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INDUSTRIAL SICKNESS IN INDIA PROBLEMS AND SOLUTIONS
PREPARED BY : -- MOUMITA DEY

CLASS

: -- LLM IST YEAR (BUSINESS LAW)

UNDER GUIDANCE OF

: -- U.S. BENDALE

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SYNOPSYS:
1. ABSTRACT 2. IMPORTANCE OF RESEARCH 3. SCOPE OF RESEARCH 4. OBJECTIVES OF STUDY 5. HYPOTHESYS OF STUDY 6. RESEARCH METHODOLOGY 7. CHPTERISATION

i. CHAPTER – I - INDUSTRIAL SICKNESS--- DEFINITION, OBJECTIVES, CAUSES AND REMEDIES ii. CHAPTER – II - SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 iii. CHAPTER – III- BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) iv. CHAPTER – IV- COMPANIES (SECOND) AMENDMENT ACT, 2002 v. CHAPTER – V - INDUSTRIAL SICKNESS IN INDIA, DATA REGARDING IT, REHABILITATION AND SUGGESTIONS vi. CHAPTER – VI - INDUSTRIAL SICNESS IN STATE – INDUSTRIAL CONDITION OF WEST BENGAL

8. CONCLUSION AND SUGESSTIONS 9. REFERENCES 10. ACKNOWLEDGEMENT

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1. ABSTRACT

Present study attempts to understand and analyze the problem of sickness in industries from a sociological perspective. The problem of sickness in industrial units is essentially a sociological problem. An industrial enterprise is a social system functioning in a social environment consisting of various other social systems with whom it interacts in terms of specific role relationships. Accordingly, the problem of sickness may be viewed in terms of the role performance failure of the units concerned and the social entities in their environment. Analogously, the problem may be interpreted in terms of the mal-functioning role relationships based on the reciprocity of expectations amongst the interacting social systems. All organisations are set up with an objective to create value to the society. This necessitates organisations to generate revenues to support all its stakeholders. However, in the rat race to succeed, most organisations are unable to generate revenues for sustainable operations. It is obvious that organisations cannot survive without profits/surpluses and the inability to generate surpluses would lead to industrial sickness. Bringing such organisations back to health requires entrepreneurial strategies at two levels, namely, from the negative to the breakeven and from breakeven to the positive. Hence, the turnaround management is a doubly entrepreneurial act. The objective of this paper is to understand the strategies used in successful turnarounds and compare them with those of the failed ones and thereby help turnaround managers to increase their success rate so as to enhance the value of these organisations to society.

2. IMPORTANCE OF RESEARCH

Present research and study is to understand and analyze the problem of sickness in industrial sector specially in small scale industries. As we have earlier stated that the problem of sickness in industrial units is essentially a sociological problem. Industrial sickness is one of the most complex problems of the Indian economy. Inspite of the different measures taken by the Government the problem persists. The rise has remained unabated, even in the years after the passage of the Sick Industrial Companies Act (SICA) and the creation of the Board for Industrial and Financial Reconstruction (BIFR). The study reveals that sick units have not only lost their net worth, but they have also lost capital raised from sources other than ownership. The extent of accumulated losses of sick units in India, is about two times that of the net worth of the sick units. The study reveals the failure of the policies in controlling industrial sickness in India, and puts forward certain suggestions to revamp the policy framework so as to effectively tackle the problem.

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3. SCOPE OF RESEARCH

There are three good reasons to write a thesis on industrial sickness.

 Most importantly, it is a real problem in the Indian economic landscape.  Second, it is associated with heavy economic losses.

 Third, thus far, the problem has not aroused the interest of academic researchers in the measure it deserves.

This study aims at identifying and analyzing the factors responsible for sickness in the Indian industrial units specially the small scale sectors and also helping the government in formulating sick industrial policy to revive the sick units.

4. OBJECTIVES OF THE STUDY

Objectives are the ends that states specifically how goal be achieved. Every study must have an objective for which all the efforts have been done. Without objective no research can be conducted and no result can be obtained. On the basis of objective all the research process is followed. Objectives are the main aspect of every study. The objective of the study gives direction to go through the research problem. It guides the researcher and keeps him on track. The objectives of my research are as follows:--

i.

To analyze the various factors of industrial sickness and to find out the causes of sickness. To study the impact of industrial sickness, especially in small sector on industrial growth and also on society at large

ii.

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iii.

To analyze the impact of remedial measures, adopted by government, financial institutions and entrepreneurs on industrial growth.

iv.

To assess the findings of various studies on industrial sickness in relation to the findings of the present work.

v.

To study and analyze the problems being faced by sick entrepreneurs on causes of sickness especially non-availability of back credit, quality control, in-conductive industrial environment etc.

vi.

To find out the underlying factors differentiating the ‗sick‘ and ‗healthy‘ status of the units investigated in the study.

vii.

To understand the problem of sickness by analyzing the actual and normative role performance of the various social entities in the units social environment.

viii.

To bring out the salient issues underlying the role failure of the various social entities involved in the problem situation including the units concerned.

ix.

To derive a set of policy measures for dealing with the problems of sickness in small scale industry on the basis of the present study

x.

To examine the growth and working of small scale sector along with a description of the role played by the Central and State Governments in financial assistance.

xi.

To analyze the financial structure of small scale industries

xii.

To examine the impact of financial problems faced by sample units and the role played by financial agencies

xiii.

To bring out the need for proper support from the Government and to make the functioning of small scale industries effective.

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5. HYPOTHESES OF THE STUDY

The following hypotheses are proposed to be empirically tested i. Industrial sickness has caused due to economic slowdown, marketing competition and changed business environment.

ii.

Improper project planning, multiplication of units is similar line of production ,entry of unmotivated and inefficient entrepreneurs, lack of demand for products, scarcity of working capital and above all infrastructural bottlenecks are the main factors of industrial sickness

iii.

Sick industrial units suffer from tough competition from large industries as well as multinational companies in terms of marketing and procuring raw materials.

iv.

Sick industrial units are facing crunch for technological up gradation and utilization of installed capacity.

v.

Sick units are facing challenges from financial delay and financial support from govt sector.

vi.

Sick units are also facing problems due to withdrawal of support from government organizations in terms of purchase of goods and products, extending technical and marketing support and financial assistance.

vii.

the non sick units shows better production performance than the sick units on account of least cost over run and timely completion of the project; better capacity utilisation and uninterrupted production

viii.

the sick units of high location quotient industries are found to be more unviable and non sick units in these groups of industries are more vulnerable to sickness as compared to the sick and non sick units of low location quotient industries.

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6. RESEARCH METHODOLOGY

The present study is empirical one and quantitative in approach. This study is based on primary as well as secondary data. The empirical data have been collected for analyzing financial performance of small scale industries by conducting a survey by using an interview schedule. The primary data were used mainly for evaluating the financial problems of small scale industries. It was also thought proper that view perceptions of entrepreneurs, officials of financial institutions may be sought out through structured questionnaires to suggest the suitable policy measures. So, the researcher also interacted with the representatives of financial and banking institutions for in depth discussions. So that their observations may beconsidered for evolving the strategies of the revival of sick industrial units. Primary data have been collected through interview schedule.. The primary data has been discussed, interpreted and analyzed while critical appreciation of pertinent literature has been ensured in the report. The policy recommendations are based on analysis of research findings and critical review of pertinent literature.

The interview schedule has been structured .For identifying the variables to be used in the interview schedule; the researcher conducted a trial interview with small scale industrial entrepreneurs. A rough draft of the interview schedule was prepared and was circulated among fellow researchers for critical evaluation. The draft was then revised in the light of their comments. Their suggestions were incorporated and the final draft is prepared.

It has equally focused on qualitative methods of research. The secondary data are used to analyze the growth, performance of exports and the like of small scale industries at all India level as well as at state level. Secondary and published documented data has been collected through various sources and analyzed accordingly. Secondary data were also collected from published and unpublished sources. They were collected from books, journals, reports and published documents of District Industries Centre, Indian Overseas Bank, State Bank of India, Department of Statistics, Ministry of Small Scale Industries and Agro Rural Industries, Government of India, New Delhi.

To make the study more meaningful and policy oriented available literature and studies have been consulted and reviewed.

100 CHAPTER – III— BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION ( BIFR) 101 . CAUSES AND REMEDIES 9 . OBJECTIVES.Page |8 7. 2002 184 .288 CHAPTER – VI - INDUSTRIAL SICNESS IN STATE – INDUSTRIAL CONDITION OF WEST BENGAL 289 .352 .250 CHAPTER – V – INDUSTRIAL SICKNESS IN INDIA.183 CHAPTER – IV— COMPANIES (SECOND) AMENDMENT ACT. CHAPTERISATION CHAPTER CONTENTS PAGE NO CHAPTER – I-- INDUSTRIAL SICKNESS--. DATA REGARDING IT. REHABILITATION AND SUGGESTIONS 251 .DEFINITION.45 CHAPTER – II— SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 46 .

PRODUCTION MANAGEMENT v. EXTERNAL CAUSES i. 2. SECTOR WISE ANALYSIS OF CAUSE OF SICKNESS 8. EXTRANEOUS FACTORS 7. ADMINISTRATIVE MANAGEMENT ix. EFFECT OF SICKNESS 9. STEPS TAKEN BY GOVERNMENT C. PROJECT FORMULATION iv. MARKETING POLICIES iv. ROLE OF ENTREPRENEUR 10. DEALING WITH INDUSTRIAL SICKNESS . FINANCIAL MANAGEMENT viii. 4. PERSONAL ADMINISTRATION B. ROLE OF BANK AND OTHER FINANCIAL INSTITUTIONS E. IMPLEMENTATION iii. CAUSES OF INDUSTRIAL SICKNESS A. INTERNAL CAUSES i. REMEDIES A. ROLE OF PROFESSIONALS F. INTRODUCTION DEFINITION OF INDUSTRIAL SICKNESS CRITERIA FOR DEFINITION OF SICK UNITS/SYMPTOMS OF SICKNESS HISTORICAL BACKGROUND OF INDUSTRIAL SICKNESS A. GOVERNMENT POLICIES iii. OBJECTIVES. GOVERNMENT POLICIES D. PRE INDEPENDENCE PERIOD B. PLANNING AND MANAGEMENT CONSTRAINT ii. SOCIAL DIMENSION OF INDUSTRIAL SICKNESS 6. LABOUR MANAGEMENT vi. CAUSES AND REMEDIES 1. 3. POST INDEPENDENCE PERIOD 5. ROLE OF GOVERNMENT B. MARKETING MANAGEMENT vii.Page |9 CHAPTER I INDUSTRIAL SICKNESS DEFINITION. FINANCE CONSTRAINTS ii.

Jute. Remember. "The important thing is not being afraid to take a chance. Accordingly. Loss making industries. the first Five-Year Plan commenced shortly after Independence in 1950/51. this is unavoidable in any economy Sickness in simple terms means that a firm or an industry is systematically making losses and the accumulated losses outweigh its assets. and Textile small steel and engineering industries are being affected by this sickness problem. . A sick unit may be defined as one which does not fulfil the minimum standards of productivity and profitability due to internal shortcomings while other units in the industry are flourishing. Following Independence in 1947. OBJECTIVES. Fields Cookies Industrial sickness: Just like birth and growth. Jawaharlal Nehru. An industry flourishing today may face closure tomorrow while an industry languishing today may turn the corner and grow rapidly tomorrow. CAUSES AND REMEDIES 1. full employment. which. and it has been followed by a series of Five-Year Plans up to the very present. Sugar. sickness and death is an inevitable aspect of trade and industry. had great faith in the merits of a planned economy. would be most effective and efficient to realize the four long-term objectives of industrial growth. Fundamental to the criteria used by financial institutions and government agencies to identify sickness is the recurrence of cash loss. its first prime minister.DEFINATION.P a g e | 10 INDUSTRIAL SICKNESS--. It fails to generate internal surplus on a continuing basis and depends for its survival on frequent infusing external funds. he was persuaded. INTRODUCTION This chapter starts out with a thorough discussion of various concepts of industrial sickness. the reduction of inequality and the establishment of social justice. Industrial sickness especially in small-scale Industry has been always a demerit for the Indian economy. be the best at doing it." . Prevention is better than cure—this adage is particularly significant in the context of growing industrial sickness in the country. both in the private sector and public sector are contributing for the downfall of industrial economy. A sick unit is one in which the capacity utilization is 20% or less. India has made great efforts to foster industrialization with the aim of promoting economic development. the greatest failure is to not try.Debbie Fields. Founder of Mrs. Once you find something you love to do. because more and more industries like – cotton.

but does not include reserve out of re-valuation of assets. the wiping out of the entire net worth of a unit accompanied by at least two consecutive years of cash loss clearly signals extreme form of sickness which would in fact take the enterprise to the brink of closure. These definitions view sickness in terms of extreme deterioration in the financial health of the unit. though this stagewould certainly precede the stage of complete erosion of the net worth of the unit. Fail to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor of such company. while the term ‗free reserves‘ means all reserves credited out of the profitsand share premium account. 1993 defines ‗Net worth‘ as the sum of the paid-up capital and free reserves. According to SICA 1985 ---The sick industrial companies (Special provisions) Act. However. as amended in 1993 defines sick industrial company as an 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 exceeding its entire networth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year. Similarly. The criteria. as per section 23 of SICA of the accumulated losses of an industrial company as at the end of any financial year have resulted in erosion of 50% or more of peak net worth of immediately preceding four financial years is considered to be a potentially sick industrial company. in fact. severe cash losses with persistent defaults in institutional debt servicing also indicate fairly advanced stage of sickness on the part of the industrial unit. DEFINITION OF INDUSTRIAL SICKNESS According to RBI a sick unit is that which has incurred a cash loss for 1 year and is likely to continue incurring losses for the current year as well as in the following year and the unit has an imbalance in its financial structure. write back of depreciation provisions and reserves created out of amalgamations. when its accumulated losses are equal to or exceeding entire worth Section 3 (1) (ga) of the amendment act.P a g e | 11 2. 1985. delay the identification process by at least a couple of years or more . 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 2. the criteria do not warn sufficiently well in advance about the impending closure of a unit. an industrial company is a sick company. For instance. As per section 3(1) (o) of SICA. According to Companies Act 2002---sick industrial company means an industrial company which has 1.

charitable institutions and welfare organisations have got covered under the Act. Bakul H Dholakia is Professor of Economics at the Indian Institute of Management. However. universities. Thus. what is needed is a comprehensive set of empirically tested criteria which would serve as an early warning system. 3. manufacture or calling of employers and includes any calling. are also covered. cooperatives. Rajappa (1972 SCC 213 FLR 266 1978(2) SCR 213 1978(1) LLJ 349 AIR 1978 SC 548 (SC 7 member bench 5 v 2 judgment). this would require restructuring of existing systems and procedures adopted by the financial institutions. It was held that profit motive or a desire to generate income is not necessary. CRITERIA FOR DEFINITION OF SICK UNITS/SYMPTOMS OF SICKNESS Actual sickness:  Erosion of net worth by 50% or more  Units being closed for a total period of six months and more during the last year  Default in the payment of loan instalments According to Dholakia. service. Ahmedabad . educational institutions. trade. many hospitals. a very wide interpretation to the term 'industry' was given. handicraft or industrial occupation or avocation of workmen. . research institutes etc. the definition is very wide. undertaking. This is likely to help prevent industrial sickness.P a g e | 12 ‗Industry‘ under Industrial Disputes Act – The definition of ‗industry‘ is as follows – ‗Industry means any business. In Bangalore Water Supply & Sewerage Board v. clubs. Professions. [Section 2(j)]. employment. Any systematic activity organized by cooperation between employer and employees for the production and/or distribution of goods and services calculated to satisfy human wants and wishes is ‗industry‘. Abnormal fluctuations in a firm's relative position within the industry to which it belongs should be explicitly used to determine sickness at the incipient stage.. Thus.The scope is much wider than what is generally understood by the term ‗industry‘.

Change in accounting procedure with to view to window dressing. Delay in finalization of accounts. Continuous reduction of net profit to sales ratio. especially at senior levels.Continuous reduction in turnover.and deterioration in liquidity. will have to be used very cautiously with other identifiable symptoms to judge whether skipping dividends indicates sickness or represents a temporary downward slide in financial performance. This can be traced from the signals that get displayed by the sick units. Leading indicators of sickness: Just as diseases are identified by certain symptoms. imbalances in the financial structure. therefore.Approaching the banker for temporary over draft at frequent intervals.Continuous cash losses leading to erosion of tangible net worth. . Timely action is required for identification of sickness. revenue losses. industrial sickness can be identified by the following symptoms.P a g e | 13 The Reserve Bank of India identifies sick industrial units on the basis of a mix of criteria including continued cash losses. The signal may be in the form of financial distress starting with short term liquidity problems. This measure. operating losses and moving in the direction of over use of external credit until it reaches a stage where it is overburdened with debt and nor being able to generate sufficient funds to meet its obligations In case of large units whose shares are quoted in stock exchanges. the sickness will grow to the extent that the organization will find its natural death.Piling up of inventory. These symptoms act as leading indicators of sickness. a signal of sickness is sent when dividends are skipped and share price sharply declines. Short term borrowings at high interest rate. 1978). High turnover of personnel. it is likely to continue to incur cash losses for the current year as well as the following year and the unit has an imbalance in its financial structure such as current ratio of less than 1:1 and worsening debt equity ratio" (RBI. The ‗sundry debtors‘ as well as the ‗sundry creditors‘ keep growing and reaching a disproportionately high level. For this we need to analyze the symptoms which would help us identify the sickness of the unit.The existence of these signals and symptoms provides a ground for suspecting that the industrial unit concerned is prone to sickness. in the judgement of the Bank (RBI).Default in payment of interest on borrowings and default in repayment of term loan instalments. and if immediate remedial actions are not taken. "A unit may be considered sick if it has incurred cash losses for one year and.

P a g e | 14 .

labour unrest and social unrest. Also there were no proper implementation of any policy in regard to the efforts of the Government in the revival and rehabilitation of sick industries. PRE INDEPENDENCE PERIOD Before 1947. B. Only those industries survived who served the interests of the Britishers. The Government also took the initiative of taking over the management of sick industrial undertakings for a brief period and returning it back to the owners once the sickness is removed. . it was difficult for any trader to survive in the market on a long terms basis. POST INDEPENDENCE PERIOD After the Constitution came into force.P a g e | 15 4. The Government in its aim of preventing the growth of sickness was given support by various agencies such as RBI. the Government adopted strategies to takeover of the sick industrial units and restrict the problem if unemployment. There was dearth of private players in the market. Soon. HISTORICAL BACKGROUND OF INDUSTRIAL SICKNESS A. The development of producers was almost negligible and was inadequate to meet the demands of the market. The Government was prompted to go for rapid industrialization of basic and heavy industries to convert India from agricultural to industrial economy. any help was available from the money lenders. There was also minimal intervention of the Government in the promotion of the industries. the Indian economy was predominantly agricultural in nature. as envisaged in the Preamble and the Directive Principles of State Policy. In order to check the growth of the sick units. IDBI etc. This issue was further aggravated with the lack of any proper bank or financial institutions to finance the industrial projects. the Government realized that a large number of units are turning sick. As a result. they charged exorbitant rates of interest along with arbitrary terms and conditions. the primary aim was to convert India from a colonial country to a socialist welfare society. if at all. And. The market was unorganized because of the reluctant attitude of the Britishers and due to lack of proper communication facility as well as the shortage of power.

lay off without seeking court permission.. either born sick or acquiring sickness during growth. the workers are compelled to go through a process of "belt-tightening" and are called upon to make sacrificess in order to improve the viability and financial health of the enterprise. They can be classified as: . As a result of accumulating losses and liquidity constraints. the impact of industrial sickness on workers is outrageous. reduction in wages. These sacrifices can be in the form of exemption from wage awards existing as well as prospective. The general belief is that the incidence of sickness results from the changing economic factors and the external influence. CAUSES OF INDUSTRIAL SICKNESS: Prevention is better than cure‘ is the proverb that reflects the need for knowing the likely causes of industrial sickness so that one can plan to avoid the same. while others become sick due to a number of causes. The causes of sickness may vary from one unit to another. Just as human beings fall sick by two ways.retrenchment and lock out of units. modification of service conditions. an industry can either run into trouble even during the implementation stage itself or develop sickness during its lifetime .P a g e | 16 5. the Tiwari Committee in its report outlined the causes of sickness into several heads. The immediate fallout of sickness is default in payment of dues including those of workers. However. SOCIAL DIMENSION OF INDUSTRIAL SICKNESS The basic deficiency of such a system is that industrial sickness is treated as a financial problem where the concerns of labour are by and large ignored.Some industries are born sick. which tilt the economic viability. 6. non-payment of bonus. But the most common causes of sickness can be grouped under two heads – internal and external. postponement of annual increments. viz. sickness is thrust upon some. In India.

Wrong location of a unit. Overestimation of demand and wrong dividend policy. excessive overheads. lockouts. under estimation of financial requirements.marketing etc. c. change the product mix and other elements of marketing mix to suit the changing environment. outdated production process. Poor inventory management in respect of finished goods as well as inputs. Improper corporate planning of product mix.. .resistance to change . strikes.P a g e | 17 A. b. locational disadvantage. over-estimation of demand. INTERNAL CAUSES These are those factors which are within the internal control of the management. Economic Viability: High Cost of Inputs. acquisition of unproductive fixed assets.dispute in top management. managerial ineffectiveness. unduly large investment in fixed assets. which will only add to the cost of the product. Ineffective market policies may lead to piling up of inventory. Faults at the planning and construction stage--the balance will be distributed and turn them into sick units e. Faculty managerial decision in the field of production. marketing and personnel.lack of co ordination and control . Sickness arises because of the disorder of the following concerns: Mismanagement in various functional areas of a company like finance. Failure to modernise the productive apparatus. .We can say pertaining to the factors which are within the control of management. production. Technical feasibility-. etc. Poor labour-management relationship and associated low workers' morale and low productivity. PLANNING AND MANAGEMENT CONSTRAINT a. d. etc. uneconomic size of project. Unwarranted expansion and diversion of resources such as personal extravagances.Inadequate technical know-how. lack of integrity in top management. time and cost over-runs. Poor implementation of projects which may be due to improper planning or managerial inefficiency. This sickness arises due to internal disorder in the areas justified as following: i.

The cost provided for some of the elements of project-cost might have been underestimated.Any delay in release of working capital finance due to procedural formalities involved will harm the project heavily. water connection. These factors lead to cost-overrun which may delay the project implementation. The value of the property that the promoters offer as collateral security to the bank/financial institution may be short of the requirement. insist that the promoters shall bring in their capital contribution to the project upfront before release of loan. as the capital investment will be lying idle. Any delay in bringing the stipulated capital by the promoters will delay the drawal of loan. d. There may be delay in getting power connection.. say 25% of the loan amount shall be offered. The loan disbursement may be delayed if the promoters are not able to comply with major terms and conditions of the loan agreement. It is also likely that some elements which are essential might have been left out. there may be other impediments like legal hurdles for clear. use of alternate raw material. which will lead to delay in implementation.. the loan agreement. unencumbered title to the property etc. of late. like changes in production process. . The cost of different components of project-cost may increase due to price escalation. The promoters may not be in a position to bring in funds to the required extent in time. The institution that is to lend working capital loan may wish to see that the project comes through successfully and reaches a ready-to-start stage before committing sanction of working capital finance. without earning anyreturn. changes in technology etc. When more than one institution are involved in funding a project. f. approval from local bodies. For example. Or. ‗Rethinking‘ of the project during the course of implementation. e. which may postpone project implementation/commencement of production. The following are some of the problem areas in implementation stage. inter-alia. b. IMPLEMENTATION a.P a g e | 18 ii. approval from pollution control authorities etc. This is more so when term loan and working capital loan are provided by two different institutions. may hold up project implementation. c. may stipulate that collateral security to cover. In general. There is likelihood of the capital investment on the project having been fully made and the projectwaiting for sanction/release of working capital finance to commence commercial operations. there may be delay in tying up the financial arrangements with the different institutions. when the value of the property meets the requirement. Banks/Financial institutions.

―Think before you act‖—is the proverb that is worth practising. is not always a sound proof that the project will be a success.. entertainment and non-productive assets like guest houses. 150. 100. prima-facie present a rosy picture may have many hidden pitfalls. Project implementation: Delayed implementation gives a project a difficult start.. Cost-overrun has the ill effect of affecting the financial viability of the project since a project that is viable at a capital cost of say Rs. which in turn may delay project implementation. External factors play a major role in project formulation stage. .00 lakhs may prove to be unviable when the cost raises to. The present stage of and the future course of the external environment are to be carefully studied for their influence on the project. Any amount of time and efforts spent at this stage is worth it as any hasty decision made at this stage will be very costly. The problem of cost-overrun will get more compounded if the finance necessary to meet the increased cost can not be arranged in time. Unduly long time taken for project implementation results in timeoverrun which is invariably followed by costoverrun. over-optimistic decisions may result in choosing projects that may have inherent weaknesses. a prudent management can guard against adverse foreign currency movement by entering into forward contracts etc. The existence of a few players in the chosen field who are doing well. Over spending on travel. This is an external factor over which the management has no control. compound walls. Irrational. hasty. h. The existing players may have their own special advantages due to which they could have overcome the hurdles and pitfalls that are present in the project. may result in cost-overrun. staff quarters etc. Adverse foreign currency exchange rate fluctuations may affect projects involving imported plant and machinery and may result in cost-overrun. PROJECT FORMULATION: Most of sickness is attributed to ill-conceived projects. Any delay in arranging for the finance needed to meet the cost overrun will only further tend to increase the cost and this may land the project in trouble leading eventually to the death of the project and the project may not take off. iii. A project that may.00 lakhs due to cost-overrun. A thorough investigation of the project during the identification and formulation stage is the sinequa-non of any project proposal.P a g e | 19 g. say Rs. However. A project that has an inherent weakness is very unlikely to be a successful project.

machinery and supervision being good. Producing more quantity than can be sold.P a g e | 20 iv. Wrong selection of site which is related to production..     Selection of inappropriate product mix .. PRODUCTION MANAGEMENT This is another reason for the sickness which comes under external cause of sickness. import-export restrictions The major aspects of production that may lead to sickness are—  Increase in the cost of production The increase in cost of production may be due to external factors like increase in the cost of raw materials. or due to internal factors like improper choice of raw material/raw material-source. shortage of power. leading to accumulation of stock.   Quality of product not meeting the standards/customer expectation. increase in the cost of consumables. wrong choice of production process etc. etc. power. Wrong demand forecasting.  Decrease in the quantity of production--Decrease in quantity of production may be due to defects/under performance of plant and machinery. Advent of new technology: Inspite of the raw material. defects in production process etc. This arises due to shortage of raw material. fuel and high prices. the advent of new technology may bring in product-obsolescence andthe product may loose customer preference.  Defects in quality of products may be due to defects in raw material used. or due to unsatisfactoryperformance of machinery or due to ineffective supervision.

 Plant and machinery plant and machinery finally selected and installed by them turns out to be defective . LABOUR MANAGEMENT: Labour problem—lack of efficient labour.unsatisfied labour. vi. Defective plant and machinery—lack of technical and professional skill.lack of technology. inadequate mobilization of finance.Excessive high wage structure. lack of trained/skilled component personnel. Marketing functions include all functions necessary to satisfy the customers. MARKETING MANAGEMENT Marketing occupies an important position in the organization of any business unit. inefficient handling of labour problems which resulted in strikes lock outs.in efficient in machine. Financial problems right from the stage of planning and construction the stage of implementation and beyond turn them sick . Marketing includes all activities starting with .lack of co ordination in work.high maintenance  High wastage  Poor capacity utilization.P a g e | 21   Lack of standard research & development Cost over-runs resulting from delays in getting licences/sanctions etc.these units are bound to suffer losses and turn sick.inappropriate plant & machinery.. bad maintenance of Plant & Machinery. v. excessive manpower. The prime objective of marketing is the satisfaction of customer‘s needs.

wrong market research methods. Absence of correct costing and correct pricing system for the products Dependence on limited number of customers. Lack of knowledge of marketing techniques. weak market organization. Thus. Absence of product innovation and new product development. any organization that does not give due importance to marketing is bound to find its sales turnover taking a downward trend. it involves planning and producing to meet the customer needs and also servicing the customers after selling the product. Poor and inadequate distribution system. Failure to meet the agreed delivery schedules. lack of market feedback and market research. .P a g e | 22 the idea of producing a product to satisfy the needs of the consumers and ending with the satisfaction of the consumer even after the product is sold. poor sales realization. The problem areas may be summarized as under.             Failure to maximize the potential of existing products.   Introduction of better substitute products by competitors. Bad sales promotions. defective pricing policy. In the present day situation where buyer‘s market has come to stay almost for all products.

Lack of working capital or short supply of imported raw material and lack of demand. A bigger project needs a bigger investment and accordingly a higher promoter‘s contribution in absolute terms. It links and passes through all areas of a business unit. with the sole idea of implementing the project. The promoters might have chosen a project which is beyond their financial capacity. inadequate long-term debt component will also be detrimental since the project will either not take off due to the promoter‘s inability to raise the required capital or will be funded by high cost short term borrowings which is harmful. On the other hand. It is also an interesting finding where some units had expressed an external problem due to overfinancing by the banks. But many sick units suffered from the severe problem of delay in disbursement of loans by banks and other financial institutions. some units are not able to produce up to their capacity and turn sick. late realization of debts from sundry debtors. Delay in detecting early symptoms of sickness and delay in decision and action to rehabilitate the unit also affected the units at their troublesome days of sickness. since such projects will not be able to service the high interest charges. The problem areas may be summarized as under  Under-financing by banks and Over-financing by bank and Delay in disbursement of loans. This will put the liquidity position of the business in strain when the short term obligations become due for repayment. that also in time. Using short term funds for acquiring fixed assets is an area of concern. FINANCIAL MANAGEMENT: Finance is the lifeblood of business. invariably at higher interest rates with the hope of clearing the high cost borrowings once the project takes off (a hope that rarely comes through!). they often resort to borrowings.   Funding a project with a higher debt component than that it can safety bear is another reason for sickness.P a g e | 23 vii. This often happens due to over ambitious approach of entrepreneurs. is very important for the smooth functioning of an enterprise. If the promoters are not able to mobilize their contribution. lack of proper planning to pay   . Improper inventory management policy will lead to holding huge stock of finished products. Availability of finances.

absence of planning and budgeting Inappropriate utilization or diversion of funds. ADMINISTRATIVE MANAGEMENT   Administration difficulties and high rate of interest for borrowed funds. which will all have telling effects on the operation of a business unit. over-trading.              weak equity base. absence of costing & pricing. inefficient working capital management. deficiency of funds. . application of funds for unauthorized purposes.P a g e | 24 to creditors of raw nmaterials. Over centralization. liberal dividend policy.. Poor resource management and financial planning. lack of effective collection machinery viii. inadequate working capital. poor utilization of assets. etc.

Lack of feedback to management ( management information system). Excessive expenditure on R&D. lack of integrity in top management. Incompetent entrepreneur-unit set up by incompetent entrepreneur will turn sick Faculty managerial decision in the field of production. Lack of timely diversification. Delay in detection of early symptoms of sickness Delay in decision and action to rehabilitate the unit. bad labour relations. lack of behavioural approach causes dissatisfaction among the employees and workers. The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration. lack of coordination and control etc. PERSONAL ADMINISTRATION  The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area. Lack of adequate controls. Incompetent and dishonest management Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning. Dispute/difference of opinion among the promoters/directors. ix.       .P a g e | 25        Lack of professionalism. marketing etc.

5.   Sl. Lack of assigning equal importance to all areas of business. The result may be that the product will not be a commercial success though it may have technical excellence. It is generally observed that the main promoter takes more interest in the area of his specialisation and ignores other aspects of the business. For example. Internal causes of sickness Faulty project selection Marketing problems Financial problems Production problems Personnel problems Others No. 3. by their nature are more inclined to improving the technical aspects of the product. bad labour relations. Projects that solely depend upon the skills of a key promoter may find it difficult to sail through in the event of death or ill-health of the key person. No. 1. Lack of motivation and co-ordination. technocrat entrepreneurs. The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration.P a g e | 26     Poor industrial relations leading to labour unrest. 2. Lack of manpower planning. Of respondents 12 10 20 8 - Results in percentage 24 20 40 16 - Total 50 100 . lack of behavioural approach causes dissatisfaction among the employees and workers. 4.

chances of out of fashion Government policy—change in govt policy. storage expenses.. Power cut-lack of power electricity support and shortage in electricity Erratic supply of inputs---shortage of raw material. lack of govt support. fiscal duties. This arises due to credit restrains policy. EXTERNAL CAUSES These are those factors which are not within the internal control of the management. unfavorable investments. Government price controls.Another external cause for the sickness of SSIs is lack of finance. GOVERNMENT POLICIES Sometimes. fear of nationalization. delay in disbursement of loan by govt. This arises due to credit restrains policy. lack of transportation facility. Delayed in payment of bills by the govt.P a g e | 27 B. abrupt changes in Government policies related to import export industrial licensing taxation etc. fear of nationalization. high authority to large unit i. unfavorable investments.. procedural delays on the part of the . ii. Government itself becomes the villain of these unfortunate sick industries. It can be proved from the Table 3 that 58. FINANCE CONSTRAINTS The external cause for the sickness of SSIs is lack of finance.0 percent of the total sampled units suffered from redtapism by government officers (29 units). high price Demand and credit restraints—no equal balance of demand and supply and lack of credit facility.  Change in government policies  Delayed in payment of bills by the government departments  Red-tapism by government officials  Others.0 percent) as far as industrial sickness is concerned. No doubt. delay in disbursement of loan by govt. change in government policies was also a major factor (26.. departments also affected some of the sick units (8 percent).

changes in global marketing scenario. Sickness made by Government: Sl. Total The Government taking into consideration all the factors resulting into industrial sickness. The sickness arrives due to liberal licensing policies. No. licensing authorities. accordingly enacted. the Sick Industrial Companies (Special Provisions) Act. 1985 was. excessive tax policies by govt.departments 13 26 4 29 4 50 8 58 8 100 3 4 Red-tapism by government officials Others. . restrain of purchase by bulk purchasers. RBI. restrain of purchase by bulk purchasers. Of respondents Results in percentage 1 2 Change in government policies Delayed in payment of bills by the govt . and market recession The sickness arrives due to liberal licensing policies.P a g e | 28 financial/licensing/other controlling or regulating authorities (banks. iii. and market recession. accepted the recommendations of the Tiwari Committee with some modification. financial institutions. MARKETING POLICIES Marketing Constraints: The second cause for the sickness is related to marketing. MRTP Board). Government departments. Causes of sickness No. and thus. changes in global marketing scenario. excessive tax policies by govt.

Failure to achieve optimum capacity due to shortage of raw materials as a result of production set-backs in the supply industries. etc.P a g e | 29 iv. EXTRANEOUS FACTORS         Natural calamities political situation (domestic as well as international) War sympathetic strike early or late moonson multiplicity of labour unions Energy crisis arising out of power cuts or shortage of coal or oil. Changes in technology International pressures or circumstances. Some industrial unit depends on scarce raw material whose supply is erratic. Poor agricultural output because of natural reasons Changes in the import conditions Infrastructural problems like transport bottlenecks Credit squeeze Large number of industrial units is facing power cut problems time to time. Fault at the planning and construction stage—           . Recession in the market causes a steep decline in the demand resulting in unsold stocks and losses to industrial units.

lack of expert opinion   External problems Sl. Unbalance capital structure. No. lack of efficient professional skill. Management problem-inefficiency of management function.P a g e | 30       Wrong location area Absence of market analysis. chronic power shortage. transport bottlenecks.lack of innovation Infrastructural bottlenecks – Non-availability/irregular supply of critical raw materials or other inputs. Financial problem—unable to repay payment Lack of supportfrom bank and institution. Entrepreneurial incompetence—lack of knowledge of market. Of respondents 8 19 14 9 50 Results in percentage 16 38 28 18 100 . 1 2 3 4 5 6 External problems Raw-materials Power Marketing Labour Finance Others Total No.

80 23 29.95 44. Market constraints 4. (4) % (5) No. External Causes 371 315 300 216 79.93 42. Management Related Deficiencies (a) Managerial (b) Production (c) Financial (d) Marketing 2.17 11 14.51 1.07 24.06 52 52 53 35 66.09 38 33 28 28 48. (6) Total % (7) (1) A.33 67. . Raw Material Problems 3. Causes Private Sector No.40 36.84 238 43.72 42.87 423 367 353 251 77. ii) The percentages in column (3).05 25. Other Extraneous factors 169 202 113 39.10 54 9. .79 42 53.16 63.90 35.09 64. (5) and (7) are calculated with respect to the total number of cases in each case i.67 66.e.90 221 202 230 141 40. Cost-Overruns Project Planning & Implementation B.03 43. 469.49 280 51.88 257 54. Labour & Industrial Relations 3.31 35. (2) % (3) Joint Sector No. Internal Causes 1.02 36.87 Note: i) Number of companies are those which were affected by the particular clause. Government controls & policies 5.19 196 41.53 45.66 67.97 46.78 43 9. Infrastructural Constraints 183 2. 78 and 547 respectively.10 67.P a g e | 31 Sector-wise Analysis of Causes of Sickness S No.

