useful for law students..consists all about sick companies

1. with special reference to law
related to Sick Industrial
Company

2. Industrial sickness is defined as “an
industrial company, being a company
registered for not less than five years,
which has, at the end of any financial year,
accumulated losses equal to, or
exceeding, its entire net worth and has
also suffered cash losses in such financial
year and the financial year immediately
preceding such financial year”

3.  Industrial sickness creates various socio-economic
problems like when an industrial unit falls sick those
who depend on it have to face an uncertain future.
 These sick units are nursed back to health through:
1. mergers
2. amalgamations
3. takeovers
4. purchase of assets
5. nationalization
 When the-problem becomes really alarming or
unmanageable, the unit is permitted to die its natural
death

4. Reserve Bank of India- “a sick unit is one
which has reported cash loss for the year
of its operation and in the judgment of the
financing bank is likely to incur cash loss
for the current year as also in the following
year and the unit has an imbalance in its
financial structure, such as, current ratio is
less than 1: 1 and there is worsening trend
in debt-equity ratio.”

5. State Bank of India-“which fails to
generate an internal surplus on a
continuous basis and depends for its
survival upon frequent infusion of funds.
SICA- “an industrial company can be
declared as sick which has at the end of
any financial year accumulated losses
equal to or exceeding its entire net worth”.

6.  Sickness in industry can be classified into:
(a) Genuine sickness which is beyond the control of
the promoters of the concern despite the sincere
efforts by them,
(b) Incipient sickness due to basic non-viability of
the project, and
(c) Induced sickness which is due to the
managerial incompetence and wrong policies
pursued deliberately for want of genuine stake.

7. Internal causes for sickness:
1. Lack of Finance
2. Bad Production Policies
3. Marketing and Sickness
4. Inappropriate Personnel Management
5. Ineffective Corporate Management

8. External causes for sickness
1. Personnel Constraint
2. Marketing Constraints
3. Production Constraints
4. Finance Constraints

9.  Industrial sickness specially in small-scale
Industry has been always a demerit for
the Indian economy, because more and more
industries like –
cotton, Jute, Sugar, Textiles, small steel and
engineering industries
 1976 - 300 units
1982 - 58,551 units
1986 – 1,47,740 units
1991 - 2.21 lakhs units
2001 - 252,947 units

10. Concessions:
the Government has amended the
Income-tax Act in 1971 by addition of
Section 72A by which tax benefit can be
given to healthy units when they take over
the sick units by amalgamation, with a
view to reviving them.

11.  Guidelines of Government: 1981
1. administrative ministries in the Government will have specific
responsibility for monitoring sickness and coordinating action
for revival and rehabilitation of sick units
2. financial institutions will strengthen the monitoring system
3. The financial institutions and banks will initiate necessary
corrective action for sick or incipient sick unit
4. Where it is decided to nationalize the undertaking, its
management may be taken over under the provisions of the
Industries (Development and Regulation) Act, for a period of
six months to enable the Government to take necessary
steps for nationalization. Industries (Development and
Regulation) Act, 1951

12.  The Sick Industrial Companies Act 1985:
SICA provides for establishment of:
1. Board for industrial and financial reconstruction (BIFR)
2. Appellate authority for industrial and financial
reconstruction (AAIFR)
 IRBI (IIBI):
The Industrial Reconstruction Bank of India set up in
1985 has initiated various steps for checking the
growth of industrial sickness and helping in industrial
revival. From April 1997 the name of IRBI has been
changed to Industrial Investment Bank of India (IIBI).

13.  Goswami Committee Report: 1993
The Committee on Industrial Sickness and Corporate
Restructuring under chairpersonship of Dr. Omkar Goswami
submitted its report in July 1993
 SICA Amendment Act, 1994:
1. changes in the definition of SICA,
2. expansion of the term operating agency,
3. clarification that an enquiry as to sickness shall be
deemed to have commenced on receipt of a reference by
the BIFR complete in all respects, scope for reverse
merger, “deemed consent” after the lapse of 120 days,
4. “single window concept” for release of funds by
banks/financial institutions to the sick company,
5. monitoring implementation of sanctioned revival schemes
by BIFR,

14.  The Companies Act of 2013:
1. Chapter XIX of the 2013 Act lays down the
provisions for the revival and rehabilitation of
sick companies and aims to propose the
omission of the SICA, though it never came
into force.
2. The coverage of Sick Industrial
Companies Act, 1985 (SICA) is limited to
only industrial companies, while the 2013
Act covers the revival and rehabilitation of all
companies, irrespective of their sector.

15.  Section 253-a company is assessed to be sick on
a demand by the secured creditors of a company
representing 50% or more of its outstanding
amount of debt
 Section 254-Once a company is assessed to be a
sick company, an application could be made to the
Tribunal
 Section 256-Tribunal, not later than seven would
be required to fix a date for hearing and would be
appointing an interim administrator

16.  Section 257- Convene a meeting of
creditors of the company
 Section 261- for the purpose of revival and
rehabilitation of a sick company provides for
the following options:
1. Financial reconstruction
2. Change in or takeover of the management
3. Amalgamation of the sick company with any
other company, or another company’s
amalgamation with the sick company

17.  The Insolvency and Bankruptcy Act 2016:
A notification issued by Ministry of
Corporate Affairs notified Section 255 of
the Insolvency and Bankruptcy Code,
2016. By virtue of notification of Section
255 of Insolvency and Bankruptcy Code,
2016; the Companies Act, 2013, stands
amended in accordance with Schedule XI
of the IBC 2016 with effect from
15thNovember 2016.

18. THANK YOU!!!
Shivani Sharma
LL.M.
Ist Semester