Sections 67 and 67A explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 67 sets out the further directions the Adjudicating Authority may give after an order under section 66 on fraudulent or wrongful trading: a charge on debts, mortgages and interests, and the ranking of a creditor's own debt after all other debts. Section 67A penalises an officer of the corporate debtor who manages its affairs fraudulently during the pre-packaged insolvency resolution process. This article explains both sections as per the IBBI consolidated text of the Code amended up to 12 August 2021, and the change the Insolvency and Bankruptcy Code (Amendment) Act, 2026 makes to section 67A.
After an order under section 66, the Adjudicating Authority may make the liability a charge on any debt, mortgage or interest due to the person held liable, and may direct that a creditor's debt rank after all other debts in the section 53 order of priority. Section 67A allows a penalty of not less than one lakh rupees up to one crore rupees on an officer who manages the corporate debtor with intent to defraud creditors, or for any fraudulent purpose, after the pre-packaged insolvency commencement date. The 2026 Act extends 67A to the creditor-initiated process.
The setting: section 66
Section 66 is the section on fraudulent trading or wrongful trading, and it has a live post: fraudulent transactions under section 66. In the consolidated text, section 66(1) lets the Adjudicating Authority, on the application of the resolution professional, order that persons who were knowingly parties to carrying on the business with intent to defraud creditors or for any fraudulent purpose make such contributions to the assets of the corporate debtor as it may deem fit; section 66(2) deals with a director or partner who knew or ought to have known that there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process. Section 46 of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 changes the marginal heading of section 66 to "Fraudulent or wrongful trading." and adds the liquidator in sub-sections (1) and (2); see also the post on fraudulent and wrongful trading under sections 66 and 67.
Section 67 and section 67A then follow in Chapter VI. Anyone facing an order under section 66, or looking to enforce one, can take legal dispute resolution advice on the further directions described below.
Section 67(1): further directions and a charge
"Where the Adjudicating Authority has passed an order under sub-section (1) or sub-section (2) of section 66, as the case may be, it may give such further directions as it may deem appropriate for giving effect to the order, and in particular, the Adjudicating Authority may—"
| Clause | Direction |
|---|---|
| (a) | provide for the liability of any person under the order to be a charge on any debt or obligation due from the corporate debtor to him, or on any mortgage or charge or any interest in a mortgage or charge on assets of the corporate debtor held by or vested in him, or any person on his behalf, or any person claiming as assignee from or through the person liable or any person acting on his behalf |
| (b) | from time to time, make such further directions as may be necessary for enforcing any charge imposed under this section |
Clause (a) creates a charge. The liability the person has under the section 66 order is secured by a charge on what the corporate debtor owes him, and on any mortgage, charge or interest in a mortgage or charge on the debtor's assets that he holds, or that is held on his behalf or by an assignee claiming through him. Clause (b) allows further directions to enforce the charge.
The Explanation defines "assignee" for the section: it "includes a person to whom or in whose favour, by the directions of the person held liable under clause (a) the debt, obligation, mortgage or charge was created, issued or transferred or the interest created, but does not include an assignee for valuable consideration given in good faith and without notice of any of the grounds on which the directions have been made." So a person who took the charged debt or interest for valuable consideration, in good faith and without notice of the grounds, is outside the definition.
Section 67(2): ranking of a creditor's debt
"Where the Adjudicating Authority has passed an order under sub-section (1) or sub-section (2) of section 66, as the case may be, in relation to a person who is a creditor of the corporate debtor, it may, by an order, direct that the whole or any part of any debt owed by the corporate debtor to that person and any interest thereon shall rank in the order of priority of payment under section 53 after all other debts owed by the corporate debtor."
This is a power to move a creditor's debt to the bottom of the order of priority when the creditor is himself the person held liable. The direction covers "the whole or any part" of the debt, together with interest. The order of priority in section 53 has a live post: the section 53 waterfall. The section says "may", so the direction is discretionary. For the other avoidance provisions in this part of the Code, see our article on sections 50 and 51.
