CHAPTER 3

REHABILITATION UNDER SICK INDUSTRIAL

COMPANIES (Special Provisions) ACT, 1985
3.1 Introduction
Industrial sickness in India has been increasing at an alarming rate in
spite of the various remedial measures initiated by the Government of India and
the Reserve Bank of India (RBI). Multiplicity of laws and agencies made the
adoption of a coordinated approach for dealing with sick industrial companies
difficult. Hence the RBI constituted a high power committee of experts in 1981
under the chairmanship of Shri. T. Tiwari, the then Chairman of the Industrial
Reconstruction Corporation of India (IRCI) to examine the legal and other
diff~cuulties faced by Banks and Financial Institutions in rehabilitating sick
industrial undertakings and to suggest remedial measures including changes
required in various laws.
The Committee examined in depth the causes of industrial sickness and
the possible remedies there on. It found that the existing institutional arrangements
and procedures for the revival and rehabilitation of potentially viable sick
Chapter 3 56
industrial units were both inadequate and time consuming. A need has, therefore,
been felt in the public interest that, "a legislation to provide for timely detection of
sickness in industrial companies and for the expeditious determination by a body
of experts of the preventive, ameliorative, remedial and other measures that would
need to be adopted with resped to such companies and for enforcement of the
measures considered appropriate with utmost despatch" (Pahwa and Pulian i, 2000,
176).
Based on the recommendations of the Tiwari Committee the Government
of India promulgated the Sick Industrial Companies (Special Provisions) Act,
1985 popularly known as SICA, 1985. The Board for Industrial and Financial
Reconstruction (BIFR), a quasi judicial body was set up under the Act to
determine the incidence of sickness in industrial companies and to devise suitable
remedial measures for the speedy revival of potentially viable sick units or closure
of non-viable ones. By revival, idle investments in a sick industry can become
productive and by closure, the locked up investments in non-viable units can be
released for productive use elsewhere. An Appellate Authority for Industrial and
Financial Reconstruction (AAIFR) was also set up for hearing appeals against the
orders of the Board.
3.2 Applicability of the Act
SICA applies to medium and large industrial companies both in the
private and public sectors falling under the First Schedule to the Industries
(Development and Regulation) Act, 195 1 (Appendix-2). 'The Act requires 'sick' as
well as 'potentially sick' companies to report to the BIFR.
Section 3 (1) (0) of SICA, 1985 lays down the following criteria to
determine sickness in an industrial company.
Chapter 3 57
i . The accumulated losses of the company should be equal to or more than its
networthi.
ii. The company should have completed five years after incorporation under the
Companies Act, 1 956.
iii. It should have 50 or more workers on any day of the 12 months preceding the
end of the financial year with reference to which sickness is claimed.
iv. It should have a factory licence.
En order to arrest sickness at an early stage, section 23 of SICA requires a
'potentially sick' industrial company to report to the shareholders and the BIFR if
its peak networth in the immediately preceeding four financial years has been
eroded by 50 percent or more.
All sick companies are registered with the BIFR for fbrther process under
the various provisions of the Act while potentially sick companies are not
registered. On a selective basis, they are advised on measures for arresting
sickness.
3.3 Authorities Under the Act
3.3.1 The Board for Industrial and Financial Reconstruction
'fie Government of India has set up a Board for Industrial and Financial
Reconstruction (BIFR) in pursuance of section 4 of SICA, 1985. The principal
objectives of the Board briefly are:
i . to evaluate the techno-economic viability of sick industrial companies with a
view to either rehabilitating them or closing down
ii. to stop continued drain of public as well as private resources and
iii. to safeguard employment as far as possible.
I
According to section 3 ( 1 ) (ga) of SICA, 1 985 'networth' means t he sum total of the
paid up capital and free reserves.
Chapter 3 58
The BIFR became functional w.e.f., 15 May 1987. SICA has given an
unambiguous definition of a 'Sick Industrial Company' and it has been made
mandatory for the management of a sick industrial company to report to the BIFR.
The Board has been given wide-ranging powers for reconstruction, revival or
rehabilitation of sick industrial companies. In cases where rehabilitation is not
Found feasible, the Board is empowered to order it's winding up.
In the process of rehabilitation the Board can change management, order
transfer of shares at prices fixed by it, order financial restructuring, impose on
promoters the quantum of funds that they should bring in, determine changes in
management structure etc. But financial relief and concessions from state and
central governments, banks and financial institutions can be given only with their
concurrence.
The BIFR is deemed to be a civil court and every proceeding before the
Board shall be deemed to be a judicial proceeding. It is a quasi- judicial body
comprising of experts from various disciplines and is empowered to diagnose
sickness in industries. It has adequate powers to summon all those concerned with
the sick unit - promoters, shareholders, banks, financial institutions, governmental
agencies and others having stake in the sick unit, and to prescribe schemes for
revival or winding up of the unit without the interference of any other Acts or
bodies and to punish anybody misrepresenting the Board or not complying with
the orders of the Board.
