Bifr Cases Expected To Touch Record High

Companies registered with the Board for Industrial and Financial Recons-truction (BIFR) is expected to touch an all-time high this year, which is seen as another indication of a worsening economic situation.

Already, with barely five months of the year complete, 115 companies have been registered with the BIFR.

Last week, the board registered the 115 case _ Prudential Polymers _ and the trend, according to sources, is that it could scale 300 by the end of the year, sources said.

Another trend emerging in the last two months has been that all the companies have been listed companies _ predominantly B2 scrips which had during the last three years had come out with public issues at a premium.

In 1997, 220 companies had registered with the BIFR, while the previous years averaged in the range of 80 to 100.

According to sources, the reasons that have pushed the companies to BIFR have been "priced out by unfair foreign competition, no exit policy, duty structure and undue delay in release of working capital by banks".

However, a section of industry watchers and BIFR experts said that the board is fast emerging as a haven for companies confronting winding-up petitions and directors who face action under the Negotiable Instruments Act for dishonoured cheques.

In a recent landmark judgement (dated April 28), the BIFR gave a special 6-month immunity to promoters of Real Value under section 22 (3) of the Sick Industries Companies Act (Sica).

The directors had appealed that since the company was under the board's consideration for about a year, they cannot be held liable for any cheque dishonoured, as they acted on behalf of the company.

The company argued with BIFR that "unsecured creditors were resorting to coercive tactics by initiating legal proceedings for recovery of their dues for which post-dated cheques were issued and bounced".

They further argued that "preferential payment to unsecured creditors at the cost of secured creditors would set a bad example and sought protection under section 22 (3).

The board ruling is expected to attract more companies to the BIFR net, especially where directors fear action sooner or later for non-repayment of market borrowings or dishonour of cheques.

According to sources, the ruling is not yet tested in law. "The immunity however means that it will not extend to individuals. But a defence is that if the principal debtor (which is the company) cannot be proceeded against, can secondary debtors (which is directors or signatories executing the instrument) be proceeded against?" they asked.