How Sections 64A and 183A Penalise Vexatious Insolvency Petitions

An insolvency petition does most of its damage on the day it is filed. Since 26 May 2026 the Insolvency and Bankruptcy Code, 2016 (the Code) has carried a dedicated penalty for frivolous or vexatious proceedings, and the provision that reaches a petition against a company is not the one most commentary names. This post sets out which section applies where, and what to record on either side of that risk.

Where the New Penalty Sits: Section 64A for Companies, Section 183A for Individuals and Firms

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026) received Presidential assent on 6 April 2026. Notification S.O. 2625(E) dated 22 May 2026 brought the bulk of it into force on 26 May 2026, including the penalty provisions discussed here. This is operative law, not pending reform.

Two parallel provisions were inserted, not one. Section 64A sits in Part II, which governs insolvency resolution and liquidation for corporate persons. Section 183A sits in Part III, which governs insolvency and bankruptcy for individuals and partnership firms. Each lets the Adjudicating Authority penalise a person who initiated a frivolous or vexatious proceeding before it, and each fixes the range at not less than one lakh rupees and up to two crore rupees.

Why Do the Words "Under This Part" Decide Which Section Applies?

Each section is confined to a proceeding initiated under its own Part, and that phrase does all the work. A petition under section 7, 9 or 10 against an operating company is a Part II proceeding, so the applicable penalty is section 64A. Section 183A reaches applications against individuals and partnership firms, which for most in-house counsel means personal guarantor litigation against a director who guaranteed a group facility.

Much of the writing published since the Amendment treats section 183A as the Code's general anti-abuse penalty. It is not. Cite section 64A in a Part II costs application; citing section 183A invites a correction from the bench before the merits are reached.

Quantum, and Who Can Ask for It

The floor matters more than the ceiling. Two crore rupees is reserved for egregious conduct, but a minimum of one lakh rupees means a tribunal that finds a proceeding vexatious can no longer record the finding and impose nothing. Previously a company that defeated an abusive petition walked away with a dismissal and no order as to costs, an outcome the filing creditor could comfortably absorb.

Both sections read as powers of the Adjudicating Authority rather than reliefs available only on a respondent's application. The practical route is still a prayer in the reply. The cognate power under section 65 has been held exercisable on the tribunal's own motion, and the same latitude should follow here.

The Commercial Problem: A Demand Notice Used as a Collection Lever

The fact pattern is familiar to any contracts function. A supplier holds a claim the company genuinely contests, over defective delivery, an unapproved variation, liquidated damages set off against the running account, or retention withheld pending certification. Instead of a civil suit or the arbitration clause, it serves a demand notice in Form 3 or Form 4 under section 8. Ten days later a petition follows under section 9.

The calculation has nothing to do with solvency. A company with a functioning business will pay a contested sum to make an insolvency petition go away, and far faster than it would settle a suit running six years. The Code was built to resolve insolvency; in a measurable share of section 9 filings it operates as the most efficient debt collection instrument in India.

What the Filing Costs Before Anyone Rules on It

The damage is front-loaded. A petition reaches the cause list and is publicly searchable from the day of filing. Lenders whose facility documents require disclosure must be told. Tender forms routinely ask whether an insolvency proceeding has been filed, not merely admitted, and a truthful answer can disqualify a bid. Auditors will ask whether the petition touches the going concern assessment, and that answer is recorded permanently.

Counterparties read cause lists too. A material adverse change clause, a termination right in a licence, an acceleration trigger, a customer's supplier risk committee: each responds to the existence of the proceeding, not its eventual outcome. Dismissal fourteen months later restores the legal position and none of the commercial one. Pricing that asymmetry is the point of the new provisions.

Why the Existing Deterrents Underperformed

The Pre-Existing Dispute Threshold Is a Gate, Not a Price

Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. [(2018) 1 SCC 353] settled the admission test under section 9. An operational creditor's application must be rejected where a dispute truly exists in fact and is not spurious, hypothetical or illusory; the tribunal does not try the merits, but asks only whether there is a plausible contention requiring further investigation. The Court was equally firm that the Code is not a recovery forum.