The orders passed by the BlFR under SICA can only be taken up by an
appeal to the Appellate Authority for Industrial and Financial Reconstruction
(AAIFR). Jurisdiction for any civil court to pass any injunction or stay the orders
of the BIFR or the AAIFR has been barred under section 26 of SICA.
Chapter 3
3.3.1.1 Constitution of the BIFR
Section 4 of SICA provides that the Board shall consist of a Chairman
and not less than two and not more than fourteen other members to be appointed
by the Central ~overnment~. The decision of the Board is taken in Benches, each
of which consists of not less than two members.
3.3.2 Appellate Authority for Industrial and Financial Reconstruction
The Appellate Authority for Industrial and Financial Reconstruction
(AAIFR) has been constituted w.e.f., 1 5 April 1 987. The Appellate Authority was
set up for hearing appeals against the order of the Board. it shall have a chairman
and not more than three other members3.
3.4 BIFR Procedure
3.4.1 Reporting Sickness to the BIFR
STCA makes it mandatory for a sick industrial company to report to the
BIFR. Section 15 (1) places the onus of reporting sickness on the Board of
Directors of the company. The reference is to be made within 60 days from the
date of finalisation of the duly audited accounts of the company for the financial
2
According to section 4(3): The Chairman and other members of the Board shall
be persons who are or have been qualified to be High Court Judges or persons of
ability, integrity and standing who have special knowledge of and professional
experience of not less than 15 years in science, technology, economics, banking, industry,
law, labour matters, industrial finance, industrial management and reconstruction,
investment, accountancy, marketing or any other matter, the special knowledge of or
professional experience which would in the opinion of the Central Government be useful
to the Board.
3 ~ s per section 5(2), the Chairman shall be a person who is or has been a judge
of the Supreme Court or who is or has been a judge of a High Court for not less than five
years and according to section 5(3), a member of the Appellate Authority shall be a
person who is or has been a judge of a High Court or who is or has been an officer not
below the rank of a secretary to the Government of India or who i s or has been a member
of the Board for not less than three years.
year at the end of which the company would have become a 'Sick Industrial
Company'.
Section 15 ( 2) empowers the central government, state governments, the
RBI, a public financial institution, a state level institution or a scheduled bank to
make a reference to the Board if it has suff~cient reason to believe that an
industrial company has become 'sick'.
The Board is also empowered to make a 'suo motu ' enquiry, as it may
deem appropriate for determining whether any industrial company has become
sick upon receiving information from a shareholder, creditor or employee or from
any other source with respect to any such company or upon its own knowledge as
to the financial condition of the company.
3.4.2 Registration of Reference and Enquiry by the BIFR
All 'sick' and 'potentially sick' industrial companies are obliged to make
a report to the BIFR in the prescribed form. The preliminary scrutiny of all
references made is done at the Ofice of the Registrar and after confirmation that
the case would come under the purview of the BIFR, it would register the case and
issue a 'certificate of registration' to the concerned party.
The registered references are allotted to different Benches by the
Chairman for an enquiry (under section 16) to determine whether the company has
become sick within the meaning of SICA. The Bench hears the promoters,
representatives of financial institutions and banks and labour to provide them an
opportunity to conf m or deny the facts reported to the Board and make their
submissions in this regard about the affairs of the company. In this process the
Board can appoint an Operating Agency to enquire and make a report to it
ordinarily within a period of 60 days. The Board may appoint one or more Special
Director(s) on the Board of any company regarding which an enquiry is going to
Chapter 3 6 1
be made with a view to safeguard the financial and other interests of the company
or in public interest.
3.4.3 Result of Enquiry
The Bench either on its own or on the basis of the enquiry reports of the
Operating Agency is satisfied that no case exists and the conclusion is that the
company has not become a 'sick industrial company' within the meaning of
section 3 (1) (o) of SICA, the reference is dismissed as non-maintainable. This
could arise when the industrial undertaking -
is not a scheduled industry under the Industries (Development and
Regulation) Act, 195 1 or does not employ more than 50 persons
has started making cash profits
has not completed five years of incorporation
its networth is more than the accumulated losses as per the definition accepted
in the Act.
If the Bench i s satisfied that the company meets all the
requirements as per SICA of a 'sick industrial company' it declares as such and
makes an order in writing that whether it is possible for the company to make its
networth positive within a reasonable period and proceeds to consider its
rehabilitation either under section 1712) or section 17(3) of SICA. The Board is
also empowered to recommend the winding up of the company to the High Court
under section 20 ( I) , in those cases where there are no chances for revival.
