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CS Professional · Insolvency and Bankruptcy - Law and Practice · Pre-Packaged Insolvency Resolution Process (Elective 7.5)

After the pre-pack commencement date, Mr Rao, a director of Deccan Foods Ltd, diverts company funds to a relative's firm to defeat creditors. The RP wants a monetary sanction against him. Which statement is correct?

On the RP's application, the Adjudicating Authority may penalise an officer who fraudulently manages the debtor after the pre-pack commencement date. The penalty ranges from Rs 1 lakh to Rs 1 crore. Neither the RP nor the committee of creditors can impose it.

  1. AThe RP may apply to the Adjudicating Authority, which may impose a penalty of at least Rs 1 lakh and up to Rs 1 crore on the officerCorrect
  2. BThe committee of creditors may directly impose a penalty of up to Rs 1 crore
  3. CThe Adjudicating Authority may impose a penalty only up to Rs 1 lakh
  4. DThe RP may impose a penalty of Rs 1 crore on his own order

Explanation

Under section 67A, on and after the pre-pack commencement date, if an officer manages affairs with intent to defraud creditors or for any fraudulent purpose, the Adjudicating Authority may on the RP's application impose a penalty of not less than Rs 1 lakh and up to Rs 1 crore. Neither the CoC nor the RP can impose it, and Rs 1 lakh is the floor, not the cap.

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