CHAPTER VII - OFFENCES AND PENALTIES

Section 69: Punishment for Transactions Defrauding Creditors under the Insolvency and Bankruptcy Code 2016

Section 69 of the Insolvency and Bankruptcy Code, 2016 provides punishment where an officer of a corporate debtor or the corporate debtor engages in specified transactions or concealment of property capable of defrauding creditors, subject to the statutory exceptions contained in the proviso.

Current statutory wording: The opening words "On or after the insolvency commencement date, if" were substituted by the word "If" by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 with effect from 6 June 2018.

Section 69 - Punishment for transactions defrauding creditors

If an officer of the corporate debtor or the corporate debtor:

(a) has made or caused to be made any gift or transfer of, or charge on, or has caused or connived in the execution of a decree or order against, the property of the corporate debtor;

(b) has concealed or removed any part of the property of the corporate debtor within two months before the date of any unsatisfied judgment, decree or order for payment of money obtained against the corporate debtor,

such officer of the corporate debtor or the corporate debtor, as the case may be, shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years, or with fine which shall not be less than one lakh rupees but may extend to one crore rupees, or with both.

Proviso: A person shall not be punishable under this section if the acts mentioned in clause (a) were committed more than five years before the insolvency commencement date; or if that person proves that, at the time of commission of those acts, there was no intent to defraud the creditors of the corporate debtor.

Who can be punished under Section 69?

The section applies to an officer of the corporate debtor or to the corporate debtor, as the case may be. For the purposes of Part II of the Code, Section 5 contains relevant definitions applicable to corporate insolvency provisions.

Transactions covered by Section 69(a)

Clause (a) covers making or causing a gift or transfer of corporate debtor property, creating or causing a charge on such property, and causing or conniving in the execution of a decree or order against the corporate debtor's property. The statutory proviso contains both a five-year limitation-related protection for the acts in clause (a) and a defence based on absence of intent to defraud creditors.

Concealment or removal under Section 69(b)

Clause (b) applies where part of the corporate debtor's property has been concealed or removed within two months before the date of an unsatisfied judgment, decree or order for payment of money obtained against the corporate debtor.

Punishment under Section 69

The prescribed punishment is imprisonment for not less than one year and up to five years, or a fine of not less than Rs. 1 lakh and up to Rs. 1 crore, or both.

Statutory defence and exception

The proviso states that a person is not punishable if the acts described in clause (a) were committed more than five years before the insolvency commencement date. It also provides protection where the person proves that, when the relevant acts were committed, there was no intent to defraud the creditors of the corporate debtor.

Legal note: Section 69 is contained in Chapter VII of Part II of the Code dealing with offences and penalties. Criminal liability depends on satisfaction of the statutory ingredients and the evidence in the particular case.

Section 69: Punishment for Transactions Defrauding Creditors under the Insolvency and Bankruptcy Code 2016