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In this article, Shelly Babbar of UPES discusses offences and penalties under Insolvency and Bankruptcy Code, 2016.

The Insolvency and Bankruptcy Code, 2016 aims to consolidate and amend the laws relating to insolvency resolution of companies and limited liability entities, partnerships and individuals, which are contained in various enactments, into single legislation.

Over the time, it has witnessed the setting up of the eco-system for the Code to function: the Insolvency and Bankruptcy Board of India (“IBBI”), National Company Law Tribunal (“NCLT”), development of the profession of insolvency professionals and establishment of information utilities (“IU”). As per the Economic Survey 2017-18, 525 applications have been admitted for corporate insolvency resolution within the framework envisaged in the Code.

According to the Minister of State for Finance, Since the code came into being, at least 2,434 fresh cases have been filed before the National Company Law Tribunal (NCLT) till 30 November 2017 and at least 2,304 cases seeking the winding-up of companies have been transferred from various high courts. Of these, 2,750 cases have been disposed of and 1,988 cases were pending during the period under review (as of December)

The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”) provides for a time-bound resolution process for insolvency and bankruptcy. Part II chapter VII of the code provides with the offenses like concealment of property, misconduct in course of the corporate insolvency resolution process, falsification of books of the corporate debtor, etc. and the subsequent penalties.

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Further, with a view to instilling discipline in the action by creditors, IBC provides for punishment for the offenses committed by the creditors.

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Offenses committed by the officer of the corporate debtor or the corporate debtor and the subsequent penalties

OFFENSES PENALTIES
Section 68, where a Corporate Debtor,

Within the twelve months immediately preceding the insolvency commencement date,

  • willfully concealed any property or any debt, fraudulently removed any part of the property, of the value of ten thousand or more, or
  • wilfully concealed, destroyed or made a false entry in, or altered any document relating to the property of the corporate debtor or its affairs, or

At any time after the insolvency commencement date, taken in pawn or pledge, or otherwise received the property knowing it to be so secured, transferred or disposed of.

Imprisonment-Min. 3 years Max.5 years
FineMin. one lakh Max. one crore
Both
Section 69, On or after the insolvency commencement date, Entering into transactions defrauding creditors or removing any part of the property of the corporate debtor within two months before the date of any unsatisfied judgment, decree or order for payment of money obtained against the corporate debtor. Imprisonment– Min. 3 years Max.5 years
FineMin. 1 lakh Max. 1 crore
Both
Sec. 70(1) On or after the insolvency commencement date, does not disclose or deliver all or part of the property or, any books or papers to the resolution professional which he is required to be delivered, or

fails to provide any information regarding the accounts of the corporate debtor

Imprisonment- Min. 3 Years Max.5 Years
fine –Min. 1 Lakh Max. 1 Crore
Both
Sec. 71 On and after the insolvency commencement date, 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 the accounts with the intention to defraud any person. Imprisonment– Min. 3 Years Max.5 Years
Fine Min. 1 Lakh Max. 1 Crore
Both
Sec. 72 Makes any material and willful omission in any statement relating to the affairs of the corporate debtor. Imprisonment– Min. 3 Years Max.5 Years
Fine Min. 1 Lakh Max. 1 Crore
Both
Sec. 73 Before or after the insolvency commencement date, makes a false representation or commits any fraud for the purpose of obtaining the consent of the creditors to an agreement with reference to the affairs of the corporate debtor Imprisonment- Min. 3 Years Max.5 Years
Fine –Min. 1 Lakh Max. 1 Crore
Both
Sec. 74(1) violates or willfully permits contravention of the provisions of section 14 of the code or under if Sec. 74(3) if he contravenes any of the terms of such resolution plan or abets such contravention. Imprisonment– Min. 3 Years Max.5 Years
Fine Min. 1 Lakh Max. 3 Lakh
Both
Sec. 77  a corporate debtor provides information which is false in material particulars, in the application under section 10 knowing it to be false and omits any material fact,
knowing it to be material
Imprisonment- Min. 3 Years Max.5 Years
Fine –Min. 1 Lakh Max. 1 Crore
Both

Offenses by insolvency professional agency or insolvency professional

OFFENSES PENALTIES
Sec 70(2) If an insolvency professional deliberately contravenes the provisions of this code. Imprisonment– Max. 6 months
Fine –Max. 5 lakh
Both
Sec. 185 If an insolvency professional deliberately contravenes the provisions of the insolvency and bankruptcy for individuals and partnership firms Imprisonment- Max. 6 months
Fine Max. 5 lakh
Both
Sec 220(3) Where any insolvency professional agency or insolvency professional or an information utility has contravened any provision of this Code or rules or regulations made thereunder. Mentioned below

the penalty for the offense under sec 220(3):

  • Penalty:-
    Three times the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention, or
    Three times the amount of the unlawful gain on account of such contravention, whichever is higher.
  • Where the loss is not quantifiable, the penalty may extend to one crore rupees. The Disciplinary Committee may suspend, or cancel the registration of insolvency professional agency or information utility as the case may be.

