What is the common examiner trap about Economy in UPSC exams?

They may ask a question where the correct answer is about the 'misuse/loopholes in IBC implementation', but provide an attractive distractor about the 'failure of the IBC law itself'. The key is to distinguish between a sound law and flawed execution.

What should UPSC aspirants remember about Economy for Prelims?

1. Target this Data: The alleged sale of a company with dues over Rs 47,000 crore for Rs 455 crore. 2. Target this Nodal Body: The Insolvency and Bankruptcy Board of India (IBBI) - the regulator for the IBC ecosystem. 3. Target this Legal Point: The Insolvency and Bankruptcy Code (IBC), 2016 - the parent legislation.

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Insolvency and Bankruptcy Code 2016 Misused for Undervalued Asset Sales, ₹47,000 Cr Debt Involved

Q: The Insolvency and Bankruptcy Code, 2016, is primarily administered and regulated by which of the following bodies?

Insolvency and Bankruptcy Board of India (IBBI), The Insolvency and Bankruptcy Board of India (IBBI) was established under the IBC, 2016, as the regulator for overseeing insolvency proceedings, insolvency professionals, and information utilities. While NCLT is the Adjudicating Authority, the IBBI is the regulatory body.

Q: Consider the following statements regarding the issues highlighted in the Supreme Court about the Insolvency and Bankruptcy Code (IBC): 1. The platform is being misused for undervaluing assets of the insolvent company. 2. The government has stated that it is not considering any reforms to the IBC process. 3. The role and conduct of Resolution Professionals (RPs) have also come under scrutiny.

Both 1 and 3, Statement 1 is correct as the CJI explicitly mentioned misuse for undervaluation. Statement 2 is incorrect because the Solicitor General stated the government is 'seriously considering' the issue. Statement 3 is correct as the CJI expressed doubts on the conduct of RPs.

Q: In the context of the news article, the alleged bank fraud petition involved a group company with dues of over a certain amount being sold for a mere Rs 455 crore. What was the approximate amount of dues cited?

Over Rs 47,000 crore, The article states that Advocate Prashant Bhushan told the bench that a group company, which had dues of over Rs 47,000 crore, was sold for Rs 455 crore. This highlights the scale of the alleged undervaluation.

Q: What is the primary implication of the 'phenomenal haircut' mentioned by the Solicitor General in the context of IBC proceedings?

It signifies that creditors recover only a small fraction of their claims, undermining the Code's objective., A 'haircut' refers to the loss accepted by creditors. A 'phenomenal haircut' means creditors are recovering very little, which directly contradicts the IBC's core objective of maximizing the value of the debtor's assets for the benefit of all creditors.

Economy PolityHIGH

Target:UPSC GS-IIIMPSCTeachingSSC GABankingPrelims HighMains HighStatic GK Link

04 Feb 2026

~2 min

Source: Indian Express

Key Data:₹47,000 crore₹455 crore2026-02-04

Bodies:Supreme Court

Practice MCQs from today's news ▸

~2 min · Quick mode

What This Article Covers

1.The Supreme Court, during a hearing on alleged bank frauds, observed that the IBC platform is being 'misused like anything' for undervaluation and pre-planned auctions.

2.The Solicitor General informed the Court that the Government of India is 'seriously considering' the issue of misuse in IBC proceedings.

3.The case highlights a key examiner angle: the gap between legislative intent and implementation, especially concerning creditor rights and the role of resolution professionals.

The Big Picture

Prelims · HighMains · High

The Supreme Court and the Government have raised serious concerns about the misuse of the Insolvency and Bankruptcy Code (IBC), 2016. The CJI highlighted a pattern of undervaluation and pre-planned auctions by related parties, leading to massive 'haircuts' for creditors. This is a critical issue for exam aspirants as it tests the understanding of a flagship economic reform and its practical challenges.

