IBC Section 187: Punishment for certain actions

Section 187 of Insolvency and Bankruptcy Code, 2016: Punishment for certain actions

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

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 that the estate of the bankrupt has suffered any loss in consequence of breach of any duty of the bankruptcy trustee in carrying out his functions under section 149, he shall be punishable with imprisonment for a term which may extend to three years, or with fine, which shall not be less than three times the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention, or with both:

Provided that where such loss or unlawful gain is not quantifiable, the total amount of fine imposed shall not exceed five lakh rupees:

Provided further that the bankruptcy trustee shall not be liable under this section if he seizes or disposes of any property which is not comprised in the estate of the bankrupt and at that time had reasonable grounds to believe that he is entitled to seize or dispose that property.

Legal Commentary & Landmark Judgments: Section 187

Section 187 prescribes criminal punishments for certain prohibited actions taken by the debtor, such as obtaining credit without disclosing undischarged status or carrying on business under an undisclosed alias.

Prohibited Commercial Actions: Punishes an undischarged bankrupt for obtaining credit above statutory limits without disclosing his status, or engaging in business under a different name.
Foreign Travel Contraventions: Covers leaving India or attempting to leave India without the prior permission of the Adjudicating Authority in violation of Section 141.
Penal Sentence: Punishable with imprisonment for a term which may extend to six months, or with a fine which may extend to five lakh rupees, or with both.

Key Landmark Precedents:

Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: The Supreme Court recognized that criminal sanctions under Section 187 enforce the protective restrictions imposed on undischarged bankrupts under Section 141.
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: Held that commercial integrity requires strict penal policing of undischarged individuals seeking to enter into credit transactions.

Courtroom Practice & Strategic Litigation Guidance:

Lenders discovering that a borrower concealed his undischarged bankrupt status when securing personal loans should immediately file a police complaint under Section 187 r/w Section 420 IPC/BNS and notify the bankruptcy trustee.