Besides. . The continued operation of chronic loss making firms snatches markets from more efficient producers and acts as a drain on the financial system.  It leads to loss of substantial revenue to the Government and enhances its public expenditure. spells ruin to the family particularly when the treatment is prolonged and expensive. EFFECT OF SICKNESS A sick industrial unit is like a patient at home.  It leads to loss of production and productivity in the economy. Dead investment is a burden on both banks and budget and ultimately consumers have to pay the high cost.persistent nature of the industrial sickness. which is invested in sick units. Secondly industrial sickness is mainly the problem of 88% terminally sick units.in effect. Thirdly. Impact of sickness on economy is easy to guess. running into many thousands of crores.P a g e | 32 7.thus. is being wasted which a capital scare country like ours can ill-afford. This also increases the non-performing assets (NPAs) of banks and financial institutions.in addition to suffering from ailment himself causes inconvenience to others and often .especially when policies do not allow flexibility for exit and other forms of adjustment. Money locked up in sick units gives no returns and affects availability of resources to other viable units.besides adversely affecting the interest of people directly connected with it.is disguised unemployment. Unvialble units remain closed and employment in these units. In the first place sickness contributes to high cost economy. Finally industrial sickness worsens the problem of stringency of financial resources in the economy..not only tends to restrict new employment opportunities but also constrict technological innovation. the huge amount of capital. A patient .investment in which is completely dead.will affect the competetiveness of the economy at home and abroad.in turn.thus keeping the formal sector employment stagnant. A sick unit too will have serious repercussions on the economy as a whole.

atmosphere and leads to worker-management  It undermines the public confidence in the functioning of the organised sector in the country which in turn affects the overall investment climate of the economy.high unsatisfaction rate Fear of industrial unrest---high unemployment rate.unfavour of trade union Wastage of resources---lack of infrastructure facilities. The policies of financial and .block of capital equipment Adverse impact on related units—channel breakdown between industries Adverse effect on investor and employment ---low satisfaction of investor.P a g e | 33  It vitiates the industrial disputes. Set back to a employment prospects—lack of opportunity. etc. etc. New units come up through appropriate policies. REMEDIES A. ROLE OF GOVERNMENT In a developing country like India.lock-outs.etc.loss image in the market. The various tax relief and subsidies it provides its ownership or control of the institutions that finances organisations.negativeeffect on the same line entrepreneur.strikes.lack labour intensive. tax incentives.loss of govt. subsidies.lack of financial support for the new industries Loss of revenue to govt—loss of income to govt. and they also disappear or get sick like a simple magic. its enterprises related policies stemming from its overriding concern with industrial development. make it a major stakeholder even in minor enterprises. infrastructural facilities. Its actions often affect the health of whole industries.low productivity.effect on the growth rate of industry Losses to bank and financial institution---low recovery rate of bank and financial institutions. the Government is often a dominant stakeholder even in privately owned enterprises.       8.

The Government can play a crucial role by ensuring adequate supply of power. The possibilities of creating a fund for the purpose need to be exposed. transport and raw materials and taking care that its policies formulated to achieve certain social objectives do not affect the industrial units. accepted the recommendations of the Tiwari Committee with some modification. accordingly enacted. The financial institututions should jointly set up a group of professional directors to become ful time employees of theinstitution and who could be nominated on the board of directors the companies with doubtful management competence or integrity. and thus. C. The govt. The salient featurs of the policy are as follows.  . STEPS TAKEN BY GOVERNMENT The Government taking into consideration all the factors resulting into industrial sickness. region and industry followed by its far-reaching adverse socio-economic effects. B. Frequent changes in Government policies need to be avoided to reduce industrial sickness. 1985 was. the Government has been taking many steps and remedial measures in order to tackle this problem in India.P a g e | 34 infrastructural support provided or withheld by the government is a determinant of health and sickness of many an industrial unit. Similarly regional monitoring cells have to be formed with experienced and qualified staff to give counselling assistance to agencies financing small scale units.  Special cell on sick units in the RBI should be formed to monitor to the performance of sick units and to suggest corrective measures in regard to the rehabilitation of sick units. GOVERNMENT POLICIES Government policy on industrial sickness: In the light of the above consequences of sickness and its growing incidence by size. the Sick Industrial Companies (Special Provisions) Act. Announced its policy on industrial sickness on may 15.1978.

giving high facilities to large industry who takeover the small sector for revivalover the small sector for revival. It was announce don sept 23 1990. a reconstruction of the undertaking could also be done.   Sick units in the small sector are to be given special attention .P a g e | 35 In case the management is incompetent or it has indulged in malpractices . Etc. Many of them were taken over by the govt as they had fallen sick under private management. acquisition of shares by the govt.  The govt should set up a Screening Committee under the chairmanship of the secretary (industrial development) to make recommendations relating to the take over of the management of a sick undertaking.than intervention. Such reconstruction will include writing down the share values.. state financial corporations and commercial banks will devise a scheme for revival and rehabilitation of the sick units in small scale sector .the main thrust of the policy is to reduce the incidence of sickness in industry and also dishonest management. Another significant measure has been the enactment of the Sick Industrial Companies (Special Provisions) Act.high liberalizations in terms of financial rather than intervention.1985 (SICA) which is discussed in detail later.swot analysis of industry. conversion of loans to equity. the financial assistance will not be provided to it unit the management is changed.liberalization on sick industry Consessions by government giving high facilities to large industry who take. Policy frame work of the govt- According the guideline that are lying on the. besides th egovt.. Since the govt hasfailed to revive these units it is felt that they should be sold back to the private sector.liberalization on sick industries. the unit could be sold as a running concern or alternatively. that a decision has been taken to sell some of the public sector undertakings to the private sector.according the guideline that are lying on theoctober 1981 that monitor the sickness of october 1981 that monitor the sickness of industry .industry . And other purchasers of the products of small scale industry should be directed to settle these due on a priority basis.swot analysis of industry.high liberalizations in terms of financial rather . After take over of the management.constitution of a new board of directors. .

relatives etc.corrective action take The industrial investment bank of indiaThe The industrial investment bank of India Set up the IRCI (industrial reconstructionset up the IRCI (industrial reconstructioncorporation of india.1985.convert IRCI into IRBI in March 20 . the funds already invested in sick units can be realized if these units are revived. Steps for detecting sickness earlySteps for detecting sickness early corrective action taken by the RBI. the following steps gather immense importance:  Banks and other financial institutions must undertake a careful project appraisal before assisting an industrial unit.convert IRCI into IRBI in March 20 . banks and other institutions must play a significant role. In fact. then they may sink and have to be closed down. If they are not rehabilitated. .1985.   One or two staff members of the banks and other financial institutions must be always in charge of periodical inspection of the assisted units so as to ensure its efficiency and proper review of production schedules. financial transactions of their clients must be closely monitored by sending questions and information instead of just receiving periodical but out dated returns from them. Banks must supervise the assisted units relating to debit and credit balances.convert IRBI into IIBI   D. In these regards. stock of raw materials and finished goods. forwarding and b made to sister concerns.). ROLE OF BANK AND OTHER FINANCIAL INSTITUTIONS The steps to be taken to rehabilitate sick units are far more important than the establishment of units.P a g e | 36   -Introduce the scheme for sick industryIntroduce the scheme for sick industry. 1997.)Corporation of india. In this context. At the same time.convert IRBI into IIBI in march 27.

recovery of interest reduced rate.L. more particularly those which are likely to detect sickness.  Steps taken by banks    giving adequate working capital when there is a-shortage. Such lending should not be at the cost of financial prudence (Simha. the assisted firms needs to be suggested about its underlying problemsand should also be ensured that remedial measures are initiated.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 govt agency .P a g e | 37  Any sort of discrepancies in collecting information or from the unit should not be tolerated. banks and other financial institution must nominate directors in the industrial units.N.shortage. Banks needs to be extra careful when they have to provide large funds to neglect and priority sectors. Utmost care must be taken in financing stocks of raw-materials and finished goods which are often affected by sharp price fluctuations.   In case of overdrawing.  As a general rule. S.: 1978). The service of efficient financial analysts must be available to each bank branch at short notice.

ROLE OF PROFESSIONALS Professionals such as financial analysts. . But in a small state. In order to overcome such a problem. It sh uld be the joint efforts of accountants. other financial institutions.P a g e | 38 Problems relating to banks and other financial institutions: Sl. 1 2 3 4 Causes of sickness Under-financing by banks Over-financing by banks Delay in disbursement of loans Delay in detection of early symptoms of sickness No. Others. helps in preventing and revival of the sicks unit by closely monitoring the implementation of rehabilitation package. the state government should make a provision to establish consultancy cells in banks. engineers. project coordinators. This will help in smooth functioning of industrial units and at the same time. Total 9 50 18 100 E. Of respondents 8 4 19 Results in percentage 16 8 38 10 20 5 Delay in decision and action to rehabilitate the unit. District Industry Centres and other Government Departments. small entrepreneurs cannot bear the cost of such professionals. for revival of sick units. marketing personnels and production people to avoid sickness and even if so happens. accountants etc. No. has a big role to play in checking and signaling the industrial sickness through continuous study adopting different models for forecasting of sickness. Management Convergence consisting of professional in different fields of industrial operations.

ROLE OF ENTREPRENEUR To conclude. That the approved and clearances for finance and the assistance are available in time under simplified procedures and one windows service. That there is uninterrupted power supply for the industrial purpose. punishment must be awarded for delay. negligence.P a g e | 39 F. efficient and accountable and at the same time. mismanagement of mis-utilization of funds. if he understands and pays adequate attention to the deficiencies pointed out by the aspiring officials of the banks and other financial institutions. if he appoints only the efficient and required number of worker in time.    That there is no delay in clearance for importing capital goods and raw materials. It is the sole responsibility of the concerned entrepreneur to avert sickness in the unit set up by him. OTHER REMEDIES Beside these steps Major reasons for industrial sickness can be prevented if we ensure:   That the project is viable. This can be possible if the entrepreneur does his job properly while preparing his project work. if he implements his project within his estimated cost and as per time schedule G. That the action to modify the product mix is in time if there are changes in the marketdemand. That the project is implemented and commenced as per schedule.   . if he selects the required capital goods carefully. the role of the concerned entrepreneur is very important as far as to avoid industrial sickness. That the entrepreneurs are sincere.

At one stage. were among the sick units. the units became sick. Last. What is needed is a detailed assessment of the comp~ny's existing situation and future prospects covering corporate strategy. Fortunately. skill and competency. Some of the blue chip companies of today are sick units of yesteryear. there is effective systems and controls at all levels of operations. the operations of these units became unviable.P a g e | 40  That only the required number of manpower is recruited based on efficiency. There is unfortunately inadequate mobility of Managers in our country.   The following assistances and incentives will be very helpful in preventing the industrial sickness What steps should a company and all concerned with it Government. Also the other key posts such as Finance Director and Heads of other functions or division should be properly manned. management and bank should take to revive a sick undertaking. Due to rising costs. now better known as LG. Apollo Tyre. Take the case of Goldline. Tata Tea HMV etc. However. technology were not upgraded. But the Management did not lose heart. Well managed undertaking can even overcome and deal effectively with difficulties which are due to external factors such as poor demand for the industry's products. The old Jute mills and textile mills became sick because they were not modernized. revival is possible in a majority of cases. Piecemeal and adhoc solutions are rarely adequate. Therefore what a sick undertaking needs more than anything else or its revival is a good and stable management. An undertaking is ostensibly sick because it is short of working capital and systems have not kept pace with its growth. if timely action is taken and revival programme is implemented with sincerity and commitment . the undertaking should ensure that it has the full time chief executive. productivity. Investment. as mentioned in the beginning. but not the least. without attending to the underlying causes of sickness could be throwing money into a bottomless pit. Unfortunately managements of several undertaking think wrongly that once they get funds. profitability and finance. Therefore where there are inadequacies in managerial . markets. Eventually. That there are healthy and cordial labour relations. A comprehensive study of the undertaking problems and preparing a composite plan of action must be the starting point of the exercise. From . the undertaking can be revived. organisation. At one point of time everyone wrote off the company and but thanks to revival efforts of new management LG not only recovered from sickness but grew in a spectacular way. the long list of possible causes of sickness it will be apparent that thesingle most important cause of sickness is ineffective management. providing funds. In particular. therefore receiving funds alone will not help. labour relations. They revived them with a clear vision and suitable st(ategies.

at least in the short term. The comprehensive study discussed earlier should culminate in short term and long term cash projections and once they are reviewed and . An other important consideration which arises is how does Government maintain take control over management of undertaking which has been financed largely by it to which several concessions in the form of interest reduction.the actual management to carefully chosen professional managers who are both competent and independent. early action by all concerned is imperative. several agencies are involved in the revival exercise. interest. They devote more time te their regular duties and a very little time. Every day of delayed action means loss of contribution. increase in cash losses. Government and labour.P a g e | 41 talent attracting good people from outsid~ to a sick undertaking is difficult. Banks. Also the boards of directors and Government are found to pay scant attention ·to the manning of top management posts. the management (including the Board) of undertaking are perhaps even more to blame because they have often not prepared a comprehensive plan of action. However. The Board of Directors of Indian Public undertakings are amongst the most ineffective in this area. if at all. This is in many cases due to fact that they have part time ex-office Directors nominated by the State or Central Govt. Some financial institutions have worked towards building up a pool of senior Managers on their payroll who could be assigned to sick undertaking for limited periods of say I to 3 years. The banks being business institutions. as the case may be. The delays in obtaining funds from Banks and Financial institutions need particular mention because it is funds that the undertaking needs more than anything else. The need for an effective Board is particularly strong when the undertaking is in poor health . Some people may be attracted by the challenge which the sick units provide. conversion of debt into equity etc. direct involvement by the Government in the manage. A sick undertaking like a sick patient needs quick action to restore its health. Management is one area where a sick undertaking should not try to economise. Probably the best way to ensure control is through control over equity share holding. Once a detailed and comprehensive plan of action has been prepared and viability of the unit established. this is a problem which has to be faced. loss of credibility with suppliers and customers and lowering of staff morale. However. Central or State Govt. Financial institutions and labour unions.. Skilful financial management during sickness is important and there may be need for reconstruction of capital. This is easy to achieve. Board of Directors. Management. therefore do not know how precisely they are going to revive the undertaking and improve its ability to repay loans and keep up with interest payments. As mentioned above. To get them all to act fast in the interests of the undertaking is not an easy task but it is nevertheless essential to prevent the situation from deteriorating. ment of undertaking is not desirable mainly because they do not have capabilities in industrial management. on policy matters of the undertakings. Managements. constitution of the board and leaving . Banks. When an undertaking becomes sick. In practice one finds numerous delays which can be attributed to principal shareholders.

However. in particular one could be more systematic about it and act faster. Postponement of maturity of debt Conversion of debt into equity. DEALING WITH INDUSTRIAL SICKNESS: During the past few years. It is a continuous process and painful reality of rapid industrialization which starts right from the very beginning of industrialization. Change in the nature of claim or obligation such as from secured to unsecured. It has become all pervading. actual performance would need to be carefully monitored. recently. if viability can not be clearly established. Concession by the Government in the form of reduction or waiving of indirect taxes. But its recent growth and magnitude. in an extreme case. not a very recent phenomenon and certainly not peculiar only to India. is how to safeguard properly and utilize effectively the sunken capital of the public and the private institutions in sick units. now. Reduction in rates of interest.88 . however. a sick undertaking should be allowed to die peacefully 9. It is.P a g e | 42 accepted. sickness in industries has become a very thought provoking and obvious offshoot of the modern jet age industrial society. While sickness among companies in private and public sector has become wide spread. Needless to add that the academic and professional institutes could play useful role in this regard. A Financial reorganisation may involve some sacrifices by the creditors and shareholders of the undertaking which can be in several forms:      Reduction of the par value of shares. electricity dues etc. touching all countries. regretfully it is stated that enough research has not been done in developing schemes of financial reconstruction in the Indian environment. is so rapid that it has assumed unmanageable proportions in India in general and in Manipur in particular. The question. A great deal more is required to be done to revive sick undertaking than is being done today.

restructuring of the workforce imposes severe hardships on labour. in the event of a slow down in growth of industrial output and contraction of job opportunities. The unions and the management should share their experience regarding workers' participation in management. However. The need of the hour is to evolve new methods of restructuring without tears. slowdown in exports and adoption of labour saving devices resulting in "jobless growth". Therefore. Wage increases are given to permanent labour whose wages do not reflect their productivity and whose number cannot be reduced. This is true in the present Indian context. Any revised proposal for the voluntary retirement scheme or introduction of a separation scheme should be viewed in the light of the absence of a social security net for workers. . One of the useful ways of dealing with the problem of industrial sickness is to provide the pre-requisites for growth of production and productivity. One of the important reasons why the process of restructuring is prolonged and industrial sickness is allowed to continue is because closure of establishments entails retrenchment of workers. There is a viewpoint that the mismatch between wage and productivity in the organised sector is one of the important reasons for industrial sickness. Labour in excess of requirements results in reduced productivity.P a g e | 43 Management Convergence It is nothing but a choice between opportunity cost for nursing sick units and closure of a large number of sick units thereby resulting into social lost of the economy and a dampening effect on the new ventures in Manipur. With legal restrictions on adjusting manpower and given rigidity of wages. adoption of new management practices as a means of avoidance of wastage and leakage of resources and optimal harnessing of scarce resources. features of innovative incentive schemes which have helped the worker to identify himself/herself with the establishment and share its goals and visions. If the workers have to be separated. loss of business. In an economy where output is growing along with employment the process of restructuring is less painful. Industrial sickness is itself a fallout of policy restrictions on companies in various matters including that of restructuring its labour force. the cost of separation should be balanced against the cost of retaining the workers without much addition to production. These efforts will surely lead to increase production and productivity which is the final solution to industrial sickness. adequate measures should be taken to increase production and productivity so that there would not only be an expansion of employment opportunities but the real wages would also grow in a sustained manner along with industrial growth. lack of competitive edge. investment in HRD. specially when they voluntarily opt out of employment or are statutorily retrenched. The basic problem of evolving an adequate safety net for workers undergoing transition due to economic restructuring is the funding of such a scheme. efforts to take workers into confidence about the restructuring plans and their results. employers are forced into labour saving and capital intensive technology.

45) 1913.18) 954.82) 2655.44) 1184.85) 439 (1.67) 788.65 (26.87) 1728.67 (18.29) 1984 81647 (99.04 (100) 4422.60) 463 (0.62) 597 (0.15) 1982 26973 (98.82 (18. crores) Outstanding Bank Credit SSI Non-SSI Total (5) (6) (7) 292.66) 1172 (0.44 (72.P a g e | 44 Trends in Industrial Sickness during 1980-1991 (Amount in Rs..55) 2243.85 (39.64 (73.71) 422 (1.29 (81.39 (73.34) 1988 217436 (99.77) 1542.22 (26.48) 3025.88 (60.80 (19.07 (100) 539.80) 1453.69 (100) 5005.24) .83 (65. (1) 1980 SSI (2) 22325 (98.40 (81.11 (100) 2122.76) 22714 (100) 22782 (100) 27412 (100) 64851 (100) 82160 (100) 98487 (100) 129376 (100) 159283 (100) 218608 (100) 187860 (100) 1981 22360 (98.62 (100) 2900.30 (27.52 (24.45) 4257.53) 1057 (0.40) 1983 64388 (99.44 (63.46) 1989 186441 (99.56) 3238.31 (34.13) 393.12 (75.50 (100) 1775.33) 2112.25 (36.23) 2680.55) 626.61) 689 (0.70 (80.74 (100) 3610.73 (100) 6501.39) 1986 128687 (99.86 (100) 4222.71) 513 (0.29) Number of Units Non-SSI Total (3) (4) 389 (1.38) 1985 97890 (99.19) 321.14 (100) Year .49) 1525.51) 1232.54) 1419 (0.52) 1979.47) 1987 158226 (99.

P a g e | 45 1990 225324 (99.14 (100) 7897. (2) Figures for the years 1989 and 1990 refer to the position at the end of September of the corresponding year. the ever increasing incidence of industrial sickness may threaten the whole socio. Otherwise. the same disease is definitely bound to spread to the whole industrial sector.57 (64.65) 7345. In a state like Manipur where resources are very scarce.55) 2792.04 (35.45) 5105.27 (64.87 (35. (3) Figures for the year 1991 refer to the position at the end of March 1991. The following suggestions are made to prevent and avoid industrial sickness in Manipur. .61 (100) 1991 221472 (99. Report on Currency and Finance. various issues.35) 4734.66) 226791 (100) 22293 (100) 2610. it has to be said that a strong determination is needed for dealing with the disease of industrial sickness. Note: (1) Figures for the years 1980 to 1988 refer to the position at the end of June of the corresponding years.35) 1467 (0. every effort should be made for its maximum utilization and the question of resources being kept idle and unproductive should not be tolerated. Otherwise. SUGGESSTIONS: At the very outset.economic setup of the state in particular and the country in general.65) 146 (0. (4) SSI stands for Small Scale Industries. 10.34) Source: Reserve Bank of India.

OMKAR GOSWAMI COMMITEE REPORT 15. POTENTIALLY SICK UNIT 7. STATEMENT OF OBJECTS AND REASONS 4. GENISIS OF SICA. SICK INDUSTRIAL UNIT 6. DRAWBACKS OF SICA a) POOR ENFORCEMENT MECHANISM b) MISUSE OF PROTECTION AGAINST RECOVERY PROCEEDINGS c) LACK OF EXTRA TERRITORIAL JURISDICTION PARADIGM OF NON OBSTANTE CLAUSE IN SICA 13. CONCLUSION . SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) REPEAL ACT.P a g e | 46 CHAPTER II SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 SYNOPSYS 1. IMPORTANT PROVISIONS OF SICA 11. CASE STUDY (7) 19. JUSTICE ERADI COMMITTEE REPORT ON INSOLVENCY 16. INTRODUCTION 2. IMPORTANCE OF SICA IN INDUSTRIAL SICKNESS 17. APPLICABILITY 5. DOUBLE WINDOW SYSTEM: 14. PROCEDURE OF THE BOARD AND THE APPELLATE AUTHORITY 12. SALIENT FEATURES OF THE ACT 8. CRITERIA TO FALL UNDER THE PERVIEW OF SICA 10.2003 18. 1985 9. OBJECTIVES OF THE ACT 3.

a Committee of Experts under the Chairmanship of Shri T. the Sick Industrial Companies (Special Provisions) Act. one can not afford to do so as it will lead to substantial national block capital to go waste and create unemployment of those already employed when additional employment is a crying need of the hour.1987 SICA was further amended in 1991 to bring government companies under its purview and again in 1993 certain changes were brought out in the act for the determination of industrial sickness. 2. In the wake of sickness in the country‘s industrial climate prevailing in the eighties. The Act came into force with effect from May 15. idle investments in sick units will become productive and by closure. Therefore looking after all these repercussions the Legislature has been instrumental in enacting laws. the . in short.P a g e | 47 1. we can say that the main objective of SICA is to determine sickness. It was expected that by revival. But in developing Countries like India. Even not so fit or unfit industries may have to be rendered a helping hand raise and stand on their own to avoid wastage or total loss of funds and other resources already invested therein. It is also present in the advanced Countries but there it is considered prudent to shut down the units if they are sick. the Government of India set up in 1981. OBJECTIVES OF THE ACT The main objective of SICA is to determine sickness and expedite the revival of potentially viable units or closure of unviable units (unit here in refers to a Sick Industrial Company). Based on the recommendations of the Committee. Hence. the Government of India enacted a special legislation namely. 1985 (1 of 1986) commonly known as the SICA (hereinafter referred as SICA).INTRODUCTION The problem of Industrial sickness is nothing peculiar to our country or any developing Country.Tiwari to examine the legal and other difficulties faced by banks and financial institution in rehabilitation of sick industries and recommend suitable remedies including changes required in existing laws therefore. expedite the revival of potentially viable units and effect closure of unviable units.

To evaluate the techno-economic viability of sick industrial companies with a view to either to rehabilitate them. To stop continued drain of public and private resources for the overall economy of the country. In the case of Testeels Limited & Arvindbhai N. Such incidental. emphasises thefollowing points:  The SICA had been enacted in the public interest to deal with the problems of industrial sickness with regard to the crucial sectors where public money is lockedup. it was held that SICA had been enacted to safeguard the economy of the country and protect the viable sick units. The Sick Industrial Companies (Special Provisions) Act. The measures are mainly: a) legal b) financial restructuring c) managerial. if the public interest so demanded and their rehabilitation was possible. To protect employment as far as possible. 2. 1. remedial and other measure which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above. or to close them down. The proper management by change in or take over of the management of the company.P a g e | 48 locked up investments in unviable units would get released for productive use elsewhere. the speedy determination by a body of experts of the preventive. The supreme court has very explicitly explained the objective of this legislation in the case of Navnit R. ameliorative. if continuing them would be impossible. Kamani (1989) stating that the legislation had been enated with the end in view to: Afford maximum protection of employment       . The amalgamation of the sick industrial company. Talti vs. 3. The objectives of this Act (SICA) as incorporated in its preamble. The sale or lease of a part or whole of the sick industrial company. 1985 (hereinafter called the Act) was enacted with a view to securing the timely detection of sick and potential sick companies owning industrial undertakings. Radhaben Ranchhodlal Charitable Trust & Testeels Limited.

it would be imperative to revive and rehabilitate the such potentially viable sick industrial companies as quickly as possible. It has been recognised that in order to fully utilize the productive industrial assets. . And locking up of investible funds of bnks and the financial institutions are of serious concern to the govt. It is aimed at reviving and rehabilitating sick industries. It has been the experience that the existing industrial arrangements and procedures for rvival and rehabilitation of potentially viable sick industrial companies are both inadequate and time consuming. A need has. had been enacted to safeguard the economy of the nation and to protect viable sick units. in public interest. It would also be equally imperative to salvage the productive assets and realize the amounts due to the banks and financial institutions. a legislation to provide for timely detection of sickness in industrial companies and for expeditions determination by a body of experts of the preventive. to the extent possible rom the non viable sick industrial companies through liquidation of those companies. 3. ameliorative. such as loss of production . The concern of the govt is accentuated by the alarming increase in the incidence of sickness in industrial companies. therefore been felt to anact.P a g e | 49  Optimize the use of the funds   Salvaging the production assets Realising the amounts due to the banks and  To replace the existing time consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts. remedial and other measures that would need to be adopted with respect to such companiesand for enforcement of the measures considered appropriate with utmost practicable dispatch. A multiplicity of laws and agencies makes the adoption of a co ordinate approach for dealing with sick industrial companies difficult. loss of revenue to the central and state govt. STATEMENT OF OBJECTS AND REASONS The ill-effect of sickness in industrial companies. loss of employment. afford maximum protection of employment and optimize the use of funds of the banks and financial institutions. Industrial companies (special provisions)act. And society at large.

. Central Government had amended Companies Act through the Companies (second amendment) Act 2002 inserting part VI A comprising of sections 424A to 424L dealing with revival and rehabilitation of Sick Industrial Companies. Parts IB and IC of the Act may be made operational by making suitable amendments. 2002 was the constitution of the National Company Appellate Tribunal. Act was also amended through this Act . Sick Industrial Companies (special provisions) Repeal Act. as indicated above. 1956 (iii) it should have 50 or more workers on any day of the 12 months precedin g the end of the financial year with reference to which sickness is claimed. (iv) it should have a factory license. Supreme court has answered this issue in partly positive and partly negative Supreme Court has uphold the decision of High Court that the creation of National Company Law Tribunal and National Company Law Appellate Tribunal and vesting in them. its paid up capital plus its free reserves (ii) the company should have completed five years after incorporation under the Companies Act. 2003 was enacted to repeal Sick Industrial Companies (special provisions) Act. 1985. However. R. (IDR Act) except the industries relating to ships and other vessels drawn by power and. in addition to what the Union Government has already agreed in pursuance of the impugned order of the High Court.3 As long as the tribunal is not constituted. 1951.APPLICABILITY SICA applies to companies both in public and private sectors owning industrial undertakings:(a) pertaining to industries specified in the First Schedule to the Industries (Development and Regulation) Act.e. are not unconstitutional. 1985. the constitutionality of the tribunal challenged in various courts and recently in the case of Union of India v. Supreme Court has also said that Parts 1B and 1C of the Act as presently structured are unconstitutional for the reasons stated in the preceding para. (c) The criteria to determine sickness in an industrial company are (i) the accumulated losses of the company to be equal to or more than its net worth i.P a g e | 50 4. the powers and jurisdiction exercised by the High Court in regard to company law matters.2 The main issue is not whether judicial functions can be transferred from courts to Tribunals. the Board for the Industrial and financial Reconstruction as well as Appellate Authority for Industrial and financial reconstruction continues to function in dealing with Sick Industrial Companies SICA. Subsequently. Main object of Second Amendment Act. The issue is whether judicial functions can be transferred to Tribunals manned by persons who are not suitable or qualified or competent to discharge such judicial powers or whose independence is suspect. (b) Not being "small scale industrial undertakings or ancillary industrial undertakings" as defined in Section 3(j) of the IDR Act. Gandhi 1has held that the issues with regard to the constitution of the Tribunal and the areas of their jurisdiction need to be given fresh look and the matter deserves to be heard by constitution Bench. The matter has been decided by the Supreme Court upholding the validity of the NCLT. However.

e. it should have a factory licence.e.SICK INDUSTRIAL UNIT Sick industrial unit is defined as a unit or a company (having been in existence for not less than five years) which is found at the end of any financial year to have incurred accumulated losses equal to or exceeding its entire net worth. The net worth is calculated as sum total of paid-up capital and free reserves of a company less the provisions and expenses.P a g e | 51 inserting two provisos in Section 15 which restrain certain companies from making reference to BIFR and in certain cases empower creditors to move against a company whose reference to BIFR and in certain cases empowers creditors to move against company whose reference is already registered with BIFR. its paid-up capital plus its free reserves the company should have completed five years after incorporation under the Companies Act. find SICA to be the biggest obstacle on their road map to recovery of dues. The existing legal framework of corporate insolvency faces several follies. 195   it should have 50 or more workers on any day of the 12 months preceding the end of the financial year with reference to which sickness is claimed. which may be rectified once the proposed amendments are notified in the Official Gazette. criteria to determine sickness in an industrial company are :–  the accumulated losses of the company to be equal to or more than its net worth.. The institution of BIFR has hardly satisfied the call for revival and rehabilitation of sick industrial undertakings and SICA has proved to be a complete failure. Accordingly. The lenders i. i. the banks and financial institutions.   . as may be prescribed. 5.

it has accumulated losses equal to or exceeding 50 per cent of its average net worth in the immediately preceding four financial years and has failed to repay debts to its creditor(s) in three consecutive quarters on demand made in writing for such repayment. Establishment of board consisting of experts in various relevant fields with powers to enquire into and determine the incidence of sickness in industrial companies and devise suitable remedial measures through appropriate schemes or other proposals and for proper implementation thereof.SALIENT FEATURES OF THE ACT Application of the legislation to the industries specified in the First Schedule to the Industries(Development and regulation) Act. which may however be brought within the ambit of the legislation in due course.scheduled bank or public financial institution having an interest in an industrial company is satisfied that the industrial company has become sick. Identification of sickness in industrial company. with the initial exception of the scheduled industry relating to ships and other vessels drawn by power. 7.POTENTIALLY SICK UNIT An industrial unit is also regarded as potentially sick or weak unit if at the end of any financial year. . For hearing appeals against the orders of the board.it may make a reference to the Board. where the central Government or the Resserve Bank is satisfied that an industrial company has become sick. 1951. etc. registered for not less than seven years. or more of the net worth of an industrial company is being laid to the board of directors of such company. likewise if any state government . on the basis of the symptomatic indices of cash losses for two consecutive financial years and accumulated loses equalling or exceeding the net worth of the company as at the end of the second financial year. The onus of reporting sickness and impending sickness at the stage of erosion of 50%.P a g e | 52 6. Senior High Court judges and secretariesn to the govtof india . Constitution of an Appelate Authority consisting of persons who are or have been Supreme Court Judges. it may also make a reference to the Board.

9. 1951. telecommunication. 1985 (SICA henceforth) came     . CRITERIA TO FALL UNDER THE PERVIEW OF SICA  A company should be engaged in any scheduled industry (i. Tiwari Committee was appointed to suggest a comprehensive special legislation designed to deal with the problem of sickness laying down its basic objectives and parameters. Ray committee was appointed. In 1981. The Sick Industrial Companies (Special Provisions) Act. remedies necessary for revival of sick Units. transportation. 1985 Industrial sickness had started right from the pre-Independence days.P a g e | 53 8. A study group. came to be known as Tandon Committee was appointed by RBI in 1975. Government had earlier tried to counter the sickness with some ad-hoc measures. Also small scale industrial units and Ancillary units are kept outside the purview of the Act. The committee submitted its report to the Govt. In 1976.e any industry specified in First Schedule to Industries (Development and Regulation) Act. textiles but not financial services and software technology. GENISIS OF SICA. RBI monitored the industrial sickness. in September 1983 and suggested the following:    Need for a special legislation Need for setting up of exclusive quasi-judicial body.N. chemicals. Scheduled industries include metallurgical industries. H. Criteria of ‗sickness‘ – Such company should have at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Government companies having State or Central Government share holdings of 51% or more are kept outside the purview of the Act. Nationalisation of Banks and certain other measures provided some temporary relief. Thus the SICA came into existence in 1985 and BIFR started functioning from 1987.

The law applies to both public and private companies which have been registered for at least five years. section 17. Upon inquiry once the BIFR comes to the conclusion that the referrer is a sick Industrial company. and the operating agency. then an operating agency is required to prepare a scheme ordinarily within a period of 90 days. if it so desires. if it is. If the BIFR passes an order under Section 17(3). published in daily newspapers as considered necessary by the BIFR it (section 18 (3)(u)). sub-sections (2) and (3)). In addition. it can appoint an operating agency to formulate a scheme for revival of the company (reference. 50% or more of the company‘s peak net worth during the immediately preceding four financial years gets eroded. the Board for Industrial and Financial Reconstruction (BIFR / Board) is empowered to make enquiry to examine the sickness status of the company. Once a reference is filed. potential sickness is reached when at the end of a given financial year of a company. the scheme prepared by the operating agency can also provide for various measures as delineated in clauses (a) to (m) of sub-section (2) of Section 18. It is mandatory for the Board of Directors of the sick company to file reference under Section 15 of SICA on erosion of entire net worth of the company. Once such a scheme is prepared by an operating agency it is required to be examined by the BIFR. employ at least 50 workers and do not belong to the small scale or ancillary sector. not so or it is of the opinion that it is expedient in public interest to adopt all or any of the measures provided in section 18 of the SICA. to appoint one or more persons as a special director(s). amalgamation is proposed in the scheme as a measure of revival. to the sick industrial company. 10. then such a draft scheme is also sent to any other company which is concerned with the amalgamation. IMPORTANT PROVISIONS OF SICA Under the provisions of section 23 of SICA. Any such company is declared sick if its accumulated losses exceed its net worth position. The Board is empowered. The BIFR thereafter is required to send the scheme (which at that point of time is only a draft scheme) with modifications if it so chooses.P a g e | 54 into force in 1987. Such a scheme can provide for measures which are necessarily broad and wide as contained in clauses (a) to (f) of sub-section (1) or section 18. The BIFR has been conferred the power of reviewing a sanctioned scheme under sub-section (5) . the Board has to take a view as to whether it is practicable for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time on its own or. In order to invite suggestion and objections the BIPR is required to get such a draft scheme in brief. In the event.

Once the scheme becomes operable or any of its provisions become operative. SICA provides for obtaining their consent to the draft scheme where the Scheme provides for financial assistance by way of loans and advances. the State Government. Section 22A — empowers the BIFR to issue necessary direction to the sick industrial company to desist from disposing of its assets during preparation or consideration of the Scheme under section 18 and during commencement of the proceedings for winding up before the concerned High Court. of SICA provides for bar against institution. U/s (12) of Section 18 the BIFR has been given the power to periodically manage the implementation of the sanctioned scheme. forms an opinion than it is not possible for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations.such other company. the transferee company. The power of removing difficulties vis-à-vis a sanctioned is conferred on the BIFR u/s 18(9) provided such an order or direction is not inconsistent with the provisions of the sanctioned scheme. or employees of the said companies. 1976. 1973 and the Urban Land (Ceiling & Regulations) Act. once a scheme gets sanctioned then it is presumed that all requirements of the scheme relating to reconstruction or agreement or any other measures have been complied with. creditors. of legal proceedings of the kind referred to in the said section except with the consent of the BIFR or the AAIFR as the case may be. guarantors. In order to provide a protective umbrella to a sick industrial company section 22.. Once the process under sub-section (2) of section 19 is over. the BIFR can recommend its winding up to the concerned High Court. However. though this recommendation can be made only after hearing all concerned. Section 32 of SICA provides that the provisions of the scheme formed under the SICA.e. If for any reason the BIFR.P a g e | 55 of section 18. guarantees or relief and concessions or calls upon them to make sacrifices in relation to financial assistance already granted by such entitles [sections 19(1) and (2)]. It may be pointed out that insofar as certain concerned entities such as the Central Government. . shall override all other laws except the Foreign Exchange Regulations Act. the scheme becomes binding on all concerned. i. Any party aggrieved by an order of the BIFR may file an appeal u/s 25 before the Appellate Authority of Industrial & Financial Reconstruction (AAIFR). it binds the sick industrial company. the sanctioned scheme. U/s 18(10) the BIFR is empowered to direct a specified Operating Agency to implement the sanctioned scheme in consonance with the terms and conditions contained therein and in relation to such a sick industrial company. the Banks or even Public Financial Institutions or State Level Institutions or any institutions or authority. after making an inquiry under section 16 and after considering all relevant facts and circumstances. as also the shareholders. or as the case may be . and if already instituted suspension. A certified copy of the sanctioned scheme issued by the officer of the BIFR can be admitted as evidence in all legal proceedings.

or (vi) Scheduled banks.(i) The Central Government. (v) State level institutions. (ii) a public financial institution or a State level institution or a scheduled bank. It is open to the BIFR to continue to monitor the implementation of the unimplemented part of the sanctioned scheme till it is satisfied that operations of the sick industrial company have long term sustainability. unless it had. Such a reference to the board may be made by:. BIFR would make an inquiry as it may deem fit for determining whether any industrial company had become sick. (iii) State Governments. (ii) The Reserve Bank of India. Constitution of two quasi-judicial bodies – BIFR and AAIFR and their Benches. the Board of Directors must have sufficient reasons to form the opinion that the company had become sick. under the following conditions:If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR). the said scheme would have the force of law notwithstanding anything inconsistent therewith contained in any other law We may also note that the mere fact that the net worth has become positive does not provide an automatic exit route from the proceedings before the BIFR. BIFR was set up as an apex board to tackle industrial sickness and was entrusted with the work of taking appropriate measures for revival and rehabilitation of potentially sick undertakings and for liquidation of non-viable companies. interest in such a company.P a g e | 56 In view of the aforesaid provisions there can hardly be any doubt that once a scheme is formulated after a reference is made through the process of Sections 17 & 18 of the SICA. However. by reason of any financial assistance or obligation rendered by it or undertaken by it. AAIFR was constituted for hearing the appeals against the orders of the BIFR. While. The appointment of a special . It provided for the constitution of two quasi-judicial bodies. The Board may order any operating agency to enquire into the matter and complete the inquiry as expeditiously as possible. If the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company. (iv) Public financial institutions. that is. Such reference was to be made within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company had become sick. such a reference shall not be made in respect of any industrial company by :. or On receiving such information (reference) with respect to a sick company or upon its own knowledge as to the financial condition of a company. For filing the reference.(i) the Government of any State. it may appoint one or more persons as special director(s) of the company for safeguarding the financial and other interests of the company. unless all or any of the industrial undertakings (belonging to such a company) were situated in that State.

give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. Any special director so appointed shall :. If the Board is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up. If the Board decides that it is not practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures in relation to the said company. done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company. (iv) not be liable to be prosecuted under any law for anything. it shall. The proper management of the sick industrial company by change in or take over of the management of the company. it shall. on the basis of the opinion of the Board. 1956 or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company.(i) hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board. (ii) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto. direct any operating agency specified in the order to prepare a scheme providing for such measures in relation to that company. order winding-up of the sick industrial company in accordance with the provisions of the Companies . as soon as may be. If after making an inquiry. it may.P a g e | 57 director shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act. (iii) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement. consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above. it may record and forward its opinion to the concerned High Court. by order in writing. The amalgamation of the sick industrial company with any other company (transferee company). The measures may include:The financial reconstruction of the sick industrial company. Such incidental. The High Court shall. or any other company with the sick industrial company (transferee company). the Board is satisfied that the company has become sick. after considering all the relevant facts and circumstances of the case. ameliorative and remedial measures as may be appropriate. Such other preventive. The sale or lease of a part or whole of the sick industrial company. by order in writing and subject to such restrictions or conditions as may be specified in the order. may take either of the following decisions:If the Board decides that it is practicable.

the Appellate Authority. the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts.P a g e | 58 Act. obligations and liabilities accruing or arising there under before the said date. assurances of property. whosoever violates its provisions or any scheme or any order of the Board or of the Appellate Authority. 1956. as the case may be. distress or the like against any of the properties of the industrial company shall be made. except with the consent of the Board or. to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order. an inquiry is pending. PROCEDURE OF THE BOARD AND THE APPELLATE AUTHORITY    Filing of references u/s 15 and criteria of sickness. standing orders or other instruments in force. or advance granted to the industrial company shall lie or be proceeded with further. or any scheme referred is under preparation or consideration or a sanctioned scheme is under implementation. privileges. No court shall take cognizance of any offence mentioned except on a complaint in writing of the secretary or any such other officer of the Board or the Appellate Authority or any such officer of an operating agency as may be authorised in this behalf by the Board or the Appellate Authority. awards. no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans. However. Also. shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board. Appointment of Special Directors and OAs u/s 16(4) and 17(3). agreements. . which may be extended by one year at a time so that the total period shall not exceed seven years in the aggregate. then no proceedings for the winding-up of the industrial company or for execution. such declaration shall not be made for a period exceeding two years. Under the Act. Also with respect to the above conditions. shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine. shall remain suspended or that all or any of the rights. Provision of enquiry u/s 16. Where in respect of an industrial company. settlements. 11.

