OFFENCES AND PENALTIES UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016
Section 236 of the Code provides that the offences under this Code have to be tried by Special Court established under Chapter XXVII of the Companies Act, 2013. Cognizance of offence can be only taken by the Court only on a complaint made by IBBI or the Central Government or any person authorised by the Central Government in this behalf.
The provisions of Code of Criminal Procedure, 1973 apply to the proceedings before Special Court. Special Court is deemed to a Court of Session and the person conducting a prosecution before Special Court is deemed to be Public Prosecutor.
In case of such complaint, the presence of the person authorised by the Central Government or IBBI to appear before the court will not be necessary unless the Court requires his personal attendance at trial.
OFFENCES RELATED WITH CORPORATE INSOLVENCY
Offences related with corporate insolvency have been dealt with under Section 68 to Section 77A.
Section 68, Section 69, Section 70, section 72 and Section 73 deal with offences committed by any officer of the Corporate Debtor. Section 5 (19) provides that an officer means an officer who is in default as defined under in 2 (60) of the Companies Act or a designated partner as defined in Section 2 (j) of Limited Liability Partnership Act, 2008.
Section 71 deals with offences committed by any person in respect of falsification of books of the Corporate Debtor.
Section 74 deals with offences committed by Corporate Debtor or its officer or any of its creditor in respect of contravention of Moratorium or the Resolution Plan.
Section 75, 76 and 77 deals with offences committed by Financial Creditors, Operational Creditors and Corporate Debtors respectively in respect of application filed by them.
Section 77A deals with offences committed during Pre-Packaged Insolvency Process.
Punishment for Concealment of Property
Section 68 provides that if any officer of the Corporate Debtor has done following acts twelve months preceding the insolvency commencement date or after initiation of insolvency commencement date, such acts are punishable with imprisonment for a term which will not be less than three years but which may extend to five years or with fine which will not be less than one lakh rupees, but may extend to one crore rupees or with both.
- If an officer of Corporate Debtor has willfully concealed any property or part of such property of the Corporate Debtor or concealed any debt due to or from the Corporate Debtor of the value of ten thousand rupees or more; or
- If an officer of the Corporate Debtor has fraudulently removed any part of the property of the Corporate Debtor of the value of ten thousand rupees or more; or
- If an officer of the Corporate Debtor has willfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the Corporate Debtor or its affairs
- If an officer of the Corporate Debtor has willfully made any false entry in any book or paper affecting or relating to the property of the Corporate Debtor or its affairs, or
- If an officer of the Corporate Debtor has fraudulently parted with, altered or made any omission in any document affecting or relating to property of the Corporate Debtor or its affairs
- If an officer of the Corporate Debtor has willfully created any security interest over, transferred or disposed of any property of the Corporate Debtor which has been obtained on credit and has not been paid for unless such creation, transfer or disposal was in the ordinary course of the business of the Corporate Debtor
- If an officer of the corproate debor has willfully concealed the knowledge of doing by others of any of acts of wilfull concealment, destruction, mutilation, or falsification of any book or paper affecting or relaing to property, making of any false entry in any book or paper affecting or relating to the property of the Corporate Debtor or its affairs,
At any time after insolvency commencement date, an officer of the Corporate Debtor has taken on pawn or pledge or otherwise received the property knowing it to be secured, transferred or disposed, such officer will also be punishable with imprisonment for a term, which will not be less than three years but which may extend to five years or with fine which will not be less than one lakh rupees, but may extend to one crore rupees or with both.
Nothing will render a person liable to any punishment under this section if he proves that he had no intent to defraud or to conceal the state of affairs of the Corporate Debtor.
Punishment for Transactions Defrauding Creditors
Section 69 provides that if an officer of the Corporate Debtor has made or caused to be made any gift or transfer or charge on or has caused or connived in the execution of a decree or order against the property of the Corporate Debtor or has concealed or removed 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, such officer of the Corporate Debtor will be punishable with imprisonment for a term which will not be less than one year but which may extent to five years or with fine which will not be less than one lakh rupees but may extend to one crore rupees or with both.
A person will not be punishable under this section if the acts were committed more than five years before the insolvency commencement date or if he proves that at the time of commission of those acts, he had no intent to defraud the creditors of the Corporate Debtor.
Punishment for Misconduct in Course of CIRP
Section 70 provides that if the officers of the Corporate Debtor do not discharge following duties casted on them by the Code, such officers will be punishable with imprisonment for a term which will not be less than three years but which may extend to five years or with fine which will not be less than one lakh rupees but may extend to one crore rupees or with both.
- If officer of the Corporate Debtor does not disclose to the Resolution Professional all the details of property of the Corporate Debtor and details of transactions thereof or any such other information as Resolution Professional may require
- If the officer of the Corporate Debtor does not deliver to the Resolution Professional all or part of the property of the Corporate Debtor in his control or custody and which he is required to deliver.