3.4.3.1 Opportunity for Self-revival: Section 17(2)
Well-managed companies take various steps to cure sickness as soon as it
becomes evident. The management of such companies tries to overcame sickness
by implementing schemes of rehabilitation with the support of financing
institutions and banks. If a company after implementing such a rehabilitation
Chapter 3 62
scheme is reported to the BIFR, it may approve the scheme subject to such
modifications and conditions as may be necessary, if it is satisfied that the scheme
would help the company to make its networth positive within a reasonable period.
The Board may also appoint Special Director(s) on the Board of the sick company
to monitor the implementation of the rehabilitation scheme.
3-4.3.2 Rehabilitation under an Operating Agency: Section 17(3)
Where the Board finds that the company reported to it is 'sick' within the
meaning of SICA, 1985 and there is no viable rehabilitation scheme supported by
financial institutions and it is in the public interest such as employment, utilisation
of public h d s etc., to rehabilitate the company, the Board appoints an Operating
Agency under Section 17(3) to prepare a scheme for the rehabilitation of the
company.
The Board may direct the Operating Agency about the measures required
to be taken for the revival of the company and give guidelines for the preparation of
the rehabilitation scheme. Tbese are set out under sections 18 (1) and 18 (2), and
are briefly explained below.
a) Restructuring of capital in view of the total erosion of networth and
heavy losses suffered.
h) Possibility of sale of surplus assets including machinery, land and building, if
any.
c) Proper management of sick industrial company by changeltakeover or
strengthening of management. h the case of change over or takeover, the
new promoters should have adequate capabilities to bring in
sufficientlrequired stake.
d) Mergedamalgamation of sick industrial companies with any other company.
e ) Sale/lease of a part or whole of any industrial undertaking of the sick
company, to bring in sufficient funds to revive the unit.
Chapter 3 63
fi Examine the possibility of a workers co-operative society being entrusted to
run the unit by transfaring the shares of the management.
The rehabilitation scheme prepared by the Operating Agency should
ensure the techno-economic viability of the company. The Operating Agency
should examine the demand and supply position of the product, sources and prices
of raw materials, market for the products, pricing and contribution. In cases where
marketing has been the cause of sickness, an overall industry profile should be
malysed. The rehabilitation scheme should envisage the revival of the company
with the co-operation of all concerned. The promoters should bring in fresh
contribution towards the cost of the scheme, the financial institutionshanks should
provide additional funds and relief and concessions in the farm of waiving of
interest, reduction in rates of interest etc.
Normally the Operating Agency is given a period of 90 days to compile
the data, hold inter-institutional meetings and submit its report to the Board on the
proposal for the revival of the company.
3.4.3.2.1 Publication of Draft Scheme and Sanction thereof
The BIFR shall publish the particulars of the draft rehabilitation scheme
in newspapers for inviting suggestions and objections from shareholders, creditors,
and employees of the sick company as also from the transferee company in the case
of amalgamation. After having considered the suggestions and objections, if any
received, the Board calls all parties concerned who have to provide relief and
concessions under section 19 for their consensus on the proposal and circulates the
draft scheme for their consideration. If there is a consensus based on the draft
scheme the Board sanctions the scheme for rehabilitation of the company under
section 18 (4). In the event of there being no consent for the draft scheme the
Board may either consider revival as 'not feasible' and recommend the winding up
of the company under section 20 (1) or a revised scheme to be submitted by the
Chapter 3 64
Operating Agency and follow the same course of action to arrive at the stage of
sanctioning a scheme for rehabilitation.
3.4.3.3 Recommending Winding-up: Section 20
Winding up of an industrial unit is by no means a pleasant prospect. It
entails loss of productive assets, loss of investment, loss of resources provided by
banks and financial institutions and ultimately the loss of jobs to the labourer.
Therefore SICA makes a stress on rehabilitation and the question of winding up is
considered only as the last step. Before coming to a prima facie conclusion that an
industrial company should be wound up, the Board is required to consider whether
the promoters have any scheme of their own which can make the sick company
viable. I f such a viable scheme is not available, the Board appoints an Operating
Agency to carry out a detailed economic-cum-commercial study to revive the
company through fresh infusion of funds with old or new promoters and with relief
from banks and financial institutions or explores the possibility of merger with a
cash rich company. Another alternative is the workers co-operative coming in to run
the company. If all these measures fail the Board comes to a prima facie conclusion
to wind up the company. Section 20 ( 1 ) of SI CA~ contains provisions in this regard.
Once the Board records its opinion for winding up, the concerned High Court has no
choice but to confirm the position unless there is a writ petition against the order of
the Board.
.
Section 20 ( I ) of SICA, 1 985 provides that
" where the Board after making an enquiry under section 16 and after considering all the
relevant facts and circumstances and after giving an opportunity of being heard to all
concerned parties, is of the opinion that the sick industrial company is not likely to make
its networth exceed the accumulated losses within a reasonable time while meeting all its
financial obligations and that the company as a result there of i s not likely to become
viable in future and that it i s just and equitable that the company should be.wound up, it
may record and forward its opinion to the concerned High Court".
