Section 187 of IBC: Punishment for Certain Actions by a Bankruptcy Trustee
Section 187 deals with criminal punishment where a bankruptcy trustee fraudulently deals with estate property or wilfully breaches duties resulting in loss. It also contains a limited protection for seizure or disposal undertaken on reasonable grounds.
Maximum imprisonment: three years. Fine: not less than three times the loss caused or likely to be caused, subject to the statutory proviso where loss or unlawful gain cannot be quantified. Imprisonment, fine, or both may be imposed.
Section 187 - Statutory provision
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 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 with both:
Provided that where such loss or unlawful gain is not quantifiable, the total amount of fine imposed shall not exceed five lakh rupees:
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.
Meaning and scope of Section 187
The provision addresses misconduct by a bankruptcy trustee appointed in an individual bankruptcy process under Part III of the Code. The bankruptcy estate consists of property that vests in the trustee under the applicable provisions, subject to statutory exclusions. A trustee is entrusted with administering that estate for the benefit of creditors in accordance with the Code.
Clause (a): Fraudulent handling of estate assets
Clause (a) concerns fraudulent misapplication, retention or accounting for money or property belonging to the bankruptcy estate. Examples that may raise issues under this clause include diverting estate proceeds for personal use or deliberately misrepresenting the disposition of estate assets. Whether conduct amounts to an offence depends on the facts and proof of the statutory elements.
Clause (b): Wilful breach of duties causing loss
Clause (b) applies where a trustee wilfully acts in breach of a duty under Section 149 and the bankruptcy estate suffers loss as a consequence. The reference to wilful conduct and resulting loss is important: an ordinary error does not automatically establish this offence.
Punishment and fine under Section 187
| Element | Statutory consequence |
|---|---|
| Imprisonment | May extend to three years |
| Fine where loss can be quantified | Not less than three times the loss caused or likely to have been caused to persons concerned |
| Loss or unlawful gain not quantifiable | Total fine shall not exceed Rs. 5 lakh |
| Combination | Imprisonment, fine, or both |
Protection for reasonable seizure or disposal
The second proviso protects a bankruptcy trustee who seizes or disposes of property that does not belong to the bankruptcy estate, if at the relevant time the trustee had reasonable grounds to believe that the trustee was entitled to do so. This is a fact-sensitive statutory protection, not blanket immunity for negligent or fraudulent conduct.
Related provisions of the IBC
Section 149 concerns the functions of the bankruptcy trustee and is expressly referred to in Section 187(b). Section 154 addresses vesting of the bankrupt's estate in the trustee, while Section 155 concerns the estate of the bankrupt. Section 156 deals with delivery of property and documents to the trustee. Read these provisions together to understand the trustee's powers and responsibilities.
For the full legislation, consult the India Code official legislation portal and the IBBI legal framework. For relevant regulatory standards, also consult the Insolvency and Bankruptcy Board of India.
Frequently asked questions
Who can be punished under Section 187?
The section specifically concerns a bankruptcy trustee who engages in conduct described in clauses (a) or (b).
Is every loss to the estate a criminal offence?
No. The section requires the particular fraudulent or wilful conduct described in its clauses. A loss alone does not automatically establish criminal liability.
What is the maximum prison term?
Imprisonment may extend to three years. The section also provides for a fine or both.
Can a trustee be protected for seizing property outside the estate?
Yes, if the conditions in the second proviso are met, including reasonable grounds at the time to believe the trustee was entitled to seize or dispose of it.
Legal information only. Applicability, commencement and any subsequent amendments should be checked against the official text and notifications for the relevant proceeding.