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CS Professional · Insolvency and Bankruptcy - Law and Practice · Professional and Ethical Practices for Insolvency Practitioners

Apex Insolvency Professional Agency collected Rs 4 lakh as penalty from a member for professional misconduct and now proposes to credit it to its general reserves without any prescribed rule. Considering Section 196(2), what is the correct position regarding the penalty amount?

The manner of utilising penalty amounts is a matter for the model bye-laws under Section 196(2)(q), so the agency must apply the money as its bye-laws provide. It cannot treat the Code as silent, pay the corporate debtor, or refund the member.

  1. AThe model bye-laws may provide for the manner of utilising the amount received as penalty imposed on an insolvency professional, so the agency's use must follow its bye-lawsCorrect
  2. BThe agency may use the amount freely because the Code is silent on penalty proceeds
  3. CThe amount must be paid to the corporate debtor in whose process the lapse occurred
  4. DThe amount must be returned to the member after the disciplinary order is final

Explanation

Section 196(2)(q) lists the manner of utilising the amount received as penalty imposed against any insolvency professional as a matter for model bye-laws. The agency's use must therefore follow the bye-laws. The Code does not say the proceeds go to the corporate debtor, nor that they are refunded; the Code is not silent on the point.

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