As a filter the test works. As a deterrent it does nothing. A creditor rejected on that ground loses its filing fee and counsel's time, having already banked whatever leverage the pendency generated. The doctrine told creditors they would not win. It never told them that losing would cost anything.

Section 65 Required Proof of a State of Mind

Section 65(1) has always allowed a penalty of one lakh to one crore rupees on a person initiating insolvency resolution or liquidation fraudulently or with malicious intent for a purpose other than resolution. The obstacle was the mental element. A creditor chasing a contested debt in the wrong forum wants to be paid, and wanting to be paid is not obviously malicious.

Where section 65 has bitten, the facts were stark. In Gopal Trading Company v. Ravindra Kumar Goyal [(2026) ibclaw.in 326 NCLAT] the appellate tribunal upheld an order of the NCLT, Ahmedabad Bench terminating the resolution process of Matrushri Fibres Private Limited, penalising the operational creditor ten lakh rupees and directing it to bear six lakh rupees of process costs above two lakh rupees already deposited. The creditor had won admission on an alleged debt of about three crore eighty lakh rupees, then filed no claim and never participated. It was closely related to a director of the corporate debtor, and the tribunal found the process had been invoked to shield the company from tax recovery. The NCLAT confirmed that section 65 may be applied at any stage, including after admission, and that an abusive operational creditor may be made to bear the resolution professional's fees.

OM Sai Moulds and Plactics v. Pllastomax Engineering Pvt. Ltd. (NCLAT, New Delhi, 24 April 2025) reaches the same idea from another angle. The tribunal found the claimed operational debt was driven by a matrimonial dispute between a partner of the creditor and a director of the debtor, alongside minority shareholder grievances, and held that insolvency was being manufactured to settle personal scores. Admission under section 9 did not arise.

Both precedents are useful and both needed extreme facts. That is the gap sections 64A and 183A close. Frivolous and vexatious are conduct standards, judged from the objective character of the filing, and they do not require a respondent to prove what the creditor was thinking.

The Provision Aimed Squarely at the Concealed Dispute

Section 67C, inserted at the same time, is the sharpest of the three tools for a company defending a section 9 petition. It permits a penalty of one lakh to two crore rupees on an operational creditor that has concealed, in its application, either that the corporate debtor notified it of a dispute over the unpaid operational debt, or that the debt was paid in full and final settlement.

Section 67C replaced section 76, omitted from the same date. Section 76 made identical conduct a criminal offence and was close to a dead letter: it needed a prosecution, in a different forum, to a criminal standard, brought by a company with better uses for its time. Recasting it as a civil penalty imposable by the tribunal already seised of the matter is the substantive change. Plead sections 64A and 67C together.

How Do the Four Anti-Abuse Routes Compare?

The provisions overlap without being interchangeable, and each carries a different burden and a different ceiling.

Building the Record on Either Side of a Petition

The Ten Days After a Demand Notice Arrives

The reply to a section 8 demand notice is the most valuable document the company will produce in the whole dispute, and it must go out within ten days. It should identify the dispute specifically rather than deny liability generally, attach the correspondence predating the notice, and refer to any suit or arbitration already on foot. A bare denial is what lets a creditor argue later that nothing existed capable of being concealed.

Assemble an indexed bundle alongside it and freeze it: the contract with every variation, quality and delivery correspondence, debit and credit notes, the ledger showing part payments, and any settlement discussions marked without prejudice. Under section 67C the question is whether the creditor knew of a notified dispute and left it out, so proof of notification, with dates and delivery records, is the case rather than its background.

The Nine Indicators and the Resolution Professional's New Role

On 14 August 2026 the Insolvency and Bankruptcy Board of India issued a discussion paper, open for comment until 24 August 2026, proposing a circular that would require insolvency professionals to screen every resolution process against nine illustrative indicators of fraudulent or malicious initiation and to apply under section 60(5) read with section 65 where those indicators survive scrutiny. They include a debtor with negligible operations and negative net worth, debt assigned to a single creditor shortly before initiation, a committee of creditors dominated by that creditor, and clusters of connected debtors admitted together.

The circular remains a draft and should be described that way. Its direction of travel is not in doubt. For a company whose petition has been admitted, the interim resolution professional becomes a potential ally in a section 64A or section 65 application rather than a neutral observer. Handing over records in indexed form, and flagging the assignment history of the debt early, is now part of the costs strategy.