Offences by any person on whom the resolution plan is binding

OFFENSES PENALTIES
Section 71, On and after the insolvency commencement date, 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 the accounts with the intention to defraud any person. Imprisonmen

Min. 3 years

Max.5 years
Fine –

Min. 1 lakh

Max. 1 crore
Both

Section 74(3), any person on whom the approved resolution plan is binding, contravenes any of the terms of such resolution plan or abets such contravention. Imprisonment

Min. 1 years

Max.5 years
Fine –

Min. 1 lakh

Max. 1 crore
Both

Section 75, Where any person furnishes information in the application made under section 7, which is false in material particulars, knowing it to be false or omits any material fact, knowing it to be material. Fine

Min. 1 lakh

Max. 1 crore

Offenses by creditors or operational creditor

OFFENSES PENALTIES
74(2) Where any creditor violates the provisions of the moratorium, any person who knowingly or willfully authorized or permitted such contravention by a creditor. Imprisonment – Min. 1 year

Max.5 years
Fine –

min. 1 lakh

Max. 1 crore
Both

Sec. 76 Where an operational creditor has wilfully or knowingly concealed in an application made by him 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 repayment of the unpaid operational debt; or any person who knowingly and willfully authorised or permitted such concealment, the operational creditor or person Imprisonment – Min. 1 year

Max. 5 years
Fine –

Min. 1 lakh

Max. 1 crore
Both

Offenses By bankrupt

OFFENSES PENALTIES
186(a) If the bankrupt knowingly makes a false representation or wilfully omits or conceals any material information while making an application for bankruptcy by a debtor Imprisonment- Max. 6 months
FineMax. 5 lakh
Both
Sec. 186(b) If the bankrupt fraudulently has failed to provide or deliberately withheld the production of, destroyed, falsified or altered, his books of accounts, financial information and other records under his custody or control. Imprisonment- Max. 1 year
Fine –Max. 5 lakh
Both
Sec. 186(c) If the bankrupt has contravened the restrictions under section 140 or the provisions of section 141 Imprisonment- Max. 6 months
Fine Max. 5 lakh
Both
Sec. 186(d) If the bankrupt has failed to deliver the possession of any property comprised in the estate of the bankrupt under his possession or control, which he is required to deliver under section 156 Imprisonment- Max. 6 months
Fine –Max. 5 lakh
Both
Sec. 186(e) If the bankrupt has failed to account, without any reasonable cause or satisfactory explanation, for any loss incurred of any substantial part of his property comprised in the estate of the bankrupt from the date which is twelve months before the filing of the bankruptcy application. Imprisonment- Max. 2 years
Fine –If loss is quantifiable– up to three times of the value of the loss,
If loss is not quantifiable– which may extend to five lakh rupees,
Both
Sec. 186(f) If the bankrupt has absconded or attempts to abscond after the bankruptcy commencement date Imprisonment- Max. 1 year
Fine –Max. 5 lakh
Both
Sec. 187 If a bankruptcy trustee, —
(a) has fraudulently misapplied, retained or accounted for any money or property comprised in the estate of the bankrupt; or
(b) has wilfully acted in a manner that the estate of the bankrupt has suffered any loss in consequence of the breach of any duty of the bankruptcy trustee in carrying out his functions under section 149
Imprisonment- Max. 3 years
Fine If loss is quantifiable– minimum three times of the loss caused or likely to have been caused, to persons concerned on account of such contravention,
If the loss is not quantifiable- which may extend to five lakhs rupees

Both

Amendments under IBC in 2018 related to offenses and penalties

  • “In section 69 of the principal Act, for the words “On or after the insolvency commencement date, if”, the word “If” shall be substituted and,
  • In section 76 of the principal Act,—
    (a) in the marginal heading, for the word “repayment”, the word “payment” shall be substituted;
    (b) in clause (a), for the word “repayment”, the word “payment” shall be substituted.
  • In section 76 of the principal Act,—
    (a) in the marginal heading, for the word “repayment”, the word “payment” shall be substituted;
    (b) in clause (a), for the word “repayment”, the word “payment” shall be substituted.”

Important Definitions unders the IBC

  1. Insolvency – Insolvency is a term for when an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due.
  2. Bankruptcy – Bankruptcy is a legal term for when a person or business cannot repay their outstanding debts.
  3. Insolvency professional – an Insolvency Professional is one who is registered with the Insolvency and Bankruptcy Board of India (IBBI). They are enrolled with an Insolvency Agency and they are involved in the dissolution process of an insolvent individual, companies, LLPs or partnerships. These professionals are authorized to act on behalf of such insolvent individual, companies etc.
  4. Person – Under IBC, “person” includes—
    (a) an individual;
    (b) a Hindu Undivided Family;
    (c) a company;
    (d) a trust;
    (e) a partnership;
    (f) a limited liability partnership; and
    (g) any other entity established under a statute
    and includes a person resident outside India
  5. Resolution plan – A resolution plan is a proposal that aims to provide a resolution to the problem of the corporate debtor’s insolvency and its consequent inability to pay off debts.
  6. Moratorium – moratorium means Delay in performing an obligation or taking an action legally authorized or simply agreed to be temporary.

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