IBC Section 74: Punishment for contravention of moratorium or the resolution plan

Section 74 of Insolvency and Bankruptcy Code, 2016: Punishment for contravention of moratorium or the resolution plan

Official Bare Act Text

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

(1) Where the corporate debtor or any of its officer violates the provisions of section 14, any such officer who knowingly or wilfully committed or authorised or permitted such contravention shall be punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one lakh rupees, but may extend to three lakh rupees, or with both.

(2) Where any creditor violates the provisions of section 14, any person who knowingly and wilfully authorised or permitted such contravention by a creditor shall be punishable with imprisonment for a term which shall not be less than one year, but 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.

(3) Where the corporate debtor, any of its officers or creditors or any person on whom the approved resolution plan is binding under section 31, knowingly and wilfully contravenes any of the terms of such resolution plan or abets such contravention, such corporate debtor, officer, creditor or person shall be punishable with imprisonment of not less than one year, but 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.

Legal Commentary & Landmark Judgments: Section 74

Section 74 provides criminal punishment for any corporate debtor, officer, or creditor who knowingly and wilfully contravenes the statutory moratorium declared under Section 14 or violates an approved resolution plan under Section 31.

Contravention of Moratorium by Corporate Debtor (Section 74(1)): Punishable with imprisonment for not less than three years, but extending to five years, or with fine of not less than one lakh rupees extending to three lakh rupees, or both.
Contravention of Moratorium by Creditor (Section 74(2)): Any creditor who knowingly and wilfully violates Section 14 moratorium (e.g., repossessing assets or executing decrees) is punishable with imprisonment for not less than one year extending to five years, or fine of not less than one lakh extending to one crore rupees, or both.
Breach of Approved Resolution Plan (Section 74(3)): Any person who deliberately contravenes any term of an approved resolution plan is punishable with imprisonment for not less than one year extending to five years, or fine of not less than one lakh extending to one crore rupees, or both.

Key Landmark Precedents:

Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531: The Supreme Court held that approved resolution plans under Section 31 carry absolute statutory finality; any deliberate failure to implement the plan attracts criminal prosecution under Section 74(3).
Anand Rao Korada v. Varsha Fabrics Pvt. Ltd. (2020) 14 SCC 272: The Supreme Court held that any auction sale or decree execution conducted in violation of Section 14 moratorium is null and void, and attracts criminal liability under Section 74.

Courtroom Practice & Strategic Litigation Guidance:

If a successful resolution applicant reneges on an approved resolution plan or a recalcitrant creditor forcibly seizes vehicles during moratorium, immediately file a Section 74 prosecution before the Special Court and seek contempt before the NCLT.