Bifr: How The Hospital Works

Theres a queue of companies waiting outside for admission

The Board for Industrial and Financial Reconstruction was set up under the Sick Industrial Companies, (Special Provisions Act), (SICA) 1985. Its aim, says Sameer Parekh, advocate, P H Parekh & Company, is to safeguard the interest of workers and creditor institutions.

BIFR comes into the picture when an application is made for a company to be declared sick. A company falls sick, as defined under SICA, when its accumulated losses equal or exceed the peak net worth. The company should also have completed five years of incorporation under the Companies Act of 1956.

 

SICA provides that the board shall consist of a chairman and a minimum of two and maximum of 14 members. Decisions of the board are taken by benches, each of which consists of no less than two members. However, due to superannuation of members, mostly government servants, the number of benches have come down to three in 1996. At the moment there are just two members, apart from the chairman, M S Shrivastava. Interestingly, over time the disposal rate of cases by members has gone up.

After a company has been declared sick, the BIFR appoints an operating agency (OA) to work out a rehabilitation package for the sick company. The OA typically tends to be the largest creditor of the company. A second hearing is then convened where the various parties may or may not accept the package.

In the past two years there has been a distinct change in the kind of companies knocking at BIFRs doors. Some of the bigger private sector companies have declared themselves sick and gone to the BIFR, says Pratap Venugopal, advocate, K J John & Company.

Its not as if promoters can get away with murder. The BIFR and the AAIFR dismiss, on an average, around 30 per cent of all appeals. Some times, the old promoters are indeed shown the door when the rehabilitation package is worked out. But there is a degree of dissatisfaction with the way the system works. The BIFR board, says a lawyer, comprises mostly government officials and their expertise tends to develop only over a period of time.

While the BIFR is a statutory body, its decisions can be appealed against in the Appellate Authority of Industrial and Financial Reconstruction (AAIFR), an organisation that decides on rulings made by the BIFR. From the AAIFR, cases can go onwards to the High Courts and the Supreme Court. The time taken and complex maze of avenues open to the promoter has, according to sources, diluted BIFRs effectiveness. Montari Industries Limited is an example (see accompanying story). It is a time consuming process which could go from eight months to many years, says Parekh.