-track "high-profile" trials to secure speedy convictions under the Prevention of Money Laundering Act (PMLA).

He directed them to file "committal" applications before courts to transfer the trial from a regular court to the special PMLA court, allowing both the predicate offence and the money laundering offence to be tried together, reducing delay.

Navin issued the directives during the two-day quarterly conference of ED officers, which concluded at the IIM-Bangalore on Tuesday.

The conference was preceded by a management and leadership workshop at the top-ranking B-school. It also had a session by a Special FBI Agent attached to the US Embassy in Delhi.

According to an ED statement, Navin identified certain "core operational thrust areas", such as unearthing frauds under the Insolvency and Bankruptcy Code (IBC) and the PMLA, including re-examining collusive resolution cases involving disproportionately large haircuts through which promoters re-acquire assets.

The "legal tension" between the moratorium under Section 14 and the immunity under Section 32A of the IBC on one hand, and attachment powers under the PMLA on the other, was also analysed.

Recurring "malpractices" such as circumvention of Section 29A (persons not eligible to be resolution applicant), inflation of related-party claims, manipulation of the Committee of Creditors, asset stripping and artificially large haircuts through which promoters regain control of assets were identified at the session, it said.

The director sought fast-tracking of trials, requiring the identification of at least ten high-profile cases in each region for trial conclusion, conviction within six to eight months, and "aggressive" pursuit of restitution of attached and confiscated assets to legitimate victims, the statement said.

A session discussed the "gap" in FIRs on references made by the ED (under Section 66(2) of the PMLA).

A "recourse" recommended: forming joint special investigation teams (ED, Police, and other agencies), and utilising the asset attachment provision available to the police under the Bharatiya Nagarik Suraksha Sanhita (BNSS) and other special statutes.

Another session "underscored" the need for "close coordination" with the police, CBI or Customs, both at the level of the Investigating Officer and the Public Prosecutor, as the outcome of a trial under the PMLA depends on the conclusion and outcome of the trial in the predicate offence.

"It was further directed that, other than in certain exceptional circumstances, committal applications under Section 44(1)(c) of the PMLA should be filed," the statement said.

Navin also "cautioned" the officers that offline deployment of Artificial Intelligence tools carries "risks" of data leakage and hence "confidential" case material must be handled with care. He underlined the shift in intelligence culture from a 'need to know' basis to a 'duty to share' among law enforcement agencies to obtain better results.

The director also said the agency will maintain an "uncompromising" policy of 'zero tolerance' towards corruption within the organisation.

The statement said a recent cadre restructuring sanctioned by the Union government will enhance the ED's strength from 2,029 to 3,256 posts, and the boost will help "compress" the investigation lifecycle from the present four to five years to about one-and-a-half years.

The meeting also discussed measures to counter "dilatory" defence tactics and a graded sequence of coercive steps against evading and absconding accused culminating in trial in absentia.

The agency stated that restitution or restoration of assets to victims of frauds, including Ponzi schemes and homebuyer cheating, was its "sustained pursuit."

It has been decided to file applications for restoration without waiting for charges to be framed, move the special courts suo motu where investors are numerous or state attachments overlap and engage with state competent authorities and judicial committees, the statement said.

The agency has restituted assets worth Rs 73,800 crore across seventy-six cases so far.