Provision for monitoring of schemes u/s 18(12) Rehabilitation by giving financial assistance u/s 19. Provision for seeking information and giving information – Central Govt.. 22(3).1976.P a g e | 59         Preparation of sanctioned scheme under section 17(2). SICA has overriding provisions u/s 32 over other laws except the provisions of FERA. 23(a). RBI. Power to seek assistance of MMs & DMs u/s 29. The misuse of the said forum in making an entry by manipulating must be curbed by . Provisions for dealing with potential sickness u/s 23.DRAWBACKS OF SICA Following are the flaws in the present framework regarding sick industrial companies. Winding up of sick industrial companies u/s 20. Protection to safeguard the interests of the sick companies u/s 22(1). Penalty u/s 33 for violation of the Act    12. a) POOR ENFORCEMENT MECHANISM The mechanism for its implementation is so poor that violations take place fearlessly leaving no fear for law. 23(b). 1973 and the ULCRA. 22(2). 17(3) & 18(4).FIs State institutions and sick companies and in case of amalgamation other companies. Provision in case of misfeasance u/s 24.

b) MISUSE OF PROTECTION AGAINST RECOVERY PROCEEDINGS Under SICA. However. an automatic stay operates against all kind of recovery and distress proceedings against all creditors once the reference filed by the company is registered. sometimes by manipulating their accounts to reflect net worth erosion and are then able to attract immunity against the recovery action by the creditors and this benefit is then attempted to be perpetuated. 1956 for setting up of a National Company Law . The provisions for suspension of legal proceedings are misused and perpetuated. its Indian business will be treated as a separate matter and will not be automatically affected unless an application is filed before an insolvency Court for winding up of its branches in India. 2002 amended Article 323B of the Constitution of India and provisions of Part VII of the Companies Act. The recommendations of the Eradi Committee have been incorporated into the Companies (Amendment) Act. Therefore. The companies are able to enter easily into the reference.P a g e | 60 strict penal consequences for such misuse. this aspect and solution to this problem has to be found out in the proposed legislation. a fresh reference is filed with respect to accounts for the next year and the cycle goes on endlessly. nor do they recognize the jurisdiction of foreign courts in respect of branches of foreign banks operating in India. Erring debtors have misused SICA to seek protection and moratorium from recovery proceedings. c) LACK OF EXTRA TERRITORIAL JURISDICTION PARADIGM OF NON OBSTANTE CLAUSE IN SICA Insolvency laws do not have any extra-territorial jurisdiction. If the reference is rejected.6 This problem arises due to the fact that unscrupulous promoters enter into the process of rehabilitation by manipulating sickness. which should be demonstrably used to ensure that no entity attempts to misuse these provisions. The Companies (Amendment) Act. 2002 and the Sick Industrial Companies (Special Provisions) Repeal Act. This is the principal drawback of the existing legislation as this has led to BIFR becoming a haven for defaulting companies. Registration of reference is dependent upon the erosion of net worth and this can be achieved by accounting manipulations. take undue benefits arising out of delay in decision making of BIFR. if a foreign company is taken into liquidation outside India. 2002 to mend these defects in the existing laws and the end result being tribunalisation of justice. There is no fear of reprisal or punitive action against the companies indulging in this malpractice.

This will radically change the orientation of Indian law and make it suitable for dealing with the challenges arising from globalizations and increasing integration of Indian economy with the world economy. 13. Pharmaceutical Products of India Ltd. The Act repealed SICA and abolished Company Law Board.P a g e | 61 Tribunal (NCLT) and its Appellate Tribunal. where proceedings were pending before the appellate authority for Industrial and Financial Reconstruction (AAIFR) in relation to PPIL. v. are not conducive to fair and efficient administration of cross-border insolvencies. At present the Government is considering the adoption of UNCITRAL Model Law on CrossBorder Insolvency to meet the demands of globalizations of economy and to deal with international insolvency. based on Indian situation. should be suitably incorporated. and hinder maximizations of the value of those assets. this aspect and solution to this problem has to be found out in the proposed legislation. the misuse of the said forum in making an entry by manipulating/feigning sickness must be curbed by strict penal consequences for such misuse. 1956. 1985 as follows :The Supreme Court in Tata Motors Ltd. national insolvency laws have by and large not kept pace with the trend. impede the protection of the assets of the insolvent debtor against dissipation.8 Though tribunalisation of justice is now recognized trends. However. which should be demonstrably used to ensure that no entity attempts to misuse these provisions. But India‘s experience with Tribunals have nothing cheer. However. They have largely unsuccessful to serve the purpose with which they are set up. which hamper the rescue of financially troubled businesses."10 While drafting the substantive and procedural rules of bankruptcy. NCLT would be burdened with workload of enormous magnitude and in the process would be likely to lose focus on revival and rehabilitation of sick entities. it made a reference before BIFR. BIFR after . PARADIGM OF NON OBSTANTE CLAUSE IN SICA Overriding effect of the Sick Industrial Companies (Special Provisions) Act. international standards for both national and cross-border insolvency should be taken into consideration which. Lastly. PPIL had huge outstanding payable to Tata Motors and in view of its inability to pay the dues.9 "The increasing incidence of cross-border insolvencies reflects the continuing global expansion of trade and investment. This frequently results in inadequate and inharmonious legal approaches.11 considered the question as to whether the Company Court can sanction a Scheme of Arrangement in relation to Pharmaceutical Products of India Ltd. and they are often ill equipped to deal with cases of a cross-border nature. (PPIL) under Sections 391-394 of the Companies Act.

After examining the scheme of the two enactments the Supreme Court held that BIFR had the power to suspend an arbitral award. 1985 (SICA) is a special statute and a complete code in itself. which are specifically excluded in Section 32 of the Act. Modi Rubber Ltd.P a g e | 62 considering various schemes of revival of PPIL came to the conclusion that the Company should be wound up. against the sanctioning of the Scheme. Industry Facilitation Council a similar judgment was passed in regard to an award passed under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act. One of the issues which arose in this case was whether BIFR could have suspended the operation of the award under Section 22(3) of SICA in view of the non obstante provision in the Arbitration and Conciliation Act. has a non obstante provision by which judicial authorities could not interfere in a matter which is the subject-matter of an arbitration agreement. SICA therefore overrides all other legislations. v. In this case. In Jay Engg. . SICA however has become a tool which companies use to escape and stall payment of liabilities. 1996. 1996. 2003. Works Ltd. In view of the misuse of SICA and to plug loopholes which were present in SICA Parliament enacted way back in 2003 the Sick Industrial Companies (Special Provisions) Repeal Act. This law has however not been notified till date and SICA continues to operate. the Company Court cannot sanction schemes during the pendency of proceedings before AAIFR/BIFR. 1973 and the Urban Land (Ceiling and Regulation) Act. With the exception of the Foreign Exchange Regulation Act. recommends winding up of the Company after arriving at the conclusion that Company cannot be revived. The Supreme Court in Tata Motors case therefore held that since the approval of schemes prepared by the operating Agency for revival and rehabilitation of the sick industrial company is within the domain of BIFR. followed an earlier judgment of the Supreme Court in NGEF Ltd. The jurisdiction of the Company Court would arise only when BIFR or AAIFR. 1996 would prevail or SICA. v. Chandra Developers (P) Ltd. The Supreme Court in an appeal filed by Tata Motors inter alia. During the pendency of proceedings before AAIFR. a company against which an arbitral award was passed made a reference to BIFR. v. 1993 which are later enactments cannot escape the reach of SICA. An appeal was preferred to AAIFR which pending consideration of the appeal stayed the order of BIFR. This Scheme was approved by the Company Court. In Morgan Securities and Credit (P) Ltd. SICA also has provisions which override all other laws except the little legislation mentioned in the Act itself.13 the Supreme Court considered the issue as to whether the Arbitration and Conciliation Act. 1976. PPIL also filed a Scheme of Arrangement between some of its creditors and PPIL before the Company Court. Section 5 of the Arbitration and Conciliation Act. 1993 which also had a non obstante provision. wherein it was held that the Sick Industrial Companies (Special Provisions) Act. Even legislations such as the Arbitration and Conciliation Act. 1996 and the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act. It was also held in Chandra Developers that no concurrent jurisdiction can be exercised by the Company Court and BIFR/AAIFR as this can lead to chaos.

A sick company‘s own reference to BIFR should be voluntary. getting SICA outside FERA will encourage foreign investors to takeover potentially viable sick companies and. financial institutions. not being a winding up authority under SICA and only being a recommendatory body. They can be outlined as follows: the definition as per SICA are backward looking and based on the historical book value of a firm‘s assets.P a g e | 63 14. and the workers. but also as a threat to force the pace of decision making and consensus among various parties.OMKAR GOSWAMI COMMITEE REPORT It seems the problem of industrial sickness is a far fetching one. when directs for the winding up of the non-viable sick companies. and encourage them to renege on their obligations to banks. the government. lessen the administrative burden. not its future earning potential. Barriers to restructuring help inefficient capitalists maintain their stranglehold over the assets of a company. This Committee believes that the barriers to industrial and corporate restructuring serve no economic goal. hence. the BIFR process is very time consuming because of the fact that it needs consensus at all stages.15 It suggested certain problems of SICA.DOUBLE WINDOW SYSTEM One of the major defects during the tenure of SICA was the lengthy procedure that has to be adopted at the instances of winding up. The BIFR. then the entire cumbersome procedure as laid down takes place under the supervision of High Court and the entire procedure ending up in more than a decade in most of the cases. . if nothing else. Making the reference voluntary would reduce the number of cases that get registered with BIFR and. not its current realizable market value. it is essential for BIFR to use the winding up provisions of section 20(4) of SICA more frequently – not only to expedite the sale of economically unviable firms. not mandatory. raise the market price and bid value of the poorly utilized industrial assets The RBI should closely examine the Revised Irregular System (RIS) and compare it with its own health code classification. 15.

. The Committee completed its work and submitted its report to the Central Government in the year 2000.P a g e | 64 16. The power to consider rehabilitation and revival of companies – a mandate presently entrusted to BIFR/AAFIR under SICA . it appointed Justice V Balakrishana Eradi to suggest remedial measures in this regard. 2001 were introduced in the Parliament of India.B. 1956. 1985 and will restructure the Companies Act. the Government of India set up a High Level Committee headed by Justice V. The object behind the introduction the bill is to avoid the multiplicity of litigation before various court/quasijudicial bodies and the reduction of entire process which at present takes a long time.JUSTICE ERADI COMMITTEE REPORT ON INSOLVENCY It was long felt that the enacted of the SICA was a failure. labour and shareholders. the Companies (Amendment) Bill. The Bills. In the year 1999. 1956. So what the Government did was. creditors. be amended to include the provisions for setting up of a National Tribunal which will have. 2001 and the Sick Industrial Companies (Special Provisions) Repeal Bill. In August 2001. In view of above recommendations Article 323B16of the Constitution should be amended to set up National Tribunal. The jurisdiction and power relating to winding up of companies presently vested in the High Courts. 1956 be amended accordingly. 1956 in a big way leading to the new regime of tackling corporate rescue and insolvency procedures in India with a view to creating confidence in the minds of investors.- The jurisdiction and power presently exercised by Company Law Board under the Companies Act. a superannuated Judge of Supreme Court of India for remodeling the existing laws relating to insolvency and winding up of companies and bringing them in time with the international practices in this field. Balakrishna Eradi. SICA should be repealed and the Companies Act. The Committee has recommended that the provisions of Part VIA of the Companies Act. if passed in their present form will bring the curtains down on the Sick Industrial Companies (Special Provisions) Act.

This definition did not initially cover government companies. Since then all industrial companies whose peak net worth in the immediately preceding five financial years has been eroded by 50 per cent are required to report themselves to BIFR. and 3. and (3) an Operating Agency. The AAIFR was also set up for hearing appeals against the orders of BIFR. It has been registered for not less than 7 years. The Act was to be applied to companies registered under the Companies Act. Government companies are since brought under the purview of the Act consequent to the policy changes during the postJuly 1991 period. BIFR was set up in 1987. The provisions of the Act were sought to be implemented through a three-tier system consisting of: (1) BIFR. 1956 owning medium and large undertakings pertaining to Schedule-I industries under the IDRA (with exception to shipping) which have either become sick or potentially sick. In accordance with the provisions of SICA. . 2. IMPORTANCE OF SICA IN INDUSTRIAL SICKNESS SICA was considered to be a major step for detecting sickness at early stages and to suggest remedial measures for revival of potentially viable sick units. At the end of any financial year its accumulated losses equal to or exceed its entire net worth. For purposes of the Act a company is considered to be sick if it meets the following criteria: 1.P a g e | 65 17. shipping companies and small scale industrial units and ancillary units. Any of the public financial institutions and banks as specified in the Act can be appointed as operating agency by BIFR to make enquiry and formulate a scheme for revival/rehabilitation of sick companies. (2) Appellate Authority for Industrial and Financial Reconstruction (AAIFR). It has suffered a cash loss in such financial year and the immediately preceding financial year.

Under it. this dream got materialized in 2003 but still the NCLT working is not been notified.1985 (SICA) was repealed and replaced by Sick Industrial Companies (Special Provisions) Repeal Act.P a g e | 66 18.SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) REPEAL ACT. Indian Government was unsatisfied with the working of BIFR after so many committee recommended for abolishing SICA. 1985. Sick Industrial Companies (Special Provisions) Act. the Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) were dissolved and replaced by National Company Law Tribunal (NCLT) and National Law Appellate Tribunal (NCLAT) respectively . By this Act the BIFR and AAIFR stands dissolved.2003 This Act repeals the working of Sick Industries Company (special provision) Act. It aimed not only to combat industrial sickness but also to reduce the same by ensuring that companies do not view declaration of sickness as an escapist route from legal provisions after the failure of the project or similar other reasons and thereby gain access to various benefits or concessions from financial institutions. The new Act diluted some of the provisions of SICA and plugged certain loopholes.2003.

of a sum of Rs. The decree also mentions regarding several undertakings by . Pravin Diwan instructed by Kanga and Co. the first of which shall be paid on or before June 30. for a reduced amount of Rs. defendant No. gave an undertaking to this court to create the mortgage as agreed. a company incorporated under the Companies Act. . 1997. For the respondents. It was contemplated that before the mortgage is created the plaintiff's advocates will have to be satisfied as to defendant No. Under the very consent decree Hotel Emerald Private Limited. H. TIPNIS J. It provided for payment. 1956..P a g e | 67 19. M. P.. 278 of 1995 against the (1) Madalsa International Ltd. The decree also provided that the decree shall not be executed and shall be marked as satisfied on the defendants jointly and severally paying the decretal amount as mentioned under clause (2) of the said decree on admission. (2) Deepak Bhandari. 1996. for recovery of a large amount of more than Rs. and each subsequent instalment on or before the last day of each succeeding month so that the entire balance decretal amount shall be paid on or before March 31. Hotel Emerald Private Limited. IN THE BOMBAY HIGH COURT S. 1997. created a mortgage in favour of the plaintiffs to secure the dues under the decree. AND OTHERS v. and (3) Hotel Emerald Pvt. Sidhwa instructed by Mehta and Girdharilal for the appellants. 278 of 1995.The Central Bank of India filed a suit being Suit No. Defendant No. JUDGMENT The judgement of the court was delivered by V. Ltd. Appeal No. 3's marketable title to the said property and the property being free from encumbrances. a company incorporated under the Companies Act. Doctor and Ms. J.34. CASE STUDY CASE STUDY – 1 2000-(099)-COMPCAS -0153 -BOM MADALSA INTERNATIONAL LTD. 3. 426 of 1997 in Chamber Summons No.692. Ultimately the parties reached a settlement and a decree on admission was passed on April 16. 50 lakhs.94. 3. 5 crores. 1996. 1956. CENTRAL BANK OF INDIA. 428 of 1997 in Suit No. decided on December 11/12. 75 lakhs within two months from the date of execution of the terms and the balance was to be paid in nine monthly instalments each for a minimum amount of Rs. 1.

1997. Submissions were made before the learned judge and authorities were cited on the interpretation of section 22 and as to whether the guarantors are also protected under the provisions of the said section. 1 to 3 for creating the mortgages in respect of the property mentioned therein and also make out a marketable title to the properties so agreed to be mortgaged." After the decree was passed. The terms. the Court Receiver. and the decree cannot be executed against their estate without obtaining permission of the Board for Industrial and Financial Reconstruction. forcibly if necessary and to sell the same in execution by public auction or private treaty and to hand over the net sale proceeds and/or realisation thereof to the plaintiffs after deducting his cost. also contemplated sale of properties described in exhibits A and B by sale in execution in the event of defendants Nos. 2 and 3 are guarantors. 1985. A-5. Before the learned judge it was contended that defendant No. 428 of 1997 praying that the execution of the aforesaid decree be stayed against all the defendants and in particular against defendants Nos. to take forcible possession of the properties of which he was appointed receiver. does not amount to an inquiry and as such no impediment is created . D-7 and D-8 to the plaint and the properties described in annexures A and B hereto without any further orders from this Hon'ble Court with full power to take possession of the said securities. i.P a g e | 68 defendants Nos. charges and expenses. and since defendants Nos.e. Thereafter. Clause 8 which is relevant is as under: "In the event of the defendants committing any default in the payment of the instalments as specified in clause 2 above and/or breach of any other terms hereof. 1 to 3 committing any default in payment of any instalment as provided in clause (2) of the decree or in case of breach of any other terms and conditions of the decree. 1985 (for short "the SICA 1985"). inter alia.. the defendants took out Chamber Summons No. 1 has filed a reference to the Board for Industrial and Financial Reconstruction (for short "the BIFR") on March 19. High Court Bombay shall forthwith stand appointed as receiver in respect of the stocks of goods and book debts described in exhibits A-4. In the event of default it was provided that the plaintiff shall be at liberty to forthwith execute the decree and claim the entire decretal amount. . the guarantors cannot plead that the proceedings against them have to be suspended. The plaintiffs have contended that under the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act. A-7. 2 and 3. absolutely no payment was made and as such the terms of the decree were breached by the defendants and the plaintiff moved the receiver to take steps as were contemplated under clause (8) of the decree. they are also entitled to protection under section 22 (2) of the Sick Industrial Companies (Special Provisions) Act. 1985. The second submission on behalf of the plaintiffs was that mere filing of the reference under the Sick Industrial Companies (Special Provisions) Act.

The learned judge also referred to the observations of another learned single judge of this court and ultimately came to the conclusion that no inquiry could be said to be pending under section 16 of the Sick Industrial Companies (Special Provisions) Act. [1998] 1 Bom CR 232. Mr. [1998] 93 Comp Cas 6. 1985. the question which is required to be considered is as to whether under the provisions ofsection 22 of the Sick Industrial Companies (Special Provisions) Act. 1997. in the facts and circumstances as obtainable on the date of the order of the learned judge the order impugned herein cannot be faulted. 1985. referring in detail to the various sections of the said Act as also decisions of the Andhra Pradesh High Court in Sponge Iron India Ltd. learned counsel for the appellants. 1997. dismissed the chamber summons. 1985. [1990] 68 Comp Cas 201. before the appellate forum under section 25 of the Sick Industrial Companies (Special Provisions) Act. Therefore in this appeal on the basis of the aforesaid developments.P a g e | 69 by the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act. v. The learned judge elaborately considered the scheme of the Sick Industrial Companies (Special Provisions) Act. It is on this ground the learned judge by his judgment and order dated April 11.. [1991] Bank J 204 (AP). read out the provisions of section 22 and contended that the word "suit" mentioned in the amended portion of the section must include execution proceedings as well. v. In view of the said finding the learned judge felt it unnecessary to go into the question whether the expression "suit" occurring in section 22 which has been added by amendment in the year 1993. 1997. includes execution proceedings or not. Neelima Steels Ltd. We have heard. [1998] 1 BC 456. AIR 1988 All 170. learned counsel for the respondents. Mr. He further submitted that the suit or proceedings are suspended not only as against the industrial company but also such proceedings cannot be . cannot be said to be attracted in the facts and circumstances of the case. [1997] VILJ 10. Diwan. in Real Value Appliances Ltd. 1985 have become operative. section 22 of the Sick Industrial Companies (Special Provisions) Act. [1991] 72 Comp Cas 146 and the Allahabad High Court in Industrial Finance Corporation of India v. Doctor. However. learned counsel for the appellants and Mr. It was an agreed position before us that in view of the Division Bench decision of this court dated August 8. therefore. learned counsel appearing for the appellants contended that although the reference filed by appellant No. and. 1985. [1990] 67 Comp Cas 412 and observed that the learned judge was in agreement with the view of the Calcutta High Court and was unable to subscribe to the view of the Andhra Pradesh High Court. Doctor. Doctor. the chamber summons for stay of execution is required to be allowed.Vardhaman Spinning and General Mills Ltd. the Calcutta High Court in Bengal Lamps Ltd. Mr. v. 1985. the original plaintiffs. Maharashtra Steels Ltd. as contended by the defendants. 1 was rejected by the Board for Industrial and Financial Reconstruction the appeal has been filed on September 15. Furmanite Nicco Ltd. Aggrieved by this order the original defendants have preferred this appeal.

and the term 'suit' appearing in the procedure prescribed for original courts is. Lord Coke defines a suit to be 'actio nihil aliud est quam jus prosequend in judico qunod licui debetur' meaning an action is nothing else that the right of pursuing in a court of justice. At places it has been used in its wider sense as including an appeal also. Doctor relied upon the following extracts on pages 2336 and 2358 from Venkataramaiya's Law Lexicon. it means. The modes of proceedings may be various depending upon the different stages in the litigation. to a court of law or Tribunal for redress. 1883. second edition. in particular. mean that the Legislature has always used the term 'suit' in the same context. that is.C. The term 'suit' has sometimes been interpreted as not including an appeal but at the same time it has also been at places interpreted to include an appeal which is regarded as a continuation of the suit.e. In support of his submission that the word "suit" in the section must include execution. In this behalf he emphasised the following words in the amended portion of the section. The meaning to be given to the term 'suit' should depend on the context in which the term is used in the Civil Procedure Code.. ―Mr.The last stage of a suit whereby possession is obtained or anything recovered by a judgment.C. But this does not however. "or of any guarantee in respect of any loans or advance granted to the industrial company". court of appeal. Special procedure has been provided for appeals.which allows immediate execution in ordinary cases. In its generic sense. r 17. Law Lexicon at page 529. The dictionary meanings of the word are as comprehensive as to take any request of any person. Order XLII. The term 'suit' in its comprehensive sense may be treated as applying to any original proceedings in a court of justice by which a party pursues the remedy which the law grants him. Doctor next relied upon Wharton's Law Lexicon 14th edition and especially the following extract appearing at page 387 thereof: "Execution.P a g e | 70 continued without the consent of the Board even as against the guarantors.‖ . therefore. proceedings in the original court. taken as not including an appeal. and is regulated by R. 1982. Broadly' a 'suit' is a proceeding in a court of justice for the enforcement of a right denoting a legal proceeding of a civil kind. that which is due to one. Mr. "Suit. vide Mukherjee. "No definition is given of the term 'suit' either in the Act or the Civil Procedure Code. 'Blackstone simply says that a 'suit' is a legal demand of one's rights. proceedings in the nature of review or revision and execution proceedings. It is styled final process. In law. 'Suit' in its common parlance is a term of wide amplitude. a 'suit' is the pursuit or prosecution of some claim. and the term has also a much narrower meaning when it is examined in The procedural sense ―. The legal significance of the word 'suit' is very broad. . i. The word 'suit' has no doubt not been defined anywhere and is a word of very wide import. It is a proceeding in a court according to the forms of law to enforce the remedy to which a party deems itself entitled.

On the words of the section I think it does. Doctor next relied upon the decision of the apex court reported in Dokku Bhushayya v. The next limitation is that the protection is only during the pendency of the suit. Quite obviously the word 'suit' in this observation would include a proceeding in execution.J. Beyond this. I think that any compromise of a proceeding which concerns the dispute involved in it would require the sanction of the court. I should also point out that sub-rule (5) of rule 3 of Order 32 provides that a person appointed guardian in the suit for minor shall unless his appointment is terminated continue as such throughout all the proceedings arising out of the suit including the proceedings in execution of a decree. said that the rule 'applies to a compromise of execution proceedings'. it seems to me that according to the learned Chief justice it applies to all compromises of execution proceedings. with another party thereof during the pendency of a suit and the execution proceedings. I think the principle of the rule was correctly stated by Heaton J. I find no justification for limiting the operation of the rule. Shidappa.J. We agree with these observations. excepting of course compromises concerning the conduct of them and this whether the compromise directly affects the rights or liabilities under the decree or not.P a g e | 71 Mr. Katragadda Ramakrishnayya. rule 7 of the present Code corresponds to section 462 of the Code of 1882. AIR 1962 SC 1886. . I think necessarily implies that during the continuance of proceedings in court the dispute between the minor and another party which the court has to decide could not be compromised except by the guardian ad litem of the minor and by him only with the leave of the court'. AIR 1920 Bom 37. This view has been followed ever since. 'I will first deal with the question whether section 462 applies to a compromise of execution proceedings. and paragraphs 4. who is a minor. Mallapa. jenkins C." . ILR 44 Bom 574. 8. applications in execution are proceedings in the suit so that a compromise of such a proceeding would be a compromise with reference to the suit. When does a suit come to an end ? It has been held that for the purpose of the said rule an execution proceeding is a continuation of a suit. "That section. As long ago as 1901. in what I have earlier read from his judgment. 114. 26 ILR Born 109. I observe that jenkins C. rule 7 of the Code will apply only to an agreement or compromise entered into by a guardian of a party to the suit. 9. Therefore. when dealing with section 462 of the Code of 1882 he observed in Gurmallapa v. said in Virupakshappa v. It has been settled since the Code of 1882 was in force that the provision under consideration applies to proceedings in execution though it only mentions agreement or compromise with reference to the suit. The result is that Order 32. 20 and 22 which are as under: "Order 32.

‖ Reliance was next placed by Mr. Doctor on the decision of the Madras High Court in Muthulahhammal v. AIR 1971 SC 1292. AIR 1928 Lahore 627. application is only a continuation of the suit and the control of the High Court enures during The execution proceedings also. Doctor next relied upon the decision of the apex court reported in Batisidhar Sankarlal v. In the said case the Full Bench of the . wherein the question was what is the ambit of the term "suit" in section 6 of the Specific Relief Act and whether it would include an objection under section 47 of the Code of Civil Procedure filed against the execution of the decree passed in a suit and it was held that the term "suit" under section 6 of the Specific Relief Act would include an objection under section 47 of the Code of Civil Procedure filed against the execution of decree passed in such a suit and in view of the bar created by the provisions of sub-section (3) of section 6 of the said Act. Doctor also relied upon the decision of the Lahore High Court in Bhai Kirpa Singh v. 52. v. Rasalldar Ajaipal Singh. . In Bhai Kirpa Singh v. AIR 1933 Mad 456. no appeal would lie from an order passed on such an objection filed under section 47 of the Code of Civil Procedure. Delhi Financial Corporation. In each particular case the question has to be examined in reference to the context and that meaning is to be preferred which will best fit in with it.‖ Reliance was next placed on the decision of the Allahabad High Court in Achaibar Singh v. Doctor was the decision of the Delhi High Court in Parhash Playing Cards Manufacturing Co. Schedule I to the Civil Procedure Code applies to execution proceedings. proceedings' and words of a similar connotation have different meanings in different statutes and it is not possible to lay down a general rule of interpretation which would be applicable to all cases.P a g e | 72 Mr. and to the following observations in paragraph 7 thereof : "The contention raised on behalf of Bansidhar loses all significance for an execution. AIR 1928 Lahore 627 [FBI. a Pull Bench of the Lahore High Court pointed out that the words 'suit. [1971] 2 SCR 476. AIR 1973 All 261. on the basis that the proceedings in execution are proceedings in a suit and that compromise in such proceedings is compromise with reference to the suit. Mohd. [1971] 41 Comp Cas 21. Narappa Reddiar. Ibrahim [1970] 3 SCC 900. AIR 1980 Delhi 48. The next decision cited by Mr. rule 7. Rasalldar Ajaipal Singh. it is seen that the expression derives colour from its setting and has been interpreted in different ways in different legislative contexts. wherein in paragraph 5 a reference was made to Mukherjee's Law Lexicon page 529 on ―suit‖ and thereafter it was abserved as under: "However. Ram Murat. Mr. wherein it was held that Order 32.

and it was provided that no suit for recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans. LJ 724 and especially the observations in paragraph 16 thereof which are as under . beginning with the filing of the plaint and ending with the decree or final order passed by such court. in applying these observations to the provisions of any statute. AIR 1990 SC 981." Mr. AIR 1957 SC 907. In this behalf Mr. When the material words are capable of two constructions. one of which is likely to defeat or impair the policy of the Act whilst the other construction is likely to assist the achievement of the said policy then the courts would prefer to adopt the latter construction. In each particular case the question has to be examined in reference to the context and that meaning is to be preferred which will best fit in with it . The learned judges observed that it is possible to cite an equally large number of cases in which a narrower meaning has been attached to the word "suit" as denoting the stage of the litigation before the court of the first instance. The words used in the material provisions of the statute must be interpreted in their plain grammatical meaning and it is only when such words are capable of two constructions that the question of giving effect to the policy or object of the Act can legitimately arise. Filip Tiago De Gama of Vedem Vasco De Gama. and especially to the following observations : "However. [1990] Mah. Finally after considering several authorities on the issue. 910. or advance granted to the industrial company shall lie or be proceeded with further except with the consent of the Board or as the case may be. Doctor relied upon the decision of the apex court in Kanai Lal Sur v. Paramnidhi Sadhukhan. the word "suit" must be given wider meaning so as to include also execution as such interpretation would advance the remedy and the object to be achieved by the provisions of the Sick Industrial Companies (Special Provisions) Act.P a g e | 73 Lahore High Court was concerned with the provisions of the Sikh Gurudwaras Act (Punjab Act 8 of 1925). the Appellate Authority. Mr. 'proceeding' and words of similar connotation have different meanings in different statutes and that it is not possible to lay down a general rule of interpretation which would be applicable to all cases. it must always be borne in mind that the first and primary rule of construction is that the intention of the Legislature must be found in the words used by the Legislature itself. Doctor also relied upon the decision of the apex court reported in Union of India v. the learned judges observed as : "An examination of these and other cases leads to the conclusion that suit'. Doctor submitted that taking into consideration the object of the Act and the fact that section 22 was amended in the year 1993. 1985. In the aforesaid judgment an occasion arose as to what is the meaning of the word "suit" and "proceeding". If the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such hypothetical construction is more consistent with the alleged object and policy of the Act .