Exam Lens

Quick Exam Facts From News

Law in FocusInsolvency and Bankruptcy Code (IBC), 2016

Bench Strength3-Judge Bench

Case ContextPetition for probe into alleged bank frauds involving RADAG

Claimed DuesOver Rs 47,000 crore

Alleged Sale PriceRs 455 crore

1-Minute Revision

›Law in Focus: Insolvency and Bankruptcy Code (IBC), 2016
›Bench Strength: 3-Judge Bench
›Target this Data: The alleged sale of a company with dues over Rs 47,000 crore for Rs 455 crore.
›Target this Nodal Body: The Insolvency and Bankruptcy Board of India (IBBI) - the regulator for the IBC ecosystem.
›Target this Legal Point: The Insolvency and Bankruptcy Code (IBC), 2016 - the parent legislation.

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News Snapshot

⚖️

Judicial Concern

The Supreme Court has flagged systematic misuse of the IBC for undervaluing assets and conducting pre-planned auctions.

🏛️

Government Response

The Centre, through the Solicitor General, acknowledged the issue and stated it is under 'very serious consideration' for reform.

💸

Creditor Haircut

The Solicitor General described the 'haircut' (loss to creditors) in such IBC cases as 'phenomenal', indicating a major implementation flaw.

Detailed Analysis & Strategic Depth

Context / Background

The IBC, 2016, was enacted as a landmark reform to ensure a time-bound resolution of insolvency, maximize asset value, and promote entrepreneurship. It aimed to shift the debtor-creditor relationship from a 'debtor-in-possession' to a 'creditor-in-control' model. However, operational challenges, including delays at the NCLT and litigation, have persisted since its inception.

Core Analysis & Implications

The SC's observations point to a critical loophole: companies allegedly declaring their own bankruptcy, followed by undervaluation by 'their own people' and acquisition by related parties (like 'the brother's company'). This subverts the Code's objective of value maximization. It erodes creditor confidence, particularly of banks, and could increase the cost of capital. The doubts cast on the conduct of Resolution Professionals (RPs) question the efficacy of the entire institutional framework built around the IBC.

Future Outlook / Way Forward

The government's admission signals potential legislative or regulatory amendments. Reforms may focus on strengthening the independence of valuation processes, enhancing the accountability and code of conduct for Resolution Professionals, and introducing stricter checks on related-party transactions in the Corporate Insolvency Resolution Process (CIRP). The Insolvency and Bankruptcy Board of India (IBBI) is likely to issue new guidelines.

Key Facts at a Glance

Law in FocusInsolvency and Bankruptcy Code (IBC), 2016

Bench Strength3-Judge Bench

Case ContextPetition for probe into alleged bank frauds involving RADAG

Claimed DuesOver Rs 47,000 crore

Alleged Sale PriceRs 455 crore

You've read the full analysis. Now test your understanding.

Practice exam-style questions based on this article.

Q1Static LinkageEasyUPSC, SSC, Banking

The Insolvency and Bankruptcy Code, 2016, is primarily administered and regulated by which of the following bodies?

Q2Statement-basedHardUPSC, SSC

Consider the following statements regarding the issues highlighted in the Supreme Court about the Insolvency and Bankruptcy Code (IBC):

1. The platform is being misused for undervaluing assets of the insolvent company.

2. The government has stated that it is not considering any reforms to the IBC process.

3. The role and conduct of Resolution Professionals (RPs) have also come under scrutiny.

Q3Data-centricMediumUPSC, Banking

In the context of the news article, the alleged bank fraud petition involved a group company with dues of over a certain amount being sold for a mere Rs 455 crore. What was the approximate amount of dues cited?

Q4Application/ImpactMediumUPSC, SSC, Banking

What is the primary implication of the 'phenomenal haircut' mentioned by the Solicitor General in the context of IBC proceedings?

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Insolvency and Bankruptcy Code 2016 Misused for Undervalued Asset Sales, ₹47,000 Cr Debt Involved

Exam Lens

Quick Exam Facts From News

1-Minute Revision

News Snapshot

Judicial Concern

Government Response

Creditor Haircut

Detailed Analysis & Strategic Depth

Context / Background

Core Analysis & Implications

Future Outlook / Way Forward

Prelims Flashpoints

Key Facts at a Glance