Insolvency and Bankruptcy Code, 2016 | Section 70

Section 70 IBC: Punishment for Misconduct During Corporate Insolvency Resolution

Section 70 of the Insolvency and Bankruptcy Code, 2016 (IBC) prescribes criminal penalties for specified misconduct by officers of a corporate debtor during the corporate insolvency resolution process (CIRP) and for deliberate contraventions by insolvency professionals.

At a glance: Section 70(1) addresses non-disclosure, withholding of property or records, obstruction and fictitious accounting by corporate debtor officers. Section 70(2) separately addresses deliberate contravention of Part II of the Code by an insolvency professional.

What does Section 70 cover?

After insolvency commencement, the resolution professional needs reliable information and access to the corporate debtor's assets, records and affairs. Section 70 creates penal consequences for the misconduct identified below. The provision should be read together with the applicable definitions and duties under the IBC.

Section 70(1): Misconduct by officers of the corporate debtor

Section 70(1) applies on or after the insolvency commencement date where an officer of the corporate debtor engages in any of the following acts:

Clause (a): Non-disclosure of assets and transactions. Failure to disclose to the resolution professional the corporate debtor's property, transactions, or other information requested by the resolution professional.
Clause (b): Failure to hand over property. Failure to deliver property of the corporate debtor in the officer's custody or control when required to do so.
Clause (c): Withholding books and records. Failure to deliver books and papers belonging to the corporate debtor that the officer is required to provide.
Clause (d): Failure to report a falsely proved debt. Failure to inform the resolution professional of a falsely proved debt when the officer has knowledge of it.
Clause (e): Obstructing production of documents. Preventing production of books or papers concerning the corporate debtor's property or affairs.
Clause (f): Fictitious losses or expenses. Accounting for corporate property through fictitious losses or expenses, including an attempt at a creditors' meeting within the preceding twelve months.

The twelve-month look-back language in clause (f) specifically concerns attempts at meetings of creditors; it does not convert every offence under Section 70(1) into a twelve-month look-back offence.

Penalty under Section 70(1)

ImprisonmentNot less than 3 years and up to 5 years.

FineNot less than Rs. 1 lakh and up to Rs. 1 crore.

The provision permits imprisonment or fine or both, subject to its statutory terms.

Statutory defence

The proviso states that a person is not liable to punishment under this subsection if the person proves absence of the relevant intent in relation to the state of affairs of the corporate debtor. The precise defence must be assessed against the statutory language and the facts.

Section 70(2): Deliberate contravention by an insolvency professional

An insolvency professional who deliberately contravenes the provisions of Part II of the Code is subject to a separate penalty under Section 70(2).

ImprisonmentUp to 6 months.

FineRs. 1 lakh to Rs. 5 lakh.

The punishment may be imprisonment or fine or both. Deliberate contravention is an essential statutory element.

Important terms and related provisions

Corporate debtor (Section 3(8)): a corporate person who owes a debt to any person.
Insolvency commencement date (Section 5(12)): the date of admission of an application for initiating CIRP by the Adjudicating Authority under Sections 7, 9 or 10, as applicable.
Resolution professional (Section 5(27)): an insolvency professional appointed to conduct the corporate insolvency resolution process and including an interim resolution professional.
Section 17: management of affairs of the corporate debtor by the interim resolution professional.
Section 19: personnel of the corporate debtor, promoters and associated persons must extend cooperation to the interim resolution professional as specified.
Section 23: role of the resolution professional in conducting CIRP.
Sections 68 and 71: related offences concerning concealment of property and falsification of books.

Practical implications

Officers should maintain accurate asset registers, preserve books and electronic records, disclose relevant transactions and cooperate with lawful requests by the resolution professional. Insolvency professionals should document compliance with statutory duties and applicable regulations. Whether criminal liability arises depends on the particular elements of Section 70 and the evidence.

Official legislation and further reading

Consult the IBBI consolidated Insolvency and Bankruptcy Code, the India Code text and the IBBI legal framework and subsequent notifications for applicable amendments and commencement provisions.

Return to The Insolvency and Bankruptcy Code, 2016.

This article is general legal information. Consult the operative statutory text and notifications for the relevant date and facts.