Offences and Penalties under IBC, 2016

The Offences and Penalties under IBC are listed Chapter VII of the Insolvency and Bankruptcy Code, 2016. The inclusion of Offences and Penalties under IBC in the Code are important for preventing fraud, misconduct, and ensuring that there is strict adherence to the Insolvency and Bankruptcy Code, 2016.

 As per section 236 of the IBC, Offences and Penalties under IBC are triable by Special Courts and prosecution can be initiated by the Insolvency and Bankruptcy Board of India (IBBI). The NCLT primarily handles the insolvency resolution and liquidation processes, and while they can impose costs, they cannot try offences under the IBC. Penalties and fines, which require prosecution, are within the purview of the Special courts

A corporate debtor can obtain immunity from certain liabilities related to past Offences and Penalties under IBC after a resolution plan is approved under section 32A. However, this immunity is specifically for the corporate debtor and does not extend to individuals who may have been involved in those offences. This provision is intended to encourage resolution applicants to invest in distressed companies by removing the fear of facing prosecution for past actions of the previous management. In simpler terms, if  a company has been mismanaged and has committed Offences and Penalties under IBC, the new owner which takes over the company under the new plan approved by the NCLT will not be liable for any past offences. However, the individuals who were responsible for the mismanagement and offences can still be prosecuted.

 

Offences and Penalties under IBC committed by the officer of the corporate debtor 

Section	Title	Offence	Penalty
68	Punishment for concealment of property.	Where the officer of the corporate debtor has:Wilfully concealment any property or part of of the corporate debtor or debt of Rs 10,000 or more due to or from the corporate debtorFraudulently removed any part of  property worth Rs 10,000 of corporate debtor wilfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the corporate debtor or its affairswilfully made any false entry in any book or paper affecting or relating to the property of the corporate debtor or its affairsfraudulently parted with, altered or made any omission in any document affecting or relating to the property of the corporate debtor or its affairswilfully created any security interest over, transferred or disposed of any property of the corporate debtor which has been obtained on creditWillfully concealed any information of the Offences and Penalties under IBC mentioned above                OR  At any time after the insolvency commencement date, taken in pawn pledge , or otherwise received the property  knowing it to be secured, transferred or disposed of.	Imprisonment: not less than 3 years, may extend to 5 years, orFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
69	Punishment for transactions defrauding creditors	Has made any gift/ transfer/ charge, or has connived in the execution of a decree/ order against the property of the corporate debtorHas concealed or removed any part of the debtor’s property within 2 months before the date of such judgement, decree, or order of the payment of money obtained against corporate debtor	Imprisonment:Not less than 1 yearMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
70	Punishment for misconduct in course of corporate insolvency resolution process	On or before the insolvency commencement date:Does not disclose the relevant details of the debtor’s property that the resolution professional (RP) may requireDoes not deliver the debtor’s property or part of in his control or custody that he is required to deliver to the RPDoes not deliver documents of the debtor in his custody to the RP that he is required to deliverFails to inform the RP the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency resolution process (CIRP)Prevents the production of any book or paper affecting or relating to the property or affairs of the debtorEntering into transactions defrauding creditors or removing any part of the property of the corporate debtor within two months before the date of any unsatisfied judgement, decree or order for payment of money obtained against the corporate debtor	Imprisonment:Not less than 3 yearsMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
		If insolvency professional contravenes the provisions of this Part	Imprisonment:May extend to 6 monthsFine: not less than Rs. 1 lakh, may extend to Rs 5 lakhs,Both
71	Punishment for falsification of books of corporate debtor	On or after  insolvency commencement date:destroys, mutilates, alters or falsifies any books, papers or securities, Makes is in the knowledge of making of any false or fraudulent entry in any register, books of account or document belonging to the corporate debtor with intent to defraud or deceive any person	Imprisonment:Not less than 3 yearsMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
72	Punishment for wilful and material omissions from statements relating to affairs of corporate debtor	Makes any wilful and material omissions from statements relating to affairs of corporate debtor	Imprisonment:Not less than 3 yearsMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
73	Punishment for falsification of books of corporate debtor	on or after the insolvency commencement date: makes a false representation or commits any fraud for the purpose of obtaining the consent of the creditors of the corporate debtor or any of them to an agreement with reference to the affairs of the corporate debtor, during the CIRP  or the liquidation process;prior to the insolvency commencement date: has made any false representation, or committed any fraud, for that purpose	Imprisonment:Not less than 3 yearMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
75	Punishment for false information furnished in application	Any person furnishes information in the application made under section 7, which isfalse in material particulars, knowing it to be false or omits any material fact, knowing it to be material	Fine: not less than Rs. 1 lakh, may extend to Rs 1 crore
76	Punishment for non-disclosure of dispute or payment of debt by operational creditor	An operational creditor has wilfully or knowingly concealed in an application under section 9 the fact that the corporate debtor had notified him of a dispute in respect of the unpaid operational debt or the full and final copayment of the debt; orany person who knowingly and wilfully authorised or permitted such concealment	Imprisonment:Not less than 1 yearMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
77	Punishment for providing false information in application made by corporate debtor	Corporate debtor provides information an application under section 10, which is false in materials, knowing it to be false and omits any material fact, or any person who knowingly and willingly authorised or permitted the furnishing of such information	Imprisonment:Not less than 3 yearsMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
77A	Punishment for Offences and Penalties under IBC related to pre-packaged insolvency resolution process	Where the corporate debtor:provides false information in material particulars under section 54C knowing it is false or omits it knowing it was materialprovides false information in material particulars in the list of claims/ preliminary information memorandum under section 54C(1) knowing it is false or omits it knowing it was materialany person who knowingly and willingly authorised or permitted	Imprisonment:Not less than 3 yearsMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both