Towne v. v. The said order shows that the learned members of the Board for Industrial and Financial Reconstruction took into consideration various orders passed by this court. without reference to its nature or purpose. This intention is primarily to be ascertained from the text of the enactment in question. learned counsel appearing for the respondent plaintiff-bank contended that in view of the Division Bench decision of this court referred to above. they cannot be affected by the pendency of the appeal under section 25 of the Sick Industrial Companies (Special Provisions) Act. 553 )‖ Mr. especially directing the court receiver to take forcible possession was reproduced and ultimately it was observed that after careful consideration of the facts and material on record and in the circumstances of the case in particular the proceedings taken before the High Court and the orders passed by the . Doctor also relied upon the decision of the apex court reported in Maharashtra Tubes Ltd.Doctor submitted that in most of the cases guarantors are normally directors or their close relations who are shareholders and if such directors or guarantors could be proceeded against then obviously the revival of the company would be in jeopardy. was to protect not only the industrial company but also the directors thereof and guarantors in respect of any guarantee given as against any loans or advances granted to the industrial company. State Industrial and Investment Corporation of Maharashtra Ltd. Mr. The paramount object in statutory interpretation is to discover what the Legislature intended. [1994] 79 Comp Cas 811. Diwan also pointed out that by the decree itself the receiver stood appointed in July. 1996. Learned Hand J. if that be so. A statute is neither a literary text nor a divine revelation.Diwan also brought to our notice the older dated August 18. 1997.. 425. Diwan contended. 1985. but with some imagination of the purposes which lie behind them' (Lenigh Valley Coal Co.justice Holmes has wisely and properly warned. Mr. Nira Pulp and Paper Mills Ltd. 218 FR 547. 'Words are certainly not crystals. Doctor submitted that the object of the amendment of section 22 in the year 1993. Mr.P a g e | 74 : "16. Diwan. 1997. Fisher [1918] 245 US 418. passed by the Board for Industrial and Financial Reconstruction on the reference made by Madalsa International Ltd. Yensavage. relevant and material portion of the operative part of the order passed by the court on March 21. V. and. transparent and unchanged' as Mr. was equally emphatic when he said : 'Statutes should be construed not like theorems of Euclid. Mr. They also took into consideration consent terms of the order of the court especially regarding the receiver being empowered to take forcible possession as also copy of the plaint in the suit. [1992] BJ 274 (Bom). so far as the receiver's actions contemplated under the decree are concerned. [1993] 78 Comp Cas 803 [1993] 2 SCC 144 in support of his submission . That does not mean the text is to be construed merely as a piece of prose. an industrial company undersection 15 (1) of the Sick Industrial Companies (Special Provisions) Act. learned counsel for the appellant has to concede that the impugned order on the basis of the facts obtainable on the date thereof cannot be faulted. Mr. In this behalf he relied upon the decision of the learned judge of this court in Industrial Development Bank of India v. Mr. 1985.

and the pauper's mother gained a settlement in Little Bolton. 838. para (a) of the regulation uses the word 'examined'. Mr. Counsel for the Revenue has emphasised upon the feature that in the same Explanation reference to time has been expressed differently and if the legislative intention was not to distinguish and while stating 'in the course of such previous year' it was intended to convey the idea of the last day of the previous year." Next Mr. and particularly the observations At page 478 which are as under : "It will be observed that para (c) of the regulation uses the word 'inspected'. There is clearly a difference between a 'thorough examination' as contemplated by the regulations and an 'examination' as contemplated by the regulations. However. The words are 'that the house or building shall be held and the land occupied'. 1985. they are intended to have Some different meaning. and regulation 18 uses the phrase 'thorough examination' and defines that particular phrase. which is in issue. Is there also a difference between examination' and 'inspection' as contemplated by the regulations. there would have been no necessity of expressing the position differently. Dyeball [1828] 8 B 969. In this behalf Mr. wherein learned Chief justice Lord Tenterden observed as under : "The safest course in this case is to give effect to the particular words of the enacting clause. Here the house was held for one whole year. AIR 1989 SC 836. Skibs A/s Marina and Orkla Groube. Diwan relied upon the decision reported in Gibson v. Diwan relied upon the decision reported in Doc v. we must presume that they were used in order to express different ideas. The order of sessions must therefore be quashed. He further submitted that the same word appearing in the same statute must be interpreted in the same manner and obviously different words appearing in the same section or same statute will have to be interpreted differently. Diwan also submitted that the word "suit" will have to be interpreted in the context in which it is used in a particular statute. and the observations in paragraph 7 thereof which are as under) "7. The Explanation has reference to the point of time at two places the first one has been stated as 'at the end of the previous year' and the second. A/B and Smith Coggins Ltd.P a g e | 75 High Court.) [1989] 176 ITR 155. is 'in the course of such previous year'. it is an admitted position that the aforesaid order of the Board is being challenged in a pending appeal before the appellate forum under section 25 of the Sick Industrial Companies (Special Provisions) Act. Prima facie one would expect that when two different words.) Ltd. There is abundant authority to support the . East West Import and Export (P. [1966] 2 All ER 476.‖ Mr. Diwan also brought to our notice the decision of the apex court reported in CIT v. the Board considers that it would not legally be in order for them to entertain and proceed with the present reference which was directed to be closed and filed. although practically synonymous in ordinary use. Where the Legislature in the same sentence uses different words. (now known as Asian Distributors Ltd. or employed in different parts of the same regulation dealing with the same kind of topic.

or any other instrument having effect under the said Act or other law. etc. 1985. no proceedings for the winding up of the industrial company or for execution. distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further. 1956. Considered in this light we are of the clear opinion that the word "suit" in the amended portion of section 22 cannot include in its ambit execution or execution proceedings.P a g e | 76 stand of counsel for the Revenue that when the situation has been differently expressed the Legislature must be taken to have intended to express a different intention. The earlier part takes care of the coercive measures in execution. includes in its ambit execution or execution proceedings. It is clear that this was with a view to giving a free hand to the Board for Industrial and Financial Reconstruction for considering whether a company can be made viable and with that purpose it was thought necessary that the properties of the industrial company should not be exposed to coercive action of the nature mentioned in the section. or any other law or the memorandum and articles of association of the industrial company. The unamended section did not prohibit or suspend any suit for recovery of money or enforcement of any security against the industrial company and/or guarantee in respect of any loans or advances granted to the industrial company. excepting the properties of the industrial company. while the later part obviously suspends the very initiation or if already initiated. Thus it is clear that the proceedings for winding up of the industrial company or for execution." Thus the first question which arises in this case is whether the word "suit" used in section 22 of the Sick Industrial Companies (Special Provisions) Act. It is also further relevant that various authorities quoted above. In our opinion the intention and object of the amendment is not only that coercive action against the industrial company or proper-ties belonging to it should be suspended but also that the suit for any recovery of money or enforcement of any security against the industrial company should be suspended. It is extremely relevant that the word "execution" is used in the unamended section while in the added portion by amendment the word "suit" is used. clearly show that the interpretation of the word "suit" in any particular statute will have to be made in the context in which the same is used. then. notwithstanding anything contained in the Companies Act. The second submission is that by amendment not only the proceedings by way of suit for recovery of money or for enforcement of any security against the industrial company are . On this interpretation in fact even if the appeal is pending so far as the execution proceedings are concerned. distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof could not lie and if already taken up could not be proceeded with further except with the consent of the Board or the Appellate Authority. the Appellate Authority.. except with the consent of the Board or. prosecution of any suit of the description mentioned therein. In this behalf it is relevant to notice that prior to the amendment of section 22 it was provided that where in respect of an industrial company an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending. as the case may be. there can-not be any bar or impediment in proceeding further with the same.

even the rights finalised by the judgment and decrees of the competent courts we find absolutely no ground to read in these provisions that the proceedings against the guarantors or sureties of the company should also stand suspended. against the sick industrial company. the Legislature intended to protect the personal interest of the guarantors as proceedings against guarantors and their personal properties would not affect the revival of the industrial company in any manner whatsoever. 1-company. v. Defendant No. In the circumstances the words "of any guarantee in respect of any loans. The apex court in the aforesaid case has considered the coercive action under section 29 of the State Financial Corporations Act. the provisions of section 22 are enacted. 1951. However. We are not at all impressed by this submission. Doctor as well. The Supreme Court in the aforesaid case referring to the words "or the like" which follow the words "execution" and "distress" held that it clearly intended to convey that the properties of the sick industrial company shall not be made the subject-matter of coercive action of similar quality and characteristic till the Board for Industrial and Financial Reconstruction finally disposes of the reference made undersection 15 of the Sick Industrial Companies (Special Provisions) Act. It is observed that the Legislature has advisedly used an omnibus expression "the like" as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking. At this stage the learned counsel for the appellants prays for stay of this as well as the . As is clear from the judgment of the apex court reported in Maharashtra Tubes Ltd. who would be affected personally. and we see no reason to interpret the section in such a manner that apart from the properties of the industrial company. the purpose and object of suspension of proceedings. 3 has nothing to do with defendant No. is to await the outcome of the reference made under the Board for Industrial and Financial Reconstruction for revival and rehabilitation of the sick industrial company. whether third parties or directors. [1993] 78 Comp Cas 803. we do not find any merit in this appeal and the appeal is dismissed-with costs. [1993] 2 SCC 144. 1985. and the scheme of the Act which is clearly for protecting the properties of the industrial company and for enabling the Board for Industrial and Financial Reconstruction to have a complete free hand for the revival if possible of the sick industrial company.. in both cases it would be the guarantors. Considering the object and purpose of the Sick Industrial Companies (Special Provisions) Act. State Industrial and Investment Corporation of Maharashtra Ltd. 3. under section 22 (1) of the Sick Industrial Companies (Special Provisions) Act. or advance granted to the industrial company" in the context will have to be read as the guarantee given by the industrial company itself and none else. In the result. On the basis of the aforesaid we do not find any force in the second submission of Mr. The guarantors could be absolute third parties or directors of an industrial company. 1985. etc. Mortgaged property at exhibit B belongs to defendant No. Section 22 in a sense imposes serious restrictions on the rights of the third party against filing of suits of the nature mentioned thereunder or for taking coercive action of the nature mentioned therein against the industrial company. 1985.P a g e | 77 suspended but proceedings against the guarantors are also suspended. Apart from the fact that such restrictions will have to be read on strict interpretation they affect the valuable rights.

Bajoria for the Petitioner. in the facts and circumstances of the case we are not inclined to grant absolute stay as prayed for. Mookerji. if required. Md. (hereinafter 'the Act'). R. 1. In its affidavit in opposition. ORDER 1. Company Petition No. 537 of 1997.2 BENGAL IMMUNITY LTD. K. There was nothing to substantiate the allegations of the company.P a g e | 78 impugned order to enable the appellants to approach the apex court. in spite of demands. v. the company denied the alleged claims of the petitioner. We only direct that the receiver shall take formal possession of the properties mentioned in exhibit B to the decree and on or after January 23. It was alleged in the petition that in pursuance of a contract between the parties the petitioner had sold and delivered to the company diverse Quantities of goods which the company had received and accepted but did not pay the price in that respect. CASE STUDY -. and damages on the basis of allegations that the respondent-company had wrongfully Terminated the contract. It was alleged on behalf of the company that sometime in 1995 the company had been registered with the Board for Industrial and Financial Reconstruction (hereinafter 'the BIFR'). 1998. This was an application for winding up of the company under the relevant provisions of the Companies Act. N. Farhaduddin & Md. 1956. It was contended on behalf of the petitioner that its claim had not been included in . IN THE HIGH COURT OF CALCUTTA S. and that a scheme for rehabilitation had been sanctioned. and shall take further steps as per the decree in respect thereof. Shahid Imam for the Respondent . TATA PHARMA LTD. 1999. shall also be at liberty to take actual physical possession even forcibly. The petitioner claimed the price of the goods. However.2 The company did not reply to the statutory notice of demand. decided on April 8. Bachawat & S.

in their enunciation of the law. [1997] 25 CLA 10 (SC)/[1997] 10 SCC 649 and Sirmor Sudhburg Auto Ltd. contracts. The decision which has been relied on by the counsel for the petitioner. from the company by the Revenue authorities. did not support the case of the petitioner and the law was and continued to be that a claim as that of the petitioner must be stayed in accordance with the embargo contained in the provisions in section 22(1).. On that ground. be entitled in law to continue with its present proceedings against the company. Corromondal Pharmaceuticals Ltd. 1998 and 16 December.(1) Where in respect of an industrial . he cited and relied on the decisions in Dy. it was argued on behalf of the company. the principle laid down by the Supreme Court in that case was applicable generally and was not restricted to claims by the Revenue only and the petitioner would. three letters dated 10th August. v. I would here set out the provisions of section 22 (1) : "Suspension of legal proceedings. the intention of either the legislators or the courts. For the sake of convenience. He contended that the language of section 22 (1) was clear. Kuldip Singh Lamba [1997] 27 CLA 219/[1998] 91 Comp. It was contended that the company was a sick industrial company within the meaning of the SICA and it could not be. In support of his contentions. that the sick industrial company should be further burdened with financial liability as that would frustrate the very purpose of the framing of a scheme to rehabilitate and run the business smoothly. 3. Cas 727 (Delhi). 4. It was submitted on behalf of the company that the principles of law which had been applied in deciding the case of Corromondal Pharmaceuticals Ltd. according to the counsel for the petitioner. CTO v. this application for winding up could be taken up for hearing by the court and dispose of the matter accordingly. Strong reliance was placed in particular on the decision in Corromondal Pharmaceuticals Ltd. According to the petitioner. 1998 were produced by the company. and it was confirmed that the sanctioned scheme was continuing to be in the process of implementation. and that the intention of the legislators must have been to exclude such claims from the effect of section 22 (1) of the section 24 SICA. or continuing with it further. liberty was given and the petitioner filed a supplementary affidavit enclosing the copy of the alleged scheme. 1998. The debt of the petitioner was not before the BIFR. nor it was. therefore. he argued earnestly. 2nd September. case (supra) were restricted to the facts of that case. 2.P a g e | 79 the alleged scheme and that its claim arose after the scheme had been sanctioned. 1985 (hereinafter 'the SIC') was not applicable to the present winding up proceedings as the transaction between the parties had taken place after the sanction of the scheme and the petitioner's claim was not included in the sanctioned scheme. and the petitioner was barred from instituting the present proceedings against the company. etc. On the prayer made on behalf of the petitioner. case (supra) and the counsel for the petitioner argued that though the facts in that case related to the recovery of sales-tax. the embargo under section 22 (1) of the Sick Industrial Companies (Special Provisions) Act.

1 The SICA was amended and the Amendment Act. an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending. Sub-section (1) of section 22 was amended by section 12 (a) of the Amendment Act.. "In the light of the steps taken by the Board under section 16 and section 17 no proceedings for execution. The Supreme Court in its decision in Corromondal Pharmaceuticals Ltd. should be avoided.P a g e | 80 company. and that there was a scheme which had been sanctioned by the BIFR. and that the scheme was in the process of implementation. 16-17 of 25 CLA] 4. as the case may be. which the sick industrial company is enabled to collect after the date of the sanctioned scheme.. or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law. except with the consent of the Board or..3 The question sought to have been raised by the petitioning creditor was fully dealt with and decided by the Supreme Court in the above mentioned case. Shree Vallabh Glass Works Ltd. case (supra) had in no uncertain terms pronounced that.‖ 4. [1993] 10 CLA 181 (SC)/[1993] 2 SCC 144. State Industrial & Investment Corpn. and in particular the two decisions in Gram Panchayat v. unreasonable and against the spirit of the statute in a business sense. So we are of the view that .. [1990] 3 CLA 236 (SC)/[1990] 2 SCC 440 and Maharashtra Tubes Ltd. no proceedings for the winding up of the industrial company or for execution. 1993 came into force on 1st February. Their earlier decisions. legitimately belonging to the Revenue cannot be and could not have been intended to be covered within section 22. 1994. etc. 1956 (1 of 1956). Their lordships had noted various High Court decisions in the matter. Their lordships approved the following finding in Gram Panchayat case (supra). Such amounts like sales-tax. notwithstanding anything contained in the Companies Act. There was no dispute that the company was enjoying the protection from its creditors afforded to 'sick' industrial companies by statute. and after amendment the words : "For the appointment of a receiver in respect thereof" appearing in the earlier section 22 (1) would be followed by the words : "and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loan or advance granted to the industrial company". of Maharashtra Ltd. v. Such a construction which is unfair. then." [pp. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further. it will be reasonable to hold that the bar of embargo envisaged in section 22 (1) can apply only to such of those dues reckoned or included in the sanctioned scheme. distress or the like proceedings against any of the properties of the company . the appellate authority.

etc.P a g e | 81 shall lie or be proceeded further except with the consent of the Board. The Legislature had advisedly used an omnibus expression 'the like' as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking 4. Indeed. would be that proceedings to recover money claims would not attract the applicability of section 22 (1) where (a) the claimant was the Revenue. there would be automatic suspension of such proceedings against the company's properties. what their lordships had held. the liability of the sick company dealt with therein itself arose. The purpose and object of suspension of proceedings. I quote below that portion of the judgment which according to me was relevant for the purpose at hand : "The situation which has arisen in this case seems to be rather exceptional. the various proceedings set out under sub-section (1) of section 22 would be deemed to have been is suspended.5 In short. to be taken. (supra). In the ultimate paragraph of their decision. It does not appear from the above two decisions of this court nor from the decisions of the various High Courts brought to our notice. They will not apply to a situation as has . (b) the claim was in respect of tax which the company had in fact collected with the only object to pay to the Revenue. court as also the decisions of High Courts brought to our notice are. distinguishable.4 And also the following finding in Maharashtra Tubes Ltd. as would appear to me.. for which proceedings for recovery. "or the like" which follow the words 'execution' and 'distress' are clearly intended to convey that the properties of the sick industrial company shall not be made the subject-matter of coercive action of similar quality and characteristic till the BIFR finally disposes of the reference made under section 15 of the 1985 Act. for the first time after the date of sanctioned scheme. therefore. that in any one of them. At any rate. As soon as the inquiry undersection 16 is ordered by the Board. their lordships had made it abundantly clear as to the precise circumstances when the embargo would not be applicable. and (c) the claim had arisen after the sanctioning of a scheme where the claim was not reckoned or included. a situation arose whereby the sick industrial unit was enabled to collect tax due to the Revenue from the customer after the sanctioned scheme but the sick unit simply folded its hands and declined to pay it over to the Revenue. under section 22 (1) of the 1985 Act is to await the outcome of the reference made to the BIFR for the revival and rehabilitation of the sick industrial company. The two decisions of this. case (supra) : 'Where an inquiry is pending under section 16/section 17 or an appeal is pending under section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in section 22 (1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company . [p 157 of 25 CLA] 4. in none of those cases. The issue that has arisen in this appeal did not arise for consideration in the two cases decided by this court in Gram Panchayat (supra) and Maharashtra Tubes Ltd. The words.

". [1998] 31 CLA 432/AIR 1999 AP 45 where their lordships considered that 'on the factual backdrop' it appeared. it would appear. We are. In a decision in Sirmor Sudhburg Auto Ltd. "It is not the intention of the law court. to expand the scope of legislation and one ought not to read anything further than one reads in plain and simple manner". "that the BIFR was considering the scheme without there being any reference to the petitioner's claims". as those proceedings would be in furtherance of recovery of money. in our view." [p.1 This question was also considered in the Bench decision reported in Vibgyar Ink Chem (P. and held A that proceedings for eviction of a tenant. Earlier it had also observed. Their lordships in those 'rather exceptional' situation concluded : "On a fair reading of the provisions contained in Chapter III of Act 1 of 1986 and in particular section 15 to section 22. would it not.P a g e | 82 arisen in this case. that in no other circumstances proceedings to recover a money claim. [p. therefore. With the greatest of respect and in utmost humility bearing in mind that the law courts ought not to deliberate which would expand the scope of legislation. the Delhi High Court considered the applicability of section 22 (1) with regard to a suit for eviction. If the restriction was to be made not applicable . we are of the opinion that the plea put forward by the Revenue is reasonable and fair in all the circumstances of the case. v. According to the Bench. "as a matter of fact.. case (supra). 16 of 25 CLA]. 5. which was a sick company. And it was on the basis of the 'contention' of the Revenue that the Hon'ble Judges upheld the plea put forward by the Revenue thatsection 22 (1) should be read down or A understood as contended by the Revenue. the Act has been enacted to safeguard the economy of the country and protect variable sick units. of the opinion thatsection 22 (1) should be read down or understood as contended by the Revenue . which would in effect increase the financial liability of the sick industrial company. The Division Bench was satisfied. would be allowed to be instituted or continued with... and distinguished the two decisions as not applicable in the facts before them. In other words. I would be of the view that a protection of the rights of a sick industrial company.. Should there appear to be conflict in the interpretation of legislations. damages and mesne profits. as contained in the form of the embargo in section 22 (1) must be appreciated by the courts.. which would cast further financial liability on the sick company . Safe Pack Polymers Ltd. 5. in spite of the embargo contained in section22(1).) Ltd. "that the question of attracting the provisions of section 22 (1) in the contextual facts does not and cannot arise". Its object is to revitalise and rehabilitate sick industries . was not liable to be stayed though the embargo would be attracted to proceedings for the recovery of arrears of rent. it was today a settled principle of law that a harmonious interpretation must be afforded.6 Their lordships were categorical that the principal enunciated in their decision was to be restricted to the 'rather exceptional' situation which had arisen in the case and "that section 22 (1) should be read down or understood as contended by the Revenue". 17 of 25 CLA ] 4.

I would with utmost respect find. . the embargo contained in section 22 (1) would be attracted to claims for money which would further burden the already sick industrial company. then I would very humbly opine that the endeavour of the BIFR to rehabilitate and revitalise the sick industrial company would be put in peril and it would be contrary to the intent of the legislators "to safeguard the economy of the country and protect viable sick units". it would be in derogation of the findings of the Supreme Court in its decision in the case of Corromandal Pharmaceutical Ltd. I hold unhesitatingly that the facts of the case before this court would indeed attract the embargo envisaged in section 22 (1). In those circumstances. the Supreme Court. On the contrary. 6. was not inclined to allow avoidance of payment of a mere money claim. (supra). Malhotra v. As regard the Bench decision. but a claim for the payment of tax through a money claim. The facts of the case before this court had nothing to do with payment of tax. and it would be against the spirit of the statute'. I would be of the view that. nor was there any larger or public interest involved. I would very humbly quote the observations in the Bench decision of the Madras High Court in J. The endeavour of the legislators to revive a sick industrial company would hardly be appreciated if the company was to be burdened with further financial liabilities. The provisions in the section in that event would be rendered quite superfluous. if the embargo was not to apply in the present case. I would find. It was on those 'rather exceptional' grounds only. in allowing the claim of the Revenue. 'The tax so collected' their lordships had found. The embargo would cease to have any effect whatsoever. No further adjudication was required in that respect.(supra). It was the considered view of the Supreme Court. In the light of the decision of the Supreme Court in the case of Corromondal Pharmaceutical Ltd. because it had not been reckoned or included in the sanctioned scheme. that the Supreme Court had rejected the plea of legal bar sought to have been urged by the company. nor was there any dispute as to the factum or the quantum of the payment which the company was to make to the Revenue. M. then in utmost humility. Here was a simple money claim against the company. the very purpose of the enactment to rehabilitate sick companies would be frustrated. In the alternative. that merely because the claim was not included or reckoned in the scheme it could not be assumed that the money claim could be considered to be out of the scope of the embargo. which included recovery of public money by the Revenue and an unreasonable refusal by the company to pay such money. If proceedings for such claims were adjudged not to attract the provisions contained in section 22 (1) the very purpose of the statute would be frustrated. UOI [1997] 26 CLA 230/[1997] 89 Comp Cas 600 that "there is no question of comparison of one company with another because proceedings against each company will have to be decided in accordance with the particular facts and circumstances of each case" . unless it was in the interest of the exchequer of a larger national interest of public importance. There was nothing 'exceptional' in the present facts or circumstances which would or could warrant the embargo contained in section 22 (1) to be rendered as not applicable.P a g e | 83 to all money claims. Simply put. 'really belongs to the State'. It concerned the larger interest. a claim by the Revenue of money admittedly collected by the company in order to pay to the Revenue.

Advocate. INDORE v. M. P. A There shall be no order as to costs. MATHUR. IN THE HIGH COURT OF MADHYA PRADESH AT INDORE A. but the court still proceeded to admit the company petition by the impugned order. J. For those reasons. KHAN. 1998.6. I am inclined to be of the view that this application. 3 of 1998. does not lie. A.1998 passed by Company Court in Company Petition No. Company Appeal No.1 Advocates for the parties had made submissions also on the merits of their respective cases. . 16 of 1996 admitting that petition and directing advertisement. the contentions of the petitioner as regards the non-applicability of the embargo of section 22 (1) are not acceptable. CEAT FINANCIAL SERVICES LTD. 7.1998 and has filed an application in this regard before the Company Court praying for stay of proceedings undersection 22 of Sick Industrial Companies (Special Provisions) Act. ORDER B.3 KEDIA DISTILLERIES LIMITED. I do not consider it necessary to adjudicate the merits of the case. In view of my findings as above. I make it clear that I have not adjudicated on the merits of the winding up application. SARAF. decided on July 17.6. with V. CASE STUDY -.P a g e | 84 6. Appellant's short case is that he had approached BIFR for declaring the company sick on 22. dated 26. BOMBAY. . This application is dismissed. for the appellant. Senior Advocate. He has attached a copy of the application alongwith memo of appeal . on the basis of my above observations.Appellant has filed this appeal against the order.. The prayer of the petitioning creditor in this application was squarely barred by the restriction created by the statutory provisions contained in section 22 (1).

P a g e | 85 2. because no such application was listed before the court on 26. Appellant can take steps to have his application listed and seek its consideration.1998 which deserved consideration by the court. The court was not obliged to examine or consider the application which did not form a part of its record.R. CASE STUDY – 4 2000-(001)-CLJ -0025 -DEL CEMENT CORPORATION OF INDIA v. IN THE HIGH COURT OF DELHI . It does not appear to us a case of non-consideration of appellant's application for stay of proceedings. Record was summoned. Therefore. 21 of 1999.6. court was not bound to consider it at all. explained that this application was placed before the Company Court without listing as per some practice. A cursory look at the copy shows that it was filed on 26. 5. but he declined and harped on some practice in this court whereby documents and pleadings could be placed before the court bypassing the prescribed procedure in this regard . SMT. MANOHAR BHASIN. but was not considered. Resultantly we find no merit in this appeal which is dismissed on preliminary hearing. C. appellant's counsel. decided on September 9. Confronted with this situation. No. Shri Mathur. 1999. He was asked to subscribe an affidavit indicating the circumstances in which this application was placed before the court. but there was nothing to show that it was listed before the court.1998 when the matter came up before the court. Though it contained the application. 3. it remained to be seen whether it was listed before it.6. 4. Such like application was liable to receive consideration only if it was placed before the court as per prescribed procedure. Needless to emphasise that it was first required to be registered and if found complete in all respects. It could not be brought on the court record otherwise and as such. 6. to be listed in the cause list.

The Additional District Judge took up the said application for consideration and after hearing the parties dismissed the application. inter alia. Being aggrieved. SHARMA. 31/96 seeking for a decree for recovery of possession and for recovery of damages and mesne profits amounting to Rs. J. TANEJA. .The present revision petition is directed against the order. accordingly.1998 passed by the Additional District Judge. Mr.000. 2. that the defendant company has become sick and. submitted that the provisions of section 22 of the Act are hot applicable and would not cover a proceeding where decree is sought for either for eviction of the tenant or for payment of damages and mesne profits or for both . Taneja appearing for the petitioner submitted that as the recovery of damages/mesne profits claimed by the plaintiff from the defendants in this case relate to a period prior to the date on which the defendant was declared sick. Advocate. In the said suit an application came to be filed by the. The said suit is pending before the Additional District Judge. Delhi. for the petitioner . and thus are liabilities to be included in the scheme and thus the same cannot be recovered in view of the provisions of section 22 of the Act. K.P a g e | 86 S.12. dismissing the application filed by the petitioner/defendant under section 22 of the Sick Industrial Companies (Special Provisions) Act. 3. K. 41. dated 4. Delhi. petitioner/defendant contending.19. The aforesaid application was contested by the respondent by contending inter alia that the provisions of section 22 of the Act are not applicable to the aforesaid suit as the said suit has been instituted seeking for decree of recovery of possession and for recovery of damages and mesne profits. the Board has declared the defendant to be a sick company and IFCI has been appointed as the operating agent[cy] . 1. on the other hand. RAJIV NAYYAR with KAMAL MEHTA. JUDGMENT DR. Rajiv Nayyar appearing for the respondent. . It was further stated in the said application that the reference has since been registered by the BIFR and that pursuant thereto. 1985 (hereinafter referred to as the Act). the present petition has been preferred . The respondent/plaintiff filed the aforesaid suit being suit No. Mr. for the respondent. its case has been referred to the Board for Industrial and Financial Reconstruction (BIFR) under section 15 of the Act. M. Advocates.

Suspension of legal proceedings." 6. . Corromandal Pharmaceuticals reported in (1997) 2 Comp LJ 164 (SC) : AIR 1997 SC 2027. supra. or any other law or the memorandum and articles of association of the Industrial company or any other instrument having effect under the said Act or other law. the Appellate Authority. The aforesaid provision came to be interpreted by the Supreme Court in Deputy Commercial Tax Officer v. This court in Sirmor Sudburg Auto Ltd. Smt. but also to suit. took notice of the aforesaid factors laid down by the Supreme . 1956 (1 of 1956). except with the consent of the Board or. distress or the like against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further. v.(1) Where in respect of an industrial company. In order to appreciate the contentions of the learned counsel appearing for the parties. It was also held that section 22 (1) is also not attracted to the dues incurred after the date of sanctioned scheme. as the case may be. Church of South India Trust Association. supra. Although the Supreme Court decision was rendered in the light of unamended provisions of section 22 and the amended provisions relate not only to legal proceeding. it would be reasonable to hold that the bar or embargo can apply to such of those dues reckoned or included in the sanctioned scheme. In Shree Chamundi Mopeds Ltd.P a g e | 87 5. 1985. it is necessary to extract the provisions ofsection 22(1) of the Sick Industrial Companies (Special Provisions) Act. Atleast two judgments of this court were referred to at the bar. It also does not in any manner bring about a change in the legal proposition laid down in Shree Chamundi Mopeds (1992) 2 Comp LJ 121 (SC). an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending. Kamla Sharma reported in (1997) 3 Comp LJ 94 (Del) : (1997) 2 AD Del 281 and Sirmor Sudburg Auto Ltd. v. in my considered opinion. which are extracted below : "22. no proceedings for the winding up of the industrial company or for execution. They are National Textile Corporation v. (1998) 1 Comp LJ 30 (Del). then. Madras reported in (1992) 2 Comp LJ 121 (SC) : AIR 1992 SC 1439. It was held in the case of Deputy Commercial Tax Officer (1997) 2 Comp LJ 164 (SC). it was held by the Supreme Court that though the language of section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started till after implementation of the scheme or disposal of an appeal. that to be entitled to stay of the legal proceedings under section 22 a mere pendency of the enquiry would not suffice and to get benefit. supra. notwithstanding anything contained in the Companies Act. 7. contracts. etc. Kuldip Singh Lamba reported in (1998) 1 Comp LJ 30 (Del) : (1997) 67 DLT 870 . the said amendment shall have no bearing and relevancy. one has to show that the dues have been reckoned or included in the sanctioned scheme.

CASE STUDY – 5 2000-(001)-CLJ -0023 -DEL NATIONAL RESEARCH DEVELOPMENT CORPORATION v.P a g e | 88 Court. Therefore. J. The said conclusions are in consonance with the ratio of the decision laid down by the Supreme Court.A. continuation of the suit so far as it relates to the recovery of mesne profits and damages is required to be stayed. The Additional District Judge has also considered the aforesaid aspect and has held that as the recovery of damages/mesne profits claimed by the plaintiff from the defendant in the present case are not included in the sanctioned scheme of the Board. B.A. do not find any error in the exercise of jurisdiction by the trial court. is not the end of the matter. 4912/99 in A. . 8. a reasonable construction should be given to the language of the provisions of the Act which is not unfair and also not unreasonable. there could be no embargo or bar to realise such arrears of rent and mesne profits and damages. decided on October 6. supra. In view of the aforesaid proposition of law laid down by the Supreme]Court. I. M. No documentary evidence has been produced to show that any scheme has been sanctioned. 9. 414/98. This. the suit cannot be stayed even for the recovery of such damages/mesne profits. Unless and until the dues in the nature of arrears of rent and damages and mesne profits which is in arrears form part of the scheme for rehabilitation. in view of the provisions of section 22 of the Act. No. there could be no two opinions on the effect thereof. There is no scope to agitate that the suit seeking for eviction and recovery of possession should be stayed in view of the provisions ofsection 22 of the Act. LIMITED. which according to the counsel for the petitioner were dues relating to the period prior to the date when the petitioner was declared sick and. for the landlord cannot be deprived of the amount which is legitimately due to him and such amount cannot be withheld indefinitely and unreasonably. however. The petition has no merit and is dismissed accordingly. K. therefore. 10. therefore. for the present suit was also instituted for recovery of mesne profits and damages. I. 1999. section 22 cannot stand as a hurdle in the way of a suit for possession. As is held in Corromandal Pharmaceuticals case (1997) 2 Comp LJ 164 (SC).

It is manifest from above that the proceedings are liable to be stayed only in those discerning few cases (a) where in respect of an industrial company and inquiry under section .. except with the consent of the Board or. The application has been opposed by the counsel for the plaintiff .. SHAMIM.. an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending.". 2. Section 22 of the Sick Industrial Companies (Special Provisions) Act. the Appellate Authority .P a g e | 89 IN THE HIGH COURT OF DELHI I.. Advocate. it has been prayed that the proceedings in the present suit be stayed.2..This is an application by the respondent for stay of the proceedings under section 151 of the CPC on the ground that the respondent company has been registered under the Board for Industrial and Financial Reconstruction vide registration No. 47/99. Smt.. 3. It is supported by an affidavit. no proceedings for the winding up of the industrial company or for execution. then. Hence. distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further.. or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law. etc. dated 11.(1) Where in respect of an industrial company. as the case may be. for the petitioner ..1999. . 1985. contracts. BAKSHI. S. no withstanding anything contained in the Companies Act. . for the respondent . 4. 1956 (1 of 1956). JUDGMENT MOHD. (2) . NIVEDITA SHARMA. is in the following words : "Suspension of legal proceedings. Advocate. J. I have' heard the learned counsel for both the parties at sufficient length and have very carefully examined their rival contentions and have given my anxious thoughts thereto.

Learned counsel for the respondent prays for time to file a reply to the above petition. The application is thus premature . the proceedings in the present case cannot be stayed. 1 6. 7. Dismissed. Let the reply be filed within six weeks from today. Hence. 2000. 8. there is no appeal pending under section 25 of the Sick Industrial Companies (Special Provisions) Act. There is another aspect of the matter. Hence. The petitioner herein has simply prayed through the present petition for an appointment of an arbitrator. 9. Similarly. I am supported in my above view by the observations of the Supreme Court as Shree Chamundi Mopeds Ltd. . nor the present proceedings are for appointment of a receiver in respect thereof as envisaged under section 22 of the Sick Industrial Companies (Special Provisions) Act. be filed within four weeks thereafter. Rejoinder. Church of South India Trust Association. there is no question of the stay of the proceedings by this court. So there is no inquiry as yet pending under section 16 of the Sick Industrial Companies (Special Provisions) Act. v. Admittedly. if any. I do not see any force in the present application. or (b) any scheme referred to under section 17 is under preparation or a sanctioned scheme is under implementation. Adjourn and put up on 13 January. 5. nor is there any scheme referred to under section 17 under preparation. distress or the like against any of the properties of the industrial company.P a g e | 90 16 is pending. 1985. The present proceedings are neither a proceeding for winding up of 'the industrial company nor is it a proceeding for execution. Madras reported in (1992) 2 Comp LJ 121 (SC) : AIR 1992 SC 1439. or (c) where an appeal under section 25 relating to an industrial company is pending . the respondent has so far simply moved an application before the Board for Industrial and Financial Reconstruction and the said application has been registered with them. 1985.

Jose. Wahi.3569/98. Shukla. S. Ms. Mrs. Pavan Kumar. Padliy. Ms. Dhingra. Rhanduja. Narasimha. D. (K. Andhyarujina. Singh. Nitin Tamswekar.) No. Vikrant Rana. Enakshi Kulshreshtha. consequent to nonpayment of amounts covered by cheques issued by such companies. Ms.P a g e | 91 CASE STUDY – 6 B. Lalit. Ashok H. Pranab Kumar Mullick. Madhu Dadlani. decided on February 15. U. Prabhakar. Prabha Swami. Ms. A. J 1. Anu Sawhney. Sareen. Nedumaran. Pragasam. Mrs. Ganguli. Asha Jain Madan. Keshwani. 398-400/99 and SLP (Crl. Ms. G. JUDGMENT THOMAS. Rao. senior advocates (Nikhil Nair. Tambwekai. GIFT HOLDINGS (P. Ms. Bina Gupta. Gupta) (NP). P. Raja Gopala Rao. P. 3788/99 & SLP (Crl. Lavanya. Rajesh Nair. N. Kumar. Thiru Chaugu. Pragasam. K. Ms. SLP (Crl. Anu Mohla. Shreedhar. Urmila Sirur. K. N. Goswami. R. V. Mrs. Karanjawala. Maruthi Rao. Bina Gupta. K. Ms. 2000. Francis. Rekha Ray. All the companies involved in this batch of appeals have a common cause now in that those companies have. D.) LTD. M. Ms. 847 of 1999 with Criminal Appeal Nos. G. Ms.) Nos. N. Sukumaran. Dive. Rana. R. Anamika. Ms. Chidambaram. LTD. Bharati B. Vivek Zutshi. P. Sathe. Sweta Sharma. I. G. Jha. Joshi. 505-506/99. Sharma. Ms. T. Kapil Sharma. Sasiprabhu. Bhushan Prasad. Bachawat. Sanjeev Sen. R. Ms. S. A. 3789-3790/99. L. Niroop. N. Rana. Alok Sen Gupta. Mohit Mathur. K. Rakhi Ray. Vanita Bhargava. H. P. Astha Tyagi. Mrs. R. Dave. Bindra Rana. AND ANOTHER. Arunabh Choudhary. Prakash Jha. T. Prasad. Ms. Nandini Gore. Iyer. Krishnamurthi Swami. Verma. L. Rajesh Singh & Naris Beerani. Mrs. S. V. Uma Nath Singh. Ms. T. .) No. Manik Karanjawala. Y. Rajiv Dutta. Vinod. Some companies and their directors are now frantically struggling to get themselves extricated from the catch of prosecution proceedings pitted against them. Kailash Vasdev. Baldev Krishna Satija. Ms. R. P. 391-397/99. A. M. H. AND ANOTHER v. Ms. P. Ranjan Narain. Ranjit Kumar. Sridhar. Deepa Das. Mahesh Babu. Chander. Vestatina Dias. Tapesh K. 385-386/99. Y. IN THE SUPREME COURT OF INDIA Appearances : Ganesh. Ms. Uday Kumar. Kamakshi Mehwal. Radha. Ms. Ms. Manoj Prasad. Criminal Appeal No. Prashyant Naik. Ms. Rahim. with them) for the Appearing Parties . 388-389/99. Jenis Francis. Ms. Desai & Dushyant A.

When proceedings were pending before the BIFR under section 16 of the SICA a declaration was made by the order passed by the BIFR as per section 22 (3) of the SICA. The magistrate before whom the complaint was filed issued process against the accused who were arrayed therein . They maintained the stand that when proceedings are pending before the BIFR. a complaint was filed on 29th January. it has been pointed out that three categories of persons can be discerned as brought within the purview of the penal liability. But the plea so made by such companies did not find favour with the trial courts nor with the revisional courts nor even with the High Courts which the companies approached. approached the Board for Industrial and Financial Reconstruction ('BIFR' for short) and sought for declaration that those companies became sick as envisaged in the Sick Industrial Companies (Special Provisions) Act. through the legal fiction envisaged in section 141 of the NI Act. 1997. They . Answers given to the questions raised in that appeal would apply to all the connected appeals now being heard along with that appeal. 3. Indian Acrylic Ltd. As the drawer of the cheques failed to make the payment as per demand. When the offence under section 138 of the NI Act has been committed by a company 'every person who. [1999] 35 CLA 427/[2000] 1 SCC 1. at the time of offence was committed. 5. shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly". one at the instance of a creditor of the company and the other by the company itself. 847 of 1999 are the following : Cheques issued by the appellant therein were dishonoured by the drawee bank on 27th December. It is sufficient to set out the facts from one of these appeals in this batch. as well as the company. 2. was in charge of. 1985 ('SICA' for short). Thereafter the company moved the BIFR to declare it a sick industrial company. 1996 on the ground of insufficiency of amount in the account concerned. Facts in Criminal Appeal No.P a g e | 92 subsequent to the filing of complaints against them. All these appeals have been filed by special leave against the orders passed by the High Courts by which the aforesaid plea was discountenanced . 4. The above is the background in which the appellants contend that they are not liable to be prosecuted in view of the embargo contained in section 22 (1) of the SICA . within 15 days of receipt of the notice. 1997 against the company and its directors for the offence under section 138 of the Negotiable Instruments Act ('NI Act' for short). and the payee thereof issued a notice on 2nd January. Two petitions for winding up of the company were filed in June 1997. In Anil Hada v. no prosecution can be maintained under law against those companies. (videsection 141 of the NI Act). demanding payment of the amount covered by such cheques. and was responsible to the company for the conduct of the business of the company.

an inquiry under section 16 is pending or . When an order is made under section 17 a scheme with respect to the company shall be prepared by "the operating agency" specified in such order. Once a reference is made it is open to BIFR to conduct an inquiry for determining whether the company has become sick. The above is the general scheme of the SICA. (2) every person who was in charge of and responsible to the company for the conduct of the business of the company. that the ill effects of sickness in industrial companies such as loss of production. loss of employment. (The Central Government or the Reserve Bank or the State Government concerned may also make the reference to the BIFR for the same purpose if it has sufficient reason to believe that a company has become sick). A sick industrial company is a company which has "at the end of any financial year accumulated losses equal to or exceeding its entire net worth". Section 15 enables the Board of directors of a company which has become sick to make reference to the BIFR for determination of measures which shall be adopted with respect to the company. 1 of 1986. A need has. In the Statement of Objects and Reasons for introducing the Bill in the Parliament which later became Act No. (3) any other person who is a director or a manager or a secretary or an officer of the company with whose connivance or with whose neglect the company has committed the offence. it can adopt any of the measures envisaged insection 17 of the SICA. 6. been felt to enact in public interest a legislation to provide for timely detection of sickness in industrial companies and for expeditious determination by a body of experts of the preventive. inter alia. Learned counsel for the appellant submitted that when reconstruction efforts of a sick industrial company are pending under the provisions of the SICA all other legal proceedings including any prosecution proceedings would stand suspended by the operation of the embargo contained in section 22 (1) of the SICA. learned counsel invited our attention to certain other provisions of SICA also . remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable despatch". Sub-section (1) of section22 is extracted below : "(1) Where in respect of an industrial company. [vide section3 (1) of the SICA] 8. that the company has become sick.P a g e | 93 are (1) the company which committed the offence. on completion of the inquiry. it is stated. It is in the above background that section 22 of the SICA has to be looked at. If the BIFR is satisfied. 9. loss of revenue to the Governments and locking up of investable funds of banks and financial institutions are of serious concern to the Government and the society at large. 7. therefore. In order to persuade the court to place such an interpretation on the said sub-section. ameliorative.