Chapter 3
3,5 Monitoring the Implementation of the Rehabilitation Scheme
The BIFR does not get itself absolved of its responsibility once a
rehabilitation scheme is sanctioned. Section 18 (12) stipulates that the Board shall
monitor periodically the implementation of the sanctioned revival scheme. In this
exercise the Operating Agency and the Special Director(s) of the company assist
the Board. Any delay in complying with the provisions of the scheme is reported
to the Board by the Operating Agency and the Special Director(s). On receipt of
such a report a review meeting is called by the secretary in which the
representatives of financial institutions, banks, governments and promoters
identify and try to remove the general constraints and bottlenecks in the
implementation of the rehabilitation scheme. However, if such dificulties persist,
the Bench conducts review hearings and directions are given including those for
modification of the same. The diagrammatic representation of the procedure with
the BIFR is given in Fig. 3. 1.
Chapter 3
,Fig: 3.1:- Procedure in the Board
received
i 4
Source: BIFR Performance Review 1997-98, P8.
t
*Rehabilita f ion Scheme
* *Non Maintainable
Registration
declined
Registered
Inquiry
UIS 16
On appeal
UI S 15
1
I
1 Remanded 1
4
I
'
4
Rch.Scheme4
U/S 17(2) or
17(3)
Recommended
for closure
U/S ZO(1)
+
A
Dismissed
asNM**
U/S 17(1)
Discharged
on Revival
Monitoring
U/S 18 (12)
Modification
A
of Scheme
I 1
Chapter 3
3.6 Operational Performance of the BIFR
The Government of India enacted the Sick Industriai Companies (Special
Provisions) Act, 1985 and the Board for Industrial and Financial Reconstruction
(BIFR) was constituted under the Act to oversee the rehabilitation of sick
industrial units in the medium and large sector. The task before the Board has
undoubtedly been a daunting one in the face of fast changing economic scenario in
the wake of economic reforms initiated by the Government of India in the early
nineties and further accelerated during the latter part of the decade. The Board has
been in existence for more than one and a half decades now. The time therefore is
appropriate for a review of the functioning of the BIFR and to appraise to what
extent it has been a success in curbing industrial sickness in India. The overall
performance of the BIFR can be evaluated only in a quantitative angle by
comparing the number of companies turned successhl/failed after implementing
the rehabilitation schemes with the total number of companies registered by it.
Up to 3 1-7-2000 the BIFR had registered 3 1 10 references and among
them rehabilitation schemes were sanctioned only in 708 references. The Board
rejected 1532 references, recommending winding up in 960 cases and dismissing
572 references as non-maintainable. Among the companies for which
rehabilitation schemes were sanctioned only 277 companies came out of the
purview of the BIFR after making their networth positive. There were 870
references pending with the BIFR at various stages. This represents 28 percent of
the total number of registered references.
The present status of companies registered by the BIFR is given in Table
3.1. Figures 3.2 and 3.3 are the diagrammatic representation of the status of
companies and the rehabilitation schemes sanctioned.
Chupter 3
Table 3.1:- Status of Companies Registered by the BIFR
(as on 3 1-7-2000)
References pending at various stages
Status of Companies
References declared successful
References declared failed:
Winding up recommended 960
Dismissed as non maintainable 572
Percentage
to total
Number of
companies
277
Revival schemes in Operation
I
I
Fig: 3.2:- Status of Companies Registered by the BIFR
Total
1 532
-. - - -
/leclared no longer sick Not declared no longer sick 1
References rejected - References pending
Source: BI FR Records.
' 3110 100.0
Chapter 3
Fig: 3.3:- Status of Rehabilitation Schemes
Sanctioned
Declared no longer sick W Not declared no longer sick
Table 3.1 shows that the performance of the BIFR in rehabilitating sick
industrial units was not at all encouraging. Only 8.9 percent of the total number of
companies registered by the BIFR was declared successful. l'he low success rate
was justified on the ground that "the cases that came before the BlFR were almost
mortuary cases" (Ganapathi, 1999, 9). The success rate is only 39 percent even
among the companies for which rehabilitation schemes were sanctioned after a
proper viability study. Figure 3.3 exhibits the status of rehabilitation schemes
sanctioned. Nearly 28 percent of the total number of references registered by the
BIFR remained at various stages. It reflects the delay with the BIFR in disposing
the cases registered by it.