Sections 68-69 of the IBC address fraudulent activities involving deception, concealment of facts, or other misconduct. As per this section, if the accused can demonstrate they did not have the specific intent to commit fraud, it could be used as a mitigating factor during sentencing or other legal proceedings. This defence hinges on proving that the actions, while possibly appearing fraudulent on the surface, were not done with the deliberate purpose of deceiving or causing harm. This is related to sections Section 74(1) and Section 74(3). Section 74(1) focuses on the liability of a corporate debtor’s officer for knowingly or willfully violating the moratorium under section 14 of the IBC. Section 74(3), on the other hand, addresses liability for contravention of a resolution plan that is binding under section 31, and can apply to the corporate debtor, its officers, creditors, or any other person bound by the resolution plan.

Read more: Role of NCLT in insolvency proceedings

Offences and Penalties under IBC by insolvency professional agency or insolvency professional

Section	Title	Offence	Penalty
70(2)	Punishment for misconduct in course of corporate insolvency resolution process	If insolvency professional contravenes the provisions of Part II	Imprisonment:May extend to 6 monthsFine: not less than Rs. 1 lakh, may extend to Rs 5 lakhs,Both
185	Punishment of contravention of provisions	If insolvency professional contravenes the provisions of Part III	Imprisonment:May extend to 6 monthsFine: not less than Rs. 1 lakh, may extend to Rs 5 lakhs,Both
220 (3)	Appointment of Disciplinary Committee	Insolvency Professional Agency, Insolvency Professional, Information Utility contravenes provisions of this IBC, rules, regulations,	Disciplinary Committee imposes penalty:3 times amount of lossOR3 times amount of unlawful gain  Whichever is higher

Under section 220(3) of the IBC, the Disciplinary Committee can impose penalties on insolvency professional agencies, insolvency professionals, or information utilities for contravening the IBC or related regulations. The penalty is calculated as three times the amount of the loss caused or unlawful gain made, whichever is higher. If the loss or gain is not quantifiable, a penalty of up to one crore rupees can be imposed. The IBBI can also order the disgorgement of any unlawful gains and direct restitution to those who suffered losses, ensuring victims are compensative. 

