Fraud in the Fast Lane: Exposing Risks in India’s Pre-Pack Process

In 2021, the government introduced the pre-pack insolvency resolution process, also called PPIRP, through the Insolvency and Bankruptcy Code (Amendment) Ordinance. PPIRP in India is a quasi-formal process with limited judicial oversight before admission to a formal insolvency proceeding. As of now, it applies only to Micro, Small, and Medium Enterprises (“MSMEs”), and is still in its nascent stage. However, in this limited time, multiple instances of fraud have been recorded, which is alarming. Through this paper, the authors seek to expose the loopholes and gaps in the current pre-pack framework that enable fraudulent practices by resolution parties. This paper has three sections; in the first part, it analyses the statutory provisions under the Code dealing with fraud, deceit, and malicious intentions. The second part explores liquidation as a remedy in cases of pre-pack where fraud has been found. Lastly, in the third section, it criticises the weak provisions and discusses missed opportunities for strengthening the framework, which consequently threaten MSME recovery and financial stability. Moreover, a critical comparative study of PPIRP in other countries like the US and UK has been done in order to draw insight from such jurisdictions. Through the analysis of case laws, statistics, and reports, this paper emphasises the urgency of increased transparency, judicial oversight, and protections for creditors to further fortify India’s insolvency regime against fraud, which is hindered by the risk of information asymmetry, potential suppression of minority creditor interests, and the looming financial threat to banks. By addressing these challenges and suggesting feasible reforms, this paper fills the small vacuum of current literature, which is underexplored, and endeavours to improve the pre-pack insolvency resolution process of MSMEs in India.