Chapter 3
3.7 Role of Operatiug Agencies in Rehabilitating Sick Units
Operating Agencies play a pivotal role in rehabilitating sick industrial
units. Section 17(3) of SICA empowers the BIFR to take the services of an
Operating Agency where it finds that it is not practicable for a sick industrial
company to make its networth positive on its own and it is expedient in the public
interest to adopt measures for the rehabilitation of the company. An Operating
Agency acts as an arm of the BIFR in rehabilitating a sick industrial unit by
performing the foliowing functions.
i. To enquire into and make a report with respect to the working of a sick
industrial company reported to the BIFR to establish whether the company is
sick or not and to suggest various steps and measures for making its networth
positive.
ii. To prepare technically and economically viable rehabilitation measures
specified under section 18 of the ~ c t ~ .
iii. To recommend to the Board various steps to be taken for the smooth
implementation of the rehabilitation scheme.
To perform these multifarious functions, Operating Agencies should have
expertise in the preparation of rehabilitation schemes, monitoring their
implementation and coordinating various institutions for getting the package of
relief and concessions sanctioned. Four All India Financial Institutions (AIFIs),
eight Public Sector Banks and two State Financial Corporations (SFCs) have been
5
Section 18 provides for any one or more of the following measures viz.,
i. financial reconstruction of the sick company,
i i . proper management of the sick company by change in or takeover of the
management of sick industrial company,
i i i . the amalgamation of the sick industrial company with any other company or any
other company with the sick company and
iv. the sale or lease of a part or whole of any industrial undertaking of the sick industrial
company and
v. such other preventive, ameliorative and remedial measures as may be
appropriate.
Chapter 3
71
notified as Operating Agencies by the BIFR. The financial institution or bank
having the highest stake in the sick company is normally appointed as the
Operating Agency. Up to 3 1-7-2000, the BIFR had appointed Operating Agencies
in 1 855 references and its break up is given in Table 3.2.
IFCI
1 : I ICICI
Table 3.2:- References Allotted to the Operating Agencies
(as on 3 1 -7-2000)
%
27.3
17.6
5
6
7
8
( 11 1 Indian Bank 1
27
1 1.5 1
No. of
References
507
326
S 1.
No.
1
2
SBI
CanaraBank
Punjab National Bank
Bank of India
9
10
1 :1 1 t J n ~ ~ n l mk ; f India 1: 1 ::: 1
1855 100.0
Source: BIFR Records.
Name of Operating Agency
lDBt
IIBI
Central Bank of India
BankofBaroda
Table 3.2 shows that out of 1 855 companies for which Operating Agencies
were appointed, 1407 companies were allotted to AIFIs. It was 75.8 percent of the
total. Public sector b d s were allotted 444 companies and only four cases were
allotted to the two SFCs. The IDBI, being the largest financial institution in the
country was allotted the largest number of sick companies and among the banks;
the State Bank of India was allotted the largest number of cases. They were given
507 cases (27.3%) and 158 cases (8.5%) respectively of the total number of cases
allotted to the Operating Agencies.
Chapter 3
3.7.1 Performance-of the Operating Agencies
The Operating Agencies have specialised expertise in rehabilitating sick
industrial units. Hence their appointment should accelerate the rate of success of
sick companies reported to the BIFR. To evaluate the performance of Operating
Agencies the present status of sick companies for which Operating Agencies were
appointed has been analysed and given in Table 3.3.
Table 3.3:- Status of Operating Agency Appointed Companies
References rejected
(as on 3 1.07.2000)
Revival schemes sanctioned:
Declared no longer sick 205
Not declared no longer sick 396
Status of Companies
References pending at various stages
Total
Source: BIFR Records.
No. of
companies
As an 31.07.2000 the BIFR had registered 31 10 references of which
Operating Agencies were appointed in the case of 1855 companies. Among them
only 205 companies were able to come out of the purview of the BIFR after
making their networth positive and 892 cases were rejected. This shows that the
success rate was only 11 percent. In spite of the active support extended by the
Operating Agencies the increase in success rate was only marginal. Similarly 362
references representing 19.5 percent of the total remained at the preliminary stage
of enquiry. This clearly points out the delay brought about by the Operating
Agencies in disposing the cases allotted to them. Figures 3.4 and 3.5 are the
Percentage
to total
Chapter 3
diagrammatic representation of the status of companies and the rehabilitation
schemes sanctioned.
Fig: 3.4:- Status of Conpanies
A 91 \
892
B Schemes sanctioned References rejected References pending
Fig: 3.6:- Status of Schemes Sanctioned
Declared no longer sick IN Not declared no longer sick
Chapter 3 74
In order to evaluate the performance of the Operating Agencies
individually in rehabilitating sick industrial units, the present status of companies
allotted to various Operating Agencies has been analysed on the basis of Operating
Agency, state, industry and year.