Offences and Penalties under IBC by any person on whom the resolution plan is binding

Section	Title	Offence	Penalty
71	Punishment for falsification of books of corporate debtor	On or after  insolvency commencement date:destroys, mutilates, alters or falsifies any books, papers or securities, Makes is in the knowledge of making of any false or fraudulent entry in any register, books of account or document belonging to the corporate debtor with intent to defraud or deceive any person	Imprisonment:Not less than 3 yearsMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
74(3)	Punishment for contravention of moratorium or the resolution plan	Corporate debtor or any of its officers violates, or any person on whom resolution plan is binding under section 31	Imprisonment:Not less than 1 yearMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
75	Punishment for false information furnished in application	Any person furnishes information in the application made under section 7, which isfalse in material particulars, knowing it to be false or omits any material fact, knowing it to be material	Fine: not less than Rs. 1 lakh, may extend to Rs 1 crore

 

Section 32 of the IBC provides immunity to the corporate debtor and its assets under other laws, after a resolution plan is approved, but does not extend to individuals or promoters in Offences and Penalties under IBC committed prior the the commencement of the insolvency process. The JSW Steel and Dunar Food cases illustrate this principle, showing that while the corporate entity receives a clean slate, individuals responsible for past wrongdoings can still be held liable. In the JSW Steel and BPSL case, the ED continued its investigations and actions against individuals involved in the alleged money laundering activities related to BPSL, highlighting that section 32A shields the corporate entity, not the individuals. Similarly in the Dunar Foods case, the court discharged the corporate debtor under this section because the resolution plan had been approved and resulted in a change of control. However, the court explicitly stated that this discharge did not extend to individuals or promoters who were co-accused in the NSEL scam, demonstrating that section 32A is not intended to protect wrongdoers.

Read more: How do international insolvency laws affect local practices?

Offences and Penalties under IBC by creditors or operational creditor

Section	Title	Offence	Penalty
74(1)	Punishment for contravention of moratorium or the resolution plan	Corporate debtor or any of its officers violates of section 14, knowingly or willingly committed, authorised, permitted	Imprisonment:Not less than 3 yearsMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
74(1)	Punishment for contravention of moratorium or the resolution plan	Creditor violates section 14, knowingly or willingly committed, authorised, permitted	Imprisonment:Not less than 1 yearMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both
76	Punishment for non-disclosure of dispute or payment of debt by operational creditor	An operational creditor has wilfully or knowingly concealed in an application under section 9 the fact that the corporate debtor had notified him of a dispute in respect of the unpaid operational debt or the full and final copayment of the debt; orany person who knowingly and wilfully authorised or permitted such concealment	Imprisonment:Not less than 1 yearMay extend to 5 yearsFine: not less than Rs. 1 lakh, may extend to Rs 1 crore,Both

 The IBC, specifically sections 8 and 9, outlines the process for operational creditors to initiate the insolvency process. Section 9(5)(2)(d) mandates the rejection of an application if a notice of dispute has been received by the operating creditor or if a dispute is recorded with the information utility. Operational creditors must disclose any exciting disputes or payment related to their claims. Failing to do so, or providing false information, can lead to imprisonment for 1 to 5 years and a fine. This measure is in place to ensure the integrity and transparency of the CIRP.

Offences and Penalties under IBC by Bankrupt

Section	Sub-section	Title	Offence	Penalty
186	(a)	Punishment for false information, concealment, etc, by bankrupt		Imprisonment:May extend to 6 monthsFine:Not less than Rs 5 lakhsBoth
	(b)			Imprisonment:May extend to 1 yearFine:Not less than Rs 5 lakhsBoth
	(c)			Imprisonment:May extend to 6 monthsFine:Not less than Rs 5 lakhsBoth
	(d)			Imprisonment:May extend to 6 monthsFine:Not less than Rs 5 lakhsBoth
	(e)			Imprisonment:May extend to 2 yearsFine:Not less than 3 times
	(f)			Imprisonment:May extend to 1 yearFine:Not less than Rs 5 lakhsBoth
187	(a)	Punishment for certain actions	fraudulently misapplied, retained or accounted for any money or propertycomprised in the estate of the bankrupt	Imprisonment:May extend to 3 yearsFine:Less than 3 times the amount of loss caused, or likely to have been caused.Both
	(b)	Punishment for certain actions	wilfully acted in a manner that the estate of the bankrupt has suffered any loss in consequence of breach of any duty of the bankruptcy trustee in carrying out his functions under section 149	Imprisonment:May extend to 3 yearsFine:Less than 3 times the amount of loss caused, or likely to have been caused.Both
			If such loss/ unlawful gain is not quantifiable	Total amount of fine should not exceed Rs. 5 lakhs

These sections pertain to Offences and Penalties under IBC related to individuals and partnership forms under Part III of the IBC. Section 187(b) outlines penalties for certain actions by trustees, and addresses actions like providing false information, concealing assets, or absconding after the insolvency commencement date. For instance, if a trustee intentionally hides assets worth a certain amount, they could be penalized with a fine that is three times that amount, if the loss is quantifiable. However, there is a provision that if the loss or unlawful gain is not quantifiable, the total fine imposed will not exceed a specified limit, such as Rs. 5 lakhs.

