CHAPTER VII - OFFENCES AND PENALTIES

Section 70: Punishment for Misconduct During Corporate Insolvency Resolution Process

Section 70 of the Insolvency and Bankruptcy Code, 2016 prescribes criminal consequences for specified misconduct by an officer of a corporate debtor during the corporate insolvency resolution process and for deliberate contravention of Part II by an insolvency professional.

Section 70(1) - Misconduct by an officer of the corporate debtor

On or after the insolvency commencement date, where an officer of the corporate debtor:

(a) does not disclose to the resolution professional all the details of property of the corporate debtor, and details of transactions thereof, or any such other information as the resolution professional may require; or

(b) does not deliver to the resolution professional all or part of the property of the corporate debtor in his control or custody and which he is required to deliver; or

(c) does not deliver to the resolution professional all books and papers in his control or custody belonging to the corporate debtor and which he is required to deliver; or

(d) fails to inform the resolution professional the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency resolution process; or

(e) prevents the production of any book or paper affecting or relating to the property or affairs of the corporate debtor; or

(f) accounts for any part of the property of the corporate debtor by fictitious losses or expenses, or if he has so attempted at any meeting of the creditors of the corporate debtor within the twelve months immediately preceding the insolvency commencement date,

he shall be punishable with imprisonment for a term which shall not be less than three years 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: Nothing in this section shall render a person liable to punishment under this section if he proves that he had no intent to do so in relation to the state of affairs of the corporate debtor.

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

If an insolvency professional deliberately contravenes the provisions of Part II of the Code, the insolvency professional shall be punishable with imprisonment for a term which may extend to six months, or with fine which shall not be less than one lakh rupees but may extend to five lakh rupees, or with both.

Meaning of corporate insolvency resolution process

The corporate insolvency resolution process, commonly referred to as CIRP, is the statutory resolution process for a corporate debtor under Part II of the Code. Section 70 protects the integrity of that process by penalising specified non-disclosure, non-delivery, obstruction, false accounting and deliberate professional contraventions.

Who is an officer of the corporate debtor?

For Part II, Section 5(20) provides that "officer" has the meaning assigned to the term in Section 2(59) of the Companies Act, 2013. The definition is therefore relevant when determining the persons to whom Section 70(1) may apply.

Duty to provide information, property and records

Clauses (a) to (c) address failures to disclose required information and to deliver property, books and papers to the resolution professional. These obligations support the resolution professional's ability to ascertain the corporate debtor's financial position, assets and transactions during CIRP.

False debts, obstruction and fictitious losses

Clauses (d) to (f) address failure to disclose knowledge that a debt has been falsely proved, prevention of production of relevant books or papers, and accounting for corporate debtor property through fictitious losses or expenses. Clause (f) also expressly covers an attempt at a creditors' meeting within the twelve months immediately preceding the insolvency commencement date.

Statutory defence under Section 70(1)

The proviso to sub-section (1) states that a person is not liable to punishment if that person proves absence of the specified intent in relation to the state of affairs of the corporate debtor. Its application depends on the facts and evidence of the case.

Legal note: Section 70 is an offence and punishment provision. It should be read with the other provisions of the Code governing cooperation with the resolution professional, offences, prosecution and the applicable insolvency regulations.