What is the maximum penalty under Section 65?

The maximum statutory penalty is Rs. 1 crore, and the minimum is Rs. 1 lakh.

IBC 2016 | Chapter VI | Legal guide

Section 65 IBC: Fraudulent or Malicious Initiation of Proceedings

Q: Does Section 65 cover pre-packaged insolvency?

Yes. Subsection (3) covers fraudulent or malicious initiation of pre-packaged insolvency resolution proceedings.

Section 65 of the Insolvency and Bankruptcy Code, 2016 (IBC) discourages misuse of insolvency proceedings. It permits the Adjudicating Authority to impose a financial penalty when proceedings are initiated fraudulently, maliciously or with an intention to defraud, depending on the type of proceeding. The provision safeguards the insolvency framework against improper collateral purposes.

At a glance: The statutory penalty under each applicable subsection ranges from Rs. 1 lakh to Rs. 1 crore. It is not automatic: the Adjudicating Authority must assess the applicable statutory conditions and evidence.

Section 65: Statutory provisions and explanation

Section 65(1): Fraudulent or malicious 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."

Meaning: A person who invokes an insolvency resolution or liquidation process for an improper purpose, accompanied by fraud or malicious intent, may face a penalty. For example, a filing made as part of a dishonest scheme to misuse the process may attract scrutiny. The mere failure of an insolvency application does not, by itself, establish fraudulent or malicious initiation.

Section 65(2): Voluntary liquidation intended to defraud

"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."

Meaning: A person who starts voluntary liquidation with an intent to defraud another person can be penalised. Voluntary liquidation of corporate persons is separately governed by Section 59, including conditions intended to protect creditors and other stakeholders.

Section 65(3): Pre-packaged insolvency and the 2026 amendment

Subsection (3), inserted with effect from 4 April 2021, addresses a person initiating a pre-packaged insolvency resolution process fraudulently or maliciously for a purpose other than insolvency resolution, or with intent to defraud any person. It likewise provides for a penalty of Rs. 1 lakh to Rs. 1 crore.

2026 legislative update: Section 45 of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 provides for extending subsection (3) to a creditor-initiated insolvency resolution process. The application of this amendment depends on the relevant commencement notification and transitional provisions. Check the latest notified commencement position before relying on the expanded wording in a live matter.

Important legal terms

Adjudicating Authority: For corporate insolvency and liquidation under Part II, ordinarily the National Company Law Tribunal (NCLT), as provided in Section 60.
Corporate insolvency resolution process (CIRP): The statutory procedure for attempting to resolve the insolvency of a corporate debtor under Part II of the IBC.
Malicious intent: An improper or wrongful purpose behind invoking the legal process; it must be evaluated from the facts and supporting evidence.
Fraudulent initiation: Commencement involving deceit or dishonest conduct aimed at misusing the insolvency framework.
Voluntary liquidation: A statutory process by which an eligible corporate person winds up its affairs voluntarily, subject to Section 59 and applicable regulations.
Pre-packaged insolvency resolution process (PPIRP): A distinct resolution mechanism under Chapter III-A of Part II, introduced for eligible corporate debtors, subject to statutory conditions.

When may Section 65 be invoked?

The focus is on the purpose and intent behind initiating proceedings, not simply on whether the applicant succeeds. Relevant material may include contemporaneous communications, transaction records, the nature of the alleged default, arrangements between parties and other evidence suggesting an ulterior purpose. The tribunal must assess the statutory ingredients; accusations alone are insufficient.

In the NCLAT decision in Getz Cables Pvt. Ltd. v. State Bank of India (Company Appeal (AT) (Insolvency) No. 1953 of 2024), the appellate tribunal examined the meaning of fraudulent and malicious intent under Section 65. Subsequent decisions likewise emphasise the importance of specific pleadings and persuasive evidence. The outcome of each application depends on its facts.

Penalty and consequences

Provision	Conduct addressed	Penalty range
65(1)	Fraudulent or malicious initiation of insolvency resolution or liquidation for an improper purpose	Rs. 1 lakh to Rs. 1 crore
65(2)	Initiating voluntary liquidation with intent to defraud	Rs. 1 lakh to Rs. 1 crore
65(3)	Fraudulent or malicious initiation of PPIRP, or initiation with intent to defraud; see 2026 amendment note above	Rs. 1 lakh to Rs. 1 crore

Section 65 deals with a monetary penalty. It should not be confused with Section 66, which addresses fraudulent or wrongful trading and possible contributions to the corporate debtor's assets. Other remedies or offences may apply independently where their requirements are met.

Section 59: Voluntary liquidation of corporate persons.
Section 60: Jurisdiction of the Adjudicating Authority.
Section 61: Appeals to NCLAT.
Section 64: Expeditious disposal of applications.
Section 66: Fraudulent or wrongful trading (see current consolidated statute).

Frequently asked questions

Does dismissal of an insolvency petition automatically attract Section 65?

No. Dismissal alone does not prove the fraudulent or malicious intent required by the provision.

Who can face a penalty under Section 65?

The provision refers to any person who initiates the relevant proceeding with the prohibited intent or purpose. Liability must be established on the particular facts.

What is the maximum penalty?

The maximum penalty specified in Section 65 is Rs. 1 crore; the statutory minimum is Rs. 1 lakh.

Does Section 65 cover pre-packaged insolvency?

Yes. Subsection (3) expressly addresses fraudulent or malicious initiation of the pre-packaged insolvency resolution process. The 2026 amending legislation also addresses creditor-initiated proceedings, subject to commencement.

Official legal sources

For the complete Code, visit The Insolvency and Bankruptcy Code 2016.

This article is general legal information. For a particular proceeding, consult the current notified statutory text, applicable regulations, tribunal orders and professional advice.