Offences and Penalties explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 184 to 187 create a penalty regime for individual insolvency and bankruptcy. They reach the debtor, the creditor, the insolvency professional, the bankrupt and the bankruptcy trustee, with fines fixed at Rs. 5 lakh or, where a gain or loss can be measured, at three times that amount.
The offences and penalties table
| Section | Default | Applies to | Penalty |
|---|---|---|---|
| 184(1) | False information in the insolvency resolution process | Creditor or debtor | Imprisonment up to 1 year or fine up to Rs. 5 lakh, or both |
| 184(2) | Dishonestly promising to vote in favour of a repayment plan after accepting money, property or security | Creditor | Imprisonment up to 2 years or fine of three times the amount accepted, or both (Rs. 5 lakh where not ascertainable) |
| 185 | Deliberate contravention of Part III | Insolvency professional | Imprisonment up to 6 months or fine of Rs. 1 lakh to Rs. 5 lakh, or both |
| 186(a) | Knowingly false information, or omitting or concealing material information, in an application under section 122 or otherwise | Bankrupt | Imprisonment up to 6 months or fine up to Rs. 5 lakh, or both |
| 186(b) | Failing to provide, destroying, altering or falsifying books of account or financial information | Bankrupt | Imprisonment up to 1 year or fine up to Rs. 5 lakh, or both |
| 186(c) | Contravention of section 140 or 141 | Bankrupt | Imprisonment up to 6 months or fine up to Rs. 5 lakh, or both |
| 186(d) | Failing to deliver possession of property under section 156 | Bankrupt | Imprisonment up to 6 months or fine up to Rs. 5 lakh, or both |
| 186(e) | Failing to account for the loss of a substantial part of the estate in the 12 months before the application | Bankrupt | Imprisonment up to 2 years or fine of three times the loss, or both (Rs. 5 lakh where not ascertainable) |
| 186(f) | Absconding, or attempting to abscond, after the bankruptcy commencement date | Bankrupt | Imprisonment up to 1 year or fine up to Rs. 5 lakh, or both |
| 187 | Loss caused by breach of duty or fraudulent use of money or property of the estate | Bankruptcy trustee | Imprisonment up to 3 years and fine of not less than three times the loss |
Four groups of wrongdoing
The offences and penalties in Part III sort into four groups, and the grouping explains the different sentences:
- Lying to the process — section 184(1) and section 186(a). Everything in an individual insolvency runs on what the debtor and creditors say, because there is no audited balance sheet behind them.
- Corrupting the vote — section 184(2). A repayment plan needs more than three-fourths in value, so a purchased vote can decide the outcome.
- Defeating the estate — sections 186(b) to (f). Destroying books, keeping possession of property, losing a substantial part of the estate and absconding all attack the same thing: the pool available to creditors.
- Professional default — sections 185 and 187, aimed at the insolvency professional and the bankruptcy trustee.
Section 187 is the only entry with a minimum fine of three times the loss and a maximum of three years' imprisonment, and it applies to the bankruptcy trustee — not to the bankrupt.
The reason is structural. From the bankruptcy order the entire estate vests in the trustee. The trustee holds other people's property, sells it and distributes the proceeds, with no shareholders, board or auditors overseeing that. The sanction is calibrated to that exposure.
Fines fixed as a multiple
Three of these offences and penalties are measured against the value involved rather than capped at a flat figure:
- Section 184(2) — three times the money, property or security accepted.
- Section 186(e) — three times the loss of the substantial part of the estate.
- Section 187 — not less than three times the loss caused.
Where the value is not ascertainable, the fine falls back to Rs. 5 lakh. The multiple exists so that the penalty cannot simply be treated as a cost of the transaction: a creditor who takes Rs. 40 lakh to vote for a plan faces a fine of Rs. 1.2 crore, not Rs. 5 lakh.
Section 186(c) borrows from sections 140 and 141
One entry in the offences and penalties table borrows its content from elsewhere. Contravening the disqualifications in section 140 or the restrictions in section 141 is itself an offence. So a bankrupt who acts as a company director, creates a charge without the trustee's approval, enters a transaction of Rs. 1 lakh or more without disclosing the bankruptcy, or travels overseas without the Adjudicating Authority's permission is exposed not only to the recall of privileges but to imprisonment of up to six months or a fine of up to Rs. 5 lakh.
Common mistakes
- Reading the Part III offences and penalties as the Part II regime under sections 68 to 73.
- Assuming the fine is always capped at Rs. 5 lakh.
- Overlooking that section 186(e) looks back 12 months before the application.
- Treating a breach of section 141 as merely a civil restriction.