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

Sagar Textiles Pvt Ltd contributed Rs 40 lakh to the Insolvency and Bankruptcy Fund earlier. Proceedings are now initiated against it under the Code before the Adjudicating Authority. It wants to pay arrears to its workmen. Under the Code, what may Sagar Textiles do?

Sagar Textiles may apply to the Adjudicating Authority to withdraw funds up to, but not more than, the Rs 40 lakh it contributed. Permitted uses include paying workmen, protecting assets and meeting incidental costs. The withdrawal is made through the Adjudicating Authority, not directly from the Fund's administrator.

  1. AWithdraw funds directly from the Fund's administrator without any application
  2. BApply to the Adjudicating Authority for withdrawal of funds not exceeding Rs 40 lakh, for purposes such as paying workmenCorrect
  3. CApply to the Adjudicating Authority for withdrawal of up to twice its contribution
  4. DApply only after the resolution plan is approved, and only to meet the Board's fees

Explanation

Section 224(3) lets a contributor, once proceedings under the Code are initiated against it before an Adjudicating Authority, apply to that authority to withdraw funds not exceeding its contribution. Permitted purposes include payments to workmen, protecting assets and meeting incidental costs. The withdrawal is not direct and is capped at Rs 40 lakh, so the other options fail.

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