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

Sunrise Textiles Ltd, which had earlier contributed Rs 40 lakh to the Insolvency and Bankruptcy Fund, is now facing proceedings under the Code before the Adjudicating Authority. The company wants to use money from the Fund to pay its workmen. Under Section 224, what is the correct course of action?

Sunrise Textiles must apply to the Adjudicating Authority for withdrawal, and the amount cannot exceed what it contributed, i.e. Rs 40 lakh. The Code allows such withdrawal for paying workmen, among other purposes, once proceedings against the contributor have begun.

  1. AApply to the Adjudicating Authority for withdrawal of funds not exceeding the amount it contributedCorrect
  2. BApply to the Insolvency and Bankruptcy Board for withdrawal of up to twice its contribution
  3. CAsk the Fund administrator to release funds directly without any application
  4. DApply to the Central Government for a fresh grant equal to the workmen's dues

Explanation

Section 224(3) lets a contributor, when proceedings are initiated against it under the Code, apply to the Adjudicating Authority for withdrawal not exceeding its contribution. Payments to workmen are a listed purpose. The Board route and a 'twice' limit have no basis in the section.

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