Section 65 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 65 penalises a person who uses the insolvency process for a purpose other than insolvency. If any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent, starts voluntary liquidation with intent to defraud, or begins a pre-packaged process in the same way, the Adjudicating Authority may impose a penalty of not less than one lakh rupees and up to one crore rupees. This article explains the three sub-sections as per the IBBI consolidated text of the Code amended up to 12 August 2021, and then the change made to sub-section (3) by the Insolvency and Bankruptcy Code (Amendment) Act, 2026.
The Adjudicating Authority may impose a penalty of not less than one lakh rupees but up to one crore rupees on a person who (1) initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for a purpose other than resolution or liquidation, (2) initiates voluntary liquidation with intent to defraud, or (3) initiates the pre-packaged insolvency resolution process fraudulently, maliciously or with intent to defraud. The 2026 Act extends sub-section (3) to the creditor-initiated process.
Section 65(1): insolvency resolution or liquidation
"If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees."
| Element | Words of the section |
|---|---|
| Who | "any person" who initiates the process |
| What | "the insolvency resolution process or liquidation proceedings" |
| State of mind or way | "fraudulently or with malicious intent" |
| Purpose | "for any purpose other than for the resolution of insolvency, or liquidation, as the case may be" |
| Penalty | "not less than one lakh rupees, but may extend to one crore rupees" |
The section is aimed at the initiator, whether a financial creditor under section 7, an operational creditor under section 9, or a corporate applicant under section 10; the text says "any person" and does not list them. The misuse it targets is use of the process for a purpose other than resolution of insolvency or liquidation. The printed text of the section has a comma after "If" ("If, any person") and the sentence is split across a page by a footnote block; both are printing matters and the section is quoted as printed. The posts on section 7, section 9 and section 10 explain the three applications.
Applicants who want to be sure an application is properly founded, and respondents who face one they think is misused, can take legal dispute resolution advice before they act.
The word is "may". The Adjudicating Authority decides whether to penalise; once it does, the penalty cannot be below one lakh rupees and cannot exceed one crore rupees. The text of the section does not describe the procedure, and no case law is set out here.
Section 65(2): voluntary liquidation
"If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees."
The trigger here is narrower: voluntary liquidation initiated "with the intent to defraud any person". The malice limb of sub-section (1) does not appear; the single test is intent to defraud. The penalty range is the same. For voluntary liquidation under the Code, see our post on voluntary liquidation under section 59.
Section 65(3): pre-packaged insolvency resolution process
The sub-section is inserted in the consolidated text and prints: "If any person initiates the pre-packaged insolvency resolution process— (a) fraudulently or with malicious intent for any purpose other than for the resolution of insolvency; or (b) with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees."
| Limb | Words |
|---|---|
| (a) | "fraudulently or with malicious intent for any purpose other than for the resolution of insolvency" |
| (b) | "with the intent to defraud any person" |
Either limb is enough, since they are joined by "or". Sub-section (3) is the pre-packaged counterpart of the first two. See our articles on section 54C for how the pre-packaged process begins and on section 77A for the offences in that process.
What the Amendment Act, 2026 changes
Section 45 of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 amends section 65(3) only. The Amendment Act, 2026 comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether this change has been notified.
| As printed in the consolidated text | After the 2026 Act |
|---|---|
| (3) "If any person initiates the pre-packaged insolvency resolution process—" | (3) the words "pre-packaged insolvency resolution process" are substituted by "pre-packaged insolvency resolution process or creditor-initiated insolvency resolution process" |
| Sub-sections (1) and (2) | not amended |
So after the Amendment Act, 2026 sub-section (3) reads with "pre-packaged insolvency resolution process or creditor-initiated insolvency resolution process" in the opening words. The creditor-initiated process is the one in Chapter IV-A; see our article on section 58B. The penalty range is unchanged: not less than one lakh rupees, and up to one crore rupees. By contrast, new section 64A provides a penalty up to two crore rupees for frivolous or vexatious proceedings before the Adjudicating Authority under Part II; see the article on sections 63, 64 and 64A.
Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Example
Gamma Traders Pvt Ltd owes Omega Supplies Ltd a small disputed sum. Omega's director files an application for corporate insolvency not to resolve any insolvency but to force Gamma to pay a different, unrelated claim. If the Adjudicating Authority finds the initiation fraudulent or malicious in that sense, section 65(1) allows a penalty of one lakh rupees to one crore rupees on the person who initiated it. If instead Gamma's directors begin voluntary liquidation to defeat a creditor, section 65(2) applies on the test of intent to defraud. The names and facts are invented.
Need help with an application that may be misused?
If you are about to start insolvency or liquidation proceedings, or have been served with one that you think is misused, the purpose of the application and the evidence behind it matter. Our team can help you assess both through legal dispute resolution.
Key takeaways
- Section 65(1): a penalty of not less than one lakh rupees and up to one crore rupees for initiating insolvency resolution or liquidation fraudulently or with malicious intent for a purpose other than resolution of insolvency or liquidation.
- Section 65(2): the same range for voluntary liquidation initiated with intent to defraud any person.
- Section 65(3): the same range for the pre-packaged process, on either limb.
- The Amendment Act, 2026 extends sub-section (3) to the creditor-initiated insolvency resolution process.
- The Adjudicating Authority "may" impose the penalty; whether the Amendment Act has been notified must be checked.
Read next
- Sections 63, 64 and 64A
- Sections 67 and 67A: orders in fraudulent or wrongful trading
- Section 54C: application for a pre-packaged process
- Voluntary liquidation under section 59
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.