Amendments Related to Offences and Penalties under IBC

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 was enacted on 17th August, 2018. As per this Amendment, sections 69 officers of the corporate debtor for defrauding creditors and section 76 on the punishment for non-disclosure of dispute or payment of debt by operational creditor: 

Section	Title	Prior to Amendment, 2018	After Amendment, 2018
69	Punishment for transactions defrauding creditors	“On or after the insolvency commencement date, if”	The word “if” substituted
76	Punishment for non-disclosure of dispute or payment of debt by operational creditor	“Repayment” in the marginal title	“payment”
76(a)	Punishment for non-disclosure of dispute or payment of debt by operational creditor	“repayment”	“payment”

The primarily goal of the 2018 Amendment was to remove ambiguities and streamline the insolvency process for various stakeholders, including homebuyers and financial creditors. Specifically, it modified section 69 by simplifying the language and potentially broadening its applicability regarding transactions that defraud creditors. The amendment replaced the phrase “On or after the insolvency commencement date, if” with the word “If”. This change removes the explicit link to the insolvency commencement date, making the provision applicable to a wider range of situations.

Legal Framework: Chapter VII and Special Courts under Section 236

Section 236(1) mandates certain Offences and Penalties under IBC under the IBC be tried by Special Courts established under Chapter XXVIII of the Companies Act, 2013. Furthermore, section 236(2) stipulates that no court can take cognizances of an offence under the IBC, except upon a complaint made by the IBBI, the Central Government, or a person authorised by the Central Government. Further, the Supreme Court in Kalyani Transco case has confirmed that Enforcement Directorate (ED) attachments under the Prevention of Money Laundering Act (PMLA) do not override the jurisdiction and has clarified that validly made and confirmed attachments by the ED cannot be undone by the IBC. This means that if the ED has attached assets of a company under PMLA, these assets remain attached even during the insolvency process. If you are appearing for Limited Insolvency Exam Training check this out 
 

Defences and Procedural Safeguards under IBC

Proving a lack of fraudulent intent, such as that under section 68 Offences and Penalties under IBC, requires demonstrating that the actions were taken in good faith, without the intention to receive or conceal information related to the company’s assets or financial status.The non-obstante clause in section 236 ensures that the legislative intent of having Special Courts for the IBC is upheld, even if there are other potential legal avenues. It provides clarity and certainty in the legal process, preventing conflicts and ensuring that the specialized jurisdiction of Special Courts is respected.