3.7.2 Status of Companies: Operating Agency-wbe
As on 31 July 2000, Operating Agencies were appointed in 1855
references. Among them 1407 cases were allotted to the All India Financial
Institutions (AIFIs) like the IDBI, IIBI, IFCI and the ICICI and 448 cases were
shared by the State Bank of India, seven Public Sector Banks and two State
Financial Corporations (SFCs). The IDBI being the largest financial institution in
the country was given the first priority and was allotted 507 references. The IIBI
(the erstwhile IRBI) which was established as the specialised reconstruction and
rehabilitation agency in the country was allotted 326 cases.
Among 1407 cases allotted to AIFIs, 158 companies were declared no
longer sick after making their networth positive. This shows that the success rate is
only 11.2 percent. Seven hundred and one cases were rejected. Rehabilitation
schemes were in operation in 298 cases and 250 references remained at the
preliminary stage of enquiry. The present status of companies allotted to various
Operating Agencies has been analysed and given in Table 3.4. Figure 3.6 is its
diagrammatic represent ation,
Chapter 3
Total
Fig: 3.6:- Status of Companies: Operating Agency-wise
250
200
I
*-
e
g I 50
E
8
5 100
P
50
0
z
- -
2
o(l
P
- g 2 i! 8
i "
Declared no longer sick Not declared no longer sick
Cl Referancas rejected References pending
Table 3.4:- Status of Sick Companies: Operating Agency-wise
Operating
Agency
IDBI
IlBI
IFCI
1 CICl
Banks and
SFCs
Total
Source: BIFR
Schemes sanctioned
References
rejected
220
(43.4%)
209
(64. I %)
165
(53%)
107
(40.66/0)
191
(42.6%)
892
(48.1%)
Declared
no longer
sick
4 8
(9.5%)
3 1
(9.5%)
27
(8.7%)
52
(19.8%)
47
(10.5%)
205
(I 1%)
records.
Not
declared no
longer sick
101
(19.Yh)
74
(22.7%)
6 1
(19.6%)
62
(23.6%)
98
(2 1 .9%)
396
(21.4%)
(as on 3 1.07.2000)
References
under
enquiry
138
(2 7.2?h)
12
(3.7%)
5 8
(18.7%)
42
(1 6%)
112
(25%)
362
(19.5%)
507
( 1 OPh)
326
(10%)
31 1
( 100%)
263
(100%)
448
( I ooo?)
1 885
(1000/'o)
Chapter 3 76
Among the AIFIs, the ICICI topped with a success rate of 19.8 percent
followed by the Banks and SFCs with 10.5 percent. Out of the 263 cases allotted
to the ICTCI, 52 companies were declared no longer sick. The IDBI and the IIBI
each reported a success rate of 9.5 percent while in the case of the IFCI; the
success rate was only 8.7 percent.
Out of the 1855 companies allotted to different Operating Agencies
rehabilitation schemes were sanctioned only in 601 cases. Among them ICICI
reported the highest success rate of 45.6% percent, followed by Banks and SFCs
(32.4%), lDBI (32.2%) and IFCT (30.7%). The lowest success rate, 29.5 percent
was reported by IIBI. This shows that the success rates varied among dlerent
Operating Agencies.
To test whether there is any significant difference in the success rates
among different Operating Agencies a chi-square6 test was conducted taking the
null hypothesis that there is no significant dzference in the success rates among
the difere~t Operating Agencies. It was found that at 5 percent significance level
the calculated value (8.554) was lower than the table value (9.488) at four degrees
of freedom. This result leads to the acceptance of the null hypothesis and it can be
concluded that the dlference in the success rates among the various Operating
Agencies is statistically not signif cant.
3.7.3 Status of Companies: Industry-wise
The industrial sickness in India has affected industries across all states.
The ever-changing economic scenario coupled with economic reforms initiated in
early 90's caused a large number of industrial units without comparative
advantages and competitiveness to become non-viable and sick. But its magnitude
varied from industry to industry and from state to state. In order to evaluate the
4
For the test only those companies, which were 'declared no longer sick' and 'not
declared no longer sick' after implementing the rehabilitation schemes, were taken.
Chapter 3
77
impact of industrial sickness in various industries and to evaluate the industry-
wise performance of Operating Agencies, the present status of sick industrial
companies reported to the BIFR for which Operating Agencies were appointed has
been classified industry-wise and given in Table 3.5. Figure 3.7 is its
diagrammatic representation.
Table 3.5:- Status of Sick Companies: Industry-wise
Total
3 96
(1 00%)
328
( 1 00%)
306
100%
202
(100%)
I61
( I 00%)
155
(100%)
119
(100%)
86
( 1 000/0)
67
(100%)
35
( 1 00%)
1855
(100%)
(as on 3 1-7-2000)
References
under
enquiry
79
120%)
79
(24.1 %)
62
(20.3%)
3 1
(15.4%)
38
(23.6V0)
2 1
(13.6%)
16
(13.4%)
14
I 6.2%)
17
(25.4%)
.-- -.