Section 67A: fraudulent management during the pre-packaged process
The consolidated text prints section 67A under the heading "Fraudulent management of corporate debtor during pre-packaged insolvency resolution process": "On and after the pre-packaged insolvency commencement date, where an officer of the corporate debtor manages its affairs with the intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may, on an application by the resolution professional, pass an order imposing upon any such officer, a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees."
| Element | Words of the section |
|---|---|
| Time | "On and after the pre-packaged insolvency commencement date" |
| Who | "an officer of the corporate debtor" |
| Conduct | manages its affairs "with the intent to defraud creditors of the corporate debtor or for any fraudulent purpose" |
| Who applies | the resolution professional |
| Penalty | "not less than one lakh rupees, but may extend to one crore rupees" |
This fits the pre-packaged model in which the board keeps managing the business; see the article on sections 54G, 54H and 54-I. Section 54N(1)(ii) also refers to proceedings under sections 66 and 67A when a pre-packaged process is terminated; see the article on section 54N. The term "officer" is as the Code uses it; the reader should check the Code and the current law of the Act it refers to for the definition.
What the Amendment Act, 2026 changes
Section 47 of the Amendment Act, 2026 amends section 67A in two places. Section 67 is not amended. The Amendment Act, 2026 comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether this change has been notified.
| As printed in the consolidated text | After the 2026 Act |
|---|---|
| Marginal heading: "...during pre-packaged insolvency resolution process" | the words "pre-packaged insolvency resolution process" are substituted by "pre-packaged insolvency resolution process or creditor-initiated insolvency resolution process" |
| "On and after the pre-packaged insolvency commencement date" | the words "pre-packaged insolvency commencement date" are substituted by "pre-packaged insolvency commencement date or creditor-initiated insolvency commencement date" |
So after the Amendment Act, 2026, section 67A would apply on and after either date, and its heading would cover both processes. The creditor-initiated insolvency commencement date is defined in the Explanation at the end of new section 58B for the purposes of Chapter IV-A. Whether rules or a notification sets out the application is not in the texts consulted.
Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Example
Sterling Logistics Pvt Ltd goes into liquidation, and the Adjudicating Authority orders under section 66(1) that a director, Mr Mehra, who was knowingly a party to carrying on the business to defraud creditors, contribute to the assets. Mr Mehra is also a creditor, owed a director's loan. Under section 67(1)(a) the Adjudicating Authority may make his liability a charge on the loan due to him, and under section 67(2) it may direct that the loan rank after all other debts. In a separate case, an officer of Sterling Components Pvt Ltd manages the company with intent to defraud creditors after the pre-packaged insolvency commencement date; on the resolution professional's application, a penalty of one lakh to one crore rupees may be imposed under section 67A. The names are invented.
Need help with an order under section 66 or 67?
Orders on fraudulent or wrongful trading affect personal liability, security and priority. Our team can help directors, creditors and professionals assess the position and the next step through legal dispute resolution.
Key takeaways
- Section 67 applies after an order under section 66(1) or (2) and lets the Adjudicating Authority give further directions to give effect to it.
- Under section 67(1) it may make the liability a charge on debts, mortgages and interests, and give directions to enforce the charge; an assignee for valuable consideration in good faith and without notice is outside the definition.
- Under section 67(2) it may direct that a creditor's debt, in whole or in part, rank after all other debts in the section 53 order.
- Section 67A allows a penalty of not less than one lakh rupees and up to one crore rupees on an officer who manages the corporate debtor fraudulently after the pre-packaged insolvency commencement date, on the resolution professional's application.
- The Amendment Act, 2026 extends section 67A to the creditor-initiated process; check whether it has been notified.
Read next
- Section 65: fraudulent or malicious initiation of proceedings
- Sections 67B and 67C: penalties and the omitted sections 74 and 76
- Fraudulent transactions under section 66
- Section 53 waterfall of distribution
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.