Summary Table:  Stakeholders & Offences and Penalties under IBC

Section	Stakeholder	Offence Description	Max Imprisonment & Fine	Defences Available
68	Officer of Corporate debtor	Specifies that officers of a corporate debtor can be penalized for concealing property, fraudulently removing property, or falsifying records related to the corporate debtor’s property or affairs.	1- 5 years, Rs. 1 lakh – 1 crore, or both	Lack of intent to defraud or conceal Actions were taken in good faith and transparency Accidental or unintentional concealment Proper Disclosure of all assets and liabilities Lack of knowledge or did not have access to the relevant information Compliance with legal procedures
69	Officer of the corporate debtor or corporate debtor	Specific actions with the intent to defraud creditors	1- 5 years, Rs. 1 lakh – 1 crore, or both	Lack of intent to defraud Statute of limitations (acts committed more than 5 years before the ICD) Acquisition was in good faith
70	Officer of the corporate debtor	Punishment for misconduct in the course of CIRP, such as failure to disclosure or deliver property, books, or information, to the RP who engage in fraudulent accounting practices	1- 5 years, Rs. 1 lakh – 1 crore, or both	Proving lack of intent to commit the misconduct
71	Any person	Anyone who, on or after, the ICD, destroys, mutilates, alters, or falsifies any books, papers, or securities, or make false or fraudulent entries in any register, account books, or documents belonging to the corporate debtor with the intent to defraud or deceive, is liable to punishment.	3- 5 years, Rs. 1 lakh – 1 crore, or both	Proving lack of intent to defraud or deceive  Lack of falsification Proving that the actions were not related to the corporate debtor’s books
72	Officer of the corporate debtor	Knowingly and intentionally omit crucial information from financial statements or other documents related to the company’s financial status	3- 5 years, Rs. 1 lakh – 1 crore, or both	Lack of intent Relied on the advice of legal or financial professionals The omitted information was material If there was a genuine dispute about the information omitted.
73	Officer of corporate debtor	Offence of making false representations or committing fraud to obtain creditor consent during CIRP or liquidation	3- 5 years, Rs. 1 lakh – 1 crore, or both	Absence of false representation Lack of fraudulent intent Consent obtained through legitimate means
74	Corporate debtor or Officer of the corporate debtor	Punishment for violating the moratorium or the resolution plan approved by the Adjudicating Authority	1-5 years, Rs. 1 lakh – 1 crore, or both	Proving that the contravention was no knowing or wilful  The actions taken did not actually violate the moratorium or resolution plan
75	Any person who furnishes information in the application under section 7	Knowingly furnish false information in a material particular or omit a material fact in section 7 application.	Rs. 1 lakh – 1 crore, or both	Demonstrate that the information was not false  The person providing the information did not know it was false or did not omit a material fact knowingly.
76	Operational creditor	If an operational creditor knowingly or wilfully conceals the fact that a corporate debtor has notified them of a dispute or has already paid the debt, they can be penalized.	1-5 years, Rs. 1 lakh – 1 crore, or both	Proving that there was no wilful non-disclosure of a dispute or repayment
77	Corporate debtor, or any person submitting such information	Addresses situations where a corporate debtor knowingly provides false information or omits material facts in a section 10 application, or if any person authorizes or permits such actions.	3-5 years, Rs. 1 lakh – 1 crore, or both	The information provided was not knowingly or wilfully false Omission was not material
77A	Corporate debtor	Addresses situations where the corporate debtor knowingly provides false information or omits material facts in the application for the pre-packaged insolvency process or in the list of claims.	3-5 years, Rs. 1 lakh – 1 crore, or both	Lack of knowledge or wilful intent Not false in material particulars No deliberate contravention
185	Insolvency professional	Deliberately contravenes the IBC provisions	6 months, Rs. 1 lakh-5 lakhs, or both	Acting in good faith Following directions of the Adjudicating Authority Compliance with IBC, rules, regulations Lack of willful intent Absence of dispute  Ordinary course of business (for avoidance transactions)
186	Bankrupt individuals	Knowingly making false representations, concealing material information during the bankruptcy process, or failing to account for significant loss of property	1 year, Rs.5 lakhs, both	Transactions are not loans or investments Compliance with section 186 limits Required shareholder approvals
187	Bankruptcy trustee	Punishment for certain actions related to a bankrupt’s estate, outline two main Offences and Penalties under IBC; misapplying or misusing the bankrupt’s assets and intentionally causing loss to the estate through misconduct.	3 years, Rs. 5 years	Reasonable belief regarding property seizure Good faith and compliance with the IBC No knowledge of the fraudulent or prohibited actions Acting under the orders of the Adjudicating Authority
220(3)	Insolvency Professional Agency, Insolvency professional, Insolvency utility	Offences and Penalties under IBC for contraventions of the IBC, or related rules and regulations, which resulted in any unlawful gain made	Rs 1 crore when losses or gains are not quantifiable	Unaware of the specific facts or circumstances that led to contravention All reasonable steps were taken No intent to defraud No direct loss or gain attributed to them Show cause notice was not properly served

Conclusion

The Insolvency and Bankruptcy Code, 2016 ensures that any Offences and Penalties under IBC such asmalpractices, fraud, and misconduct of corporate debtors, creditors, and other stakeholders, including insolvency professionals are liable for their actions. These provisions are important for so that the integrity of the insolvency and bankruptcy processes and ensuring that there is no contravention to the resolution plan or the Insolvency and Bankruptcy Code, 2016, rules, or regulations. 

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