What Diligence Should Precede the Company's Own Section 9 Petition?

The exposure runs both ways. Before a section 9 petition issues in the company's own name, four questions belong on the file. Has the counterparty ever notified a dispute in writing, at any time, including in an email nobody answered? Is there a pending suit or arbitration on the same transaction? Has any part of the claim been settled or written back? Does the balance clear the statutory threshold on its own?

That last question catches more filings than the other three combined. Interest unsupported by the contract or by a consistent past course of dealing cannot be added to operational debt to reach the threshold, and a claim that qualifies only once contested variations are loaded in is a recovery action wearing the wrong clothes.

Section 215 now requires an operational creditor to file financial information with an information utility before applying under section 9. That is a discipline and an evidentiary trap at once: the record is created before the petition, it carries a date, and the tribunal can see it. A creditor that authenticates a debt record while sitting on an unanswered dispute notice has documented the concealment section 67C penalises.

Record the decision too. Because the penalty runs against the person who initiated the proceeding, a board minute showing the dispute position was identified, advice taken, and the filing authorised on a considered view of the threshold answers an allegation of vexatiousness. Its absence speaks equally loudly.

Frequently Asked Questions

Does section 183A apply to an insolvency petition filed against a company?

No. Section 183A sits in Part III of the Code, covering insolvency and bankruptcy for individuals and partnership firms, and reaches only proceedings under that Part. A section 7, 9 or 10 petition against a corporate debtor attracts section 64A, inserted at the same time and carrying the same one lakh to two crore rupee range. Section 183A matters to you only where the respondent is an individual or a firm, most often a personal guarantor.

Can a penalty be sought if the petition is dismissed before admission?

Yes. Sections 64A and 67C turn on the initiation of the proceeding and on what was placed before the tribunal, not on whether the petition was admitted. The related power under section 65 has been held exercisable at any stage. Ask in your reply rather than waiting for dismissal, because a separate application months later loses the connection between the conduct and the record.

What is the difference between a penalty under section 64A and an order for costs?

A penalty is a statutory sanction with a floor and ceiling fixed by the Code, imposed for the act of initiating the proceeding. An order for costs shifts money you actually spent and, where a process was admitted, can extend to the resolution professional's fees and process costs, as the NCLT Ahmedabad Bench directed and the NCLAT upheld in the Matrushri Fibres matter. Plead both, and support the costs limb with invoices.

A supplier ignored written dispute emails and then filed under section 9 without mentioning them. What does that give the company?

That is exactly what section 67C addresses. It permits a penalty of one lakh to two crore rupees on an operational creditor that conceals, in its section 9 application, that the corporate debtor notified a dispute over the unpaid debt or made full and final payment. It replaced section 76, omitted from 26 May 2026, which had made the same conduct a criminal offence that was almost never prosecuted. Produce the correspondence, show it predates the demand notice, and show it is missing from the petition.

Is a weak but arguable petition frivolous or vexatious?

Not on its own. These are conduct standards, and tribunals have applied the underlying idea where a filing served some purpose other than recovery: insolvency manufactured from a family dispute, or a creditor that won admission on a claim of roughly three crore eighty lakh rupees and then filed no claim at all. A creditor pursuing a debt it honestly believes is due, and disclosing the debtor's dispute reply, is unlikely to be penalised even if the petition fails.

What should be done before filing against a customer who disputes part of an invoice?

Separate the undisputed portion from the disputed portion, then test whether the undisputed portion alone clears the threshold once you strip out interest the contract does not support. Disclose the dispute reply instead of omitting it, and record the board's consideration. If the claim clears the threshold only with the contested items inside it, you are filing a recovery action in the wrong forum, and that now carries a priced downside.

Does a company need to file a separate application, or can a section 64A penalty be sought within the same insolvency proceeding?

It can be sought within the same proceeding. Both sections 64A and 183A read as powers of the Adjudicating Authority rather than reliefs available only on a fresh application, so the practical route is a specific prayer in the reply to the petition itself, asking the tribunal to record a finding on frivolous or vexatious conduct and fix a penalty within the one lakh to two crore rupee range. Raising it in the reply keeps the request tied to the record the tribunal is already examining, rather than requiring a second filing and a second hearing after the main petition is disposed of.

