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CS Professional · Corporate Restructuring, Valuation and Insolvency · Voluntary Liquidation

The directors of Raghav Steels Ltd file a declaration of solvency, but later it emerges that the voluntary liquidation was started to avoid paying a supplier. Which consequence does the Code provide?

The Adjudicating Authority may impose a penalty on the person who initiated the liquidation with intent to defraud. The penalty cannot be less than one lakh rupees and may extend to one crore rupees.

  1. AThe Adjudicating Authority may impose a penalty of not less than Rs 1 lakh, extending up to Rs 1 croreCorrect
  2. BA fixed penalty of Rs 10 lakh applies automatically
  3. CThe penalty is limited to a maximum of Rs 25 lakh
  4. DThe directors are only barred from acting as directors, with no penalty

Explanation

Section 65(2) lets the Adjudicating Authority penalise a person who initiates voluntary liquidation with intent to defraud, with a penalty between Rs 1 lakh and Rs 1 crore. It is discretionary and not a fixed amount.

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