5
( 14.3%)
362
(19.5%)
rejected References
20 1
(50.8%)
153
(46.6%)
149
(48.7%)
92
(45.5%)
---
7 5
(46.6%)
74
(47.7%)
68
(57.2%)
44
(5 I .2%)
25
(37.3Y0)
I I
( 3 1.4%)
892
(48.1%)
industry
Metallurgical
*
Miscellaneous
Textiles
Chemicals
-- -
Food Products
& Processing
Electronic &
Electrical
Equipment
Paper
Cement
Drugs &
Pharmaceuticals
-A-
Jute
Total
Source: BIFR
Schemes
Declared no
longer sick
39
(9.8%)
3 1
(9.5%)
26
(8.5%)
27
( I3 -4%)
i 8
( 1 1. 2~0)
3 1
(20%)
13
( I 0 .9"/o)
9
(10.5?4)
7
( 1 0.4%)
---
4
( 1 1.4%)
205
( I 1 %)
records.
sanctioned
Not declared
no longer
sick
77
( 19.4%)
65
( 19.8%)
69
(22.5%)
52
125.7%)
P
30
( 1 8.fi0/o)
29
(1 8.7%)
22
( I 8.5%)
19
(22. l %)
18
(26.9%)
-- -
15
(42.5%)
-
3 96
( 2 1.4%)
Chapter 3
Fig: 3.7;- Status of Companies: Industty-wise
450
400
350
300
' 250
E
0 200
'B
d 150
Z
100
50
0
Q Rejected B Under enquiry C1 Not declared no longer sick . lhclarsd rwr longer sick
The largest number of sick industrial units was reported in the
Metallurgical industry. There were 396 reported cases in the Metallurgical
industry, which accounted for 21.3 percent of the total number of cases reported.
There were 328 reported cases in Miscellaneous, 306 cases in Textiles and 202
cases in Chemical industries. They represented 17.7 percent, 16.5 percent and
I 0.9 percent respectively of the total number of cases reported.
An evaluation of the performance of various industries revealed that the
highest success rate was reported in the Electronic and Electrical Equipment
industry followed by the Chemical industry. There were 155 reported cases in
Electronic and Electrical Equipments industry in which 31 companies were
Chapter 3 79
declared no longer sick, the success rate being 20 percent. The zoom in the Indian
Info-tech industry from a mere Rs.560 crores ten years ago to a whopping
Rs.25000 crores in 1998-99 helped many companies in this sector to diversify
their activities into software development and to make their operations successful
(Mehta 2000,321). In the Chemical industry 27 companies from 202 cases reported
were declared no longer sick, the success rate being 13.4 percent.
The BIFR initiates rehabilitation measures only in viable sick units and all
non-viable references are rejected. The highest rejection rate was reported in the
Paper industry. There were 1 I9 reported cases in the Paper industry, of which 68
companies were rejected, the rejection rate being 57.2 percent. The crash in the
international prices of papa on account of the global economic recession and the
dumping of products from Canada, Russia, and ASEAN countried made a large
number of units in the Paper industry sick and non-viable. The second largest
rejection rate of 51.2 percent was reported in the Cement industry. There were 44
failed cases from 88 companies reported in the Cement industry. The total
decontrol of cement in 1984 and the increase in production capacity from 50
million tomes in 1988-89 to 107 million tomes in 1998-99 by large cement
manufacturers made it difficult for the mini cement manufacturers to compete and
survive in the market (Srinivasan, 2000,232).
3.7.4 Status of Companies: State-wise
Industrial sickness in India has affected industries across all states.
Maharashtra being the most industrialised state in the country was the worst
affected by industrial sickness8. There were 3 1 1 cases reported to the BlFR in
Maharashtra followed by 2 12 cases in Andhra Pradesh (AP), 172 cases in Tamil
'Prabhu N. P., as quoted by Sanyal, B., (2000), 9.
R
There were 114851 companies in Maharashtra which accounted for 21.6% of 532580
companies at work in India as on 1-1 -2000.
Chapter 3 8 1
The highest success rate was reported in Maharashtra. From the 3 11
cases reported in Maharashtra, 52 companies were declared no longer sick, the
success rate being 16.7 percent. This includes 10 companies declared successful
from the 23 companies reported in Electronic and Electrical Equipments industry.
This shows that the high success rate in Maharashtra was mainly due to the high
success rate associated with the Electronic and Electrical Equipments industry.
The highest rejection rate was reported in Himachal Pradesh (HP). From
the 30 companies reported in Himachal Pradesh, 21 cases were rejected, the
rejection rate being 70 percent. This was mainly due to the non-viability of the
units in the Paper industry. In Hirnachal Pradesh nine companies from 10 cases
reported in the Paper industry were rejected. This showed that the success and
rejection rates of the companies reported to the BIFR depended on [he type of
industiy.
