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Insolvency and Bankruptcy - Law and Practice · Introduction to Insolvency and Bankruptcy Code

Insolvency and Bankruptcy Fund under Section 224 IBC

Updated 11 October 2026 · Fact-checked

The Insolvency and Bankruptcy Fund is a fund formed under Section 224 of the IBC for insolvency resolution, liquidation and bankruptcy of persons under the Code. It is credited with grants, contributions, other receipts and investment income. A contributor facing proceedings may apply to the Adjudicating Authority to withdraw up to the amount it contributed.

Understand Insolvency and Bankruptcy Fund

The Code needs money to work. A debtor in distress may not have cash to pay workmen, protect assets or meet the small costs of the process. The Insolvency and Bankruptcy Fund (Section 224) is a pool meant to help with this.

The Fund is formed for the purposes of insolvency resolution, liquidation and bankruptcy of persons under the Code. It is separate from the Board's own Fund under Section 222, which pays the Board's salaries and expenses. Do not mix the two.

Four kinds of amounts are credited to the Fund: grants made by the Central Government for the Fund; amounts deposited by persons as contribution; amounts received from any other source; and interest or other income from investment of the Fund.

The key idea is that the Fund works on contribution. A person who has put money in may, if proceedings are initiated against that person under the Code before an Adjudicating Authority, apply to that authority to withdraw funds. The withdrawal cannot exceed the amount that person contributed.

The permitted uses are making payments to workmen, protecting the assets of such persons, meeting the incidental costs during the proceedings, or other purposes as may be prescribed. The Central Government appoints an administrator by notification, and the administrator runs the Fund in the prescribed manner. Section 239(2) lets the Central Government make rules on the purposes of withdrawal and the manner of administering the Fund.

Key rules to remember

Purpose of the Fund (Section 224(1))
Fund = for insolvency resolution, liquidation and bankruptcy of persons under the Code
Formed under the Code itself. Do not confuse it with the Board's Fund under Section 222.
Credits to the Fund (Section 224(2))
(a) Central Government grants + (b) contributions deposited by persons + (c) receipts from any other source + (d) interest or income from investment of the Fund
Four heads. Write all four in a list answer.
Withdrawal limit (Section 224(3))
Withdrawal ≤ amount contributed by the applicant
Applies only when proceedings under the Code are initiated against the contributor, and the application goes to the Adjudicating Authority.
Permitted uses of withdrawn funds (Section 224(3))
Payments to workmen + protecting assets + incidental costs during proceedings + other prescribed purposes
The Central Government prescribes other purposes by rules (Section 239(2)(zi)).
Administration (Section 224(4))
Administrator appointed by Central Government by notification; administers the Fund in the prescribed manner
Manner is set by rules under Section 239(2)(zj).
Board's Fund (Section 222) for contrast
Credits: grants, fees and charges received by the Board + sums from other sources decided by the Central Government + other funds specified by the Board or prescribed
Applied to Board salaries, expenses under Section 196 functions, expenses authorised by the Code and other prescribed purposes.

How to solve Insolvency and Bankruptcy Fund questions

Most questions ask you to explain the Fund, or to test whether a person can withdraw money. Use this method.

  1. 1Name the Fund and the section: Insolvency and Bankruptcy Fund, Section 224 of the IBC, 2016.
  2. 2State its purpose: insolvency resolution, liquidation and bankruptcy of persons under the Code.
  3. 3List the four credits: Central Government grants, contributions by persons, receipts from other sources, interest or income from investments.
  4. 4Check the facts for a withdrawal: has the person contributed, and have proceedings been initiated against that person under the Code before an Adjudicating Authority?
  5. 5Apply the limit: the withdrawal must not exceed the amount contributed.
  6. 6Check the purpose of the withdrawal: workmen's payments, protecting assets, incidental costs, or a prescribed purpose.
  7. 7Mention the administrator appointed by the Central Government and the rule-making power under Section 239.
  8. 8Conclude clearly: allowed, allowed in part up to the limit, or not allowed, with the reason.

Quickest way: Four-point recall for Section 224

When to use it: Use when time is short or the question is a short note.

  1. Purpose: resolution, liquidation, bankruptcy of persons under the Code.
  2. Credits: grants, contributions, other sources, investment income.
  3. Withdrawal: only a contributor, only after proceedings begin, to the Adjudicating Authority, capped at the amount contributed.
  4. Uses and control: workmen, assets, incidental costs, prescribed purposes; administrator by notification.

Common mistakes in Insolvency and Bankruptcy Fund

  • Mixing the Fund under Section 224 with the Board's Fund under Section 222.