- If the officer of the Corporate Debtor does not deliver to the Resolution Professional all books and papers in his control and custody belonging to the Corporate Debtor and which he is required to deliver
- If the officer of the Corporate Debtor fails to inform the Resolution Professional information in his knowledge that a debt has been falsely proved by any person during CIRP.
- If the officer of the Corporate Debtor prevents the production of any book or paper affecting or relating to the property or affairs of the Corporate Debtor.
- If the officer of the Corporate Debtor accounts for any part of the property of the Corporate Debtor by fictitious losses or expenses, or if he has so attempted at any meeting of the creditors of the Corporate Debtor within the twelve months immediately preceding the insolvency commencement date.
Nothing in this section will render a person liable to any punishment under this section he proves that he had no intent to do so in relation to the state of affairs of the Corporate Debtor.
Punishment for Falsification of Books of Corporate Debtor
Section 71 provides that on or after the insolvency commencement date, where any person destroys, mutilates, alters, or falsifies any book, papers or securities, or makes or 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 , he will be punishable with imprisonment for a term which will not be less than three years but which may extend to five years and with fine which will not be less than one lakh rupees but may extend to one crore rupees or with both.
Punishment for willful and Material Omission from Statement Relating to Affairs of Corporate Debtor
Section 72 provides that where an officer of the Corporate Debtor makes any material and willful omission in any statement relating to the affair of the Corporate Debtor, he will be punishable with imprisonment for a term which will not be less than three years but which may extend to five years or with fine which will not be less than one lakh rupees but may extend to one crore rupees or both.
Punishment for False Representation to Creditors
Section 73 provides that where an officer of the 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 affairs of the Corporate Debtor during the CIRP or the liquidation process or prior to insolvency commencement date has made any false representation or committed any fraud, he will be punishable with imprisonment of a term which will not be less than three years but may extent to five years or with fine which will not less than one lakh rupees but may extend to one crore rupees or with both.
Punishment for Contravention of Moratorium or the Resolution Plan
Section 74 provides that where the Corporate Debtor or any of its officer violates the provisions of Section 14, any such officer who knowingly or willfully committed or authorised or permitted such contravention will be punishable with imprisonment of a term which will not be less than three years, but may extend to five years or with fine which will not less than one lakh rupees but may extend to one crore rupees or with both.
Where any creditor violates the provisions of Section 14, any person who knowingly and willfully authorised or permitted such contravention by a creditor will be punishable with imprisonment for a term which will not be less than one year, but may extend to five years or with fine which will not be less than one lakh rupees but may extend to one crore rupees or with both.
Where the Corporate Debtor, any of its officers or creditors or any person on whom the approved Resolution Plan is binding under Section 31, knowingly and willfully contravenes any of the terms of such Resolution Plan or abets such contravention, such Corporate Debtor, officer, creditor, or person will be punishable with imprisonment of not less than one year, but may extend to five years or with fine which will not be less than one lakh rupees but may extend to one crore rupees or with both.
Punishment for False Information Furnished in Application
Section 75 provides that where any person furnished information in the application made under Section 7, which is false in material particular, knowing it to be false or omits any material fact, knowing it to be material, such person will be punishable with fine which will not be less than one lakh rupees but may extend to one crore rupees.
Punishment for Non-disclosure of Dispute or Payment of Debt by Operational Creditor (Section 76)
Section 76 provides that where an Operational Creditor has willfully and knowingly concealed in an application under section 9 the fact that the Corporate Debtor has notified him of a dispute in respect of the unpaid Operational Debt or the full and final payment of the unpaid Operational Debt or any person who knowingly or willfully authorised or permitted such concealment, such Operational Creditor or person will be punishable with imprisonment for a term which will not be less than one year but may extend to five years or with fine which will not be less than one lakh rupees but may extend to one crore rupees or with both.
Punishment for providing false information in Application made by Corporate Debtor
Section 77 provides that where a Corporate Debtor provides information in the application under Section 10 which is false in material particulars, knowing it to be false and omits any material fact, knowing it to be material or any person who knowingly and willfully authorised or permitted the furnishing of such information, such Corporate Debtor or such person, as the case may be, will be punishable for a term which will not be less than three years, but which may extend to five years and with fine which will not be less than one lakh rupees but which may extend to one crore rupees or with both.
Punishment for offences related to Pre-Packaged Insolvency Resolution Process
Section 77A provides that where a Corporate Debtor provides any information in the application under Section 54 C, which is false in material particulars, knowing it to be false or omits any material fact, knowing it to be material or a Corporate Debtor provides any information in the List of Claims or the Preliminary Information Memorandum under Section 54 G (1), which is false in material particulars, knowing it to be false or omits any material fact, knowing it to be material or any person who knowingly and willfully authorised or permitted the furnishing of such information , such Corporate Debtor or any person , as the case maybe, will be punishable with imprisonment for a term which will not be less than three years but which may extend to five years or with fine which will not be less than one lakh rupees but which may extend to one crore rupees or with both.