3.7.5 Efficiency of the Operating Agencies in Handling Cases
Timely implementation of a rehabilitation scheme is a precondition for
the revival of the sick unit. Timely implementation of the scheme depends much
on the efficiency of the Operating Agency in determining the sickness of the
company and in finalising the rehabilitation scheme. In order to evaluate the
efficiency of the Operating Agencies in dealing with the cases allotted to them, the
present status of the total number of cases allotted to various Operating Agencies
has been analysed year-wise.
Among the 1 855 companies allotted to different Operating Agencies, 892
references were rejected, revival schemes were sanctioned in 601 cases and 362
cases remained at the preliminary stage of enquiry. A year-wise analysis of the
present status of Operating Agency appointed companies are given in Table 3.7.
Chapter 3
Table 3.7:- Status of Sick Companies: Year-wise
registered by the BIFR remained at various stages of enquiry. They included six
cases reported in 1987, 241 cases reported between 1988 and 1998 and 101 cases
Year
1987
1988
1989
1 990
199 1
1 992
1993
1 994
1995
1 996
1 997
1998
1999
2000
Total
Source: BIFR
registered in 1999. In order to evaluate the efficiency of the Operating Agencies in
disposing the cases allotted to them, the references pending with the various
Table 3.7 shows that nearly 20 percent of the total number of cases
References
re~ejecred
131
116
78
63
69
63
46
10 1
54
48
7 1
46
5
I
892
records
Schemes
Declared
no longer
sick
53
43
24
23
2 1
9
9
14
1
1
4
2
I
0
205
References
Under enquiry
6
1
3
3
1
4
I
6
2
8
62
150
I01
14
362
sanctioned
-
Not declared
no longer sick
49
35
34
22
20
5 0
22
48
20
15
4 1
3 3
7
0
396
--
Total
239
195
139
I l l
1 1 1
126
78
1 69
77
72
178
23 1
114
15
1855
Operating Agencies at the enquiry stage have been classified and given in Table
Source: Bl FR Records
Table 3.8 shows that among the 362 pending references with various
Operating Agencies, 139 cases were with the IDBI. That was 38.4 percent of the
total number of pending references and 27.4 percent of the total number of cases
allotted to the IDBI. There were 75 pending ref'erences with the Banks and SFCs,
Table
Year
1987
1988
1989
1990
199 1
1992
1993
1994
1995
1996
1997
1998
1999
2000
Total
Total
References
which constituted 20.7 percent of the total pending references and 25.9 percent of
Cases:
IIBI
1
0
0
0
0
0
1
1
0
0
3
3
2
1
12
(3.4%)
326
(3.7%)
3.8:- Pending
IDBl
1
1
0
1
0
0
0
1
0
4
1 1
58
53
9
139
(38.4%)
507
(27.4%)
Operating
IFCI
2
0
I
1
1
0
0
2
2
0
16
20
12
I
58
(16.0D/o)
31 1
(1 8.6%)
Agency-
ICICI
1
0
0
I
0
3
0
0
0
0
10
23
4
0
42
1 % )
263
( 1 6.0%)
wise
SBI
0
0
1
0
0
0
0
1
0
I
7
I5
1 1
0
36
(9.9%)
158
(22.8%)
(as on 3 I
Banks &
SFCs
1
0
1
0
0
0
0
I
0
3
15
3 1
19
4
75
(20.7%)
290
(25.9%)
-7-2000)
Total
6
I
3
3
1
3
I
6
2
8
62
150
10 1
15
362
(100%)
1855
( 1 9.5%)
Chapter 3 84
the total number of cases allotted. Among the various Operating Agencies, IIBI
was the most efficient in disposing the cases allotted to it. There were only 12
pending cases with the IIBI. That was only 3.4 percent of the total pending
references and 3.7 percent of the total cases allotted to the IIBI. Among the 97
pending references registered between 1987 and 1997, twenty-five cases were
with the IFCI, 19 cases with the IDBI and 15 cases with the ICICI.
The 81FR in its performance review 1998 acknowledged that despite the
best efforts of the Board to expedite the disposal of cases, considerable delays
were c a ~ s e d. ~ The quasi judicial nature of the constitution of the BIFR, the
consensus approach in finalising the rehabilitation schemes and the delay caused
by the Operating Agencies in disposing the cases allotted to them often made the
BIFR process time consuming. Here it is apt to quote the words of Richa Mishra,
deluys in the disposal of cases is inherent in every system established under the
law where the BIFR as a quasi judicial tribunal is required to follow the principles
of natural justice, providing opportunities to all interested parties to participate in
the proceedings and its orders are also subject to appeals to the AAIFR and higher
courts lo.
'BIFR Performance Review ( 1 998), 27.
' O~i shra (200 I ) , 4.