Penalty in insolvency proceedings must rest on the Insolvency and Bankruptcy Code and follow a meaningful hearing before confirmation.

In insolvency proceedings, a penalty for non-maintenance and non-production of the corporate debtor's records must be imposed under the governing Insolvency and Bankruptcy Code framework, with a meaningful opportunity of hearing to the affected ex-directors. Although the record showed repeated non-cooperation and failure to respond to calls for reply and production of records, the appellate tribunal found that the impugned penalty had been imposed by invoking the Companies Act in proceedings under the Insolvency and Bankruptcy Code. The penalty order was therefore set aside and the matter remanded to the Adjudicating Authority for fresh consideration under the Insolvency and Bankruptcy Code after hearing the appellants.

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Issues: Whether the penalty imposed on the ex-directors for non-maintenance and non-production of the corporate debtor's records, while proceeding under the Insolvency and Bankruptcy Code, could be sustained when it had been imposed by invoking the Companies Act without affording an effective opportunity of hearing.

Analysis: The ex-directors were repeatedly called upon to file their reply and produce the records, but they did not respond before the Adjudicating Authority. The record also showed continued non-cooperation with the resolution professional and the liquidator. However, the impugned penalty was imposed in proceedings initiated under the Insolvency and Bankruptcy Code, while the order proceeded by invoking the Companies Act. The appellate tribunal held that, in such a situation, the proper course was to pass any penalty order under the Insolvency and Bankruptcy Code itself and only after giving the appellants an opportunity to present their case.

Conclusion: The penalty order could not be sustained in its present form and was set aside, with the matter remanded to the Adjudicating Authority for fresh consideration under the Insolvency and Bankruptcy Code after hearing the appellants.

Final Conclusion: The impugned penalty was annulled and the matter was sent back for a fresh decision in accordance with the Insolvency and Bankruptcy Code.

Ratio Decidendi: A penalty imposed in insolvency proceedings must be supported by the governing insolvency statute and the affected party must be afforded a meaningful opportunity of hearing before such penalty is confirmed.

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