. and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) ofsection 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court ' 12. or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law. distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further. privilege. 11. Sub-section (3) confers power on the BIFR to declare that the operation of all or any of the contracts. awards. privileges. any of its assets (a) during the period of preparation or consideration of the scheme under section 18. 1956. no proceedings for the winding up of the industrial company or for execution.P a g e | 94 any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending. shall remain stayed". Hence. standing orders or other instruments in force shall be suspended and that all or any of the rights. as the case may be. Sub-section (4) says that when any such declaration is made under subsection (3) it shall have overriding effect and "any remedy for the enforcement of any right. We do not think it necessary to labour on the scope of section 22A of the SICA in the present batch of appeals as the BIFR did not pass any order against any company involved herein until the expiry of the period of 15 days from the receipt of notice contemplated in clause (c) of the proviso to section 138 of the NI Act. direct the sick industrial company not to dispose of. notwithstanding anything contained in the Companies Act. As the arguments based on section 22 (1) of the SICA were endeavoured to be fortified with the help of section 22A of the SICA." 10.. obligation and liability suspended or modified by such declaration. we are unable to find any help from the said provision which could salvage the . except with the consent of the Board or. the Appellate Authority. .The Board may.. the said provision is extracted below : "22A Direction not to dispose of assets. assurances of property. if it is of opinion that any direction is necessary in the interest of the sick A industrial company or creditors or shareholders or in the public interest. then. agreements. Sub-section (2) is not of any relevance so far as the points raised in this batch of appeals are concerned. obligations and liabilities accruing or arising thereunder before the said date shall remain suspended. by order in writing. and all proceedings relating thereto pending before any court . So none of the companies was interdicted by such order envisaged in section 22A during the above period of 15 days. settlements. except with the consent of the Board.

13. is against maintainability of the following legal actions : (1) Proceedings for the winding up of the company . 14. Hence. distress or the like as against any of the properties of the company. the Appellate Authority". On its premise learned counsel contended that recovery of the fine covered by such sentence would be impractical on account of the ban envisaged in section 22 (1) of the SICA against proceedings for execution. Switching back to sub-section (1) of section 22 of the SICA. distress or the like against any of the properties of the company. (3) Proceedings for the appointment of a receiver in respect of such properties . 15. It was next contended that the ban against maintainability of a suit for the recovery of . as the case may be. It means that with such consent the court would be in a position to resort to proceedings for distress against the properties of the sick industrial company. the aforesaid contention has no merit at all. 16. (2) Proceedings for execution. as persection 22 (1) of the SICA.P a g e | 95 appellants from the prosecution proceedings against them. The ban imposed. it was submitted that prosecution against the company cannot be maintained since a court would not be able to effectively impose a sentence on a company after convicting it of the offence under section 138 of the NI Act . The fallacy of the above contention is two-fold. Second is. First is that maintainability of a prosecution proceeding is not to be tested on the touchstone of any practical hurdle in enforcing the sentence which might be imposed on a company after conviction. there is no insurmountable hurdle for recovery of the fine covered by the sentence even from a sick industrial company because the ban contained in section 22 (1) is only conditional as could be discerned from the last limb thereof which reads thus : "Except with the consent of the Board or. Some of the learned counsel pointed out that when a company is convicted under section 138 of the NI Act the court can only impose a fine as the sentence since a juristic person like the company cannot possibly be sent to prison. (4) Suits for recovery of money or for enforcement of any security against the company or guarantee in respect of any loan or advance granted to the company . As a corollary. we may printout that its operation commences in respect of the companies involved in this batch of appeals only after the expiry of the period of 15 days envisaged in clause (c) of the proviso tosection 138 of the NI Act within which the companies did not pay the amount covered by the cheques.

indictment. To support the said contention reliance was sought to be made on the following meaning of the word 'suit' as given in Bouvier's Law Dictionary : "Suit is a generic term of comprehensive signification. (supra) is whether the remedy provided in section 29 or 31 of the State Finance Corporations Act. The word 'suit' envisaged in section 22 (1) cannot be stretched to criminal prosecutions. A criminal prosecution is neither for recovery of money nor for enforcement of any security.. The suit mentioned therein is restricted to recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. and applies to any proceeding in a court of justice in which the plaintiff pursues. Once the offence under section 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to the penal liability. Hence. While considering the purpose and objects of suspension of proceedings mentioned in section 22 (1) of the SICA. the context would not admit of any other stretching process. but also a criminal prosecution. the word suit includes not only a civil action. information and a conviction by a magistrate.. etc. Section 138 of the NI Act is a penal provision. in such court. Our attention has also been invited to the observation of a two-Judge Bench of this court in Maharashtra Tubes Ltd. the remedy which the law affords him for the redress of any injury or the recovery of a right .. This is what The Bench has observed: : "The Legislature has advisedly used an omnibus expression "the like" as it could not have perceived of all possible coercive measures that may be taken against a sick undertaking. [1992] 9 CLA 181 (SC)/[1993] 2 SCC 144. 17. As the suit is clearly delineated in the provision itself. the legal-principle adumbrated in the said decision is of no avail to the appellants. the commission of which offence entails a conviction and sentence on proof of the guilt in a duly conducted criminal proceedings. therein it has been held that the expression "proceedings" in the sub-section must be widely construed. 1951 could be pursued notwithstanding the ban contained in section 22 of the SICA. State Industrial & Investment Corporation of Maharashtra Ltd..P a g e | 96 money would encompass prosecution proceedings also.' The said contention is also devoid of merits. . In its most extended sense. 18. What was considered in Maharashtra Tubes Ltd. v." Learned counsel invited our attention to the maxim "contemporanea expositio est optima et fortissimo in lege" (contemporaneous exposition is the best and strongest in law) for the purpose of stretching the scope of the word 'Suit" to envelope criminal prosecution as well. as.

inter . when section 22 (1) of the SICA was amended in 1994 by inserting the words "and no suit for the recovery of money or for enforcement of any security against industrial company or of any guarantee in respect of any loans or advance granted to industrial company". More significantly. for the petitioner. Delhi. 1. petitioner/defendant contending. not liable to be interfered with. 20. TANEJA. K.000. which are assailed before us in this batch of appeals. are.P a g e | 97 19. SHARMA. advocates. necessary provision would have been included in section 141 of the NI Act. dated 4. 31/96 seeking for a decree for recovery of possession and for recovery of damages and mesne profits amounting to Rs. Parliament did not think it necessary to exclude companies falling under section 22 of the SICA from the operation thereof. Special leave petitions heard along with the above appeals are also hence dismissed. The conclusion which we have to draw is that if commission of the offence under section 138 of the NI Act was completed before the commencement of proceedings under section 22 (1) of the SICA there is no hurdle in any of the provisions of the SICA against the maintainability and prosecution of a criminal complaint duly instituted under section 142 of the NI Act. for the respondent JUDGMENT DR. M. The decisions rendered by the High Courts. therefore. dismissing the application filed by the petitioner/defendant under section 22 of the Sick Industrial Companies (Special Provisions) Act. RAJIV NAYYAR with KAMAL MEHTA. .The present revision petition is directed against the order. In the above context.1998 passed by the Additional District Judge. it is pertinent to point out that section 138 of the NI Act was introduced in 1988 when SICA was already in vogue. Advocate. 1985 (hereinafter referred to as the Act). If Parliament intended to exempt sick companies from prosecution proceeding. K. The said suit is pending before the Additional District Judge. Delhi.7 IN THE HIGH COURT OF DELHI S. In the said suit an application came to be filed by the.12. The respondent/plaintiff filed the aforesaid suit being suit No.19. CASE STUDY -. Parliament did not specifically include prosecution proceedings within the ambit of the said ban . Appeals are accordingly dismissed. J. Even when the amplitude of the word 'company' mentioned in section 141 of the NI Act was widened through the Explanation added to the section.

Corromandal Pharmaceuticals reported in (1997) 2 Comp LJ 164 (SC) : AIR 1997 SC 2027.P a g e | 98 alia. 2. and thus are liabilities to be included in the scheme and thus the same cannot be recovered in view of the provisions of section 22 of the Act. it is necessary to extract the provisions ofsection 22(1) of the Sick Industrial Companies (Special Provisions) Act. The Additional District Judge took up the said application for consideration and after hearing the parties dismissed the application. Being aggrieved. contracts. In order to appreciate the contentions of the learned counsel appearing for the parties. 1985. or any other law or the memorandum and articles of association of the Industrial company or any other instrument having effect under the said Act or other law. notwithstanding anything contained in the Companies Act. its case has been referred to the Board for Industrial and Financial Reconstruction (BIFR) under section 15 of the Act. which are extracted below : "22. submitted that the provisions of section 22 of the Act are hot applicable and would not cover a proceeding where decree is sought for either for eviction of the tenant or for payment of damages and mesne profits or for both . . distress or the like against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further. that the defendant company has become sick and. etc. Atleast two judgments of this court were referred to at the bar. except with the consent of the Board or. then. accordingly. 5. 3. It was further stated in the said application that the reference has since been registered by the BIFR and that pursuant thereto. Suspension of legal proceedings. Mr. 1956 (1 of 1956). The aforesaid provision came to be interpreted by the Supreme Court in Deputy Commercial Tax Officer v." 6. the Appellate Authority. the present petition has been preferred. no proceedings for the winding up of the industrial company or for execution. Taneja appearing for the petitioner submitted that as the recovery of damages/mesne profits claimed by the plaintiff from the defendants in this case relate to a period prior to the date on which the defendant was declared sick. as the case may be. They are National Textile . an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending.(1) Where in respect of an industrial company. The aforesaid application was contested by the respondent by contending inter alia that the provisions of section 22 of the Act are not applicable to the aforesaid suit as the said suit has been instituted seeking for decree of recovery of possession and for recovery of damages and mesne profits. 41. Mr. on the other hand. the Board has declared the defendant to be a sick company and IFCI has been appointed as the operating agent[cy] . Rajiv Nayyar appearing for the respondent.

Unless and until the dues in the nature of arrears of rent and damages and mesne profits which is in arrears form part of the scheme for rehabilitation. the said amendment shall have no bearing and relevancy. 7. that to be entitled to stay of the legal proceedings under section 22 a mere pendency of the enquiry would not suffice and to get benefit. No documentary evidence has been produced to show that any scheme has been sanctioned.P a g e | 99 Corporation v. the suit cannot be stayed even for the recovery of such damages/mesne profits. in my considered opinion. section 22 cannot stand as a hurdle in the way of a suit for possession. It also does not in any manner bring about a change in the legal proposition laid down in Shree Chamundi Mopeds (1992) 2 Comp LJ 121 (SC). supra. however. Madras reported in (1992) 2 Comp LJ 121 (SC) : AIR 1992 SC 1439. Therefore. it would be reasonable to hold that the bar or embargo can apply to such of those dues reckoned or included in the sanctioned scheme. in view of the provisions of section 22 of the Act. for the landlord cannot be deprived of the amount which is legitimately due to him and such amount cannot be withheld indefinitely and unreasonably. There is no scope to agitate that the suit seeking for eviction and recovery of possession should be stayed in view of the provisions ofsection 22 of the Act. Kuldip Singh Lamba reported in (1998) 1 Comp LJ 30 (Del) : (1997) 67 DLT 870 . v. (1998) 1 Comp LJ 30 (Del). In Shree Chamundi Mopeds Ltd. took notice of the aforesaid factors laid down by the Supreme Court. This court in Sirmor Sudburg Auto Ltd. a reasonable construction should be given to the language of the provisions of the Act which is not unfair and also not unreasonable. The said . Although the Supreme Court decision was rendered in the light of unamended provisions of section 22 and the amended provisions relate not only to legal proceeding. supra. 9. supra. It was also held that section 22 (1) is also not attracted to the dues incurred after the date of sanctioned scheme. 8. continuation of the suit so far as it relates to the recovery of mesne profits and damages is required to be stayed . but also to suit. which according to the counsel for the petitioner were dues relating to the period prior to the date when the petitioner was declared sick and. In view of the aforesaid proposition of law laid down by the Supreme]Court. is not the end of the matter. supra. therefore. This. The Additional District Judge has also considered the aforesaid aspect and has held that as the recovery of damages/mesne profits claimed by the plaintiff from the defendant in the present case are not included in the sanctioned scheme of the Board. It was held in the case of Deputy Commercial Tax Officer (1997) 2 Comp LJ 164 (SC). Smt. Church of South India Trust Association. there could be no two opinions on the effect thereof. v. for the present suit was also instituted for recovery of mesne profits and damages. Kamla Sharma reported in (1997) 3 Comp LJ 94 (Del) : (1997) 2 AD Del 281 and Sirmor Sudburg Auto Ltd. As is held in Corromandal Pharmaceuticals case (1997) 2 Comp LJ 164 (SC). one has to show that the dues have been reckoned or included in the sanctioned scheme. there could be no embargo or bar to realise such arrears of rent and mesne profits and damages. it was held by the Supreme Court that though the language of section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started till after implementation of the scheme or disposal of an appeal.

CONCLUSION The intrinsic Characteristics governing a model recognized restructuring process in any part of the planet are universal if not similar though they may be prearranged differently. 1985 is planned. 20. The best advice here would be. Sick Industrial Companies Special Provisions Act. do not find any error in the exercise of jurisdiction by the trial court. The petition has no merit and is dismissed accordingly. 10. As the Companies Bill 2009 which changes the entire framework of laws relating to corporate has been pending to be passed.P a g e | 100 conclusions are in consonance with the ratio of the decision laid down by the Supreme Court. therefore. . As it is always said something is better than nothing same applies here keeping sick companies and rehabilitating them will be a better option instead of closing down the organization. I. any good legislative framework for its triumph is dependent upon effective judicial process attached to efficient implementation apparatus. the idea of a new legislative framework in regard to sick companies is futile. on the above principles. Not only we are required to bring about changes in implementation process but also we need to change our thought process towards rehabilitation of sick companies. The issue which. The call for commercial approach towards sick companies is called for and it is the need of the hour in this era of globalization. arises for deliberation and discussion is as to why SICA has been called as a fractured regime and why it has been a fiasco in rehabilitation of sick companies. Attempt towards rehabilitation is required rather than just helping the organization in becoming bankrupt. thus. more or less.

P a g e | 101 CHAPTER III BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUSTION (BIFR) SYNOPSYS: 1) INTRODUCTION 2) OBJECTIVES OF THE ACT 3) BIFR AND AAIFR 4) ORGANISATIONAL STRUCTURE OF BIFR 5) PROCEDURE IN NUTSHELL 6) REPORTING TO BIFR 7) ENQUIRY BY BIFR INTO WORKING OF SICK INDUSTRIAL COMPANIES (SEC-16) 8) ROLE OF BIFR 9) SARFAESI ACT 10) PROCEDURE FOR LISTING OF REFERENCES AND MISCELLANEOUS APPLICATIONS IN BIFR 11) BIFR AND NCLT & NCLAT 12) EVOLUTION OF THE POLICY TOWARDS SICK COMPANIES AND ROLE OF BIFR IN THEIR REVIVAL 13) TIMING AND SEQUENCING UNDER SICA 14) REVIVAL PACKAGE 15) REGISTERED CASES 16) YEAR WISE PERFORMANCE OF BIFR 17) EXTENT OF SICKNESS IN JOINT & PRIVATE SECTOR COMPANIES REFERRED TO BIFR 18) STATE WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND CASES DISPOSED OFF BY BIFR 19) INDUSTRY WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND DECISION TAKEN BY BIFR 20) DRAWBACKS OF BIFR a) PROCEDURAL DELAYS b) LACK OF TIMELY COMMENCEMENT OF PROCEEDINGS 21) CASE STUDY (10) 22) CRITICISM .

The Committee further recommended the setting up of a quasi-judicial body called Board for Industrial Revival under special legislation to deal expeditiously and exclusively with the matters The high level committee while making recommendations governing merger of sick units with healthy ones recommended that in order to avoid a heavy drain on the exchequer it was necessary . In 1981. therefore. The Committee. A high level Committee appointed by the Government in 1976 opined that the existing legislation may be suitably amended to merge sick units with healthy ones. The Committee headed by T. In 1978 the RBI drew the attention of the banks in dealing with sick industrial units in thesmall scale sector. Tiwari opined that "The remedies as available in terms of various existing statutes for reviving and rehabilitation of sick industrial units are inadequate and dilatory".both public and private. the Government decided to refer the sick units receiving rehabilitation assistance from banks to the IRCI and the units receiving assistance from term lending institutions to the Industrial Development Bank of India. the banks and the financial institutions in view of the responsibility taken up by the Government in industrialising the country in various forms particularly through the deployment of huge financial resources in industrial ventures -. stressed the need for comprehensive legislation designed to deal with the problems of sick industrial units.P a g e | 102 23) BIFR A FIASCO BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUSTION --BIFR 1. the RBI appointed a Committee to examine the legal and other problems faced by the banks and financial institutions in rehabilitation of sick industrial units and to suggest remedial measures for effectively tackling the problem of sickness. In order to have a coordinated approach at all-India level. The financial institutions have also been engaged in providing assistance to sick units by setting up separate cells with technical and financial experts to deal with the problem of sickness. The "Statement on Policy of Sick Industries" announced by the Government in 1978 aimed at devising suitable means for dealing effectively with sick industrial units and also setting up a mechanism for monitoring and detecting sickness at an early stage. In 1980 state level inter-institutional committees were set up to tackle the problem of sickness. In the past various efforts were made by the Government in consultation with the Reserve Bank of India (RBI) to tackle the problem of sick units.INTRODUCTION Evolution of the Policy towards Sick Companies and Role of BIFR in their Revival The sizable magnitude and incidence of sickness has been a serious concern for the Government. The first such step was taken in 1971 to set up Industrial Reconstruction Corporation of India Ltd (IRCI) to provide reconstruction and rehabilitation assistance to sick and closed units.

led to the enactment of SICA. While. We may also note that the mere fact that the net worth has become positive does not provide an automatic exit route from the proceedings before the BIFR. The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) was constituted in April 1987. OBJECTIVES OF THE ACT A perusal of the statement of objects and reasons encapsulated in Sick Industrial Companies (Special Provisions) Act. 1987 and functional with effect from 15th May. Government companies were brought under the purview of SICA in 1991 when extensive changes were made in the Act including. AAIFR was constituted for hearing the appeals against the orders of the BIFR. inter-alia. changes in the criteria for determining industrial sickness. 1987. 3. loss of employment. BIFR AND AAIFR The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in January. BIFR was set up as an apex board to tackle industrial sickness and was entrusted with the work of taking appropriate measures for revival and rehabilitation of potentially sick undertakings and for liquidation of non-viable companies. loss of revenue to Central and State Governments and the blockage of liquid funds of the banks and financial institutions given in the form of financial assistance.P a g e | 103 to explore ways in which potentially viable sick industrial units can be revived through voluntary merger with sound units for which a specific scheme should be drawn up to supplement the existing provisions regarding merger and reconstruction under the Companies Act. the legislature in its wisdom decided to enact a special law to deal with the industrial sickness. Therefore. . It is open to the BIFR to continue to monitor the implementation of the unimplemented part of the sanctioned scheme till it is satisfied that operations of the sick industrial company have long term sustainability. ). 1985 (SICA) clearly indicates that the intention of the Legislature is to overcome the ill-effects of industrial sickness such as loss of production. 1956 2.

P a g e | 104 4. ORGANISATIONAL STRUCTURE OF BIFR .

Such a reference to the board may be made by:– (i) The Central Government. unless all or any of the industrial undertakings (belonging to such a company) were situated in that State. However. 1956 or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company. under the following conditions:– If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. (ii) a public financial institution or a State level institution or a scheduled bank. unless it had. (iii) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement. . by reason of any financial assistance or obligation rendered by it or undertaken by it. Any special director so appointed shall :– (i) hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board. If the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company. interest in such a company. Such reference was to be made within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company had become sick. PROCEDURE IN NUTSHELL BIFR would make an inquiry as it may deem fit for determining whether any industrial company had become sick. (ii) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto. (iii) State Governments. (ii) The Reserve Bank of India. or On receiving such information (reference) with respect to a sick company or upon its own knowledge as to the financial condition of a company. For filing the reference. or (vi) Scheduled banks. (iv) Public financial institutions. (v) State level institutions. The Board may order any Operating Agency to enquire into the matter and complete the inquiry as expeditiously as possible.P a g e | 105 5. it may appoint one or more persons as Special Director(s) of the company for safeguarding the financial and other interests of the company. such a reference shall not be made in respect of any industrial company by :– (i) the Government of any State. the Board of Directors must have sufficient reasons to form the opinion that the company had become sick. The appointment of a special director shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act.

consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above. The sale or lease of a part or whole of the sick industrial company.P a g e | 106 (iv) not be liable to be prosecuted under any law for anything. – If the Board decides that it is not practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures in relation to the said company. Also. give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. it may. . as soon as may be. by order in writing. or advance granted to the industrial company shall lie or be proceeded with further. 1956. order winding-up of the sick industrial company in accordance with the provisions of the Companies Act. – If the Board is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up. after considering all the relevant facts and circumstances of the case. it shall. Where in respect of an industrial company. it may record and forward its opinion to the concerned High Court. except with the consent of the Board or. distress or the like against any of the properties of the industrial company shall be made. the Board is satisfied that the company has become sick. on the basis of the opinion of the Board. an inquiry is pending. by order in writing and subject to such restrictions or conditions as may be specified in the order. then no proceedings for the winding-up of the industrial company or for execution. direct any operating agency specified in the order to prepare a scheme providing for such measures in relation to that company. no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans. it shall. done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company. The proper management of the sick industrial company by change in or take over of the management of the company. The High Court shall. Such other preventive. as the case may be. The measures may include:– The financial reconstruction of the sick industrial company. If after making an inquiry. The amalgamation of the sick industrial company with any other company (transferee company). or any other company with the sick industrial company (transferee company). the Appellate Authority. may take either of the following decisions:– If the Board decides that it is practicable. Such incidental. ameliorative and remedial measures as may be appropriate. or any scheme referred is under preparation or consideration or a sanctioned scheme is under implementation.

to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order. The Board is empowered. the scheme prepared by the operating agency can also provide for various measures as delineated in clauses (a) to (m) of sub-section (2) of Section 18. which may be extended by one year at a time so that the total period shall not exceed seven years in the aggregate. not so or it is of the opinion that it is expedient in public interest to adopt all or any of the measures provided in section 18 of the SICA. settlements. if it so desires. section 17. privileges. to appoint one or more persons as a special director(s). In . obligations and liabilities accruing or arising thereunder before the said date. then an operating agency is required to prepare a scheme ordinarily within a period of 90 days. standing orders or other instruments in force. whosoever violates its provisions or any scheme or any order of the Board or of the Appellate Authority. the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts. It is mandatory for the Board of Directors of the sick company to file reference under Section 15 of SICA on erosion of entire net worth of the company. and the operating agency. it can appoint an operating agency to formulate a scheme for revival of the company (reference. shall remain suspended or that all or any of the rights. However. awards. shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board. such declaration shall not be made for a period exceeding two years. Once such a scheme is prepared by an operating agency it is required to be examined by the BIFR. Upon inquiry once the BIFR comes to the conclusion that the referrer is a sick Industrial company. agreements. Once a reference is filed. Such a scheme can provide for measures which are necessarily broad and wide as contained in clauses (a) to (f) of sub-section (1) or section 18. to the sick industrial company.P a g e | 107 Also with respect to the above conditions. amalgamation is proposed in the scheme as a measure of revival. Under the Act. if it is. The BIFR thereafter is required to send the scheme (which at that point of time is only a draft scheme) with modifications if it so chooses. assurances of property. shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine. In the event. the Board for Industrial and Financial Reconstruction (BIFR / Board) is empowered to make enquiry to examine the sickness status of the company. then such a draft scheme is also sent to any other company which is concerned with the amalgamation. In addition. the Board has to take a view as to whether it is practicable for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time on its own or. If the BIFR passes an order under Section 17(3). No court shall take cognizance of any offence mentioned except on a complaint in writing of the secretary or any such other officer of the Board or the Appellate Authority or any such officer of an operating agency as may be authorised in this behalf by the Board or the Appellate Authority. sub-sections (2) and (3)).

1956 for amalgamation sanctioned by BIFR. Once BIFR is convinced about the rehabilitation benefit it passes an appropriate order to see that benefits of tax concessions properly ensure to the transferee isolation Section 18 of SICA provides for various measures to be recommended by the operating agency in . or employees of the said companies. guarantors.391-394 of companies Act. sec. published in daily newspapers as considered necessary by the BIFR it (section 18 (3)(u)). creditors. The approach usually followed is to quantify the possible tax benefits first and then get an order as part of rehabilitation package from BIFR. discharge the functioning and duties imposed on the Board by or under the Act. The amalgamation take place under SICA have a special place in law and are not bound by the rigor of companies Act. the power to sanction the scheme of amalgamation was vested only with the high court. However. 1956. as also the shareholders. The BIFR has been conferred the power of reviewing a sanctioned scheme under sub-section (5) of section 18. once a scheme gets sanctioned then it is presumed that all requirements of the scheme relating to reconstruction or agreement or any other measures have been complied with. the transferee company. Once the scheme becomes operable or any of its provisions become operative. or as the case may be . The accumulated losses and unabsorbed depreciation of the amalgamating company is deemed to loss or allowance for depreciation of the amalgamated company. and Income Tax Act. A certificate from specialized authority to the effect that adequate steps have been taken for rehabilitation or revival of sick industrial undertaking has to be obtained to get these benefits. There is no need to comply with the provisions of sec. The scheme of amalgamation however must be approved by shareholders of healthy company after getting approval from BIFR.such other company.1961.) Before the evolution of SICA. it binds the sick industrial company. U/s (12) of Section 18 the BIFR has been given the power to periodically manage the implementation of the sanctioned scheme. However. So amalgamated company gets the advantage of unabsorbed depreciation and accumulated loss on the precondition of satisfactory revival of sick unit.P a g e | 108 order to invite suggestion and objections the BIPR is required to get such a draft scheme in brief. Sec.18 of the SICA 1985 empowers the BIFR to sanction a scheme of amalgamation between sick industrial company and another company over and above the power of high court as per section 391-394 of companies Act.72A of the Income Tax Act has been enacted with a view to providing incentives to healthy companies to takeover and amalgamation with companies which would otherwise become burden on the economy. Thus the main attraction for the healthy company to takeover a sick company through a scheme of amalgamation is the tax benefits that may be available to it consequent to amalgamation. U/s 18(10) the BIFR is empowered to direct a specified Operating Agency to implement the sanctioned scheme in consonance with the terms and conditions contained therein and in relation to such a sick industrial company. A certified copy of the sanctioned scheme issued by the officer of the BIFR can be admitted as evidence in all legal proceedings. 1956. The power of removing difficulties vis-à-vis a sanctioned is conferred on the BIFR u/s 18(9) provided such an order or direction is not inconsistent with the provisions of the sanctioned scheme.

a company that owns a factory wherein it carries on any of the industries specified in the schedule to the Industries (Development and Regulation) Act. Before the amendment. only normal amalgamation (of sick company with healthy one) was possible and the Act did not provide for reverse merger of a profitable company with sick company. though this recommendation can be made only after hearing all concerned.P a g e | 109 the scheme to be prepared by it for submission to the BIFR concerning the sick industrial unit. or if an appeal against BIFR‘s order is pending. In order to provide a protective umbrella to a sick industrial company section 22. the State Government. Now the amended Sec. the scheme becomes binding on all concerned. Section 22A — empowers the BIFR to issue necessary direction to the sick industrial company to desist from disposing of its assets during preparation or consideration of the Scheme under section 18 and during commencement of the proceedings for winding up before the concerned High Court. the BIFR can recommend its winding up to the concerned High Court. shall override all other laws except the Foreign Exchange Regulations Act. i. guarantees or relief and concessions or calls upon them to make sacrifices in relation to financial assistance already granted by such entitles [sections 19(1) and (2)]. In view of the aforesaid provisions there can hardly be any doubt that once a scheme is formulated after a reference is made through the process of Sections 17 & 18 of the SICA. Section 22 of SICA provides that legal proceedings against an industrial company – that is. the said scheme .e. 1976. and if already instituted suspension. SICA provides for obtaining their consent to the draft scheme where the Scheme provides for financial assistance by way of loans and advances. in 1994 under SICA. the sanctioned scheme.. of legal proceedings of the kind referred to in the said section except with the consent of the BIFR or the AAIFR as the case may be. the Banks or even Public Financial Institutions or State Level Institutions or any institutions or authority. It may be pointed out that insofar as certain concerned entities such as the Central Government. 1973 and the Urban Land (Ceiling & Regulations) Act. It provides for the amalgamation of Sick industrial company with any other company Any other company with the sick industrial company. after making an inquiry under section 16 and after considering all relevant facts and circumstances. 1951 – shall remain suspended if an inquiry to determine whether the industrial company is sick is pending before the Board for Industrial and Financial Reconstruction (BIFR). of SICA provides for bar against institution. if a scheme for its rehabilitation is being prepared or is under consideration of BIFR. forms an opinion than it is not possible for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations. If for any reason the BIFR. Section 32 of SICA provides that the provisions of the scheme formed under the SICA.18 of the Act contains provision for effecting both normal and reverse merger. Once the process under sub-section (2) of section 19 is over. Any party aggrieved by an order of the BIFR may file an appeal u/s 25 before the Appellate Authority of Industrial & Financial Reconstruction (AAIFR).

the Government of India enacted a special legislation namely.2003. shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine. Sick Industrial Companies (Special Provisions) Act. the Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) were dissolved and replaced by National Company Law Tribunal (NCLT) and National Law Appellate Tribunal (NCLAT) respectively The companies (Amendment) Act. Based on the recommendations of the Committee. the Sick Industrial Companies (Special Provisions) Act. 1985 (1 of 1986) commonly known as the SICA.Tiwari to examine the matter and recommend suitable remedies therefore. 2001 has repealed the sick Industrial Companies Act (SICA) 1985. in order to bring sick industrial companies within the purview of companies Act 1956 from the jurisdiction of SICA. It aimed not only to combat industrial sickness but also to reduce the same by ensuring that companies do not view declaration of sickness as an escapist route from legal provisions after the failure of the project or similar other reasons and thereby gain access to various benefits or concessions from financial institutions. a Committee of Experts under the Chairmanship of Shri T. Under it. The Act has introduced new provisions for the constitution of a tribunal known as the National Company Law Tribunal with regional benches which are empowered with the powers earlier vested with the Board for Industrial and Financial reconstruction (BIFR). The new Act diluted some of the provisions of SICA and plugged certain loopholes. No court shall take cognizance of any offence mentioned except on a complaint in writing of the secretary or any such other officer of the Board or the Appellate Authority or any such officer of an operating agency as may be authorised in this behalf by the Board or the Appellate Authority. 1985 for detection of sick and potentially sick industrial units and speedy determination pf their remedial measures and to exercise the jurisdiction and powers and In the wake of sickness in the country‘s industrial climate prevailing in the eighties. the Government of India set up in 1981. .P a g e | 110 would have the force of law notwithstanding anything inconsistent therewith contained in any other law Under the Act. (Note: Board for Industrial and Financial Reconstruction (BIFR) was established by central government under SICA. 1985.1985 (SICA) was repealed and replaced by Sick Industrial Companies (Special Provisions) Repeal Act. whosoever violates its provisions or any scheme or any order of the Board or of the Appellate Authority.

e. (c) The criteria to determine sickness in an industrial company are (i) the accumulated losses of the company to be equal to or more than its net worth i. (b) not being "small scale industrial undertakings or ancillary industrial undertakings" as defined in Section 3(j) of the IDR Act. the speedy determination by a body of experts of the preventive. inter-alia. (b) If the Board feels that it is not practicable for a company to make its net worth positive within Reference of Sick Companies to BIFR . The Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) was constituted in April 1987. 1985 (hereinafter called the Act) was enacted with a view to securing the timely detection of sick and potential sick companies owning industrial undertakings. (a) Section 17 of SICA specifies that if after making an enquiry under section 16. ameliorative. the Board is satisfied that the company became sick it should examine whether it is practicable for the company to make its net worth positive within a reasonable time. Government companies were brought under the purview of SICA in 1991 when extensive changes were made in the Act including. the locked up investments in unviable units would get released for productive use elsewhere. an order is passed under section 17(2) of the Act specifying the time for making the net worth positive. If the Board decides that it is so practicable. What time is 'reasonable' will again depend on the facts and circumstances of the case. idle investments in sick units will become productive and by closure. remedial and other measure which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. changes in the criteria for determining industrial sickness. 1987 and functional with effect from 15th May 1987. subject to such conditions or restrictions as may be mentioned in the order. its paid up capital plus its free reserves (ii) the company should have completed five years after incorporation under the Companies Act. 1951. The Sick Industrial Companies (Special Provisions) Act. 1956 (iii) it should have 50 or more workers on any day of the 12 months preceding the end of the financial year with reference to which sickness is claimed.P a g e | 111 The main objective of SICA is to determine sickness and expedite the revival of potentially viable units or closure of unviable units (unit here in refers to a Sick Industrial Company). It was expected that by revival. (iv) it should have a factory license. SICA applies to companies both in public and private sectors owning industrial undertakings:(a) pertaining to industries specified in the First Schedule to the Industries (Development and Regulation) Act. The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in January. (IDR Act) except the industries relating to ships and other vessels drawn by power and.

an operating agency is appointed under section 17(3) of the Act. transportation and misc. 1992. For details on the references see: M. rubber. 1994. It may also. a scheme is sanctioned under section 18(4) of the Act. under sub-section (2) or (3). 1992 were covered in the volumes of case studies. paper. leather. 7. and after one or more hearings where it is discussed with all concerned. industries were covered up to December 31. There is.6 . jute. 1956. In respect of textiles. a possibility of overlapping in the reported number of references as references could be made under both sections 15(1) and 15(2) of the Act for the same industrial concern. The balance 366 references were under various stages of processing by the BIFR as on December 31. it may record its opinion and forward it to the concerned High Court. involvement of heavy amount of public funds. the industry being a strategic one from defence point of view and being lone industrial unit of significance in backward area are the main criteria for deciding public interest. There was no uniform time period for references received and cases disposed off by the BIFR. however. In the case of chemicals and food processing industries references received up to December 31. For further details see: BIFR. (c) After consideration of all the relevant facts and circumstances if the Board is of the opinion that if the company should be wound up. a rehabilitation scheme is prepared. XXIX. If the Board is satisfied that the revival of the company is in the public interest. February 12. Rehabilitation schemes were sanctioned in 257 cases and in 170 cases the Board recorded its decision to wind up the companies and forwarded its decision to the concerned High Courts. electricals and electronics.2). Employment of large number of persons. 1991 and in case of metallurgical up to December 1990. 362-376. No.P a g e | 112 Of the 1175 cases referred to the BIFR till the end of December 1992. A further 167 sick companies were allowed time to make their net worth positive (See Table . the Board may also cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529-A and other provisions of the Companies Act. Narayanan. 215 were found to be not maintainable. "Industrial Sickness: Review of BIFR's Role". Economic and Political Weekly. cement and cement products. pp.S. Vol.

Such interested parties may be the financialinstituti on/bank that has lent loan to the company. to report thesickness to the BIFR within 60 days of finalization of audited accounts.it is the Lead Bank that should report to the BIFR about the sickness under advice toother participating banks in the consortium. any other interested person/party can also report the fact of sickness of a company to the BIFR. if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1).P a g e | 113 6. (3) The Board or. require by order any operating agency to enquire into and make a report with respect to such matter as may be specified in the order. While reporting by a company of its sickness to the BIFR is mandatory as per the provisions of law. 7. the RBI. The BIFR has prescribed a different format for the report to be submitted by such interested parties. BIFR has prescribed a format for this report. REPORTING TO BIFR The Board of Directors of a sick industrial company is required. When a company has been financed by a consortium of banks. as the case may be the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry. by law. or (b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. ENQUIRY BY BIFR COMPANIES (SEC-16) INTO WORKING OF SICK INDUSTRIAL (1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company - (a) upon receipt of a reference with respect to such company under section 15. . for the financialyear at the end of which the company has become sick. the Central/StateGovernments. (2) The Board may.

(b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto. under sub-section (2). (5) The appointment of a special director referred to in sub-section (4) shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act. as the case may be.P a g e | 114 Explanation: For the purposes of this sub section.section (4) shall - (a) hold office during. (4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or. (4A) The Board may issue such directions to a special director appointed under sub-section (4) as it may deem necessary or expedient for proper discharge of his duties. the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board. it may appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company or in the public interest. and any provision regarding share qualification. (c) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement. number of directorships. age limit. shall not apply to any director appointed by the Board. 1956 (1 of 1956) or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company. . (6) Any special director appointed under sub. an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board. removal from office of directors and such like conditions contained in any such law or instrument aforesaid.

Clause (b) of Section 16(1) contemplates an inquiry in a situation where the BIFR undertakes such inquiry upon information received with respect to a company or upon its own knowledge as to the financial condition of such a company.P a g e | 115 (d) not be liable to be prosecuted under any law for anything. State level institution. inasmuch as the expression used is :. At this juncture we would like to point out that the definition of "operating agency" given in Section 3(1)(i) is as follows:  "(i) "operating agency" means any public financial institution."  A plain reading of Section 16(1) of SICA would indicate that the prime duty of the BIFR in making an inquiry is for the purpose of determining whether an industrial company has become a sick industrial company or not.  By virtue of sub-section (2) of Section 16 of SICA. the BIFR may require an operating agency to inquire into and make a report with respect to such matters as may be specified in the orders passed by the BIFR in this regard. either upon receipt of a reference or upon information. We may also mention that by virtue of Section 16(3). the BIFR has to make an inquiry for determining whether the industrial company in question has become a sick industrial company or not. Of course. We may recall that the reference under Section 15 may be made either at the instance of the Board of Directors of the company which purports to be a sick industrial company or under Section 15(2) at the instance of the Central Government. Of course. In either eventuality. it is apparent that all endeavours are to be made to complete the inquiry as expeditiously as possible and within a period of sixty days from the commencement of the inquiry. where such institution has sufficient reasons to believe that an industrial company has become a sick industrial company. Reserve Bank etc. the type and kind of inquiry that the BIFR has to make has been left to the BIFR. the operating agency has to be appointed by the BIFR by a general or a special order as its agent for the purposes of making a report. scheduled bank or any other person as may be specified by general or special order as its agency by the Board. done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company."  In other words. The explanation to Section 16(3) makes it clear that an inquiry is deemed to commence upon the receipt by the Board of a reference or upon its . that is. in cases where the BIFR deems it necessary or expedient so to do for the expeditious disposal of an inquiry under Section 16(1). sub-section (1) of Section 16 has two parts. Clause (a) of Section 16(1) refers to a situation where the Board embarks upon an inquiry upon receipt of a reference under Section 15 of SICA."the Board may make such inquiry as it may deem fit".

