Section 187: Punishment for Certain Actions
Section 187 of the Insolvency and Bankruptcy Code, 2016 forms part of Part III, Chapter VII dealing with offences and penalties. It prescribes criminal consequences for specified fraudulent or wilful misconduct by a bankruptcy trustee in relation to the estate of a bankrupt.
Updated with reference to the legal framework available as on 30 September 2026.
Text and Meaning of Section 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 by which the estate of the bankrupt has suffered loss as a consequence of breach of any duty of the bankruptcy trustee while carrying out functions under section 149,
the trustee is punishable with imprisonment for a term which may extend to three years, or with a fine which shall not be less than three times the amount of the loss caused, or likely to have been caused, to the persons concerned on account of the contravention, or with both.
Where the loss or unlawful gain is not quantifiable, the total fine imposed shall not exceed five lakh rupees.
A bankruptcy trustee is not liable under this section merely because the trustee seizes or disposes of property that is not comprised in the bankrupt's estate, if at that time the trustee had reasonable grounds to believe that he was entitled to seize or dispose of that property.
What Section 187 Covers
- Fraudulent dealing with estate property: The provision applies where a bankruptcy trustee fraudulently misapplies, retains or accounts for money or property forming part of the bankrupt's estate.
- Wilful breach causing loss: It also applies where the trustee wilfully acts in breach of duty while carrying out functions under section 149 and the bankrupt's estate suffers loss as a consequence.
- Imprisonment: The maximum term is three years.
- Fine linked to loss: The fine is ordinarily not less than three times the loss caused or likely to have been caused to persons concerned.
- Unquantifiable loss or gain: Where the loss or unlawful gain cannot be quantified, the fine is capped at five lakh rupees.
- Reasonable-ground protection: The second proviso protects a trustee who deals with property outside the estate while having reasonable grounds, at that time, to believe that he was entitled to do so.
Section 149: Duties and Functions of Bankruptcy Trustee
Section 187(b) expressly connects the offence to breach of duty in carrying out the bankruptcy trustee's functions under section 149. Section 149 sets out the trustee's statutory functions in the bankruptcy process. Accordingly, liability under clause (b) requires wilful conduct, a breach of duty in performing those functions, and consequential loss to the estate.
Place of Section 187 in the IBC
Section 187 is the final provision in Chapter VII of Part III of the Code. The neighbouring provisions deal with false information by creditors, contravention of insolvency resolution provisions, and false information or concealment by a bankrupt. Section 188 begins Part IV, which establishes the Insolvency and Bankruptcy Board of India.