Answer By law4u team
Insolvency laws are designed to ensure fair treatment of all stakeholders, especially creditors. However, during the claim submission phase, there can be attempts to defraud the process by submitting inflated, fake, or unsupported claims. To maintain integrity and prevent misuse, strict penalties are laid down under the Insolvency and Bankruptcy Code (IBC), 2016. These laws aim to protect the resolution process from being derailed by dishonest parties.
Penalties for False Claims in Insolvency
Section 75 of IBC – Punishment for False Information
If a person knowingly furnishes false information in the insolvency application, they can face up to 5 years imprisonment and/or a fine up to ₹1 crore.
Section 76 – Punishment for False Claims by Creditors
If a creditor submits a false claim or falsified documents, the penalty includes imprisonment up to 5 years, a fine up to ₹1 crore, or both.
Disqualification From Proceedings
Creditors found guilty of submitting false claims may be disqualified from participating in the Committee of Creditors (CoC) and other decision-making processes.
NCLT/NCLAT Action
The National Company Law Tribunal (NCLT) and the Appellate Tribunal (NCLAT) may dismiss claims, initiate criminal proceedings, and refer cases to enforcement authorities.
Disciplinary Action by IBBI
If the misrepresentation involves a registered professional (e.g., Resolution Professional or Valuer), the Insolvency and Bankruptcy Board of India (IBBI) can suspend or cancel their license.
Filing of FIR
The Resolution Professional (RP) or Liquidator can file an FIR against fraudulent claimants, leading to police or cybercrime investigation.
How Integrity Is Ensured in Claim Verification
Strict Documentation Requirements
Creditors must submit proofs like invoices, loan agreements, or court decrees along with claim forms.
Verification by Resolution Professional (RP)
The RP checks each claim for authenticity, cross-verifies with records of the corporate debtor, and maintains a list of verified claims.
Public Announcement and Transparency
Claims are invited through public notices, and the status of accepted/rejected claims is updated for transparency.
Opportunity for Objection
Other creditors or the corporate debtor can challenge suspicious claims before the NCLT.
Best Practices to Avoid Legal Risk
Always file claims with complete and truthful documentation.
Don’t inflate the value of the debt or include interest without proof.
Avoid third-party claim manipulation or duplicate claims.
Consult with a legal advisor before submission if unsure about the claim's validity.
Example
A trade creditor submits a ₹50 lakh claim during CIRP, claiming unpaid invoices from a construction company. However, on verification, the Resolution Professional finds that only ₹20 lakh is supported by valid invoices. The rest are fabricated.
Steps taken:
The RP rejects the fake ₹30 lakh portion of the claim.
An FIR is filed against the creditor for fraud and misrepresentation.
The NCLT bars the creditor from further participation in the resolution process.
Legal proceedings are initiated under Section 76 of the IBC, and the creditor may face fines and imprisonment.