It is not open to the BIFR to reject a reference without returning a finding as to whether the company in question has become a sick industrial company or not.  It is clear from the above resume with regard to the provisions of Section 16 of SICA that it is incumbent upon the BIFR to conduct an inquiry for the purpose of determining whether the industrial company has become a sick industrial company or not. such an inquiry has to be conducted for determining whether the industrial company has become a sick industrial company or not. but as provided under Section 16(2). In any event. the BIFR may appoint an operating agency and require it to inquire into and make a report with respect to the matters which may be specified in the order. The said Chapter IV deals with inquiries under Section 16. The inquiry has to be conducted by the BIFR itself.2005. to inquire into and make a report in respect of such matters as may be specified in the said order. Consequently. direct by an order. it is imperative that once a reference is received. an operating agency.03. .  In the present case since a reference has been made by the Board of Directors of the petitioner company under Section 15(1).P a g e | 116 own knowledge reduced to writing by the Board. By virtue of Regulation 22 the BIFR may also direct the operating agency to make a further inquiry if deemed necessary. for the expeditious disposal of the said inquiry. but unfortunately that did not happen and even the first date on which the petitioners reference was taken up by the Board was much later. where it is necessary for expeditious disposal of an inquiry and where the BIFR deems it expedient to do so. on 22.  What has been stated by us is also borne out in Chapter IV of the Board of Industrial and Financial Reconstruction Regulations.07. Such inquiry has to be conducted upon receipt of a reference under Section 15 or upon information received by the BIFR. for determining whether the company in question has become a sick industrial company or if it deems it necessary or expedient so to do. the BIFR should have endeavoured to complete the inquiry within sixty days thereof. to be specified in the order. whether the inquiry is conducted by the Board itself or through an operating agency. the inquiry would be deemed to have commenced on the date on which the reference was received. Anyhow. on 12. Regulation 21 specifically provides that upon a reference with respect to an industrial company under Section 15 or upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. 1987 (hereinafter referred to as the "said regulations"). as it may deem fit. the BIFR may either itself make such inquiry.2006. if we were to strictly comply with the provisions of Section 16(3) of SICA. that is another aspect of the matter with which we are not concerned in this writ petition. that is.

banks. it shall drop further proceedings in the reference. is satisfied that no case exists for coming to the conclusion that the industrial company has become a sick industrial company."24. the further report of the operating agency. experts. Consequently. Regulation 24 makes it clear that upon either of the two eventualities. consultants. It reads as under: . banks or other institutions. it would then. consultants. on the other hand. Regulation 40 reads as under:   "Assistance to the Board. as the case may be. as mentioned above. Where the Board after completion of its inquiry or after considering the report or. They placed reliance on Regulation 40 for the proposition that the IA report submitted by M/s ANG and Associates would fall within such assistance as contemplated under this Regulation. The learned counsel for the respondents had referred to Regulation 40 in order to submit that it is open to the BIFR to take assistance of public financial institutions. This regulation also makes it clear that it is imperative for the BIFR to record its satisfaction with regard to the question as to whether the concerned company has become a sick industrial company or not. at any time. If." . have to determine as to whether the said company is one which has potential for revival and rehabilitation or one where revival is not a viable option.P a g e | 117  Regulation 24 is important. chartered accountants etc. it was submitted that the Board committed no error in relying upon the IA report in so far as the petitioner company is concerned. in furtherance of its functions. surveyors and such other technical and professional persons as it may consider necessary and ask them to submit report or furnish any information. The Board may. We have already pointed out the courses that would be followed in either eventuality. the party or parties to the inquiry shall be given a reasonable opportunity of making his or their submissions with respect thereto. other institutions. chartered accountants. it shall drop further proceedings in the reference. the BIFR comes to the conclusion and is satisfied that the company in question has become a sick industrial company. as the case may be.  Provided that if the report or information so obtained or any part thereof is brought on record of any inquiry and is proposed to be relied upon by the Board for forming its opinion or view."  It is clear that as per the said Regulation 24 also two situations are contemplated (1) completion of the inquiry by the Board itself or (2) after considering the report of the operating agency or further report of the operating agency. experts. if the BIFR is satisfied that no case exists for coming to the conclusion that industrial company has become a sick industrial company. take the assistance of public financial institutions. If the satisfaction recorded indicates that the company in question is not a sick industrial company then further proceedings in the reference are to be dropped.

On the contrary. on 12. inasmuch as it contemplates that the BIFR may ask any of the said institutions. All that the BIFR did was to reject the reference on the plea that the petitioner company had not approached the BIFR with clean hands. As we have noticed above. BIFR. consultants. once a reference is received by the BIFR it has to make an inquiry for determining whether the company in question has become a sick industrial company or not. the date on which the reference received by the BIFR. Therefore. once it receives a reference from the Board of Directors of the company. we find that he BIFR did not return any such finding either way. or On receiving such information (reference) with respect to a sick company or upon its own . In the present case. under the following conditions:If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. Irrespective of the alleged conduct of the petitioner company. is duty bound to determine as to whether the company has become a sick industrial company or not.2005. we find that no such inquiry. in fact. the assistance that is contemplated in Regulation 40 is one which would be sought after the commencement of the inquiry by the BIFR and not some pre-existing report. The occasion for the BIFR to do so would arise only after it commences an inquiry. In the present case. we are of the clear view that the BIFR. as contemplated under Section 16 of the SICA. The language is clear. Such reference was to be made within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company had become sick.07. did not give any finding in so far as the IA report in respect of the petitioner company is concerned BIFR would make an inquiry as it may deem fit for determining whether any industrial company had become sick. in this case. the Board of Directors must have sufficient reasons to form the opinion that the company had become sick. to submit a report or furnish information. For filing the reference. We are of the view that this approach is not in consonance with the law. was embarked upon by the BIFR. The BIFR also rejected the reference on the ground that no reply to the IA report had been submitted by the petitioner company despite repeated opportunities. inasmuch as there were serious allegations in the IA report submitted by M/s ANG and Associates.P a g e | 118  One thing that immediately strikes us is that the assistance that is spoken of in Regulation 40 is invited at the instance of the BIFR. chartered accountants etc. the inquiry commenced.  Having surveyed the various statutory provisions as well as the applicable regulations.

P a g e | 119 knowledge as to the financial condition of a company. Such a reference to the board may be made by:. If after making an inquiry. The proper management of the sick industrial company by change in or take over of the management of the company. interest in such a company. If the Board decides that it is not practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures in relation to the said company. such a reference shall not be made in respect of any industrial company by :. However. (ii) The Reserve Bank of India. it may appoint one or more persons as special director(s) of the company for safeguarding the financial and other interests of the company. The appointment of a special director shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act. it may. . by order in writing. The Board may order any operating agency to enquire into the matter and complete the inquiry as expeditiously as possible. (iv) Public financial institutions. The measures may include:  The financial reconstruction of the sick industrial company. it shall. by reason of any financial assistance or obligation rendered by it or undertaken by it. (iii) State Governments. direct any operating agency specified in the order to prepare a scheme providing for such measures in relation to that company. it shall. 1956 or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company.(i) The Central Government. give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. may take either of the following decisions:If the Board decides that it is practicable. (ii) a public financial institution or a State level institution or a scheduled bank. by order in writing and subject to such restrictions or conditions as may be specified in the order. the Board is satisfied that the company has become sick. or (vi) Scheduled banks. unless all or any of the industrial undertakings (belonging to such a company) were situated in that State. after considering all the relevant facts and circumstances of the case.(i) the Government of any State. as soon as may be. unless it had. If the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company. (v) State level institutions.

P a g e | 120  The amalgamation of the sick industrial company with any other company (transferee company). The BIFR invites the representatives of theinformant sick company. it may record and forward its opinion to the concerned High Court. consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above.  The sale or lease of a part or whole of the sick industrial company. to the hearing and inquiry is made under section 16 of the Act. ameliorative and remedial measures as may be appropriate. trade unionrepresentatives etc.. If the Board is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up. cooperation of various connected agencies is a must.  Such other preventive. the BIFR will declare whether the company is sick . the BIFR accepts the case and notifies a date for hearing thecase. On completion of the enquiry. Leadinstit ution is one that has major financial stake in the sick company. it is verified by the Registrar of the BIFR as towhether the facts of the case fall within the provisions of the Sick Industrial (Special provisions) Act. the BIFR itself may conduct a study or entrust the work to an‗operating agency‘ appointed by it to determine whether the company is in fact sick.This co-ordination is achieved by the BIFR. order winding-up of the sick industrial company in accordance with the provisions of the Companies Act. 1956.After the hearing. on the basis of the opinion of the Board. the representatives of concerned financial institutions andcommercial banks. The enquiry is to becompleted within 60 days. For rehabilitating a sick unit. or any other company with the sick industrial company (transferee company). representatives of the Central/State Governments. IFCI.  Such incidental. ICICI. Normally. The High Court shall. 1985. the lead financial institution (IDBI. When a case is referred to the BIFR. SFC) or the lead public sector bank that has financed the company is nominated as the operating agency. If so.

obligations and liabilities accruing or arising there under before the said date. or advance granted to the industrial company shall lie or be proceeded with further. such declaration shall not be made for a period exceeding two years. which may be extended by one year at a time so that the total period shall not exceed seven years in the aggregate. Where in respect of an industrial company. as the case may be. amalgamation of companies etc. awards. ROLE OF BIFR BIFR deals with issues like revival and rehabilitation on sick companies. Also with respect to the above conditions. or any scheme referred is under preparation or consideration or a sanctioned scheme is under implementation. institutional finance to sick companies. agreements. standing orders or other instruments in force. except with the consent of the Board or. winding up of sick companies. the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts. 8.P a g e | 121 or not. BIFR is a quasi judicial body. distress or the like against any of the properties of the industrial company shall be made. However. assurances of property. The role of BIFR as envisaged in the SICA (Sick Industrial Companies Act) is: (a)Securing the timely detection of sick and potentially sick companies (b) Speedy determination by a group of experts of the various measures to be taken in respect of The sick company . settlements. then no proceedings for the winding-up of the industrial company or for execution. Also. to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order. no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans. the Appellate Authority. shall remain suspended or that all or any of the rights. an inquiry is pending. shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board. privileges.

the words "reference is pending". 9. BIFR. economics etc. The borrowers argue that for FIs to be able to initiate action under the Sarfaesi Act. it seems the amendment to SICA ensured that there remains no conflict between SICA and the Sarfaesi Act.1985 (SICA). are being utilized by defaulting corporate borrowers to avoid enforcement of security by FIs. The Industrial Finance Division of the ministry dealt with the appointment of the Chairman and the Members of BIFR and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) as well as with all the other matters relating to industrial sickness.991 references. SARFAESI ACT Parliament. for revival and rehabilitation of potentially sick undertakings and for closure/liquidation of non-viable and sick industrial companies. through the Sarfaesi Act. accountancy. Ministry of Finance. has amended SICA and has inserted a provision whereby a "reference pending" before BIFR shall abate if secured creditors representing three-fourths in value of the amount outstanding against the financial assistance disbursed to the borrower have taken measures to recover their secured debt under section 13(4) of the Sarfaesi Act (as per the process described above). had set up a Board for Industrial and Financial Reconstruction (BIFR). It functions like a court and has constituted four benches. drawn from various fields including banking. Under SICA. as used in the amendment to SICA. since its inception in May 1987 till the end of September 2006. The Government of India. However. . it is necessary that the reference filed by such borrowers should be pending before BIFR and that such reference does not remain pending once the borrower has been declared a sick industrial company by BIFR. labour. under the purview ofSick Industrial Companies (Special Provisions) Act. It had been established as a quasi-judicial body in the Department of Economic Affairs. it is mandatory for the Board of Directors of a sick industrial company to make a reference and report to BIFR for formulation of revival and rehabilitation schemes and other remedial measures to be adopted with respect to such a company. in order to tackle the problem of industrial sickness.P a g e | 122 (c)Expeditious enforcement of such measures BIFR has a chairman and may have a maximum of 14 members. On a plain reading. has received 6.

  The list would be displayed on the Notice Board as well as on the website. The NIC-BIFR Computer Centre would give necessary support in the computerization of the maintenance of data base as also of the website. the following procedure is proposed to be followed: In addition to the monthly list published at the beginning of the month notifying the listing of the References. Orders and judgments will also be pronounced in open court. 2. there would be a daily cause list notifying the listing of the applications. The second is miscellaneous filing including applications and request letters during the pendency of the Reference. Part II : . Part III : . Regarding the listing of Miscellaneous applications in pending References.P a g e | 123 10. 3. No separate notification will be given to the parties / authorized agents / advocates of the listing of the applications.PROCEDURE FOR LISTING OF MISCELLANEOUS APPLICATIONS IN BIFR REFERENCES AND Following guidelines. as per approval of Board for Industrial and Financial Reconstruction (BIFR) are issued in regard to listing of references and applications in BIFR:1.Miscellaneous Applications c. so as to enable compliance with the mandatory requirement of service of the Reference to all the parties before it is taken up for hearing by the Bench. Part I : .Pronouncement of orders and judgments b. The References are to be listed within sixty days of their filing. . The list would be in three parts: a. This will be notified on the website and displayed on the Notice Board. The first is the filing of References reporting sickness of the Company and requesting for measures of rehabilitation.References as per Advance List. Before the Board for Industrial and Financial Reconstruction (BIFR) the filings are primarily in two categories.

to all the parties appearing in the particular case by speed post/Registered AD. The Registrar would either approve the comments / objections / defects or suitably modify them. If there are any objections or requirements from the Registry. to only coordinating the receipt of applications. one person would be authorized. at the reception counter of BIFR and given a diary number. If for any particular objection.P a g e | 124  Before filing the application.  The applications will be received along with proof of service of the advance copy. the proceedings should be produced before the Board on a date requested for by the applicant so as to enable the applicant to satisfy the Board. Filings would be permitted till 3. On receipt of application. A list of the applications. A date of hearing would be scheduled on the sixth working day after the filing of the application. the registry is not satisfied about the compliance and the applicant disputes the ruling of registry over removal of objections. he shall make an additional application to that effect which shall be considered by the Bench at the time of considering the main application. will be forwarded to the Bench officers. to be dedicated. The Authorized Official would enter the details of the applications so received within one working day. there would be a preliminary scrutiny of the application by the Authorized Official in the Bench Co-ordination Cell who would then put up the application to the Registrar for examination of the comments/objections/defects pointed out by the Authorized Official. who alongwith their dates of receipt will forward to the Secretary for the purpose of listing. In case there is urgency and the applicant is seeking waiver of serving of two days‘ prior notice. the applicant will be required to serve*.00 pm when all the filings for the day would be sent to the Bench Co-ordination Cell / Registrar of the BIFR In the Bench Co-ordination Cell. at least two days prior to filing. mentioned in para 9 above.The application can be filed by an authorized agent or an advocate duly appointed by the applicant. Where objections are removed the applications should be       . the same should be conveyed to the applicant within seven working days by the Registry/Authorized Officer. * There would be a time limit of two weeks for removal of objections.

In case the Bench feels that notice must go to the parties who are not appearing and their presence is required. Status No . However.695 1.991 1. then a fresh notice may be issued to all such parties notifying the next date. it may pass these adinterim orders pending the hearing of the parties. The order / judgment may either be passed immediately on hearing the parties or the Order may be reserved and be pronounced later in open court after notification in Part-I of the list. 2006 Sl. After the orders / judgments are ready for pronouncement.P a g e | 125 listed strictly on the basis of the date of filing.484 12 5.199 108 17 0 91 188 66 0 122 296 83 0 213 6.    4. These guidelines will come into force with effect from the date of issue. it would be shown for pronouncement in the list after two days to enable parties to be present for the pronouncement. References received 2. if the Bench feels that urgent orders need to be passed while such notice is served on parties who are not present. All order / judgments would be passed after hearing the parties.412 . 1. These guidelines are forwarded to all concerned for information and necessary action. Under Scrutiny A References registered (=1-2-3) Private Central PSUs State PSUs Total PSUs Total 6. The name of the lawyers or parties would be indicated in each matter in the list. 5. if they so desire. A copy of these Guidelines has been placed on BIFR References to BIFR as on September 30. Registration declined 3.  On the date so fixed the parties appearing would be heard.567 12 5.

115 2 1 2 11 1 1 0 18 0 4 1 10 0 2 3 17 2 5 3 21 1 3 3 35 44 90 360 699 9 46 49 1. Winding up notice issued 12.P a g e | 126 5. Declared on longer sick out of SI No. Rehabilitation schemes approved/sanctioned (i) by BIFR (ii) by AAIFR/SC 695 11 27 1 9 29 26 0 14 40 53 1 23 69 748 12 485 1. Ministry of Finance . Stay ordered by courts Total (C=A-B) 42 85 357 678 8 43 46 1. DISPOSALS Dismissed (i) as non-maintainable (ii) as multiple registered 1. Draft schemes circulated 11. Declared sick 14.707 218 6. Pending for sickness determination 13.303 7. Dropped now B Total (5+6+8+9) C Pending 10. 6 462 8.660 218 11 0 36 0 47 0 1.297 Source: BIFR. Schemes failed and reopened 15.234 119 3.262 to the 1. Winding up recommended concerned high courts 9.937 5 73 3 105 8 178 127 4. Pending cases remanded by AAIFR 16. Department of Economic Affairs.

 Merger and amalgamation of the sick company with a healthy unit. BIFR will conduct an inquiry and ascertain whether the company is indeed sick or not.  Bringing about technological changes and modernisation in the company.  Inducting more capital to improve its resource position. records.  Providing soft loans to the company. and  Performa accounts.P a g e | 127 On receipt of such a reference. plans. cause to prepare with respect to the sick company:-  A complete inventory of that company which includes all assets and liabilities as well as all books of accounts. The package may consist of any one or more of the following measures: Restructuring the capital base of the company. through any operating agency. documents of title or ownership of property and all other documents of whatsoever nature relating thereto. if BIFR is convinced that the company has become sick. it will either give reasonable time to the company concerned to make its net worth positive or it will appoint an operating agency consisting of certain banks and financial institutions to prepare a package for the revival of such sick industrial units.  A valuation report in respect of the shares and assets of the company. For this purpose. the Board may. On the basis of such an enquiry. lease rent or share exchange ratio. registers. where no up-to-date audited accounts are available.  An estimate of its reserve price. .  A list of shareholders and of creditors (showing separately the list of secured creditors and unsecured creditors). maps.

which replaced Sick Industrial Companies (Special Provisions) Act.P a g e | 128  Bringing about a change in its management  Writing off the interest burden of the company. If BIFR is of the opinion that the sick industrial company is not likely to make its net worth exceed its accumulated losses within a reasonable time and that it is not likely to become viable in future and also it is just and equitable that the company should wound up. the Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) stand dissolved. for winding up of the company.when a unit has started becoming weak. identifying. 2003. BIFR AND NCLT & NCLAT But. 11. Along with it. investigating. it could imitate proceedings with the High Court.that is. The work of revival and rehabilitation has .  Rescheduling its loans. reviving and ultimately recommending the winding of such a sick unit lies with the BIFR. It has issued detailed guidelines for rehabilitation of these units and matters relating to better coordination between commercial banks and term-lending institutions for formulation and implementation of rehabilitation programmes. rehabilitating.1985 (SICA). The decision of the BIFR is binding on all the concerned parties. certain measures may also be initiated by the Reserve Bank of India (RBI) by instructing banks to keep a constant track of borrower's profile and try to identify sickness at the initial stages. The entire responsibility for diagnosing.  Providing fiscal concessions like tax rebate.tax exemptions or tax reliefs to it. under the Sick Industrial Companies (Special Provisions) Repeal Act.

as the case may be. . is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company is not likely to become viable in future and that it is just and equitable that the company should be wound up. by notification in the Official Gazette. Under the Act. The proposed NCLT shall continue the functions and powers currently discharged by the Company Law Board. According to the Act:The Central Government shall. The application shall be accompanied by a certificate from a panel of auditors approved by the Tribunal indicating the reasons for the net worth of the company becoming fifty per cent or less. constitute a Tribunal to be known as the National Company Law Tribunal to exercise and discharge such powers and functions as are. It shall consist of a President and such number of Judicial and Technical Members not exceeding sixty-two.P a g e | 129 been entrusted to National Company Law Tribunal (NCLT) in place of BIFR and any appeal against the order of the NCLT will be made to the National Law Appellate Tribunal (NCLAT) instead of AAIFR. the Board of Directors of a sick company shall make a reference to the NCLT and prepare a scheme of its revival and rehabilitation and submit the same to the Tribunal along with an application containing such particulars as may be prescribed. winding up. then it may order winding up of the company. If the Tribunal. amalgamation and merger of a sick unit. for determination of the measures which may be adopted with respect to such a company. conferred on it by or under this Act or any other law for the time being in force. after considering all the relevant facts and circumstances. by notification in the Official Gazette. or may be. or for default in repayment of its debt making such company a sick industrial company. as the Central Government deems fit. the BIFR and the High Courts in respect of liquidation. The institutional structure relating to NCLT/NCLAT has been provided under theCompanies (Second) Amendment 2002. to be appointed by that Government.

 In 1978 the RBI drew the attention of the banks in dealing with sick industrial units in the small scale sector. stressed the need for comprehensive legislation designed to deal with the problems of sick industrial units. A high level Committee appointed by the Government in 1976 opined that the existing legislation may be suitably amended to merge sick units with healthy ones. The Committee. The Committee further recommended the  . EVOLUTION OF THE POLICY TOWARDS SICK COMPANIES AND ROLE OF BIFR IN THEIR REVIVAL  The sizable magnitude and incidence of sickness has been a serious concern for the Government. The financial institutions have also been engaged in providing assistance to sick units by setting up separate cells with technical and financial experts to deal with the problem of sickness. In 1981. In the past various efforts were made by the Government in consultation with the Reserve Bank of India (RBI) to tackle the problem of sick units. The "Statement on Policy of Sick Industries" announced by the Government in 1978 aimed at devising suitable means for dealing effectively with sick industrial units and also setting up a mechanism for monitoring and detecting sickness at an early stage. the RBI appointed a Committee to examine the legal and other problems faced by the banks and financial institutions in rehabilitation of sick industrial units and to suggest remedial measures for effectively tackling the problem of sickness. therefore. Tiwari opined that "(T)he remedies as available in terms of various existing statutes for reviving and rehabilitation of sick industrial units are inadequate and dilatory".  In 1980 state level inter-institutional committees were set up to tackle the problem of sickness. The Committee headed by T. In order to have a coordinated approach at all-India level. The first such step was taken in 1971 to set up Industrial Reconstruction Corporation of India Ltd (IRCI) to provide reconstruction and rehabilitation assistance to sick and closed units.P a g e | 130 12. the banks and the financial institutions in view of the responsibility taken up by the Government in industrialising the country in various forms particularly through the deployment of huge financial resources in industrial ventures -.both public and private. the Government decided to refer the sick units receiving rehabilitation assistance from banks to the IRCI and the units receiving assistance from term lending institutions to the Industrial Development Bank of India.

inter-alia. 1987. Tiwari)  "Statement on Policy of Sick Industries. Part-I. The Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) was constituted in April 1987. Policy and Procedures.1985 and it became fully358 Project Management operational in May. (b) Speedy determination by a group of experts of the various measures to be taken inrespect of the sick company. Sec.P a g e | 131 setting up of a quasi-judicial body called Board for Industrial Revival under special legislation to deal expeditiously and exclusively with the matters.  Financial Institutions in Rehabilitation of Sick Industrial Undertakings and Suggest Remedial Measures including changes in the Law.  The high level committee while making recommendations governing merger of sick units with healthy ones recommended that in order to avoid a heavy drain on the exchequer it was necessary to explore ways in which potentially viable sick industrial units can be revived through voluntary merger with sound units for which a specific scheme should be drawn up to supplement the existing provisions regarding merger and reconstruction under the Companies Act. . (Chairman: T. winding up of sick compa nies. reproduced in Government of India. under section 3 of the Sick Industrial Companies (Special provisions) Act. Guidelines for Industries. The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in January. Board of industrial and Financial Reconstruction (BIFR) was established by the CentralGovernment. 1956. II-17. The role of BIFR as envisaged in the SICA (Sick IndustrialCompanies Act) is: (a) Securing the timely detection of sick and potentially sick companies. accountancy. Bombay. institutional finance to sick companies. amalgamation of companies etc.BIFR is a quasi judicial body. It functions like a court andhas constituted four benches. drawn from variousfields including banking. changes in the criteria for determining industrial sickness. (c) Expeditious enforcement of such measuresBIFR has a chairman and may have a maximum of 14 members. 1987 and functional with effect from 15th May 1987. 1978". Ministry of Industries. economics etc. labour. BIFRdealswith issues like revival and rehabilitation on sick companies. Government companies were brought under the purview of SICA in 1991 when extensive changes were made in the Act including. 1984. 1982.

the BIFR will direct the operating agency to prepare a suitable revival package for the restoration of the health of the company. The operating agency prepares a suitable revival package. If it is found infeasible for company to make its networth positive with out any external financial assistance or if the BIFR decides that thecompany can not make its net worth positive Rehabilitation of Sick Units . at this stage the BIFR has to decide whether or not the company is able to recover ―within reasonable time‖ (which translates into 7-10 years) without external expertise and without financial assistance. it might still be ―in the public interest‖ to prevent winding-up. The BIFR has to determine within a period of another 60 days if the company in concern is indeed sick. If the answer is negative. It may appoint one or more special directors to safeguard the financial and other interests of the firm. If it does. change in management. the BIFR may grant time to the sick company toenable it to make its net worth positive and bring the company out of sickness. TIMING AND SEQUENCING UNDER SICA When a company meets the sickness criteria. The revival package may vary from case to case depending on the nature of the problem and may include additional financial assistance. lease of assets or any other suitable measure. it has to make an official declaration on the matter. within a reasonable time. Where this is not the case. Also. amalgamation. postponement of recovery of loan already lent by banks and financial institutions. .REVIVAL PACKAGE Once a company has been found sick. the BIFR appoints so-called Operating Agencies (OAs for short) and charges them to work out a scheme of suitable measures. sale of redundant assets. 14. If the presumption of sickness is verified. The revival package should be submitted to the BIFR within a time limit of 90 days or such extended period as may be granted . the BIFR has to decide whether or not it is in principle practicable to restore the company to economic viability via reconstruction. the law requires it to make reference to the Board for Industrial and Financial Reconstruction (BIFR for short) within 60 days.P a g e | 132 13. withoutany external financial assistance.54 The BIFR exercises the jurisdiction and powers and discharges the functions and duties imposed under SICA.

It can only forward its opinion to the concerned High Court and the High Court will initiate the winding up proceedings. If in the opinion of the BIFR. sanctioning of additional financial assistance for the purchase of certain balancing equipments. if deemed fit.) the scheme will be circulated to the concerned agencies for their consent to be received within a period of 60 days. transferee company and any other interested party.e. The scheme. The BIFR will also publish particulars of the draft revival package in newspapers inviting suggestions/objections. the revival package can not be successful with out the consent from one or more of the agencies involved. After careful examination of all the aspects. if any.. creditors and employees of the sick company. when any of the involved agency does not give its consent to the scheme. will come into force from the specified date and all the concerned parties are required to abide by the provisions of the revival scheme. On receipt of views/suggestions/objections on the draft revival scheme. However. as sanctioned. . the BIFR has no powers to force the agency to accord its consent. The BIFR may also order the operating agency to implement the sanctioned revival scheme. On submission of the revival package by the operating agency. the operating agency . waiving of penal interest/compound interest charged. eliciting their views/suggestions on the revival package. the banks/ financial institutions who have given financial assistance to the sick company.. the BIFR has no other option but to recommend for winding up of the company. afford an opportunity to the interested parties to be heard. the threat of actual winding up of the company is the only weapon in the hands of the BIFR to make the various agencies to extend suitable reliefs and concessions as may be deemed necessary by the BIFR. In fact. the transferee company (if there is a recommendation in the revival package for amalgamation) etc.P a g e | 133 by the BIFR. When the revival package as finalized by the BIFR contains further financial assistance or reliefs. Once the various agencies involved in the revival scheme give their consent to the scheme. BIFR itself cannot initiate the winding up proceedings. (for example. the sick industrial company. it will become binding on the consenting parties to implement the recommendations contained in the revival scheme. the BIFR may. waiver from sales tax etc. the BIFR will sanction the revival scheme with or without any modifications. from the shareholders of the sick company. the BIFR sends the revivalpackage in a draft form to all the interested parties (i. sacrifices etc. waiving of interest in part or full. concessions.

5. Ltd. M/s Eagle Metal Printers Pvt. Spintex Pvt. 2. 6. 10. . M/s Scanpoint Geomatics Ltd.S M/s Rana Mohendra Papers Ltd.P a g e | 134 15. 9.2009) S. 1. REGISTERED CASES REGISTERED CASES OF YEAR 2009 (As on 31. CASE NO. 13. M/s Gujarat Oleo-Chem Ltd. M/s HMT Bearings Ltd. M/s Prudential Sugar Corporation Ltd. NAME OF COMPANY 1/2009 2/2009 3/2009 4/2009 5/2009 6/2009 7/2009 8/2009 9/2009 501/2009 10/2009 11/2009 12/2009 M/s B. M/s Om Shanti Satins Ltd. M/s R.R. M/s Metlon India (P) Ltd. 8. M/s Tuticorin Alkali Chemicals & Fertilisers Ltd. NO. M/s Ralson Industries Ltd.12. 12. Flour Mill Pvt. 4. 11. M/s Alumeco India Extrusion LTd. 7. 3. Ltd.R. Ltd.

M/s Revolution Clothings Pvt. M/s MP Telelinks Ltd. 27. 13/2009 14/2009 15/2009 16/2009 17/2009 601/2009 18/2009 19/2009 20/2009 21/2009 22/2009 23/2009 24/2009 25/2009 26/2009 27/2009 28/2009 29/2009 M/s. 25. 15. M/s Shimansu Vyaparik Kendra Ltd. Ltd. 23. M/s Bakewell Agro Ltd. 17. Ltd. 16. M/s. M/s Pioneer Flexo Pack Pvt. 24. M/s Traco Cable Company Ltd. 22. Rajat Pharmachem Ltd. M/s Serene Industries Ltd. M/s Gajra Beval gears Ltd. 31. 29. M/s Indus Clothing Ltd. 26.P a g e | 135 14. M/s Global Wool Alliance Pvt. 30. 20. 18. . M/s Design Auto Systems Ltd. Dalmia Dye-Chem Industries Ltd. M/s Raj Steels & Ferro Alloys Ltd. 28. M/s Polylink Polymers (India) Ltd. 19. 21. Ltd. M/s Infragro Industries Ltd. M/s Dujodwala Resins & Terpenes Ltd. M/s Asian Health & Nutri Foods Ltd.

42. M/s Derby Textiles Ltd. 38. 47. M/s Kumlai Tea and Industries Ltd. M/s Indo Biotech Foods Ltd. 49. M/s Rainbow Denim Ltd. M/s Bripranil Industries Ltd. M/s Ganesh Benzoplast Ltd. 37. Ltd. 34. 30/2009 31/2009 32/2009 33/2009 34/2009 35/2009 36/2009 37/2009 38/2009 39/2009 40/2009 41/2009 42/2009 43/2009 44/2009 45/2009 46/2009 47/2009 M/s Good Value Marketing Co. 48. M/s Vysaali Pharmaceuticals Ltd. M/s Dnyanyogi Shri Shiv Kumar Swamiji Sugars Ltd. 46. M/s Michigan Rubber (India) Ltd. 33. M/s Tag Engineers Pvt. 36. 35. M/s Welfab Technologies Pvt.P a g e | 136 32. . 45. M/s Marine Cables & Wires Pvt. M/s Elite International Pvt. Ltd. Ltd. M/s Jai Bharat Synthetics LTd. 40. M/s Nova Petrochemicals Ltd. 44. 41. M/s Sello Royal (India) Ltd. 43. M/s Unimax Granites Pvt. Ltd. Ltd. Ltd. 39.

M/s Oxides & Specialties Ltd. 59. M/s Patiala Castings Pvt. M/s Ratna Cements (Yadwad) Ltd. 52. 58. M/s Gem Spinners India Pvt. Ltd. Ltd. M/s Rado tyres Ltd. M/s Brown Multi-Wall Paper Bags LTd. M/s Shri Vardhman Solvex Ltd. 63. 56. 62. M/s Om Shanti Satins Ltd. 51. M/s SPJ Textiles Pvt. 61. 57. 55. 60. M/s Platinum Metals & Trading Pvt. M/s S&S Industries & Enterprises LTd. Ltd. Ltd. M/s Shalimar Agro Tech Pvt.P a g e | 137 50. M/s Cheema Paper Mills Ltd M/s Mono Acriglass Industries Ltd. . 64. Ltd. 54. 53. 48/2009 49/2009 50/2009 51/2009 52/2009 53/2009 54/2009 55/2009 56/2009 57/2009 58/2009 59/2009 60/2009 61/2009 62/2009 M/s Polar Pharma India Ltd.

during ded the Year 1 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2 311 298 202 151 155 177 152 193 115 97 233 370 413 429 463 3a 0 0 0 1 1 3 3 2 6 6 2 5 4 8 10 3b 0 1 1 3 5 7 13 38 25 92 34 21 11 37 47 3c 0 12 31 42 47 30 63 77 61 83 81 49 61 142 113 3d 8 29 77 45 27 43 59 48 29 25 21 36 72 156 126 . YEAR WISE PERFORMANCE OF BIFR as on 30-9-2010 Year Cases Disposed of during the Year Total Cases under Cases Reviv Winding up CasesRegd ed Recommen Dismissed Revival .P a g e | 138 16.

P a g e | 139 2002 2003 2004 2005 2006 2007 2008 2009 2010 559 430 399 180 118 78 57 64 43 21 8 6 17 63 66 80 192 690 1199 34 42 29 71 91 81 64 82 70 899 107 99 50 19 22 19 13 19 22 1262 212 190 70 180 296 205 130 125 118 2327 TOTAL 5687 .

16 37. 16. BIFR.EXTENT OF SICKNESS IN JOINT & PRIVATE SECTOR COMPANIES REFERRED TO BIFR S.10 10 . relatively fewer number of joint sector sick companies were asked to wind up. 2.38 22 469 23.5). 5. Industrial Sickness: Case Studies. 7. Total 47.78 111 87 49 45.44 98 76 41 44. The amount locked up in such companies was also far lower compared to the private sector companies (See Table . 6. .67 Source: Same as in Table . These are available in Government of India. 3. Further. Ministry of Finance.2.18 30 63 27 31. 8. Ratio of Accumulated losses to Net Worth (1) 1–2 2-3 3-4 4–5 5-6 6 . (various industry-wise volumes).88 23 547 22. No.34 40 70 31 32.P a g e | 140 17.18 15. 4.15 15 & above Joint Sector % Private Sector % Total % (2) 24 13 11 8 10 7 4 1 78 (3) (4) 112 (5) (6) 136 (7) 1.

Kerala 13. Haryana 11. Tamilnadu 6. of cases) Reference References not Under MaintConsienable duration (6) 46 16 21 21 20 19 16 6 6 11 8 6 3 4 5 2 1 (7) 67 49 38 24 25 39 23 16 21 10 8 10 11 10 7 4 1 (1) 1. Himachal Pradesh 16. Karnataka 8. Bihar 12.P a g e | 141 18. Maharashtra 2. Madhya Pradesh 10. Gujarat 5. Pondicherry 17. Punjab 14. 1992 S. Delhi (2) 210 140 132 112 104 90 81 53 43 40 39 35 28 24 22 8 4 (3) 50 31 25 24 26 16 19 16 3 12 9 8 6 5 2 1 1 . STATE WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND CASES DISPOSED OFF BY BIFR up to December 31. Orissa 15. Uttar Pradesh 7. Referred to BIFR Disposed off by BIFR under Sections 18(4) 17(2) (4) 25 29 17 20 20 2 12 3 4 5 6 9 6 4 4 1 0 20(1) (5) 22 15 31 23 13 14 11 12 9 2 8 2 2 1 4 0 1 (No. Industry No. Rajasthan 9. Andhra Pradesh 3. West Bengal 4.

R. Jammu & Kashmir 3 2 0 0 0 0 0 0 1 1 2 1 20. Assam 19. Chandigarh 21. Diu Total 2 3 1175 2 1 257 0 0 167 0 0 170 0 2 215 366 0 0 It was observed that about 28 per cent of the publicly floated JSEs have experienced serious financial difficulties following which they were either referred to the Board for Industrial and Financial Reconstruction (BIFR) for initiating rehabilitation process or went into liquidation. Goa.P a g e | 142 18.13 In the following we make an attempt to identify the M. "A Study of Comparative Performance of Joint and Private Sector causes for sickness in the joint sector in the overall context of industrial sickness in the country. Daman. . Murthy.

INDUSTRY WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND DECISION TAKEN BY BIFR up to December 31. Miscellaneous Industries Total 14 94 1175 Note: 18(4) : Rehabilitation schemes sanctioned. Paper 7. Ministry of Finance. Food Products 5. Electricals 8. Metallurgical Industries 2. Mechanical Engineering 6. 1992 (No. Cement 9. Industrial Sickness: Cases Studies. Chemicals 4.P a g e | 143 19. Various Volumes. Leather & leather products 16 12. Textiles 3. No. 20(1) : Orders were passed to wind up the company. Rubber 13. of Cases) S. Jute (2) 224 194 148 110 100 97 69 45 34 30 (3) 46 47 33 21 25 30 16 7 5 10 5 1 11 257 11. Transport 10. . Source: Based on BIFR. Industry Referred to BIFR Disposed off by BIFR under Sections 18(4) 17(2) (4) 36 22 18 16 14 18 13 3 6 2 5 2 12 167 20(1) (5) 32 37 19 12 17 18 6 5 5 5 3 3 8 170 Reference not Maintenable (6) 34 29 30 31 21 17 15 4 6 4 2 3 19 215 References Under Considuration (7) 76 59 48 30 23 14 19 26 12 9 1 5 44 366 (1) 1. Government of India. 17(2) : Time limit fixed for making the net worth positive.