Does section 64A apply only to operational creditors, or also to financial creditors and to the corporate debtor's own filing?

Section 64A is not limited to operational creditors. It penalises any person who initiated a frivolous or vexatious proceeding under Part II of the Insolvency and Bankruptcy Code, 2016, so it reaches a financial creditor's petition under section 7 and a corporate debtor's own petition under section 10 exactly as it reaches an operational creditor's petition under section 9. A director who causes a company to file its own insolvency petition to escape a genuine dispute, rather than because the company is actually unable to pay its debts, is exposed to the same penalty range as an abusive external creditor.

Can a personal guarantor rely on section 183A against a financial creditor's vexatious application under Part III?

Yes. Section 183A sits in Part III of the Code, which governs insolvency and bankruptcy for individuals and partnership firms, and it protects any respondent in a Part III proceeding, not only the specific class of personal guarantors most often targeted. A guarantor who is served with an application that misstates the guaranteed amount, omits a settlement already reached with the lender, or is filed principally to pressure a family member's separate business dispute can invoke section 183A in the reply, on the same one lakh to two crore rupee range that applies to a company under section 64A.

Does the IBBI's proposed nine-indicator circular already have the force of law?

No. As of its August 2026 discussion paper, the circular remains a draft, open for comment, and has not been notified as binding on insolvency professionals. It signals the direction the Insolvency and Bankruptcy Board of India intends to take, and resolution professionals are already alert to the nine indicators it lists, but a company relying on section 64A or section 65 today should argue from the statutory language and decided cases such as the Matrushri Fibres order, not from the draft circular's text, until it is formally issued and takes effect.

What facts persuaded the NCLAT to shift the resolution professional's costs onto the creditor in the Matrushri Fibres matter?

Several facts combined rather than any single one deciding the case. The operational creditor had won admission on a claim of roughly three crore eighty lakh rupees, then filed no claim of its own and never participated once the process began. It was closely connected to a director of the corporate debtor, and the tribunal found the real purpose of the filing was to shield the company from tax recovery rather than to achieve a genuine resolution. That combination, an admitted but unpursued claim, a related-party connection, and an ulterior purpose, is what supported both the ten lakh rupee penalty and the order to bear process costs.

Is there a time limit for raising a section 64A application?

The Code does not fix a specific limitation period for a section 64A request. Because the power has the most force when tied to the conduct already before the tribunal, the practical rule is to raise it in the reply to the petition or promptly once the abuse becomes apparent, rather than waiting. The cognate power under section 65 has been held exercisable at any stage, including after admission, so a delayed request is not necessarily barred, but a company that waits loses the natural connection between the finding sought and the record the tribunal was examining at the time.

Can an in-house legal team or external counsel be penalised personally under section 64A, or only the filing company?

Section 64A penalises the person who initiated the frivolous or vexatious proceeding, which in ordinary usage is the creditor or corporate debtor that is the applicant of record, not its employees or the advocates who drafted and filed the petition on instructions. In-house counsel who recommend a filing carry professional and reputational exposure if the conduct is later found abusive, but the statutory penalty itself is directed at the party in whose name the proceeding was brought, and there is nothing in the provision that reaches the legal team personally for advice given in that capacity.

Do sections 64A and 183A apply to petitions filed before 26 May 2026?

The provisions took effect on 26 May 2026 and, as with penal or quasi-penal measures of this kind, they ordinarily apply to the initiation of a proceeding on or after that date rather than reaching back to petitions already filed. A section 9 or section 7 petition filed in 2025 and still pending would not itself attract a section 64A penalty for having been filed, even though it remains open to the tribunal to invoke the pre-existing section 65 power, which has always covered fraudulent or malicious initiation, for the same underlying conduct.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at the law firm Vikrant D. Shetty & Associates, Advocates & Solicitors which advises financial creditors, operational creditors, and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, including contested admissions under sections 7 and 9 of the Code and applications for penalties and costs arising from abuse of the insolvency process, and represents parties in domestic and international commercial arbitrations seated in India and abroad.

Related reading: Treatment of Disputed Operational Creditor Claims at the Admission Stage Under IBC.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.