'New Act better for sick units' revival'

The Sick Industrial Companies Act (SICA) 1985, which provided for setting up of the Board for Industrial and Financial Reconstruction (BIFR), could not achieve the objective of revival of companies in a time-bound manner, said U S Sohoni, deputy general manager, State Bank of India, Ahmedabad.

Sohoni was speaking at a seminar of small and medium enterprises on 'Converting challenges to opportunities' at the Gandhi Labour Institute.

Replacing SICA, 1985, a new Act, Sick Industrial Companies Act, 2003, is being implemented. The provisions of SICA have been merged in the Companies Act 2003, which provides for setting up of a National Company Law Tribunal (NCLT) and the present powers of BIFR with necessary amendments of the new Act, will be exercised by NCLT.

"There is a provision for National Company Law Appellate Tribunal (NCLAT) as appellate authority for NCLT," Sohoni said.

"There are certain grey areas in the new provisions such as definition of the industrial activity , time limit for different steps, simultaneous action of banks and financial institutions for the recovery of loans. Still, the alternative set-up has not been provided and BIFR proceedings are continued. It is expected that once the new tribunals are in place, the process of industrial revival will be time-bound and more efficient with the least scope for unscrupulous promoters to delay the winding-up indefinitely," Sohoni said.

In the earlier act, many unscrupulous promoters used the BIFR for gaining protection from various cases of their lenders and creditors for years together and the valuable resources of the banks and financial institutions remained locked up in sick units without further recycling, Sohoni said.

While the earlier Act provided for suspension of legal proceedings of all creditors when reference to BIFR was made, there is no such provisions in the new Act, the recovery proceedings and suits against company can continue even if the matter is pending with NCLT.

However, the winding up proceeding can be kept pending.

The earlier Act prevailed over the other Acts, while no such provisions are there in the new Act.

The definition of sick unit is modified to include such companies whose networths are eroded by 50 per cent or which fail to pay creditors for three consecutive quarters, he said.

Moreover, the burden of preparing a scheme of revival is now cast on the company itself.

While making a reference to NCLT, the company has to submit the revival scheme and the application is to be accompanied with a certificate by an auditor from the approved panel.

Even access will be payable by all companies which will be used as a rehabilitation and revival fund at the disposal of NCLT, he said.

The sequence of activities for the revival process includes, reference to NCLT by the company along with the auditor certificate and the scheme of revival within 180 days from the trigger incident or 60 days from adoption of final accounts, whichever is earlier, the tribunal's order whether the company has become sick, inquiry if required by NCLT, final order by NCLT within 60 days of inquiry for revival and winding-up and appointment of special director if necessary, he said.