    Both are funds under the Code and both receive grants.

    Fix: Section 224 supports insolvency processes of persons. Section 222 meets the Board's own salaries and expenses.

  • Saying any debtor can withdraw from the Fund.

    Students read the Fund as general financial aid.

    Fix: Only a person who has contributed can apply, and only when proceedings under the Code are initiated against that person.

  • Ignoring the cap on withdrawal.

    Students remember the purposes but forget the limit.

    Fix: Always write that the withdrawal cannot exceed the amount contributed by the applicant.

  • Sending the withdrawal application to the Board or the Central Government.

    The administrator and the Government are named in the same section.

    Fix: The application goes to the Adjudicating Authority before which the proceedings are pending.

  • Listing only three credits and leaving out investment income.

    Interest and income on investments is the last and least obvious item.

    Fix: Remember the order: grants, contributions, other sources, investment income.

Worked examples

Example 1

Explain the constitution and credits of the Insolvency and Bankruptcy Fund under the IBC, 2016.

Show the solution
  1. Provision: Section 224(1) provides for a Fund called the Insolvency and Bankruptcy Fund, formed for the purposes of insolvency resolution, liquidation and bankruptcy of persons under the Code.
  2. Credits under Section 224(2): grants made by the Central Government for the Fund; amounts deposited by persons as contribution; amounts received from any other source; interest or other income from investment made from the Fund.
  3. Control: under Section 224(4) the Central Government appoints an administrator by notification, who administers the Fund in the prescribed manner.
  4. Contrast: this Fund is different from the Board's Fund under Section 222, which meets the Board's own salaries and expenses.

Answer: The Fund is formed under Section 224 for resolution, liquidation and bankruptcy of persons under the Code. It is credited with Central Government grants, contributions, receipts from other sources, and investment income, and is run by a Government-appointed administrator.

Example 2

Sunrise Textiles Ltd had contributed ₹10,00,000 to the Insolvency and Bankruptcy Fund. Proceedings under the Code are now initiated against it before the NCLT. It wants to withdraw ₹12,00,000 to pay its workmen and ₹3,00,000 to protect its assets. Advise.

Show the solution
  1. Provision: Section 224(3) lets a person who has contributed to the Fund apply to the Adjudicating Authority for withdrawal when proceedings are initiated against it under the Code.
  2. Eligibility: Sunrise contributed ₹10,00,000 and proceedings have begun before the NCLT, which is the Adjudicating Authority. So it may apply.
  3. Limit: the withdrawal cannot exceed the amount it contributed. Total sought = ₹12,00,000 + ₹3,00,000 = ₹15,00,000, which is more than ₹10,00,000.
  4. Purpose: paying workmen and protecting assets are both permitted purposes under Section 224(3).
  5. Conclusion: the purposes are valid but the claim is too high. The application can succeed only up to ₹10,00,000 in total.

Answer: Sunrise may apply to the NCLT, but the total withdrawal cannot exceed ₹10,00,000, the amount it contributed. The ₹5,00,000 excess cannot be withdrawn.

Exam tips

  • Write the section number, 224, in the first line of every answer on this topic.
  • In a case question, check three things in order: contribution made, proceedings initiated, and amount within the cap.
  • Give the four credits as a numbered list. It is easy marks.
  • When a question mentions the Board's expenses, switch to Section 222 and do not use Section 224.
  • Add a line on rule-making under Section 239 for the prescribed purposes and manner of administration.

Practice questions from Introduction to Insolvency and Bankruptcy Code

Insolvency and Bankruptcy Fund in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Insolvency and Bankruptcy Fund: frequently asked questions

What is the Insolvency and Bankruptcy Fund under Section 224 of the IBC?

It is a Fund formed for the purposes of insolvency resolution, liquidation and bankruptcy of persons under the Code. It is credited with Government grants, contributions, other receipts and investment income. An administrator appointed by the Central Government runs it.

Who can withdraw money from the Insolvency and Bankruptcy Fund?

A person who has contributed to the Fund and against whom proceedings are initiated under the Code before an Adjudicating Authority. The person applies to that authority. The withdrawal cannot exceed the amount contributed.

For what purposes can withdrawn funds be used?

The Code lists payments to workmen, protecting the assets of such persons, and meeting incidental costs during the proceedings. Other purposes can be prescribed by the Central Government.

How is the Fund different from the Board's Fund under Section 222?

The Section 222 Fund belongs to the Insolvency and Bankruptcy Board and pays its salaries, expenses and other authorised costs. The Section 224 Fund supports insolvency, liquidation and bankruptcy processes of persons under the Code.