Offences and Penalties in Insolvency and Bankruptcy Code 2016

Introduction

There are 4 main parties in Insolvency and Bankruptcy Code 2016 (Hereinafter referred as IBC). They are Debtor(Corporate or individual), Creditor (Operational or Financial),  Insolvency Professionals. They are defined here for more details.

Chapter VII of Part 2 and Chapter VII of Part 3, both contains the offences and penalties by various stakeholders in Insolvency Code.

In this Post we will cover the offences by

  • Corporate Debtor
  • Individual/Firm
  • Creditors
  • Insolvency Professionals
  • Bankrupt
  • Other Offences

 Offences by Corporate Debtor and Penalties

 Concealment of Property by Officer of Corporate Debtor (Section 68)

Offence

If Corporate debtor had done below things within previous 12 months of starting insolvency process  (Insolvency commencement date)

  1. Willfully concealed property or part of property, or debt of Rs 10000 or more
  2. Fraudulently removed property or part of property worth Rs 10000 or more
  3. Willfully concealed the documents, or destroyed the documents, or falsified the documents relating to property 
  4. Willfully made wrong entries in a book about properties 
  5. Willfully created security interest (like Mortgage, Charge) over a property taken on credit, or transferred such property unless such transaction is done in normal course of business
  6. If Above acts are committed by someone, and corporate debtor knows about such act and conceal them

If above acts are committed once the Insolvency process commenced,  or taken pawn or pledge of secured/transferred/disposed property.

Penalties

There is 3 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees.

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Transaction defrauding creditors (Section 69)

Offence

If corporate debtor or his officer had gifted/transferred or created charge upon any property with intent to defraud the creditors, it would constitute as an offence as per Section 69.

If there is any judgement pending against Corporate Debtor and any property is concealed or removed just before some unsatisfied judgment, it would also be an offence as per Section 69(2).

Penalty

There is 1 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees.

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Misconduct in course of Corporate insolvency process (Section 70)

Offence

If corporate debtor officer does any of the following

  1. Does NOT disclose details of property or transactions as required by resolution professional
  2. Does NOT deliver all the property which he is required to delivery to resolution professional.
  3. Does NOT delivery all books and papers which he is required to deliver to resolution professional.
  4. Fails to inform to resolution professional that debt had be falsely proved 
  5. Prevent the production of any book or paper affecting the property or affair of the corporate debtor.
  6. Accounts any property or part of property to fictitious loss

Penalty

 If above offence is committed, then there is up to 6 months of imprisonment or fine ranging from 1 Lakh to 1 Crore Rupees.

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Wilful and material omissions from statements relating to affairs of corporate debtor (Section 72)

Offence

When officer commits willfull and material omissions from statements relating to affairs of corporate debtor.

Penalty

 If above offence is committed, then there is up to 6 months of imprisonment or fine ranging from 1 Lakh to 1 Crore Rupees.

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False Representation to Creditors (Section 73)

Offence

Making false representation to creditor either for obtaining their consent for some agreement, or other purpose.

Penalty

There is 3 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees

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Contravention of Moratorium (Section 74)

Offence

When Corporate Debtor contravenes the moratorium.

Penalty

 There is 3 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees

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Contravention of Resolution Plan(Section 74)

Offence

When Corporate Debtor contravenes the resolution pla.

Penalty

 There is 1 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees

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False information in application by Corporate Debtor (Section 77)

Offence

Corporate debtor can himself initiate Insolvency proceedings by filing application under Section 10. If any false information is given in this application, that would be an offence under section 77. 

Penalty

 There is 1 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees

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Offences by Insolvency Professional

Section 70 and 185- Contravening the provision of Part 2/Part 3

Offence

Insolvency professional contravening the provision of Part 2/Part 3 of Insolvency and Bankruptcy Code.

Penalty

Up to 6 months of imprisonment or fine ranging from 1 Lakh to 1 Crore Rupees or Both.

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Offences by Creditors

Contravention of Moratorium or Resolution Plan

Offence

When Creditor contravenes the moratorium or resolution plan. If any person authorizes such contravention he will also be held liable.

Penalty

 There is 3 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees or Both.

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Non disclosure by Operational Creditor (Section 76)

Offence

Operational creditor has to disclose whether there is any ongoing dispute about payment of debt. If Operational creditor conceals such information while initiating insolvency proceedings under Section 9 then it will be an offence under Section 76

 Penalty

1-5 years of imprisonment along with fine from 1 Lakh to 1 Crore Rupees or Both.

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False information by Creditors (Section 184)

Offence

  1. Giving false information to resolution professional
  2. If creditor promises to vote dishonestly in repayment plan in by taking money

Penalty

In first offence, punishment could be imprisonment up to 1 year also fine up to 5 Lakh can be imposed.

In second offence, there could be imprisonment up to 2 years along with fine which is 3 times the money taken by Creditors to vote dishonestly

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Offences by Bankrupt

False information or concealment.

Offence

Knowingly making false representation or willingly omits or conceal any material information while making an application for insolvency

Penalty

Imprisonment up to 6 month or fine up to 5 Lakh Rupees or Both.

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Offence

If Bankrupt firm or individual, fraudulently fails to provide, or deliberately not giving, or altering, or falsifying books of account and other records under his custody

Penalty

Imprisonment up to 1 year or fine up to 5 Lakh Rupees or Both.

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Offence

Contravening the provision of Section 140(Deals with disqualification of bankrupt)  or 141(restriction on bankrupt).

Penalty

Imprisonment up to 6 month or fine up to 5 Lakh Rupees or Both.
 
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Offence

Fail to deliver possession as per Section 156 (Delivery of property and documents to bankruptcy trustee)

Penalty

Imprisonment up to 6 month or fine up to 5 Lakh Rupees or Both.
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Offence

Contravening the provision of Section 140(Deals with disqualification of bankrupt)  or 141(restriction on bankrupt).

Penalty

Imprisonment up to 6 month or fine up to 5 Lakh Rupees or Both.
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Offence

If any substantial loss had occurred to bankrupt in preceding 12 months of commencement of Bankruptcy proceeding, and he does not give proper account or reasons for such loss.

Penalty

Imprisonment up to 2 years, or a fine 3 times the amount of loss that is incurred or Both.
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Offence

If Bankrupt tries to abscond.

Penalty

Imprisonment up to 1 years, fine up to 5 Lakh Rupees or Both.
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Other Offences

Falsification of books of Corporate Debtor (Section 70)

Offence

Where any person destroys, mutilates, alters or falsifies any books, papers or securities, or makes or is in the knowledge of making of any false or fraudulent entry in any register, book of account or document belonging to the corporate debtor with intent to defraud or deceive any person. 

Penalty

There is 1 to 5 years of imprisonment. Along with Imprisonment, there could be fine ranging from 1 Lakh to 1 Crore Rupees.

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False information in application (Section 75)

Offence

Providing false information in application under Section 7.

Penalty

Fine of 1Lakh to 1 Crore Rs.

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Actions of Bankruptcy Trustee

Offence

  1. has fraudulently misapplied, retained or accounted for any money or property comprised in the estate of the bankrupt
  2. has 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

 Penalty

Imprisonment up to 3 years, or fine up to 3 times the amount lost, or with both.

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