Under the earlier interpretation of the Sick Industrial Companies Act (SICA), AAIFR allowed the BIFR to entertain only those sick companies for registration which had completed five years of commercial production. This was an interpretation initiated by the AAIFR to the original clause in Section 3(1)(0) of the SICA which defines a sick industrial company.
The new decision of the AAIFR comes in the wake of appeals made to the authority by Krimpex Synthetics, Mahindra Steel Tubes, Consolidated Radiators, Tamil Nadu Magnesium & Marine Chemical and Vijai Shree whose cases had been rejected by the BIFR on grounds of non-maintainability as per the earlier amended SICA clause.
The BIFR, also supported by the AAIFR, had interpreted the word carried on of manufacturing process in the definition of industrial undertaking and factory to mean commencement of commercial production. The Bench had earlier argued that five years of commercial production, excluding the period of closure of factory, should be considered as essential requirement for maintainability of a reference under Section 15(1) of SICA.
However, the counsels for the five appealing companies have pointed out to the AAIFR that there is no mention of commercial production even remotely as a factor for determining the status of a company as sick industrial company in the SICA and AAIFR agrees that the concept of commercial production has been erroneously introduced.
The AAIFR further reiterates that cessation of production is an incidence of sickness. If production stops due to heavy losses, an industry should not be expected to continue production and incur further losses. Therefore, it is not possible to read legislative intention behind Section 3(1)(0) of the SICA to the effect that commercial production should take place for five years before a company can fall within the definition of sick industrial company.
In the SICA, it states: Sick industrial company means a company existing as an industrial company for not less than five years ... According to the new AAIFR ruling, this period refers to registration as a company and not the status as an industrial company.
