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

Meridian Textiles Pvt Ltd, a company in Surat, is in proceedings under the Insolvency and Bankruptcy Code before the Adjudicating Authority. Earlier, Meridian had deposited Rs 4 lakh as a contribution to the Insolvency and Bankruptcy Fund. It now wants to withdraw money to pay its workmen. What is the maximum it can seek to withdraw from the Fund?

Meridian can seek withdrawal of at most Rs 4 lakh. Section 224(3) lets a contributor, once proceedings under the Code begin, apply to the Adjudicating Authority for withdrawal not exceeding what it contributed, and paying workmen is a permitted purpose.

  1. AAny amount the Adjudicating Authority considers necessary, with no cap
  2. BRs 4 lakh, being the amount it contributedCorrect
  3. CTwice the amount contributed, as the purpose is paying workmen
  4. DNothing, because the Fund can be used only by the Central Government

Explanation

Under section 224(3), a person who contributed to the Fund may apply to the Adjudicating Authority, once proceedings under the Code are initiated against it, for withdrawal not exceeding the amount it contributed. Payment to workmen is one of the listed purposes. The cap is Rs 4 lakh, so the 'no cap' and 'twice' options are wrong.

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