If a director or partner of the Corporate Debtor, as the case may be, deliberately contravenes the provisions of Chapter IIIA, such person will be punishable with imprisonment for not less than three years, but which may extend to five years or with fine which shall not be less than one lakh rupees but which may extend to one crore rupees or with both.
For the purposes Sections 75, 76, 77 and 77A, an application will be deemed to be false in material particulars in case the facts mentioned or omitted in the application, if true, or not omitted from the application as the case may be, would have been sufficient to determine the existence of a default under this code.
OFFENCE RELATED WITH INSOLVENCY PROCEEDINGS OF INDIVIDUALS AND PARTNERSHIP
Offences in respect of Insolvency Resolution & Bankruptcy of Individual and Partnership Firms have been dealt in from Section 184 to Section 187.
Punishment for False Information Etc. by Creditor or Debtor in Insolvency Resolution Process
Section 184 deals with offence of false information provided by debtor or creditor.
If a debtor or creditor provides information which is false in any material particulars to the Resolution Professional, he shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to five lakh rupees or with both.
If a creditor promises to vote in favour of repayment plan dishonestly by accepting any money, property or security from the debtor, he shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to three times the amount or its equivalent of such money, property or security accepted by such creditor as the case may be or with both.
Provided that where such amount is not quantifiable, the total amount of fine shall not exceed five lakh rupees.
Punishment for Contravention of Provisions
Section 185 deals with offence of contravention of provision of the Code applicable to insolvency of Individual and Partnership Firms.
If an Insolvency Professional deliberately contravenes provisions of Part III of the Code, he shall be punishable with imprisonment for a term which may extend to six months or with fine, which shall not be less than one lakh rupees but may extend to five lakh rupees or with both.
Punishment for False Information, Concealment Etc. by Bankrupt
Section 186 deals with offences committed by the bankrupt.
If the bankrupt knowingly makes a false representation or willfully omits or conceals any material information while making an application for bankruptcy under Section 122 or while providing any information during the bankruptcy process, he shall be punishable with imprisonment which may extend to six months or fine which may extend to five lakh rupees or with both. A false representation or omission includes non-disclosure of details of disposal of any property, which but for the disposal, would be comprised in the estate of the bankrupt, other than dispositions made in the ordinary course of business carried on by the bankrupt.
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, he shall be punishable with imprisonment which may extend to one year or with fine, which may extend to five lakh rupees or with both.
If the bankrupt has contravened the restrictions under section 140 or the provisions of section 141, he shall be punishable with imprisonment for a term which may extend to six months, or with fine, which may extend to five lakh rupees or with both.
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, he shall be punishable with imprisonment for a term which may extend to six months or with fine, which may extend to five lakh rupees or with both.
If the bankrupt has failed to account, without any reasonable cause or satisfactory explanation, for any loss incurred or 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, he shall be punishable with imprisonment for a term which may extend to three times, or with fine, which may extend to three times of the value of the loss or with both. Where such loss is not quantifiable, the total amount of fine imposed shall not exceed five lakh rupees.
Where the bankrupt has absconded or attempts to abscond after the bankruptcy commencement date, he shall be punishable with imprisonment for a term which may extend to one year or with fine, which may extend to five lakh rupees or with both. A bankrupt will be deemed to have absconded if he leaves, or attempts to leave the country without delivering the possession of any property which he is required to deliver to the Bankruptcy Trustee under section 156.
Punishment for Certain Actions by Bankruptcy Trustee
Section 187 deals with offence committed by Bankruptcy Trustee.
If a Bankruptcy Trustee has fraudulently misapplied, retained or accounted for any money or property comprised in the estate of the bankrupt; or has willfully 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, he shall be punishable with imprisonment for a term which may extend to three years or with fine, which shall not be less than three times the amount of the loss caused or likely to have been caused to persons concerned on account of such contravention or both.
Where such loss or unlawful gain is not quantifiable, the total amount of fine imposed will not exceed five lakh rupees.
The Bankruptcy Trustee will not be liable under this Section if he seizes or disposes of any property which is not comprised in the estate of the bankrupt and at that time had reasonable grounds to believe that he is entitled to seize or dispose of that property.
PUNISHMENT WHERE NO SPECIFIC PENALTY OR PUNISHMENT PRESCRIBED (SECTION 235A)
Section 235A deals with punishment of such offences for which no punishment has been prescribed under the Code.
If any person contravenes any of the provisions of this code or the rules or regulations made thereunder for which no penalty or punishment is provided under this code, such person will be punishable with fine will not less than one lakh rupees but which may extend to two crore rupees.
APPEAL AND REVISION
Section 237 of the Code provides that appeal against order of the Special Court will lie to the High Court. The High Court may exercise, so far as may be applicable, all the powers conferred by Chapter XXIX and XXX of the Code of Criminal Procedure, 1973, as if the Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within local limits of jurisdiction of the High Court.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.