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

Orion Engineering Ltd's PIRP is under way. After the commencement date, the RP finds that director Mr. Rao managed the company's affairs with intent to defraud creditors. Which statement correctly describes the consequence under the Code?

On the RP's application, the Adjudicating Authority may penalise an officer who manages the debtor's affairs fraudulently after the pre-packaged commencement date. The penalty is at least one lakh rupees and may extend to one crore rupees. Neither the committee of creditors nor the RP can impose it.

  1. AThe Adjudicating Authority may, on the RP's application, impose a penalty on the officer of not less than one lakh rupees and up to one crore rupeesCorrect
  2. BThe committee of creditors may directly fine Mr. Rao up to one crore rupees
  3. CThe Adjudicating Authority may impose a penalty only on the application of a financial creditor, from ten lakh to ten crore rupees
  4. DThe RP may recover a fixed penalty of one crore rupees without any Tribunal order

Explanation

Fraudulent management on or after the pre-packaged commencement date attracts a penalty ordered by the Adjudicating Authority on the RP's application, ranging from one lakh to one crore rupees. The CoC and RP cannot impose it, and the application is made by the RP, not a creditor.

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