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IBBI Due Diligence on Misuse of IBC Framework: 2026 Insolvency Professional Checklist

Author: Finin2min Editorial Desk

Reviewed by: Ravi Sisodia

Published: 2 October 2026

Finin2min 2-Minute Summary

Current position

IBBI's 9 September 2026 circular focuses on due diligence by insolvency professionals where the IBC process may be vulnerable to misuse. The message is significant because the insolvency professional is expected to act as an independent process professional, not merely process documents supplied by the applicant, debtor, creditor or resolution participants. The circular should be read with the Code, applicable regulations and the professional's existing duties of independence, diligence and record keeping.

What misuse risk can look like

Misuse risk is fact-specific. It can arise where an insolvency filing appears designed primarily to achieve a collateral objective, where connected parties influence the process in a way inconsistent with transparent resolution, where claims or transactions lack commercial substance, or where information supplied to the professional is internally inconsistent. The presence of a red flag is not proof of fraud. It is a trigger to investigate, obtain documents, seek explanations and decide whether the issue must be reported, disclosed, challenged or otherwise addressed under the legal framework.

A practical red-flag framework

Start with relationships. Map promoters, directors, related parties, major creditors, resolution applicants and key counterparties. Then test the economics: when was the debt created, what consideration moved, whether the default is supported by bank and accounting records, and whether unusual transactions occurred shortly before initiation. Review process behaviour too: sudden claim changes, identical contact details across supposedly independent parties, pressure to bypass valuation or information requirements, unexplained withdrawal attempts, or attempts to steer asset sales or resolution terms toward connected persons. Each red flag should be tied to evidence, not intuition alone.

Worked example

Suppose an operational creditor files a large claim supported by invoices, but the debtor's ledger shows a materially different balance and bank statements do not show the expected historical payment pattern. The creditor and a potential resolution applicant also share directors through another entity. The insolvency professional should not conclude collusion merely from these facts. Instead, obtain contracts, GST or tax records where relevant, bank evidence, board approvals and related-party information; reconcile the claim; document the relationship; and escalate the issue under the applicable process if concerns remain.

Documentation standard

The due-diligence file should identify the trigger, documents requested, documents received, gaps, interviews or explanations, independent checks performed, legal or valuation input obtained, and the final process treatment. If a concern is taken to the committee of creditors, adjudicating authority, regulator or another stakeholder, preserve the exact material placed before that forum. A later reviewer should be able to see why the insolvency professional acted or did not act without relying on oral recollection.

Governance for insolvency professional entities

Where an insolvency professional works through an insolvency professional entity or larger team, red-flag assessment should not remain trapped in one analyst's mailbox. Create a structured escalation route to the engagement partner or responsible IP, maintain conflict checks, restrict access to sensitive evidence, and record the reason for engaging forensic, legal or valuation specialists. Team governance is especially important where the suspected misuse concerns a stakeholder that is commercially influential in the process.

What not to do

Do not convert due diligence into automatic suspicion of every related-party transaction or contested claim. Do not rely only on management certificates when objective records exist. Do not allow the committee's commercial preference to replace duties imposed directly on the insolvency professional. Do not delete or overwrite earlier versions of claim schedules or process records after a concern emerges. Version history can become important evidence.

Independence test

The insolvency professional should periodically ask whether any stakeholder's commercial influence is affecting professional judgment. Fee dependence, repeated appointments, pressure to accept incomplete evidence or attempts to control communications can create governance risk even where no legal breach is yet proven. Record conflicts and safeguards early. If independence cannot reasonably be maintained, the issue should be handled under the applicable professional and regulatory framework rather than buried in the working papers.

FAQs

What did IBBI issue on 9 September 2026? A circular on due diligence by insolvency professionals regarding misuse of the IBC framework. Does a red flag prove wrongdoing? No. It requires evidence-based examination and appropriate process action. Who should maintain the due-diligence record? The responsible insolvency professional, with controlled support from the engagement team. What records are most useful? Contracts, bank records, ledgers, claim evidence, corporate relationships, board records, valuations and process communications. Should concerns be escalated? Where the facts and law require it, yes; document the basis and forum used. Why is version control important? It preserves the chronology of claims, decisions and evidence if the process is later challenged.

Official Sources

Finin2min conclusion

For IBBI due diligence misuse IBC 2026, use the cited official instrument, the relevant effective date and a documented evidence trail. A portal screen, news headline or internal checklist should not replace the operative regulatory source.

Disclaimer

General educational information for India. Regulatory requirements can change. Verify the latest official instrument and obtain case-specific professional advice before acting on material rights, money or compliance decisions.

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