Volume I. Gujarat (112). has lost its viability resulting in failure of revival schemes even after sanction. Thus. it takes around one year to formulate revival strategy. which had been conceived. a company can approach the BIFR for adopting steps for its revival.3 we find that the top six states accounted for more than two-thirds of the total number of sick companies. Consideration of the same also takes substantial time since banks and financial institutions have their own hierarchy in decision making. By the time decisions are taken and communicated. the plan. It may be noted that these six states occupied the top positions in terms of number of units as also the outstanding bank credit locked up in non-SSI sick units at the end of March 1991. on erosion of its entire net worth.Tamilnadu (104) and Uttar Pradesh (90). DRAWBACKS OF BIFR Following are the flaws in the present framework regarding sick industrial companies. Thereafter. a study ofBIFR references could be representative of the phenomenon of sickness outside the smallscale sector in the country. These states had roughly the same share in caseswhere revival schemes were sanctioned by the BIFR and those which were recommended to be wound up. West Bengal (132).P a g e | 144 From the state-wise distribution of the references received by the BIFR given in Table . leading to avoidable delays.sickness at the national level and that reflected in the BIFR references. The BIFR takes nearly one year to determine whether a company is sick. The decisions by the banks are also neither transparent. 20. nor subject to judicial review.12 One also finds considerable similarity in the industry pattern of See: Reserve Bank of India. procedural and legal in proceedings before BIFR. a) PROCEDURAL DELAYS There are inherent defects both. The erosion of entire net worth is too late a stage to attempt . The highest number of references were received from Maharashtra (210) followed by Andhra Pradesh (140). b) LACK OF TIMELY COMMENCEMENT OF PROCEEDINGS Under the existing law. Report on Currency and Finance: 1991-92. p. 69.

A/R. Somany Pilkingtons Ltd. Notice of hearing was issued to AOL and M/s. NEW DELHI FOR INDUSTRIAL & FINANCIAL RAKESH DWIVEDI.00 a.5. dated 7.m. AJAY K. Advocate. ORDER (Date of hearing : 13.977 gas cylinders from AOL) and for restraining AOL/Promoter from disposing of AOL's assets and properties in violation of the terms of the scheme sanctioned by BIFR for the rehabilitation of AOL. VIVEK SIBAL. dated 3.1. CASE STUDY CASE STUDY –1 BEFORE THE APPELLATE AUTHORITY RECONSTRUCTION.99 in case No. (SPL) was free to seek appropriate legal remedy from the competent court and there was no bar to SPL filing suit or pursuing their cases in the competent courts. It did not mention the .1999. Senior Advocate. GUHA THAKUR. 21. The notice of hearing mentioned the Case No.1999 at 11. is 179/89). and that M/s. SICA) vide BIFR's order dated 28.5. (AOL) was no longer a sick industrial company and was discharged from the purview of the Sick Industrial Companies (Special Provisions) Act. The impugned order was passed on an application.) This is an appeal against BIFR's order. Sibal and Eradi. Advocates and Solicitors. B. for Somany Pilkingtons Ltd. 79/89 (Correct No.2. 179/89 holding that M/s. Chief Financial Advisor. 1985 (for short. AMARJIT SINGH. JAIN.8. Asiatic Oxygen Ltd. The hearing was scheduled by BIFR on 3. 2.99 submitted by SPL to BIFR praying for permission under section 22(1) of SICA to continue with the proceedings in Suit No. Advocate.P a g e | 145 restructuring as by the time the net worth is eroded the company is too sick to be revived and has lost its resilience to restructure and revive itself. for the appellant .97 as its networth had become positive. P. 666/89 before the Hon'ble High Court at Calcutta (suit filed by SPL for the recovery of lease rentals and possession of 17.

On 4. therefore. The trial court held that SPL could proceed with the suit for recovery of its property.1999 to BIFR. Substantial reliefs and sacrifices were extended by secured creditors to facilitate the rehabilitation of AOL.1.2. dated 7.8. and as the counsel for both AOL and SPL wanted the case to be heard and decided by this Authority on merits instead of being remanded to BIFR. dated 28.97 holding that AOL ceased to be a sick industrial company within the meaning of section 3(1)(o) of SICA.2.977 gas cylinders and recovery of lease rental dues amounting to Rs. and it would be bound to fulfil the same as per the various covenants of the scheme sanctioned for its rehabilitation. The notice did not include any mention of SPL's application.1996. AOL's reference under section 15(1) of SICA was registered as case No. BIFR declared AOL to be a sick industrial company within the meaning of section 3(1)(o) of SICA and appointed ICICI as operating agency (OA) under section 17(3) of SICA. that the reason for fixing the hearing was not mentioned in BIFR's notice. The Hon'ble Calcutta High Court held that the scheme sanctioned by BIFR on 8.70 lakhs along with interest from 17. AOL wrote a letter.2.90. dated 28.1998. After several hearings.1999. 4. A copy of SPL's application was not sent by BIFR to AOL. 179/89 by BIFR. We were. that BIFR had by order. but the obligations/responsibilities. yet to be fulfilled by AOL shall remain in force. the Division Bench of the Hon'ble Calcutta High Court examined at length the scope of section 22(1) of SICA while taking note of BIFR's order.1997 closed the proceedings in AOL's case. and that.1999. did not show the name of the party whom they represented. 3. SPL's SLP (Civil) No.10. . dated 27.1. therefore.1997 and. that the proceedings in the case were. dated 7. therefore. the statutory bar under section 22(1) of SICA continues to it be applicable.P a g e | 146 purpose of hearing. if any.1999 to AOL. and as permission under section 22(1) of SICA can be sought direct from this Authority during the pendency of an appeal.10.99 when the impugned order was passed.89 and interest on judgment. SPL also did not send a copy of its application. by order. as the subject matter of hearing before BIFR was SPL's prayer that section 22(1) of SICA for permission to it continue the proceedings in Suit No.93. but the proceedings for the recovery of money would stand stayed. Nobody represented AOL at the hearing before BIFR on 3. stating. closed. inclined to remand the matter to BIFR for fresh consideration after hearing AOL. that its case no longer required to be dealt with by BIFR.6. 666/89) before Hon'ble Calcutta High Court against AOL for recovery of possession of 17.5. Sibal and Eradi. BIFR passed an order. There was no way of AOL knowing the purpose of the hearing scheduled on 3. SPL had filed a suit (Civil Suit No.5.96 and the fact that AOL's networth had turned positive as on 31.3. had not represented any party during the hearing of AOL's case by BIFR at any point of time. Advocates. As there was no proper notice of hearing to AOL.1993 is still under implementation and. 666/89 against AOL before Hon'ble Calcutta High Court. that M/s. BIFR sanctioned a scheme for the rehabilitation of AOL under section 18(4) read with it section 19(3) of SICA. Advocates and Solicitors. Taking note of AOL's annual report for the financial year ended on 31. we heard the appeal on merits . 213. dated 4. dated 28. upheld the trial court's order and dismissed the appeal. The address of M/s. on 8.4. In SPL's appeal 363/96 against the trial court's order. Sibal and Eradi.3. the hearing was kept in abeyance until the matter was clarified. therefore. there was denial of natural justice to AOL. inter alia. However.8.

BIFR's order. Had the sanctioned scheme been fully or substantially implemented. 363/96 was dismissed by the Hon'ble Supreme Court on 16.93 for AOL that repayments of certain dues (payment of deferred interest to financial institutions/banks.8. referred to above. (9) and (12)] of section 18 of SICA. Swan Mills Ltd. jurisdiction of BIFR can be invoked and.90 AOL's total lease rental liability was Rs. it would have been competent for BIFR to declared AOL as being outside the purview of SICA by declaring the scheme as fully implemented or terminated. 7. The implication of BIFR's jurisdiction in a case.8. sub-sections (5). dated 28. dated 8.) have been scheduled upto the year 2002-03. 396 lakhs towards six lessors. v. therefore. AOL resorted to sale and lease-back of cylinders and as on 31. AOL was discharged from the purview of SICA. dated 9.1997 cannot be interpreted to mean that BIFR can refuse to exercise its jurisdiction. dated 9. Kamgar Kapada Udyog Sahkari Society Ltd. BIFR cannot refuse to exercise its jurisdiction to ensure that such terms of the sanctioned scheme are fulfilled and give appropriate directions in case of any difficulties and consider proposals.1998 of the Division Bench of Hon'ble Calcutta High Court in appeal No. etc. if any. BIFR and others). We have now to consider whether SPL should be granted permission under section 22(1) of SICA for continuance of proceedings for the recovery of lease rentals in its suit 666/89 before Hon'ble Calcutta High Court. 259 lakhs was to be obtained from leasing companies as per the terms and conditions considered satisfactory by the banks/institutions (para 3 G(vi) of the sanctioned scheme).10. The learned counsel for AOL contended : in order to tide over liquidity crisis during 1985-86. 6.P a g e | 147 19181/98 before the Hon'ble Supreme Court of India against the order. notwithstanding the fact that the net worth has exceeded the accumulated losses. It is seen from the cash flow statement of the sanctioned scheme. were dealt with by this Authority in some detail in this Authority's order. in which a sick industrial company's net worth has exceeded its accumulated losses. sales tax arrears.3. 8. on which the impugned order was passed.7. not tenable . but the sanctioned scheme has not been fully implemented.1996 in appeal 77/96. BIFR has to exercise its jurisdiction under various sub-sections [particularly. The impugned order was passed by BIFR on the ground that by their order. dated 4.96 in appeal 77/96 (M/s. dated 28. re-schedulement of payment of lease rentals of Rs. if any. So long as the scheme is under implementation. referred to above. is not tenable in view of this Authority's order. applications are received for review/modification of the sanctioned scheme or the removal of any difficulties or for monitoring the implementation of the terms of the scheme. 4 parties had agreed to re- . dated 4. This ground. The impugned order that SPL was free to seek legal remedy and file or pursue its case against AOL in court is. lease rentals of one party were settled and paid prior to the sanction of the scheme and payment of lease rentals of Rs.2. in that view of the matter.2. 259 lakhs to 5 parties was provided in the sanctioned scheme.98 5. and the Hon'ble Calcutta High Court's order. funded interest.7. So long as the scheme continues to be under implementation.12.1998 in appeal No. 363/96. for review and modification in the sanctioned scheme.1997.

the appeal be dismissed or SPL be permitted to continue its suit 666/89 before Hon'ble Calcutta High Court for the recovery of its lease rental dues from AOL .. clause 3 G(vi) required AOL to obtain re-schedulement of lease rentals from the various leasing companies but no such re-schedulement was obtained by AOL from SPL. AOL has disposed of some of its units as per the sanctioned scheme and is contemplating sale of some other units with the approval of the concerned banks/financial institutions. dated 16. Oriental Leasing Co. Midwest Leasing Co.1. AOL is willing to pay Rs. AOL has been revived and SPL is now only trying to thwart the implementation of the sanctioned scheme by resorting to litigation. despite having sold some of its industrial units. 9. The learned counsel for SPL contended : SPL filed suit 666/89 in Hon'ble Calcutta High Court for the recovery of cylinders and lease rental arrears of Rs.93 continues to be under implementation. 174 lakhs to SPL along with interest from the dates on which these payments were due under the terms of the sanctioned scheme. Ltd. SPL has no obligation to make any sacrifice. Several provisions of the scheme will continue to be implemented upto the year 2002-2003 unless the implementation thereof is achieved earlier than due dates. and they have sold AOL's unit at Ranipet as a going concern to Praxair India (P) Ltd.70 lakhs from AOL and the dues have by now risen to about Rs. even though the sale of these units is not included in the sanctioned scheme. (Rs. 25 lakhs). (Rs. 10.10.P a g e | 148 schedulement as proposed in the scheme. SPL was never informed that the scheme included payment of lease rentals of Rs. the scheme does not provide for any sacrifice or write off on the part of SPL and. SPL was fully aware of the proceedings before BIFR but. SPL had not agreed and this was pointed out to BIFR at the hearing on 8. 15 lakhs). 17 lakhs) and SPL (Rs. the scheme is binding on all parties. the re-scheduled lease rental dues of 4 parties have already been paid by AOL but SPL had not accepted the payment. and have planned to sell all their remaining units also to Praxair India (P) Ltd. 213. and SPL is only entitled to receive Rs.5 crores. Our conclusions on the contentions of the learned counsel for AOL and SPL are given below : (a) The sanctioned scheme.91 to BIFR claiming lease rental of Rs. but one party. in view of section 32(1) and section 18(8) of SICA. (Rs. SPL should accept the payment of Rs. Protection under section 22(1) of SICA . 174 lakhs). 259 lakhs pertained to Bengal and Assam Company Ltd. 174 lakhs to itself. AOL/promoter are not implementing the scheme. whereas SPL is only trying to thwart the profitable operations of AOL. if SPL's dues were included in the scheme. it has not made any payment to SPL. AOL had an obligation to make payment to SPL but. i. the distribution of the lease rentals provided in the scheme has been given by AOL only at this stage when this appeal is being heard. 174 lakhs from AOL and the appeal be dismissed and the prayer of SPL for permission under section 22(1) of SICA be rejected. 174 lakhs from AOL. after writing a letter. SPL apprehends that its security will be diluted. including SPL. dated 8. 9 crores. therefore.e. but only claiming protection under section 22(1) of SICA by pleading that the scheme is under implementation. in this way.93. the re-scheduled lease rental dues of Rs. AOL/promoter are not implementing the scheme properly. 28 lakhs). 3. had never pursued the matter with BIFR and neither responded to the public notice inviting objections/suggestions to the draft scheme nor attended any hearing before BIFR to press its claim. Overseas Sanmar (Rs.10.

nothing has been brought to our notice by SPL. unsecured creditors cannot expect to receive payment of their dues and interest. and the sale proceeds are expected to be not less than the financial obligations of such company. be inconsistent with section 2of SICA whereby a declaration is made that SICA is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution. It is not one of those persons whose consent is required under section 19(1) and (2) of SICA. (c) AOL cannot modify the sanctioned scheme on is own. financial institutions/banks and Central/State Governments often extend reliefs and sacrifices. in our view. However. if a sick industrial company has large surplus assets. the provision made for the payment of the dues of unsecured creditors in any scheme for a sick industrial company under section 18(4) of the Act has to be considered as a provision for full and final settlement of their pre-scheme dues. therefore. (b) SPL has a locus standi insofar as its own interests are concerned.P a g e | 149 continues to be available to AOL during the implementation of the scheme. (d) SPL is an unsecured creditor. It cannot assume the role of a monitor of the scheme . Therefore. In the event of winding Up of a sick industrial company. if it sells or proposes to sell any industrial unit(s) in addition to the three industrial units which were sold in accordance with the terms of the sanctioned scheme. In the present case. During the period of implementation of the scheme. then the unsecured creditors cannot expect to derive benefit from such post-scheme prosperity of the company to which they have not made any contribution. The question of rights of unsecured creditors and repayment of their dues by the sick industrial companies for which rehabilitation schemes are sanctioned under section 18(4) of SICA has been dealt with by this Authority in several appeals. It is open to them to make their submissions before BIFR by responding to public notice of draft rehabilitation scheme so that their claims are given appropriate consideration by the operating agency and BIFR. unsecured creditors and shareholders are unlikely to get anything at all. which are not required for its manufacturing activity and can. In rehabilitation schemes for sick industrial companies under the provisions of SICA. Any other approach to the pre-scheme dues of unsecured creditors would. then payments can be provided to creditors without sacrifices by them. BIFR has to exercise its jurisdiction under section 18 and various other provisions of SICA until the scheme is fully implemented or terminated on account of substantial implementation including discharge of the financial obligations under the scheme. the sale proceeds from the disposal of the assets of such company are distributed amongst secured creditors and workers in proportion to their dues. if a sick industrial company is revived through a rehabilitation scheme approved by BIFR. nor is there anything in the . be sold. On the other hand. their dues are likely to be fully realised. envisaging reliefs and sacrifices and financial accommodation by financial institutions/banks and Central/State Governments as well as induction of fresh funds by the promoters. it has to approach BIFR for necessary modification and comply with BIFR's direction in this regard. 11.

to suggest that prior to the sanction of the scheme on 8. we consider it appropriate that AOL should now pay this amount of Rs. 12. 28. We have no reason to doubt that a provision for payment of Rs. As the scheme was sanctioned with the consent of financial institutions/banks. respond to the public notice of draft rehabilitation scheme and attend the hearing before BIFR after obtaining a copy of the draft scheme. guarantors and employees by virtue of section 18(8) of SICA. SPL's case is that AOL never made or offered any payment. upto the date of payment. The appeal stands disposed of. statutory authorities and workers. Even after the sanction of the scheme by BIFR. Rs.3. and press its claims. Rs. Instead of going into this controversy. AOL had surplus assets. and as SPL did not resort to legal remedies against the sanctioned scheme.88 lakhs (31.99 to BIFR. It is not necessary to make any specific provision for sacrifice or write off on behalf of unsecured creditors.89 lakhs (31.95). 28. 174 lakhs in instalments provided in the sanctioned scheme and withdraw its suit in Hon'ble Calcutta High Court.3. Rs. pre-scheme lease rental dues. . obvious that SPL had. Permission is granted to SPL for the recovery of the amount calculated as above in full and final settlement of its pre-scheme lease rentals due from AOL.08 lakhs (31. AOL's case is that SPL refused to accept the payment of Rs. 10. acquiesced in the scheme sanctioned by BIFR on 8. dated 16.94). whatever provision is made in the sanctioned scheme for the payment of pre-scheme lease rentals due to SPL by AOL.93.3.3.96). It only requires satisfaction of financial institutions/banks. It is. It does not require consent of leasing companies. that has to be treated as full and final settlement of the. It was open to SPL to pursue its case with the OA and BIFR. 174 lakhs.P a g e | 150 record before us. In order to avoid further disputes about the quantum and due dates of instalments of Rs. not required for its manufacturing activities.89 lakhs (31.10. it cannot now challenge that scheme.3. which could be sold and the sale proceeds therefrom could meet all the financial obligations of AOL towards its creditors. creditors. 259 lakhs payable to leasing companies during that period . therefore.3.93). It does not require consent of leasing companies. SPL did not appear before BIFR to make its submissions regarding its dues. 28.98). These amounts are to be paid with 12% interest upto the date of payment by way of one lump sum payment.97). Both AOL and SPL to submit statements in suit 666/89 before Hon'ble Calcutta High Court for a consent decree as stated above. After writing a letter. 28. in full and final settlement of the pre-scheme lease rental dues of SPL. Rs.22 lakhs (31. Clause 3 G(iv) of the scheme stipulates that reschedulement of lease rentals is to be obtained from the leasing companies according to the terms satisfactory to financial institutions/banks.3.92). 28. 174 lakhs to SPL along with simple interest at 12% per annum.10. because no consent of unsecured creditors is required under section 19 of SICA. SPL could have sought redressal of its grievance by preferring an appeal under section 25 of SICA. Rs.93 by BIFR.89 lakhs (31.1. Therefore. by its conduct. BIFR's order stands modified accordingly. Rs.15 lakhs (31. The terms of the sanctioned scheme have the overriding effect over other laws by virtue of section 32(1) of SICA and are binding on all shareholders. It only requires satisfaction of financial institutions/banks. 174 lakhs in instalments to SPL over the period 1992-1998 is included in the total provision of Rs. 20. we have worked these out as follows : Rs.

8. Pushpa P. 1985 (for short.84 lakhs) was not ready to discuss the matter. VARSHA BHARAT RAUT.12.95 and 30.7. dated 2. 11/89.1999) This is an appeal against BIFR's order. decided on April 29. 1995. K. 23. Chartered Accountant.89. within one month.. Advocate.MANAGER FOR THE APPEALLATE.90. Advocate. for the Caveator Ms. Chartered Accountant. MS.12.95. S. that Hong Kong Bank's dues had also been settled. BIFR simultaneously directed VETL to submit a comprehensive rehabilitation proposal based on one time settlement (OTS) of the dues of the financial institutions and banks to the OA.P a g e | 151 CASE STUDY – 2 2000-(001)-CLJ -0153 -AAIFR VORAS EXCLUSIVE TOOLS (P) LTD. 27/98 against BIFR's order. Voras Exclusive Tools Private Limited (VETL) 2. On 21.9. and that BIFR's intervention in finalisation of . 1992. By order. BHARAT RAUT.8. NEW DELHI ALOK DHIR. [. ORDER (Date of hearing 13. for Ms. RAKHI RAY and Ms.. CMD of VETL informed BIFR that VETL's networth will become positive by the end of December. On 20. A. MS. Appeal No. DARIUS KHAMBATTA. 1998. BIFR took note of an agreed rehabilitation package submitted by VETL and concluded under section 17 (2) of the Act that it was practicable for VETL to make its networth positive within a reasonable time by implementing the said package under section 17 (2) of the Act. and that VETL's networth was still negative by Rs. v. BIFR AND OTHERS.] (sic) failed and appointed Bank of India (BoI) as the operating agency (OA) under section 17(3) of the Act for preparing a proper rehabilitation scheme for VETL. BIFR reviewed the progress and noted the VETL had departed from the rehabilitation plan submitted earlier under section 17 (2) of the Act..97 in Case No. that ICICI's dues were already settled in February. BIFR declared VETL to be a sick industrial company within the meaning of section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act. Advocates. that IDBI (which had filed a suit in 1991 against VETL for recovery of a sum of a Rs. BIFR concluded. dated 2.. VIBHA DATTA MAKHIJA. BALAKRISHNAN.2.97 in BIFR case No. Advocate. BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION. dated 16. BINA GUPTA. VAISHAMPAYAN.95. 'the Act'). 11/89 regarding M/s.12. 75 lakhs. On 9. Vora .

3. The representative of BoI(OA) stated before BIFR that VETL's networth was positive and it was no longer sick.70. consisting of paid-up capital plus free reserves.02.10. BIFR expressed its displeasure towards VETL for not submitting the audited accounts for the year 1995-96. By a letter. We. and subsequently.96. BIFR took note of the factual financial position submitted by VETL and passed the impugned order.11. VETL's accumulated losses were only Rs. 9.3. On 9. Moreover.60. the impugned order should be set aside and the case be remanded to BIFR for fresh consideration after hearing VETL. The counsel for VETL and the other group of shareholders agreed that the audited balance sheet for 1995-96 could be relied upon for determining the issue of sickness. and consequently. that as on 31. and that IDBI would be at liberty to pursue the legal remedies against VETL in respect of its dues.97 addressed to BIFR. that therefore. BIFR again directed VETL to submit copies of the balance sheet as on 31. VETL inter alia stated that the AGM for the year 1995-96 could not be held due to stay by the Company Law Board. dated 5. dated 2. and directed that further proceedings in this matter be closed.96.400.97 was passed by BIFR on the basis of the factual financial position. VETL submitted a copy of the audited accounts of VETL for the year 1995-96 and the provisional accounts for the year 1996-97. was Rs. 3.96. In its letter. the counsel for VETL informed BIFR that the accounts for the year ending 31. it cannot be said that the person who has submitted such facts has been denied natural justice.12. dated 5. there was total denial of natural justice to VETL.9.96 could not be finalised because the annual general meeting (AGM) of VETL's shareholders could not take place on account of dispute between two groups of stake-holders of VETL. and there have been continuous oral hearings on earlier occasions and when an order is passed on the basis of admitted and undisputed facts.97. therefore.542 and exceeded the accumulated losses of Rs. that VETL was continuously heard at length by BIFR at all its earlier proceedings.11. reject the contention of the learned counsel for the .96. by Hon'ble Delhi High Court. 1. The final order. and that provisional accounts for 1996-97 were also ready. This order has been assailed in the presentappeal. Natural justice does not imply that oral hearing should be given on every occasion.97. It is clear to us from the record of BIFR proceedings. and again directed VETL to submit the balance sheet for the year 1995-96 positively by 30. BIFR concluded that this case did not require to be monitored under the Act as VETL has turned around on its own and is no longer sick. and that VETL had increased the share capital and achieved positive networth by the period ending 31. 1996. 9. On 26. BIFR directed VETL to submit their audited balance sheet for the year 1995-96 by the end of May. and as such.3. as evidenced by the audited balance sheet for the year 1995-96 submitted by VETL. the conclusions.70 lakhs.P a g e | 152 IDBI's dues would be welcome by VETL. The learned counsel for VETL contended that the impugned order was passed without hearing the appellant.6. when the facts are not disputed and are specifically admitted. even if it was not finalised in the AGM of VETL. and directed the OA to give a detailed comments on VETL's balance sheet with particular emphasis of payment to unsecured creditors and the position of settlement of IDBI's dues.3. whereof have been summarised in the preceding paragraph. it should be out of BIFR. the networth of VETL. that as per audited accounts for 1995-96.96.

97 in Appeal No. as envisaged in section 17(2) of the Act. As and when the networth exceeds the accumulated losses. 4. .8. dated 9.97 in Appeal No.90. (10) and (12) of section 18 of the Act.98 in Appeal No. M/s. Our observations and conclusions on the contentions of the learned counsel for the appellant. and that the case of VETL could not be de-registered by BIFR until that scheme is implemented or an alternative scheme is prepared by the OA. The learned counsel for appellant further argued that the rehabilitation scheme under section 17(2) of the Act is still under implementation. dated 20. that.7. cannot be treated as a scheme sanctioned under section 18(4) of the Act. In such cases. 70/97) and GFSPL (this Authority's order. because such de-registration would prevent BIFR from exercising its powers and discharging its functions under sub-sections (5).6. OA had been appointed under section 17(3) of the Act. (b) In the cases of NL (this Authority's order. this Authority has followed the common ratio that after a scheme is sanctioned under section 18(4) of the Act. After the implementation of the scheme has commenced. if necessary. he relied upon this Authority's decisions in the cases of M/s. dated 29. 145/97). He argued that so long as a scheme is under implementation. It was only a rehabilitation plan. are given below : (a) The agreed rehabilitation package submitted by VETL. give appropriate orders for removal of difficulties in the implementation of the scheme. 77/96 and order. Swan Mills Ltd. arrived at by mutual agreement amongst VETL and secured creditors.P a g e | 153 appellant. . (c) In the present case. to give time to VETL for making its networth exceed the accumulated losses. Graham Firth Steel Production (I) Ltd. BIFR's jurisdiction to deal with the case continues until the scheme is fully/substantially implemented. SML (this Authority's order. Nirlon Limited (NL). referred to in the preceding paragraph. and there is no need for any further proceedings under the Act. which was considered by BIFR on 9. the purpose of such plan under section 17(2) of the Act is fulfilled. (GFSPL).3. and that it was incumbent upon BoI (AO) to prepare a scheme under section 18(1) of the Act for sanction by BIFR under section 18(4) of the Act 5.96 in Appeal No. and sanction modified or fresh schemes. (SML) and M/s. the case of a sick industrial company before BIFR cannot be de-registered. no scheme was sanctioned by BIFR under section 18(4) of the Act. dated 19. the case cannot be de-registered on the sole ground that the networth of the company has exceeded the accumulated losses. but substantial parts of the scheme remain to be implemented. in the case of VETL. BIFR has to exercise its powers and discharge its functions under various sub-sections of section 18 of the Act in order to secure proper implementation of the scheme : BIFR has to monitor the implementation of the scheme. sanctioned by BIFR and fully implemented.7. 211/97). (9). In support of his arguments.

within 60 days from the date of finalisation of the duly audited accounts for the financial year at the end of which the company has become a sick industrial company. the learned counsel for VETL replied in the negative. cannot form the basis for BIFR's conclusion that the networth of VETL exceeded its accumulated losses on 31. However. approved by the Board of directors of a company. within 60 days after it has formed such opinion.96. An order of BIFR appointing an OA under section 17(3) of the Act in respect of a sick industrial company.3. in the facts of the present case. can be relied upon for determining whether a company is a sick industrial company or not within the meaning of section 3(1)(o) of the Act. make a reference to BIFR for the determination of the measures which shall be adopted with respect to the company. Therefore. In reply to a query from the Bench as to whether VETL challenges the audited accounts for the year 1995-96. In the present case. proviso to section 15(1) of the Act stipulates that if the Board of directors has sufficient reasons even before such finalisation of the duly audited accounts of the company to form the opinion that the company has become a sick industrial company. SML and GFSPL is not attracted. the networth of VETL exceeded the accumulated losses by its own efforts and it ceased to be a sick industrial company within the meaning of section 3(1)(o) of the Act as on 31. The contention of the learned counsel for VETL that BoI (OA) should have prepared a scheme for sanction by BIFR under section 18(4) of the Act. the duly audited accounts. In the present case. even though the networth of VETL had already exceeded its accumulated losses on 31. A reference has to be made by the Board of directors of an industrial company. before a scheme could be prepared by BoI (OA) and sanctioned by BIFR undersection 18(4) of the Act.3. a reference under section 15 of the Act can be made by a company to BIFR even before the duly audited accounts have been approved at the AGM of the company. the accounts of VETL for the financial year ending 31. It is also relevant to refer to section 15 of the Act. BIFR's order appointing BoI as OA undersection 17(3) of the Act for preparing a scheme for VETL cannot survive.96.96. which has become a sick industrial company. continues to survive if all these pre-requisites continue to exist. Thus. it is necessary or expedient to adopt all or any of the measures specified in section 18 of the Act in relation to such company. (d) The essential prerequisites for the appointment of an OA under section 17(3) of the Act are : there should be a sick industrial company. The order of appointment of an OA under section 17(3) of the Act cannot survive if one or more of those prerequisites disappear.3. is not tenable 6. the Board of directors shall. He further argued that the accounts which have not been approved by the AGM of the company.96 . The learned counsel for VETL further contended that the audited accounts for the year 1995-96 are not the finalised audited accounts in the light of section 3(1)(da) of the Act because the said accounts have not yet been adopted by the AGM of VETL. even though such accounts have not been approved at the AGM of the company.3. the ratio followed by this Authority in the case of NL. Therefore.P a g e | 154 Therefore. it is not practicable for the sick industrial company to make its networth exceed the accumulated losses within a reasonable time.

even if VETL admitted its liability to IDBI. their claim was denied. and the dues of IDBI are disputed.3. not tenable .3. 23. VETL's account with BoI. In the facts of this case. In our view. dated 9.3. It is seen from paragraph 5 of BIFR's proceedings.P a g e | 155 were duly audited and approved by Board of directors. that the networth of a company. it is not material whether such company's accounts with any bank or financial institution are regular or not.96. In the present case. for the purpose of determining whether a company is sick within the meaning of section 3(1)(o) of the Act or not.97 that the learned counsel for VETL had stated before BIFR that IDBI's dues have been cleared by VETL and as such. the accumulated losses are equal to or exceed the networth on account of any contingent liability becoming an actual enforceable liability. The learned counsel for VETL further argued that IDBI has filed a suit for Rs.96. Again. Moreover.10. The management of a company has to make a provision. has become irregular and this fact should have been considered by BIFR.96 is. The real test is whether the accumulated losses are equal to or more than the networth or not. The learned counsel for VETL further submitted that even though the dues of ICICI and Hong Kong Bank have been settled. if on a subsequent date. to the extent to which the management perceives the devolution of such liability on the company. BIFR comes to the conclusion. In our view. that it is shown as a contingent liability in the accounts of VETL. before a scheme is sanctioned under section 18(4) of the Act. If on the basis of facts.90. Current proceedings under the Act cannot be sustained on the basis that a company may become a sick industrial company in future. and that BIFR's order passed without examination of this issue deserves to be set aside. that does not prevent VETL from approaching BIFR with a fresh reference under section 15(1) of the Act.3. this contention has no force whatsoever because. 92. Therefore.96. The contention of the learned counsel for VETL that these accounts could not form the basis for BIFR's conclusion that VETL's networth exceeded its accumulated losses on 31. which was regular. which was declared to be a sick industrial company in a reference under section 15 of the Act. 9. Therefore.3. that would not have resulted in accumulated losses being equal to or more than the networth as on 31. that a provision for this liability in the profit and loss account would have resulted in a substantially altered financial position of VETL as on 31. in respect of a contingent liability. it is not disputed that the networth of VETL exceeded the accumulated losses on 31. provision for the liability (if any) will have to be made in the profit and loss account for the financial year during which such liability actually devolves upon VETL as a result of the court's judgment.96 . this argument is without any force. therefore. IDBI's dues have been denied by VETL. has exceeded its accumulated losses at the end of any . this argument has no merit. that BIFR should have considered the need for making a provision for such liability in the profit and loss account. The counsel for VETL further argued that VETL had never approached BIFR for being de-registered. the audited accounts of VETL for the year 1995-96 show that the networth of VETL exceeded the accumulated losses by Rs.142 on 31. In the present case. The correctness of the accounts is not disputed by VETL. 7. 8.84 lakhs against VETL.

for the appellant. 69/98).8.8. within the meaning of section 3(1)(o). BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION..1999. ERADI. Advocates. that it applied for certified copy on 26. ORDER This is an appeal against BIFR's order. for the respondents(Caveator). SAREEN. NEW DELDI KAPIL SHARMA and C. dated 10. BIFR AND OTHERS. The appeal is dismissed. Any contrary view would result in an untenable situation of industrial companies. U. N.99 in Case No. BIFR has to de-register the case and drop all proceedings under the Act. 10. Cases Ltd. G. which are not sick industrial companies.11. with N. The appellant's case is that it did not receive the copy of the order by post. decided on December 24. enjoying protection undersection 22(1) of the Act on the ground that a scheme is under preparation. Advocate.P a g e | 156 financial year after the registration of the reference under section 15 of the Act. which could never have been the purpose of this legislation enacted in public interest. 69 of 1998 dismissing the appellant company's reference undersection 15(1) of the SICK INDUSTRIAL( SPECIAL PROVISIONS ) ACT 1985 2. V.1999.1999 and got it on 27. CASE STUDY—3 ATASH INDUSTRIES INDIA LIMITED v. The counsel for the . dated 10.1999 in Case No. Goyal M. The order was issued by BIFR under their letter dated 19. We do not find any reason for interference in the impugned order. This appeal was filed on 17. 178 of 1999 (Appeal against BIFR's order. MATHUR.10. Appeal No.8. with PAWAN SHARMA. L.10. 1999.1999.

9. Accumulated losses of Rs.97 against the sale proceeds of Rs. 96. The learned counsel has shown a lot of correspondence to urge that the appellant company was always willing to cooperate. i. As on 31.9. but we are not convinced. the appellant company a no accumulated losses.96). 4.99 because the appellant was present through counsel on that day.99 to IDBI (OA) that they still sought 4 to 6 weeks time for submitting the information required for the audit. 109. dated 10.97 (Rs. the appellant took another 20 days to file the appeal. Even today.8. The reference was made by the appellant company on the basis of its accounts for 18 months ended on 30. was Rs.e. Even after getting the certified copy on 27. dated 9.8.9.34 crore during that year (items 6 and 28 of Form 'A'). 69. That period expired by the information was not submitted.97 .9.63 crore booked in the accounts for the year 30.97. that its net worth.63 crore have been shown as on 30. BIFR has dealt at length with the noncooperative attitude of the appellant company in the matter of conduct of audit by the auditors appointed by the IDBI (OA). even though IDBI appointed chartered accountant for the purposes of audit.98. the secured creditors had raised serious objections to the appellant company's accounts.4.97. 19. the learned counsel for the appellant company and the Vice-President (Finance) of the company who is also present. 109. .10.. BIFR appointed IDBI as the operating agency under section 16(2) of SICA.49 crore as on 31. 94. The application for a copy was made 76 days after the date of hearing before BIFR.80 crore as on 30. For one reason or the other. the appellant knew that there is BIFR's order. Even on merit.3.8. this appeal cannot be entertained. It is seen from the appellant company's own letter. When the reference was heard by BIFR on 4. showing total erosion of its net worth during the year 1996-97. the application for certified copy was made to BIFR after 67 days. but the delay took place on the part of the IDBI (OA) and the auditors. It is seen from Form 'A' in which the reference was made by the appellant company.1999.99.3. The appeal is time barred. the audit could not be completed and IDBI (OA) could not consequently submit its report under section 16(2) to BIFR. In any case. Therefore. are unable to give us any explanation for the losses of Rs. It is seen from the list of addresses that a copy of the impugned order was addressed to the appellant at the same address which is given by the appellant in the cause title of the memorandum of this appeal. as defined in section 3(1)(g)(a) of SICA.P a g e | 157 appellant company was present before BIFR at the hearing on 10.9. The appeal is dismissed.96.99. Even if we count the period from the date of the issue of the order. 3. the information given in Form 'A' by the appellant company to the BIFR cannot be relied upon for the purpose of determining whether the appellant company had become a sick industrial company as on 30. In the impugned order.5.

Asst. N. R. NITIL KAMBLE. I. payment of statutory liabilities and pressing creditors. RCPL made counter claims . etc. Ms. 1995. Secretary. The exemption given by the State Government of Maharashtra in favour of the company for its industrial use of surplus land in Borivali under the provisions of the Urban Land (Ceiling and Regulation) Act. 10 crore was received by the company from RCPL. The renewal of exemption under ULCRA could be obtained by the company only by April 1997. J. SEWAMI. B. (hereinafter referred to as 'the company') is a sick industrial company within the meaning of section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act. NISHA BAGCHI. 70 crore and complete the sale transaction and also threatened to forfeit the amount of Rs. whereas other approvals for development. for the appellants . K. G.1999 in BIFR Case No. V. P. the real estate prices continued to decline. 8. PANNA KHATAU. Appeal Nos. the company entered into an agreement. Treasurer. would be obtained by RCPL. NIHARIKA BAHL. and G. 1995. 1976 (ULCRA) expired on 14 June. State Bank of India. 1985 (SICA). MURTHY.I. MOHITE. K. The company called upon RCPL to pay the balance amount of Rs. MUSALE. and M. 1999. decided on December 27. P. ORDER M/s. Asst. The scheme provided for sale of freehold surplus land of the company at Borivali. for Rashtriya Mill Mazdoor Sangh . 146/99 and 149/99 (Against BIFR's Order. NEW DELHI ALOK DHIR. with Ms. Consequently.P a g e | 158 CASE STUDY -.4 KHATAU MAKANJI SPINNING AND WEAVING MILLS LTD.10. Advocates. In turn. GAYATRI SINGH and MS. dated 4 November. G. BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL. 1995.. & FINANCIAL RECONSTRUCTION. Advocate. 80 crore out of which an advance of Rs. N.8.P.. with (RCPL) for sale of development rights for FSI of 10 lakh Rs.. AND ANOTHER v. MS. transfer. 10 crore paid as advance by RCPL. The scheme envisaged modernisation of equipment. In the meantime. SATYANAND. for Girni Kamgar Sangharsh Samiti. BIFR AND OTHERS.1999 and 12. for Kamgar Ekta Samithi. ESIC. General Manager. ASAWALE. MS. respectively). The agreement between the company and RCPL Provided that the company would obtain renewal of the exemption under ULCRA at its cost. ICICI. Vice President. Khatau Makanji Spinning & Weaving Mills Ltd. Chairman. rationalisation of labour. On 27 March. APARNA BHAT. BIFR sanctioned a scheme for the rehabilitation of the company. Advocates. 135/99. one-time settlement of the dues of banks/FIs/debenture-holders.

