Industrial sickness

Presented To, MS. Manisha Madam Presented by:

Chaudhary Mukesh J (12) Chavda Indrajitsinh H (14)
Makwana Vijay (37)

Definition
definition According to SICA, 1985
A unit was defined as industrial company (being a company registered for not less than seven years )which has at the end of any financial year accumulated losses equal to or exceding its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year.

Contd
Definition according to companies Act,2002
Sick industrial company means an industrial company which has - Accumulated losses in any financial year which are equal to 50 percent or more of its average net worth during four year immediately preceding such financial year - Failed to repay its debts within any three consecutive quarter on demand made in writing for its repayment by a creditor of such company.

Causes of industrial sickness

External causes Internal causes 1. Internal causes:
1.Power Cuts:
- lack of power electricity support - shortage in electricity

Contd
2.Erratic supply of inputs: - shortage of raw material - lack of transportation facility - high price 3. Demand & credit restraints: -no equal balance of demand and supply and lack of credit facility. - lack of credit facility - storage expanses - chance of out of fashion 4. Government policy. - change in government policy - lack of government support. - high authority to large unit

Contd
External causes
1.Fault at the planning & construction stage: - wrong location area - absence of market analysis. - unbalance capital structure. 2. Financial problem: - unable to repay payment. - lack of financial support from bank & institution

Contd
3. Defective plant & machinery - lack of technical & professional skill - lack of technology - in efficient in machine. - high maintance 4. Entrepreneurial incompetence - lack of knowledge of market - lack of efficient professional skill - lack of innovation

Contd
5. Management problem - inefficiency of management function - lack of expert opinion. 6. Labour problem: - lack of inefficient lab our - lack of coordination in work. - unsatisfied labour

Consequences of IS
1.Set back to a employment prospects. - lack of opportunity
- lack labour intensive - high unsatisfaction rate 2. Fear of industrial unrest - high unemployment rate - low productivity - unfavour of trade union

Contd
3.Wastage of resources - lack of infrastructure facilities - block of capital equipment 4.Adverse impact on related units - channel breakdown between industries 5.Adverse effect on investor & employment - low satisfaction of investor - negative effect on the same line new entrepreneur - effect on the growth rate of industry

Contd
6. Losses to banks & financial institution - low recovery rate of banks & institution
- loss image in the market
- lack of financial support for new industries

7.Loss of revenue to government - loss of income to government - loss of government benefit

Remedial Measures
1. Steps taken by banks. - giving adequate working capital when there is a shortage. - recovery of interest reduced rate - defining the special cell in the RBI - arrange the special committee of state level in the local branch for link between financial institution and government agency.

Contd
2. Policy framework of the government
- according the guideline that are lying on the october 1981 that monitor the sickness of industry . - swot analysis of industry - liberalization on sick industries

Contd
3.Consessions by government - giving high facilities to large industry who take over the small sector for revival - high liberalizations in terms of financial rather than intervention. - Introduce the scheme for sick industry 4. Steps for detecting sickness early - corrective action taken by the RBI

Contd
5. The industrial investment bank of India - set up the IRCI (industrial reconstruction
corporation of india.) - convert IRCI into IRBI in March 20 ,1985 - convert IRBI into IIBI in march 27, 1997

COMPANIES (SECOND AMENDMENT)ACT 2002

Definition of Sick Industrial Company As started earlier, Companies (Second Amendment) Act, 2002 changed the definition of sick industrial company stands considerably changed. According to the Companies (Second amendment) Act ,2002,sick industrial company means an industrial company which has (1) the accumulated losses in any financial year which are equal to 50 % or more of its average net worth during four year immediately preceding such financial year ;

NATIONAL COMPANY LAW TRIBUNAL

The Act was provides for the constitution of a National Company Law Tribunal. The function that are presently being handled by the Company Law Board (dispute resolution and compliance with certain provisions of the Companies Act 1956.
Members: NCLT shall consist of a President and such number of judicial and technical member not exceeding 62, to be appointed by the government.

National Company Law Appellate Tribunal

Appeal against order of tribunal will be with National Company Appellate Tribunal. Appeal has to be filled within 45 days from date of receipt of order. On receipt of an appeal, the Appellate Tribunal shall, after giving parties to the appeal, an opportunity of being heard, pass such order thereon as it thinks fit, confirming modifying or setting aside the order appealed against.

Reference to NCLT by Sick Company

Where an industrial company has become a sick industrial company, the Board of Directors of such company shall make a reference to the Tribunal and prepare a scheme for its revival and rehabilitation. The central government or the RBI or a State government or public finance institution can also make a reference in respect of a company which has become a sick company.

SICA Vs Companies (Amendment) Act, 2002

In the new atmosphere of liberalization and openness that has emerged during the last decade, there is a clear preference in favor of liquidation of sick industrial companies rather than rehabilitation. Some important changes in the new Act are as follow: 1. The definition of sick industrial company has been changed.

Contd
Now, if a company has accumulated losses exceeding 50% of its net worth during last four years or its fails to repay its debts to the creditors within a period of 9 months of the demand made by the letter , it will be classified as sick.

Contd
2.Under section 424A(1) of the amendment Act, when an industrial company falls sick, the Board of Directors of the company is required to make a reference to NCLT and submit a scheme of revival and rehabilitation. Earlier, under Section 15 of SICA, the company was required to submit a scheme for revival. It was the responsibility of bank/financial institution to the sick baby.

Contd
3. After receiving reference under Section 424(1), the Tribunal may pass an order as to whether a company in respect of which a reference has been made has become a sick industrial company and such an order will be final. Such order can passed without making enquiry. Earlier, under Section 16(1) of SICA, such order could be passed only after making enquiry.

Contd
4.Under SICA, BIFR could only recommended the winding up of the company whereas NCLT can directly order winding up. Moreover, NCLT will be the single forum for company replacing the existing three forum. 5. The entire focus of NCLT is expected to be on speeding up the process of liquidation of sick company rather than rehabilitation.