Insolvency law | Corporate insolvency | Offences and penalties

Section 77 of IBC: Punishment for False Information in an Application by a Corporate Debtor

Section 77 of the Insolvency and Bankruptcy Code, 2016 (IBC) addresses knowingly false material information and deliberate omissions in an application for corporate insolvency resolution made under Section 10. It also addresses persons who knowingly and wilfully authorise or permit the furnishing of such information.

What Section 77 covers

Section 77 addresses two categories of conduct connected with a corporate debtor's Section 10 application:

• Section 77(a): A corporate debtor furnishes information in the Section 10 application that is false in material particulars, knowing it to be false, and omits a material fact knowing it to be material. The wording of the provision must be applied as enacted and interpreted by the competent court.
• Section 77(b): A person knowingly and wilfully authorises or permits the furnishing of the information described in clause (a).

The provision applies to the corporate debtor or the responsible person, as the case may be. Questions of individual responsibility depend on the evidence, the person's conduct and the legal requirements of the offence.

Punishment under Section 77

The sentencing alternatives and exact wording should be checked against the consolidated law in force on the relevant date. The provision is distinct from rejection of an incomplete insolvency application or the imposition of costs.

Definitions and connected legal provisions

Section 10: Application by a corporate applicant

Under Section 10, where a corporate debtor has committed a default, a corporate applicant may seek initiation of the corporate insolvency resolution process before the Adjudicating Authority. The application must contain the prescribed particulars, information about accounts and documents, proposed interim resolution professional and the required shareholder or partner approval, as applicable.

Corporate debtor, corporate applicant and default

Corporate debtor under Section 3(8) means a corporate person who owes a debt to any person. Default under Section 3(12) concerns non-payment of a debt when due and payable, in whole or part, as defined by the Code. Corporate applicant is defined under Section 5(5), including specified persons authorised to apply on behalf of the corporate debtor.

Material particulars and material omissions

A material particular is information significant to assessing the application, including the existence and circumstances of default. The inquiry is fact-sensitive. The earlier explanation attached to Section 77 was omitted with effect from 4 April 2021, and an explanation addressing material particulars was inserted with Section 77A; readers should therefore not treat the older explanation printed beneath Section 77 in historical versions as its current location.

Sections 65, 75, 76 and 77A

Section 65 concerns fraudulent or malicious initiation of insolvency proceedings. Section 75 addresses false material information in applications under Section 7; Section 76 concerns specified concealment by an operational creditor in an application under Section 9. Section 77A provides penalties for specified misconduct relating to the pre-packaged insolvency resolution process. Each section has separate statutory elements.

Section 236: Trial of offences

Section 236 provides for trial of offences under the IBC by designated Special Courts, subject to its statutory conditions. Criminal prosecution is separate from the Adjudicating Authority's determination of whether a corporate insolvency application should be admitted.

Practical compliance considerations

• Reconcile claimed defaults with books of account, loan documents, payment records and creditor correspondence before filing.
• Ensure the application and supporting affidavit disclose material information accurately and consistently.
• Retain board or partner approvals and a documented review of the facts submitted.
• Correct discovered inaccuracies promptly through the legally available procedure and obtain professional advice where necessary.

Frequently asked questions

Does every error in a Section 10 application attract Section 77?

No. The penal provision refers to knowledge of falsity or materiality and, for persons authorising the furnishing, knowing and wilful conduct. Whether an offence is made out depends on the statutory elements and evidence.

What is the maximum fine under Section 77?

The fine may extend to Rs. 1 crore, subject to the applicable law and judicial determination.

Is Section 77 the same as Section 65?

No. Section 77 addresses false material information and omissions in a Section 10 application, while Section 65 addresses fraudulent or malicious initiation of proceedings for purposes other than insolvency resolution or liquidation.

Official legal sources

Consult the Insolvency and Bankruptcy Code, 2016 on India Code, the IBBI consolidated Code text, and the IBBI legal framework portal for amendments, rules, regulations and notifications.

For related provisions, return to The Insolvency and Bankruptcy Code, 2016.

This article provides general legal information. Applicable amendments, notifications and judicial decisions should be checked for the date and facts of a particular case.