CHAPTER 13

T H E S I C K I N D U S T R I A L C O M PA N I E S R E P E A L A C T, 2 0 0 3 , A N D G U I D E L I N E S O N I N S O LV E N C Y

INTRODUCTION AND INTERPRETATION

A committee of experts was formed in 1981 under the chairmanship of Shri T. Tiwari to make recommendations to the government regarding the alarming growth rate of sick industrial units in both the government and private sectors. Based on the recommendations, a law was enacted titled Sick Industrial Companies (Special Provisions) Act, 1985. known by its acronym SICA. In 1987, the Board of Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) were established.
Oxford University Press 2009. All rights reserved.

Contd

INTRODUCTION AND INTERPRETATION

Furthermore, in 1991 and 1993 more amendments were introduced to determine the industrial problems or sickness. The SICA seemed to have problems as increasingly companies took this route to exit. This Act not only saved them from difficult legal procedures but also allowed them to obtain financial relief which, in turn, burdened the banks. Another factor that forced reform was the piling up of the non-performing assets (NPAs). Hence, in 2003, the Sick Industrial Companies (Special Provisions) Repeal Act was enacted.
Contd
Oxford University Press 2009. All rights reserved.

INTRODUCTION AND INTERPRETATION

This replaced the institutions created by the SICA, and the National Company Law Tribunal (NCLT) was responsible for their revival and rehabilitation. Furthermore, any appeal against the order of this agency would be expedited by the National Company Law Appellate Tribunal (NCLAT).

Oxford University Press 2009. All rights reserved.

INTRODUCTION AND INTERPRETATION

Objectives of SICA 1.To evaluate the economic viability of sick industrial companies with a view either to rehabilitate them, if the public interest so demanded and if their rehabilitation was possible, or to close them down, if continuing them would be impossible 2.To stop the continued drain of public and private resources for the overall economy of the country 3.To protect employment as far as possible

Oxford University Press 2009. All rights reserved.

INTRODUCTION AND INTERPRETATION

Industrial Sickness Sec. 23 of SICA clarifies the meaning of industrial sickness. It is the accumulated losses of an industrial company that, at the end of any financial year, have resulted in a depletion of 50 per cent or more of peak net worth of the immediately preceding four financial years. A company in such a financial position is considered to be a potentially sick industrial company.

Oxford University Press 2009. All rights reserved.

GUIDELINES ON INSOLVENCY
a) Insolvency refers to a person who is unable to pay his debts when called upon to do so. b) Bankruptcy is the legal process that an insolvent has to undergo. c) Liquidation refers to the situation when after the payment of its debts and liabilities, a companys net assets are divided among its shareholders. d) Dissolution is the reverse of formation of a company, and this legal process is known as winding-up.

Oxford University Press 2009. All rights reserved.

GUIDELINES ON INSOLVENCY
(d) Sick Industrial Companies (Special Provisions) Repeal Act, 2003 Dispute redressal under tribunal. (e) Recovery of debts due to Banks and Financial Institutions Act, 1993 Dispute redressal under tribunal.

Oxford University Press 2009. All rights reserved.

GUIDELINES ON INSOLVENCY
Objectives of Insolvency Legislation 1. To restore the debtor company to profitable trading where this is practicable; to maximize the return to creditors as a whole. 2. To bring to book those guilty of mismanagement, and where appropriate, deprive them of the right to be involved in the management of other companies. 3. To provide a battery of legal and administrative instruments and institutional structures: (a) Rehabilitative (b) Distributive (c) Penal
Oxford University Press 2009. All rights reserved.

GUIDELINES ON INSOLVENCY
Procedures 1. File petition under the given or 5. Upon adjudication of all facts chosen Act. and examination of evidence, the 2. All the company documents board or tribunal may pass the order of insolvency. and audits are attached to the petition. 6. The board or tribunal, after 3. The dispute redressal agency, making an assessment, may such as a board or tribunal, will make arrangement so that as examine debts for which it will many creditors are paid from the resources of the company; a time appoint a receiver. 4. The board or tribunal will hear limit may also be fixed for such all the concerned, particularly an arrangement. the creditors. Oxford University Press 2009. All rights reserved.