In what ways can the misuse of the Insolvency and Bankruptcy Code (IBC) in undervalued land sales affect public trust in economic reforms?

The Insolvency and Bankruptcy Code (IBC) was introduced to resolve insolvency efficiently and promote economic stability. However, its misuse—especially in undervalued land sales—can have serious implications for public trust in economic reforms. Such incidents raise concerns about transparency and fairness in the system.

• Loss of Faith in Fairness: If assets, especially land, are sold at prices much below market value, stakeholders may perceive the process as unfair or manipulated, eroding confidence in the system.
• Perception of Cronyism: Undervalued sales can create suspicions that the process benefits a select few, leading to allegations of crony capitalism and weakening the legitimacy of reforms.
• Discouragement of Genuine Investors: When genuine investors see that assets are being sold at artificially low prices, they may hesitate to participate, reducing competition and efficiency in the process.
• Negative Impact on Credit Culture: Frequent misuse can discourage creditors from relying on legal mechanisms for recovery, undermining the overall credit culture and financial discipline.
• Public Discontent: Widespread media coverage of undervalued sales can lead to public outrage, making it harder to implement future reforms and regulatory changes.
• Potential Legal Challenges: Aggrieved parties may approach courts, leading to delays and uncertainty, which further diminishes trust in the reform process.

Systemic Checks Needed:

• Transparent Valuation Mechanisms: Ensure independent and standardized valuation of assets before sale to prevent undervaluation.
• Stronger Oversight: Empower regulatory bodies like the Insolvency and Bankruptcy Board of India (IBBI) to monitor and audit sales processes.
• Stakeholder Participation: Involve all stakeholders, including creditors and operational creditors, in approving asset sales.
• Public Disclosure: Mandate public disclosure of sale details, including valuation reports and bidding outcomes, to enhance transparency.
• Strict Penalties: Impose penalties for collusion, fraud, or manipulation in the resolution process to deter misuse.