The document discusses the history and evolution of mechanisms in India to deal with industrial sickness. It notes that industrial sickness began before independence and various committees were formed over time to study the problem and make recommendations. This led to the establishment of the Board for Industrial and Financial Reconstruction (BIFR) in 1987 to determine sickness and assist in reviving viable companies. However, the BIFR process has been criticized for being lengthy and ineffective. There are calls to reform or replace the BIFR to more efficiently handle the growing problem of industrial sickness.

2.  Industrial sickness had started right from the pre-Independence days.
 Government had earlier tried to counter the sickness with some ad-hoc measures.
 Nationalization of Banks and certain other measures provided some temporary
relief.
 RBI monitored the industrial sickness.
 A study group, came to be known as Tandon Committee was appointed by RBI in
1975.
 In 1976, H.N. Ray committee was appointed.
 In 1981, Tiwari Committee was appointed to suggest a comprehensive special
legislation designed to deal with the problem of sickness laying down its basic
objectives and parameters, remedies necessary for revival of sick Units.
 The committee submitted its report to the Govt. in September 1983 and suggested
the following:
¿ Need for a special legislation
¿ Need for setting up of exclusive quasi-judicial body.
 Thus the SICA came into existence in 1985 and BIFR started functioning from
1987

3.  BIFR : Board for Industrial and Financial
Reconstruction (BIFR)
 Parent organization : Department of Financial Services of
the Ministry of Finance
 Formation : 1987
 Type : Governmental Organisation
 Chairman : Nirmal Singh
 Objective : to determine sickness of industrial
companies and to assist in reviving
those that may be viable and shutting
down the others.
 Act : The Sick Industrial Companies (Special
Provisions) Act, 1985 (SICA)

5.  The Sick Industrial Companies (Special Provisions) Act,
1985 (SICA) - to include public sector enterprises in the
board's purview.
 The Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest (SARFAESI) Act of
2002 - placed corporate debt outside the purview of the
BIFR.
 National Company Law Tribunal (NCLT) and the National
Company Law Appellate Tribunal (NCLAT) - to take over
the functions of the BIFR and other bodies and speed up the
process of winding down sick companies.

6. :
 Recommends a sick industrial company for winding up.
 Bridges the legal gap between sickness and revival.
 Imposes time schedules for revival related activities to be
completed, oversee their implementation and conduct periodic
reviews of sick accounts.
 Provides a forum for sharing views, coordinating effort and
developing a unified approach to dealing with sick companies,
speeding up the start of corrective action.
 Either turn companies around within six months or order closure.
 Takes other actions including changes to management,
amalgamation of the sick unit with a healthy one, sale or financial
reconstruction

7. :
 The accumulated losses of the company to be equal to or
more than its net worth i.e. its paid up capital plus its free
reserves .
 The company should have completed five years after
incorporation under the Companies Act, 1956 .
 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.
 It should have a factory license.

9.  Under the Act, any manufacturing company whose accumulated losses
exceed its net worth has to compulsorily register itself with the BIFR,
a quasi-judicial body, so that with the assistance of the operating
agency (OA) appointed by it, the unit can be revived by sanctioning a
rehabilitation scheme and pass orders for winding up if found
unviable.
 The process is quite time consuming involving several steps such as
 registration,
admission of the registration,
appointment of OA, preparation of Draft Rehabilitation Scheme
(DRS),
circulating the scheme among various stakeholders,
 sanctioning the rehabilitation scheme and
 implementation of the scheme through a monitoring agency (MA).

10.  The number of sick units increasing dramatically by more
than eleven-fold from 23,740 in June 1981 to 2,22,933 in
March 1991 and further to 2,64,750 in March 1996.
 As on 31 March 2014, the CDR cell had approved 530
cases with a total loan of over Rs.4 trillion for debt recast,
of which 165 cases with loans worth Rs.56,995 crore had
exited on account of failure in implementing the debt-
restructuring package as approved by their lenders.
 The number of failed exits as on 31 March 2014 stood at
121 cases, with loans worth Rs.29,980 crore.

11.  Zenotech Laboratories has been registered as a sick firm with
the Board for Industrial and Financial Reconstruction
(BIFR).
 The firm has been posting losses in successive quarters. In
the first quarter of this fiscal it had a loss of Rs 5.12 crore. In
the fiscal 2014-15 its loss was at Rs 30.41 crore.

13.  At every stage, there are litigations galore and the whole
process takes years. As per Act, once a unit is registered
with the BIFR it enjoys immunity from legal and other
recovery proceedings by the creditors.
 This provision has emboldened many units to use this as an
escape route by registering with the BIFR by forcibly
making the net worth negative by creative accounting —
writing off fixed assets, writing off debtors, and so on —
resulting in losses to creditors and mounting NPAs.
 Even if finally the unit is found unviable and winding up
orders are passed by the BIFR, it is often too late by that
time to realize anything out of the assets of the company.

14.  More and more sick companies in India are using the Board
for Industrial and Financial Reconstruction (BIFR) as an
escape route to delay legal action by banks for debt
recovery even as their loan restructuring under the corporate
debt restructuring (CDR) cell and other such mechanisms
fail.
 It has now outlived its utility and has become more of a
hurdle to timely debt recovery.
 With a large number of cases being restructured, the number
of failed restructurings—or failed exits as they are called in
industry parlance—have also risen.

15.  Thus considering the gravity of the problem of sickness, the
government has taken various measures. However, some critics
observed that the coverage of SICA 1985 is not adequate and some
unscrupulous entrepreneurs are trying to turn their units; sick
deliberately for extracting various concessions and reliefs. Thus
government agencies should be careful in detecting in genuine sick
industrial units and to start revival process in right time.
 It has found that at present the process followed by the BIFR was
time consuming and thus was proving costly for workers and trade
unions. It has suggested decentralizing the BIFR with the creation
of regional branches in the states, where the incidence of industrial
sickness is quite high

16.  The BIFR was recently under fire from the Parliamentary Standing
Committee on Industry for “having failed to serve the purpose for
which it was created.” It has called for immediate restructuring of the
BIFR as well as National Renewal Fund (NRF) so both could deal
with growing industrial sickness in an effective manner.
 There is, therefore, a need to put the BIFR on a strong footing by
increasing its strength to the requisite level, giving it wide judicial
powers and setting specific time limits for expeditious disposal of
cases.
 The National Company Law Tribunal (NCLT) could be a good
alternative to BIFR. Once the tribunals are formed, they can replace
the BIFR mechanism fully and, therefore, provide a better avenue to
deal with sick companies.