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

Sunrise Textiles Ltd, a company that had earlier contributed Rs 40 lakh to the Insolvency and Bankruptcy Fund, is now facing proceedings under the Code before the Adjudicating Authority. It wishes to draw on the Fund to pay its workmen and protect its assets. What is the position under section 224?

Sunrise Textiles may apply to the Adjudicating Authority for withdrawal of funds up to, but not above, its Rs 40 lakh contribution. Section 224(3) permits this for paying workmen, protecting assets and meeting incidental costs once proceedings against it have begun under the Code.

  1. AIt may apply to the Adjudicating Authority for withdrawal of an amount not exceeding Rs 40 lakhCorrect
  2. BIt may withdraw any amount it needs, since the Fund exists for all insolvency purposes
  3. CIt must apply to the Insolvency and Bankruptcy Board, which alone can release the money
  4. DIt may withdraw only if the Central Government makes a fresh grant to the Fund

Explanation

Under section 224(3), a contributor against whom proceedings are initiated may apply to the Adjudicating Authority for withdrawal of funds not exceeding what it contributed. Payments to workmen and protecting assets are listed purposes. The option allowing any amount ignores the cap, and the application goes to the Adjudicating Authority, not the Board.

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