Section 187 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.
Section 187 makes it an offence for a bankruptcy trustee to fraudulently misapply, retain or account for money or property of the estate, or to wilfully act so that the estate suffers loss through breach of a duty in carrying out his functions under section 149. The punishment is imprisonment up to three years, a fine of not less than three times the loss, or both, with a cap on the fine when the loss is not quantifiable and a protection for a trustee who acts on reasonable grounds.
The article follows the IBBI consolidated text of the Code amended up to 12 August 2021 (the "consolidated text").
A bankruptcy trustee commits the offence if he fraudulently misapplies, retains or accounts for estate money or property, or wilfully acts so that the estate suffers loss from breach of a duty in carrying out his section 149 functions. The punishment is imprisonment up to three years, or a fine of not less than three times the loss caused or likely to have been caused, or both. Where the loss or unlawful gain is not quantifiable, the fine is capped at five lakh rupees. A trustee is not liable if he seizes or disposes of property outside the estate when he had reasonable grounds to believe he was entitled.
Sub-section (1): the two limbs
"If a bankruptcy trustee, –"
| Clause | The act |
|---|---|
| (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 breach of any duty of the bankruptcy trustee in carrying out his functions under section 149 |
Clause (a). Fraud is the mental element: the trustee must have acted "fraudulently". The three verbs are "misapplied, retained or accounted for", and the object is "any money or property comprised in the estate of the bankrupt". The word "accounted for" is printed in the consolidated text as it is and is quoted as printed.
Clause (b). The mental element is "wilfully". The trustee's conduct must be such that "the estate of the bankrupt has suffered any loss in consequence of breach of any duty" in carrying out his functions "under section 149". Section 149 lists the three functions, investigate the affairs of the bankrupt, realise the estate and distribute it; they are explained in Sections 149, 151 and 152 of this series. If you are a creditor or bankrupt who believes an estate has been mishandled, a legal dispute resolution consultation with our team can help you identify which limb, if any, the facts fall within.
A trustee is the insolvency professional appointed for the estate under section 125 (section 79(9)). The live post on bankruptcy trustee appointment under section 125 covers the appointment.
The punishment
The words follow the clauses: "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 with both".
| Element | Words in the text |
|---|---|
| Imprisonment | A term which may extend to three years |
| Fine | Not less than three times the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention |
| Combination | Imprisonment or fine, or both |
Note the contrast with sections 184 and 186, which state maximum fines only. Section 187 states a minimum: the fine "shall not be less than three times" the loss caused, or likely to have been caused (section 185 also has a floor, of one lakh rupees). The measure includes loss "likely to have been caused" and covers loss to "persons concerned", not only to the estate.
The first proviso: unquantifiable loss
"Provided that where such loss or unlawful gain is not quantifiable, the total amount of fine imposed shall not exceed five lakh rupees".
Drafting note. The proviso speaks of "loss or unlawful gain", while the main text speaks only of loss caused or likely to have been caused; "unlawful gain" does not appear in clauses (a) or (b). The words are quoted as printed and not harmonised.
The proviso turns the floor into a ceiling in the unquantifiable case: the total fine "shall not exceed five lakh rupees". The text does not say how a loss is shown to be "not quantifiable".
The second proviso: reasonable grounds
"Provided further that the bankruptcy trustee shall 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 that property."
Two conditions: the property is not in the estate, and at the time he had reasonable grounds to believe he was entitled. What the estate comprises is set out in section 155; see Sections 155 and 156. The protection covers seizing or disposing; it does not cover misapplication or retention of money or property that is in the estate.
A worked example
Charu Anand, a bankruptcy trustee, collects Rs. 15 lakh from the sale of assets of the bankrupt, Vimal Arora, and deposits Rs. 5 lakh in an account she controls personally, using it for her own business. If she did so fraudulently, section 187(1)(a) applies. Separately, if she wilfully ignores a duty in realising the estate so that it loses Rs. 4 lakh, section 187(1)(b) is in point. In either case the fine shall not be less than three times the loss caused or likely to have been caused to the persons concerned, so a loss of Rs. 4 lakh means a minimum fine of Rs. 12 lakh if a fine is imposed; if the loss could not be quantified, the total fine could not exceed five lakh rupees.
Had Charu seized a vehicle that she honestly and on reasonable grounds believed to be part of Vimal's estate, but which in fact belonged to a third party, the second proviso would protect her from liability under this section. The names and numbers are invented, and the example is not a prediction of any outcome.
Where section 187 fits
Section 187 is the last section of Part III. It sits with the other offences in Chapter VII: Sections 184 and 185 and Section 186. The live post on offences and penalties in Part III covers the chapter. The code of conduct that a trustee must observe under section 143 is covered in Sections 143 to 145. The text of section 187 does not say which court tries the offence or how the offence is investigated.
Law around this section
The Amendment Act, 2026 (No. 6 of 2026) has no clause that amends section 187. It comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether any change to a related provision has been notified.
For personal guarantors to corporate debtors, the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (the copy consulted is amended up to 02-06-2026) apply alongside Part III; no rules or regulations for other individuals or for partnership firms are in the texts consulted.
Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Need help with a concern about a bankruptcy trustee's conduct?
Creditors and bankrupts who suspect misapplication of estate property, and trustees who face an allegation, need the facts and the dates set against section 187. Our team can help through a legal dispute resolution engagement.
Key takeaways
- Two limbs: fraudulent misapplication, retention or accounting for estate money or property; and wilful action causing loss in consequence of breach of a duty under section 149.
- Imprisonment up to three years, or a fine of not less than three times the loss caused or likely to have been caused, or both.
- Where the loss or unlawful gain is not quantifiable, the total fine shall not exceed five lakh rupees.
- A trustee is not liable under the section if he seizes or disposes of property outside the estate on reasonable grounds to believe he is entitled.
Read next
- Sections 188 and 189: establishment and constitution of the Insolvency and Bankruptcy Board of India
- Section 186 of the Insolvency and Bankruptcy Code, 2016: punishment for false information and concealment by a bankrupt
- Sections 146 to 148: resignation, vacancy and release of the bankruptcy trustee
- Offences and penalties in Part III
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.