37 crores.ft. and also settle the matter directly with the company's Board/Assets Sale-Cum-Management Committee (ASMC) as well as at a joint meeting convened by ICICI. L. it is desirable to enter into TPA with RCPL company and FNL by asking him to deposit the consideration amount of Rs. 27 crore to the company. the company's title would be perfect. C. 250 per sq. who examined this matter at great length and gave his conclusive opinion (the last paragraph of his opinion) which is reproduced below : "According to me. Majumdar & Associates. no developer/purchaser would come to buy the property and/or development rights unless the title is absolutely clear and would not like the suit pending in the court although technically. but a suit by RCPL may last for more than 20 years and normally. The company consulted their solicitors. 10 crore was refunded to RCPL or in the alternative. Justice M. and that this was the opinion obtained from solicitors MHC. the earnest money of Rs. therefore. The promoter of the company pointed out that no new builder would show any interest if a legal battle continued with RCPL. the difference of Rs. his deposit is liable to be forfeited.37 crore plus or minus 5%. 10 crore alongwith interest and gave notice that it would institute a suit in court for refund of the amount of Rs. ICICI got the development rights revalued and the valuers. Dudhat (retired judge of the High Court). A new party. that as a consequence. Then only in that event his offer will be accepted. and that. BIFR had asked SBI & ICICI to nominate their representatives on the company's ASMC and ICICI had appointed Mr. 43 crore between the agreed price and the price likely to be fetched now was recoverable by legal means from RCPL. observed that under the old agreement between the company and RCPL. in view of this peculiar situation. Fateh Navnirman (I) Ltd. in the vicinity of the company's land. if the purchaser pays 50% within the stipulated time. It may also be mentioned that in the publication. 10 crore be refunded if RCPL agree and the property be disposed of at the present market value at the earliest to expedite the revival of the company. Jain. (FNL) offered to purchase the development rights at Rs. 37 crore provided the amount of Rs. who advised that it is possible that the company may succeed in establishing a breach of the terms of the agreement on the part of RCPL and forfeit the earnest money. Mansukhlal Hiralal & Co. 10 crore which would amount to about Rs. valued the property/development rights at Rs. that the land prices in Mumbai had further fallen and were ruling at about Rs.P a g e | 159 against the company for refund of Rs. Shri R.9. the company's revival would be delayed for several years and would almost be impossible. If no new developer responds to the new scheme as per the conditions. one of the three special directors appointed by BIFR. 8 crore. that FNL might back out if the matter was delayed. At the company's Board/ASMC meeting held on 7. 10 crore and would claim interest thereon. then the aforesaid TPA entered into shall be . 37 crores and deposit 50% (Rs.98. FNL offered to pay Rs. and that a tripartite agreement may be signed amongst the company and FNL and RCPL as otherwise RCPL might demand interest on the earnest money of Rs. 20 crores) within 2 weeks from the advertisement of publication of scheme and pay balance amount towards purchase within 15 days thereof. If all the parties to the TPA agree that in the settlement scheme published by BIFR to insert a clause to the effect that if anybody is interested in purchase of said Borivali property for more than Rs. but fails to repay the balance payment. (MHC).

ICICI. BIFR concluded that sale through private negotiation at Rs.8.1999. IFCI and SBI endorsed the views of ICICI on the issue of sale of land. the BIFR rejected the company's application and reiterated their orders contained in paragraph 19 of the earlier order dated 12. 10 crore to RCPL. and that the company be permitted to issue an advertisement for the sale of land/development rights.10. The representatives of IIBI. The scheme envisages sale of development rights. dated 12. Shri Alok Dhir. By order. SBI. that the company had only expressed its confidence that if the amount is refunded to RCPL. This matter was considered by BIFR at length at the hearing on 12. 10 crore was refunded to RCPL without interest the issue between RCPL and the company would get resolved. 37 crore as valued by Mazumdar & Associates lacked transparency. the issue between the company and the RCPL would be settled. SBI. Government of Maharashtra and BIFR would examine the bids and make recommendations for accepting agreements for the sale of land free from all encumbrances." A modified draft rehabilitation scheme (DRS) has been prepared by ICICI (OA). The company pleaded that it had never agreed to refund the amount of Rs. In response to a query from the Bench of BIFR. The counsel for the company also proposed acceptance of the offer of FNL being in line with the valuation undertaken by Mazumdar & Associates. inviting offers on as and where-is-basis or alternatively.P a g e | 160 deemed to be concluded. The DRS has not yet been circulated/published as the question of modality for the sale of development rights is still being agitated. Jain before their Boards of directors and obtain their approval confirming that the negotiated deal was transparent and free from doubts and the offered price of Rs. therefore.1999. 37 crore to FNL by private negotiation. and Assets Sale Committee consisting of the representatives of the company. 37 crore was fair and reasonable (vide paragraph 19 of the impugned order. dated 8. if the company and the FIs/banks want to accept the FNL's offer as the best offer under the circumstances and in the larger interest of the company and the secured creditors then they should place full facts including the opinions of the solicitors and views expressed by Shri R.8.1999). monitoring agency would then issue advertisements for the sale of land free from all encumbrances. The company submitted miscellaneous application to BIFR on 24.1999 requesting for rectification of error in the order. 10 crore to RCPL in full and final settlement of RCPL's claim. Appeal 149/99 is .8.8. directed : the company should refund Rs.1999. Appeal No.8. C. counsel for the company. foreseeing a situation of continued litigation and the likely delay if tender route was adopted.99. Justice Dudhat and had approved the sale at Rs. 146/99 is directed against BIFR's order. BIFR. dated 12. 3.99. After hearing all the parties. ICICI. He had also submitted that the company would like strict transparency and had no objection to the sale of land by open advertisement. offers involving settlement of dispute with RCPL.9. dated 12. Government of Maharashtra and BIFR would examine the bids and make recommendations for accepting the most favourable offer. The representative of ICICI submitted before BIFR that ICICI endorsed the views expressed by Mr. had stated before BIFR that the promoters were confident that if the amount of Rs. and Assets Sale Committee consisting of the representatives of the company.

7. dated 9.99.99. GKSS has a right to be heard by BIFR and AAIFR . RMMS has represented the workers of the cotton textile majority of the workers belong to RMMS.000 workers. by a subsequent letter. In view of this.3. dated 22. 135/99 pertaining to the company. In paragraph 2 of our order. dated 28. 10 crore advanced by RCPL shall be kept in an interest bearing deposit with SBI until these appeals are disposed of. therefore. because the said amount was held in the company's cash credit account with the SBI so that the company did not have to pay the interest thereon.99 in WP No. the company asked the SBI to retain the amount till further clarifications were sought from this Authority.99. 2507/99 in the Hon'ble High Court of Bombay.12. we do not see any need to recall or modify our direction contained in paragraph 2 of our order.8. in any case. dated 28. At the hearing on 17. At the hearing on 9.11. 2507/99 has directed BIFR and AAIFR to give an opportunity of hearing to GKSS in all matters regarding rehabilitation scheme for the company.10.99.99. 10 crore held with SBI on 'no-lien basis'.99. The learned counsel for Rashtriya Mill Mazdoor Sangh (RMSS) argued : RMMS is the approved union under the BIFR Act. Consequently.95 and by doing so. for the cotton textile industry in the local area of Greater.99 stating that in Writ Petition No. praying that compliance with this direction would result in further increase in the liability of the company.10. It is noted from paragraph 4 of Hon'ble Bombay High Court's order. GKSS is entitled to represent those workers who are . The representative of SBI submitted a letter. we had directed that the amount of Rs.12. dated 9. The learned counsel for GKSS argued that GKSS was represented before BIFR.99 in Case No. and that. and thus saved substantial amount of interest on the borrowal accounts.99. 10 crore is lying with the bank along with the interest and the said amount would not be disbursed without the leave of that court and without the directions of BIFR & AAIFR. 2507/99 that the learned counsel for SBI had stated before the High Court that an amount of Rs.11. the petitioner . and that the SBI has submitted necessary clarification through their counsel that the amount held in cash credit account does not carry any interest as it was credited in the cash credit account as pier original mandate of the company vide their letter.12. dated 7. we had added GKSS as respondent No. In any case. 6. the scope of intervention by GKSS should be limited by this Authority by an order so that it does not create any precedent and hurdle in the rehabilitation of the company and the fate of nearly 5. that Bombay High Court by order. 5. dated 8. dated 13.11.Girni Kamgar Sangharsh Samiti (GKSS) has raised the issue of interest accrued on the amount of Rs. the learned counsel for the company requested us to recall our direction contained in paragraph 2 of our order. 16 in this appeal because GKSS was present before and heard by BIFR on 12. the company were not charged with interest on cash credit account for Rs.12. 10 crore all along. 1946. the company wrote a letter.11. dated 16.10. dated 9.P a g e | 161 directed against BIFR's order. 4. However.99 in WP No.99 to SBI to transfer the amount from cash credit account to 'the interest bearing deposit account' for a period of three months. Mumbai.

then the tripartite agreement would be void. Shri Alok Dhir observed that the fact of agreement between RCPL and the company and the consequent dispute would have to be mentioned in the advertisement. 8. 10 crore should be refunded to RCPL in full and final settlement of its claim against the company and the land/development rights should be sold by advertising as free from all encumbrances. the highest bid should be accepted. counsel for the company.8. mentioning the dispute between the RCPL and the company. 10 crore is refunded to them. directed BIFR and this Authority to give an opportunity of hearing to GKSS in all the matters regarding the rehabilitation scheme for the company and this Authority complies with the orders of the High Court. 37 crore from the sale of land/development rights. and. in the meantime. a tripartite agreement should be entered into by the company. by their order' dated 28. 2507/99. .99 in WP No. particularly. stipulating that the bidder would have to settle RCPL's claim against the company. 10 crore given by RCPL. 10 crore to RCPL. there is neither an assurance that a bid of Rs. counsel for GKSS. 37 crore and giving the details of the agreement between company and the RCPL and the advance of Rs. nor an assurance that RCPL will not demand interest if the amount of Rs. the company has no contractual obligation to refund this amount. because the Hon'ble Bombay High Court have. prospective bidders may be disinclined to come up with higher offers. if one or more bids higher than Rs. the question of giving any direction in regard to the scope of GKSS's intervention did not arise. Their submissions are summarised below (a) Ms.99. The registered and recognised union (RMMS) in this case. suggested : the company should not refund the amount of Rs. envisaging an estimated receipt of Rs. binding FNL to its offer of Rs. 37 crore as well as the final settlement with RCPL with the condition that if a higher bid is received. FNL and RCPL. Gayatri Singh. litigation with RCPL will be time-consuming and will thwart the efforts for the rehabilitation of the company. the tripartite agreement would be confirmed. (c) The counsel/representatives for RMMS/financial institutions/banks supported the stand taken by the company. has a right to represent the workers insofar as any settlement between management and the workers is concerned. Gayatri Singh observed that if the bids are invited. (d) Ms. In regard to the modality for the sale of land. the DRS should be circulated and published. (b) Shri Alok Dhir. 37 crore are received.10.P a g e | 162 its members insofar as hearings before BIFR and AAIFR are concerned. 37 crore or higher would be available if an advertisement is made for sale free from all encumbrances. In any case. an advertisement should also be issued inviting bids with an upset price of Rs. this appeal was being finally heard. otherwise. suggested that the amount of Rs. therefore. otherwise. the company may be involved in prolonged litigation and the sale of land/development rights may not materialise. the counsel and representatives of different parties reiterated the stand taken by them at the hearing before BIFR on 12.

70 crore) within 7 days as stipulated in the agreement.37 crore would be forthcoming if the advertisement for sale is made free from encumbrances after settling the dispute with RCPL. notwithstanding any other remedy the company may have. the company shall be entitled to terminate the agreement and to forfeit the earnest money of Rs. The company's title to land is undisputed. the company shall be entitled to recover from RCPL the deficiency in price. Section 32(1) of SICA stipulates that the provisions of SICA and of any rules . Gayatri Singh . The land/development rights can. 10 crore (with or without interest). dated 4. Paragraph 22 of the said agreement further provides that if RCPL fails to pay the balance amount within 7 days as stipulated therein. both of them have only expressed apprehension about the delay in litigation if RCPL files a suit for the recovery of the amount of Rs. and in such event. 10 crore shall not be forfeited. The sale of land/development rights has to be arranged in a manner which is transparent and ensures maximum proceeds for the company.P a g e | 163 (e) In response to a question from the Bench as to whether there is some assurance from any prospective bidders that a bid of not less than Rs. Our analysis and conclusions are given below : (a) Paragraph 19 of the agreement. 10 crore and claim damages from RCPL. If a suit is filed by RCPL.11. the company shall be entitled to terminate the agreement and to forfeit the earnest money of Rs. 9. be sold free from encumbrances irrespective of the outcome of the suit/civil dispute between RCPL and the company. The money dispute between RCPL and the company cannot be and must not be treated as land dispute. 10 crore after giving a notice to RCPL in writing in that behalf. Even if a suit is not filed by the RCPL. (b) Neither MHC (solicitors of the company) nor Justice Dudhat (ICICI's nominee on ASMC) has expressed any doubt about the company's title to land under reference. the company must forfeit the earnest money of Rs. 10 crore and shall also be entitled to grant the development rights to any other person(s) either by private treaty or by inviting offers from the public or in any such manner as the company deems fit and proper. provided that if RCPL pays the balance amount with interest within 7 days from the date of receipt of the said notice.. Rs. In fact. if occasioned by such resale and the costs thereof.e. the company must filed its counter claim. Even if a suit is filed by RCPL. there was no positive response from Ms. the agreement shall not be terminated and the earnest money of Rs. it will only be a money suit. therefore. which shall be made good by RCPL to the company with interest on the amount of deficiency and the costs thereof @ 18% p. by filing (c) Section 2 of SICA declares that SICA is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution.95 between the company and RCPL provides that if RCPL fails to pay the balance amount (i. compounded quarterly from the date of the default till payment .a.

that the company's title to the land is clear and perfect and possess on of the land company 1 is will be given free from encumbrances to the bidder whose bid for purchase of development rights is accepted. creditors. 80 crore and deposited earnest money of Rs. with the clear under-standing that the company has forfeited the amount of Rs. SICA to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under SICA. there is no need for the company to enter into any understanding with RCPL directly or by way of tripartite agreement amongst the company. that RCPL rescinded the agreement and has given a legal notice for the fund of Rs. then the agreement with FNL will be null and void and the amount deposited by it will be refunded without interest . 9 clarifying.P a g e | 164 and schemes made thereunder have overriding effect over all other laws except the laws relating to Foreign Exchange Regulation and Urban Land Ceiling & Regulation. The existing ASMC must draw tender documents carefully.11. FNL and RCPL. 10 crore. provided FNL deposits the said amount or any reasonable amount that ASMC may consider appropriate with the further understanding that the company will advertise the land/development rights for sale free from encumbrances. that the company proposes to proceed against RCPL for the recovery of damages as provided under the agreement. 10 crore is not refunded to RCPL. entertaining FNL's offer of Rs. FSI for a consideration of Rs. ft. 10 crore.95 with RCPL. 27 crore for development rights of 10 lakh sq. It is open to the company to enter into an agreement with FNL. that RCPL failed to fulfil its obligation to pay the balance amount as stipulated under the agreement. dated 4. 10 crore with interest . that the company has forfeited the earnest money of Rs. guarantors and employees of the company.11. 10 crore is refunded to RCPL or a sum of Rs. (d) According to the company. Section 18(8) makes the provisions of scheme sanctioned under SICA binding on shareholders. 10 crore given as earnest money by RCPL. inter alia. 27 crore if the said sum of Rs. Considering the rights of the company under its agreement. the company's land/development rights in the present case can be sold free from encumbrances without any doubts or apprehensions about the likely consequences of the notice given by RCPL to the company for refunding the earnest money of Rs. that RCPL had. ft. by an agreement. or under. In view of these provisions of SICA. agreed to purchase development rights for 10 lakhs sq. and the encumbrances can be settled in monetary terms without any effect on the process of disposal of such assets free from encumbrances. FNL has offered a sum of Rs. This process is not subject to interference by civil courts. (e) The company must advertise the sale of land/development rights free from encumbrances. Even if the assets of a sick industrial company are encumbered. 37 crore if the amount of Rs. Section 26 of SICA specifically provides that no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or BIFR is empowered by. that such bidder will not be liable for the consequences of any civil dispute between RCPL and .95 with the company. dated 4. such assets can be sold free from encumbrances if so provided under a scheme sanctioned for such company under the provisions of SICA. and if a higher offer is received. 10 crore.

S.P. decided on August 12.99 in BIFR Case No. ORDER (Date of hearing : 12. By that clause. In conclusion. Manager. (PSL).99 are set aside.3.99 and BIFR's order. are aggrieved by clause 8(iv) of the modified-rehabilitation scheme for PSL. K.) This is an appeal against BIFR's order. dated 8.. Ro Delhi. a sick industrial company. dated 31. and take further appropriate steps to recover the loss (if any) from RCPL. BEFORE THE APPELLATE AUTHORITY RECONSTRUCTION. for the appellant A.8. S. Manager. assuming the sale proceeds of Rs.1999.8. Pronto Steerings Ltd. GUPTA. K. shareholders of PSL. Senior Managers.10. The appeals are disposed of. CHADHA. H. dated 31. BIFR's directions in paragraph 19 of the order. Advocate. 175/88 (new case No. FSI) free from encumbrances as stated above. Department of Industries. (f) The modified DRS must be circulated and published in brief in newspapers as required under section 18(3)(a) of SICA. 10 crore by taking recourse to the terms of its agreement with RCPL and sell the land/development rights (10 lakh sq.3. Pronto Steerings Ltd. Appeal No.5 KHUSHBIR SINGH AND ANOTHER (RE PRONTO STEERINGS LTD. GULATI. CASE STUDY -. ft. V. WALI. KAUSHIK. 37 crore from the sale of land/development rights. They are aggrieved because their shareholding of 13. Dy. PNB. V. 175/88 (4/97). the company must forfeit the earnest money of Rs. M. Advocate. L. NEW DELHI VIVEK SIBAL. K./HPSIDC/HPFC. R. The appellants. dated 12. 1999.99 in case No. 4/97) approving the modified rehabilitation scheme for M/s.) v.P a g e | 165 the company and that the gains/losses resulting from such dispute will be to the account of the company . 66/99 against BIFR's order. PANDAY. II ESIC. and the steps for sale be initiated simultaneously as stated above.450 FOR INDUSTRIAL & FINANCIAL . the capital of PSL has been restructured by writing down the same by 75%. B. AMRIK SINGH. BIFR AND OTHERS. 10.

That notice included a clause that copy of the scheme was available for inspection in the library of BIFR during working hours on any working day. In the scheme sanctioned for PSL.99 for giving effect to clause 8(iv) of the modified rehabilitation scheme.99 was issued by PSL for an extraordinary general meeting of the members of PSL to be held on 12.98. even the secured creditors would not have got payment of their full dues.5.7. did not have any reason for apprehending that their interest would be adversely affected by the proposed rehabilitation scheme and had no opportunity for objecting to this provision in the proposed rehabilitation scheme. contends that the appellants. the real value of the shares is zero unless shown to the contrary.3. In the case of a sick industrial company as defined in section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act. prays for setting aside clause 8(iv) of the rehabilitation scheme for PSL 3. He further contends that the scheme sanctioned by BIFR and the BIFR's order do not give any justification for the reduction in the face value of the existing share capital. even . The unsecured creditors and the shareholders would not have received any payment. the secured creditors have accepted a sacrifice of Rs. 2. The entire proceeds would have been distributed proportionately amongst the secured creditors and workers. During this entire period. when the brief particulars of the draft rehabilitation scheme were published in newspapers on 13.97. dated 13. When the State financial institutions and the bank have accepted such a large sacrifice in order to facilitate the rehabilitation of PSL. the appellants do not appear to have taken any care to find out the particulars of the sanctioned scheme and also whether they were in any way going to be adversely affected in any way. the promoters would acquire more than 90% of the share capital after restructuring and thereby the small shareholders will lose certain rights which otherwise would have been available to them under the company law.P a g e | 166 shares (collectively) has been reduced to 25% of the face value. 10. That clause has not been modified subsequently.3.42 crores. therefore. dated 12.8.99 which only modified certain clauses in the scheme. The appeal against clause 8(iv) of the scheme is too much delayed.97.8. revival or rehabilitation of the sick industrial company. He. the scheme was sanctioned by BIFR on 5. the shareholders cannot have a grievance about reduction in their interest. therefore. In fact. Therefore. in the event of winding up of PSL. The learned counsel contends : the appellants came to know about the provision for the restructuring of capital by PSL by writing it down by 75% only when a notice. The appellants could have gone to the library of BIFR to check the particulars of the proposed rehabilitation scheme and found out as to whether their interests were going to be adversely affected in any way. the said public notice did not include the fact that the proposed rehabilitation scheme for PSL included a provision for restructuring the capital of PSL by writing it down by 75%. The scheme sanctioned by BIFR on 5. 4. Section 18(2)(f) specifically provides for the reduction of the interests or rights of the shareholders in the sick industrial company to such an extent as BIFR considers necessary in the interests of restructuring.98 included the aforesaid clause 8(iv). He adds that as a result of the sanctioned modified rehabilitation scheme. dated 31. He.3. Moreover. members of PSL. It is an admitted fact that public notice of the draft rehabilitation scheme was. 1985 (for short 'the Act'). The order impugned in this appeal is.

shareholders may ask for payment in cash in full and final settlement of their interest in their shareholding. Finance . With the above observation. the appeal is dismissed. who had taken benefit of early retirement scheme . 17(3).Respondent sought to dispose of surplus land for bringing additional funds required for financial restructuring . CASE STUDY -.S.6 Raheja Universal Limited vs NRC Limited and others [SUPREME COURT OF INDIA. however. for setting off labour dues .Respondent entered into a Memorandum of Understanding (MoU) and several agreements for sale with appellant company for selling its land .Sick Industrial Companies (Special Provisions) Act. to be sold .P a g e | 167 the reduced interest of the shareholders under the rehabilitation scheme should be seen as a concession and not as a punishment to the shareholders 5.HC held that BIFR order was within the scope of s.Respondent applied to BIFR . the promoters will have to buy their shares at Rs. Since section 18(2)(g) of the Act specifically provides that in the case of restructuring of the capital of the sick industrial company in a rehabilitation scheme.Parties including labour union challenged AAIFR order before HC . 07 Feb 2012] (A) Corporate . Having said that. as per its directions. therefore. its creditors and shareholders. 2. if the interest of shareholders is reduced. permitted land. 22 of the Act . If.BIFR fixed cut-off date for financial revival by an order u/s. except with consent of BIFR . 22 was to empower BIFR to issue any direction to sick industrial company. 2. directed to obtain prior approval before sale of land Parties appealed to Appellate Authority for Industrial and Financial Reconstruction (AAIFR) AAIFR held that scheme could be approved but subject to pre-payment of entire remaining consideration.50 per share for their entire shareholding or part of it.Scope and ambit of s.Banking &amp.What is the scope and ambit of s. 17(3) of the Act. intent of introducing s. 22(3) . 1985.50 per share.AAIFR. though an asset of the company. 22 .Since appellant failed to disburse third installment of sale consideration. instant appeal . the appellants wish to receive payment at Rs. ss. directing company not to dispose of any assets. respondent could not even clear dues of employees. in interest of company or even in public interest.Held. therefore. 22(3) of the Act and AAIFR order permitting sale of land in furtherance to agreement between parties was not sustainable as it was part of revival scheme and sale had been permitted subject to final orders of BIFR . we do not see any reason for interference in the impugned order. right from its presentation till its complete .Hence.Respondent company was declared as sick unit by Board for Industrial and Financial Restructuring (BIFR) . 22 of the Act was reservoir of statutory powers empowering BIFR to determine a scheme.

Sick Industrial Companies (Special Provisions) Act.. agreements in the instant cases did not transfer or create any right or title in property in question in favor of appellant purchaser . s.Once asset of the company and/or its sale proceeds had been integral part of formation and finalization of revival scheme. 53A . 26 of the Act that ousted jurisdiction of civil courts and vested exclusive jurisdiction for specified purposes with BIFR . 22(3) of the Act contemplated that any remedy for enforcement of a right which would be available to a third party and any such proceedings before any court or tribunal should remain stayed or be continued subject to such declaration . 1956.Ss. 26 and 32 of the 1985 Act . ss.S.Direction by BIFR .Overriding effect of 1985 Act .Thus. Finance . (B) Corporate . that too.Whether in facts and circumstances of case. provisions of s. 1985.Sale of assets of sick industry . second supplementary agreement for sale was executed not only subsequent to presentation of scheme before BIFR but even after BIFR had passed an order u/s. 17(3) of the 1985 Act .Further. free of interjections and interference from other judicial processes . 1882. except sick industrial companies .Legislature had undoubtedly given an overriding effect to provisions of 1985 Act and even restricted jurisdiction of civil courts.Land &amp. Property .1985 Act had no application even to other different kinds of companies within purview of Companies Act. ss. 17. Finance . ss. however. 22 and 22A were required to be read along with provisions of s.Transfer of Property Act.Further.Further.Appeal dismissed. as was demonstrated from the language of ss. 1985.Right of purchaser . 17(3).Banking &amp. MoU and agreements for sale of land belonging to company between appellant and respondent were signed prior to presentation of scheme before BIFR . 1882 Act was a general law. i.Jurisdiction . 22(3) of the 1985 Act . where a company was a sick industrial company . 22(3) . provisions of 1985 Act would prevail over provisions of the 1882 Act .Banking &amp. 1882 . s.However. 1985.Land &amp.Sick Industrial Companies (Special Provisions) Act. 22(3) . 18.Hence.Sick Industrial Companies (Special Provisions) Act.Held. Finance . even that provision did not create title of transferee in property in question but gave him a very limited right.Determination .Transfer of Property Act. 53A of 1882 Act recognized a right of a transferee. BIFR had jurisdiction to issue a direction or make a declaration in relation to agreement in . subject to satisfaction of conditions stated in s.Appeal dismissed. 22A of the Act dealt with restrictions and prohibitory orders which BIFR could pass.P a g e | 168 implementation in accordance with law. all for purposes of preparation of scheme and proper implementation and effective management of revival of sick industrial company . such transaction should not be stated to be beyond ambit and scope of s.Appeal dismissed. 53A of the 1882 Act . (D) Corporate .Banking &amp. Property .1882 Act did not have application to a particular situation or class of persons. 1985 Act was a special legislation providing for imperative functioning of specialized bodies like BIFR and AAIFR and was intended to apply to a very specific situation. 22(3) .Whether agreement to sell by respondent in relation to an immovable property transferred or created any right or title in immovable property itself in favor of appellant purchaser .Whether the provisions of 1985 Act would prevail over the provisions of 1882 Act Held. however. sale proceeds received under agreements were utilized for revival of respondent company to a large extent . (C) Corporate . controlling and operating in a very wide field .e.

Appeal dismissed. 22(3) of the Act . 22(3) and 22(4) expired. BIFR AND ANOTHER(SC) Supreme Court Decision dt. neither BIFR nor HC had exceeded its jurisdiction in passing impugned orders .Direction by BIFR .Land being primary asset of respondent. prohibitory orders of BIFR were issued within the ambit and scope of ss. order of BIFR was passed clearly at the stage of consideration of revival scheme which was approved by consortium of banks for debt restructuring (CDR Group) as well as secured creditors . 22(3) and it was not in interest of respondent .Land was paramount asset of company for its revival and successful implementation of scheme in accordance with law .Scheme for revival of company on long term basis was primarily dependent upon sale proceeds of land in question on the one hand and utility of remaining land for revival of company on the other .Hence. 22(1).It was not that respondent had been divested of its right by BIFR but only suspended final transfer of property in its favour in accordance with provisions of Act and limitations imposed therein . 17 and 18 of the Act and appropriate directions. 1985.Held. (E) Corporate .However. once scheme was implemented or period specified under provisions of ss.Asset was duly taken into consideration in formulation of the scheme as contemplated u/ss. AAIFR had disturbed BIFR order and held that contract between parties could not be suspended u/s. CASE STUDY – 7 INDIAN SHAVING PRODUCS LIMITED VS.Jurisdiction . declaration would cease to exist and appellant would be entitled to enforce its rights in accordance with law as if no such declaration or restriction ever existed .However.P a g e | 169 question in exercise of powers vested in it u/s.03-01-1996 218 ITR 140(SC) JUDGMENT The judgment of the court was delivered by .Held. ss. 22(3) and 22A of the Act .No jurisdictional or other error was there in HC order in restoring BIFR order . AAIFR order was set aside and BIFR order of was restored by HC .Whether HC or BIFR had exceeded its jurisdiction while passing impugned orders . Finance . impugned HC was maintained and directed parties to proceed the matter before BIFR in accordance with law .Appeal dismissed.BIFR was authority proprio vigore and required to oversee entire affairs of a sick industrial company and to ensure that the same were within framework of scheme formulated and approved by Board for revival of company in accordance with provisions of the 1985 Act .Sick Industrial Companies (Special Provisions) Act.Sale of assets of sick industry .On facts as well. 22(3) . could not be permitted to be dissolved by sale or otherwise without consent and approval of BIFR .Banking &amp.

The impugned order upheld the order of the Board for Industrial and Financial Reconstruction. to ensure that the benefit under this section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company. specify. remedial and other measures which were needed to be taken with respect to such companies and the expeditious enforcement thereof. Chapter III deals with references. then. The provisions of section 15(1) state that where an industrial company has become a sick industrial company. . in the public interest. 1961.P a g e | 170 S. . states "that where there has been an amalgamation of a company owning an industrial undertaking with another company and the Central Government. allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected. Notice upon this appeal was issued to the Central Board of Direct Taxes and it was duly served. immediately before such amalgamation. and the other provisions of this Act relating to set-off and carry forward of loss and allowance for depreciation shall apply accordingly. its board of directors shall. thereupon. namely :---(a) the amalgamating company was not. the speedy determination by a board of experts of the preventive. is satisfied that the following conditions are fulfilled. within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company. by which the benefit of the provisions of section 72A of the Income-tax Act. BHARUCHA J. inquiries and schemes. specify. Section 4 constitutes the Board for Industrial and Financial Reconstruction (BIFR) and section 5 constitutes the Appellate Authority. by notification in the Official Gazette. It has not entered appearance. and (c) such other conditions as the Central Government may. by notification in the Official Gazette. financially viable by reason of its liabilities." "Specified authority" has been defined for the purposes of section 72A to mean such authority as the Central Government might. ameliorative. 1961. established under the Sick Industrial Companies (Special Provisions) Act. losses and other relevant factors . P. The said Act was enacted to make. A "sick industrial company" was defined by section 3(1)(o) to mean an industrial company which had at the end of any financial year accumulated losses equal to or exceeding its entire net worth and had . Section 72A of the Income-tax Act.----This appeal by special leave impugns an order of the Appellate Authority for Industrial and Financial Reconstruction. notwithstanding anything contained in any other provision of this Act. on the recommendation of the specified authority. special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings. 1985 (hereinafter called "the said Act"). the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or. make a reference to the BIFR for determination of the measures which should be adopted with respect to the company. was not extended to the appellant upon the amalgamation of Sharp Edge Limited with it. (b) the amalgamation was in the public interest . as the case may be. the Central Government may make a declaration to that effect and. .

The BIFR may. (3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company it may. The scheme prepared by the operating agency is required to be examined by the BIFR and its copies sent with such modifications. subject to the modifications that the power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section. The inquiry is required to be completed within sixty days from its commencement and an inquiry is deemed to have commenced upon receipt by the BIFR of a reference. (2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time. This definition was substituted in 1994 so that it now means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. the Board. Section 32(2) reads : "Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company. shall. as soon as may be by order in writing. having regard to such guidelines as may be specified in the order. 1961 (43 of 1961). as may have been made by the BIFR to the sick industrial company. " Section 18 states that where an order has been made under section 17(3) in relation to any sick industrial company. the provisions of section 72A of the Income-tax Act. the operating agency specified in the order shall prepare a scheme with respect to such company providing for the measures set out therein.---(1) If after making an inquiry under section 16. "the amalgamation of the sick industrial company with any other company". the Board is satisfied that a company has become a sick industrial company. after consideration of objections. Section 17 so far as is relevant reads thus : "17. apply in relation to such amalgamation as they apply in relation to the . Powers of Board to make suitable order on the completion of inquiry. inter alia. The following measure is referred to in clause (c)(i). after considering all the relevant facts and circumstances of the case. the operating agency and to the other company concerned in the proposed amalgamation and. direct any operating agency specified in the order to prepare. give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. decide. which would come into force on such date as it might specify. by order in writing. if any. upon receipt of a reference with respect to such company under section 15. as soon as may be. namely. whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. for the disposal of such inquiry. the BIFR is required to sanction the scheme. require an operating agency to enquire into and make a report with respect to such matters as the BIFR may specify.P a g e | 171 also suffered cash losses in such financial year and the financial year immediately preceding such financial year. a scheme providing for such measures in relation to such company. by order in writing and subject to such restrictions or conditions as may be specified in the order. the Board shall. Section 16 requires the BIFR to make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company. shall.

It said : "The company's request for grant of benefit under section 72A of the Income-tax Act was not considered justified by the Bench as it was a closely held company. As on March 31. 1991. In relation to these reasons. for the reasons stated by it. onwards the shareholding was taken over by the appellant. directed to submit a revised draft rehabilitation-cum-merger scheme. 1986. to come into force with immediate effect. Its controlling interest was held by different companies at different times. the appellate authority said: " None of these factors can be considered totally irrelevant or extraneous except possibly the fact .P a g e | 172 amalgamation of a company owning an industrial undertaking with another company. Sharp Edge was not doing well.. the amalgamation took effect on April 1. (2) its liabilities were mainly in respect of the appellant (3) Sharp Edge had been showing a cash profit for the last three years (4) its net worth had since become positive . the BIFR observed that Sharp Edge's performance had significantly improved during the last two years mainly because of the management and financial support from the appellant and its net worth had become positive. the appellant wrote to the BIFR and submitted that it should reconsider the request for the benefit of the provisions of section 72A of the Income-tax Act favourably. (1) that Sharp Edge was a closely held company. it had been showing a cash profit for the last three years and its net worth had since become positive. (ISPL). A reference was made to the BIFR under section 15 of the said Act. the amalgamation of Sharp Edge with the appellant-company was discussed by the BIFR. 1991. accordingly. Indian Shaving Products Ltd. the Bench acceded to the request of the company to allow the amalgamation of the two companies but without granting any benefits under section 72A of the Income-tax Act." The operating agency was. On July 9. namely. the appellant preferred an appeal. its accumulated loss amounted to Rs. Subsequent to 1983. and (5) the appellant was a strong base company. ICICI was appointed as the operating agency with the task of examining the viability of Sharp Edge and for preparing a scheme to rehabilitate it." Sharp Edge Ltd. Under the terms of the scheme. the BIFR considered the material on record and observed that no objection was received to the notified rehabilitation scheme and that the required consents and approvals of all the concerned parties to the said scheme had been obtained. The BIFR then said : "In view of the consensus among the concerned parties for the long-term benefits to the sick company flowing from its merger with the parent company. 1991. as also ISPL was a strong base company. Sharp Edge having become a sick industrial company. After considering all the submissions made to it. Its liabilities were mainly in respect of its parent company. Accordingly. 1989. was incorporated in 1956 to manufacture carbon steel blades." Against the order of the BIFR declining to grant the benefit of section 72A of the Income-tax Act to the amalgamation. 298 lakhs against its paid-up capital of Rs. The appellate authority noted that the BIFR had given five reasons for declining the benefit under section 72A. From August. The appellant was also doing quite well and had the necessary financial strength to rehabilitate its closely held subsidiary (Sharp Edge) without further financial reliefs and concessions. 1992. namely. On April 23. On April 2. 212 lakhs. 1992. The BIFR sanctioned the scheme. On November 13. in exercise of the powers under section 17(3) of the said Act. the BIFR noted that it was not possible for Sharp Edge to make its net worth positive on its own and it was in the public interest to take such measures as might be feasible for its rehabilitation.

1991. therefore. even without the grant of this benefit and that such a grant. On the facts of the case. Public interest has to be judged from a different standpoint. as part of the rehabilitation exercise. that it should be used so as to grant unintended benefits to profit-making companies. Its order. does not. " The appellate authority concluded its order thus: " Financial viability or non-viability is determined by the three factors of profitability. does not have any merit and is. It has to be examined whether. call for any interference and has to be affirmed. it will appear clear that sickness among industrial undertakings was regarded as a matter of grave national concern inasmuch as closure of any sizable manufacturing unit in any industry entailed social costs in . the ISPL. 28. on April 1. if made. which we accordingly do. it can be safely said that the rehabilitation scheme would certainly go through. Learned counsel for the appellant relied upon the following passage in the judgment (at page 239) : " Before undertaking a scrutiny of these reasons for ultimately deciding whether the impugned conclusion of the specified authority an the Central Government is liable to be interfered with or not it will be useful to indicate briefly the object with which this new provision of section 72A was introduced in the Act as it will throw light on what was the mischief or situation that was intended to be remedied by its introduction as also the true concept of financial non-viability. Mahindra and Mahindra Ltd. 27. This case arose prior to the coming into force of the said Act. namely. i. with both the companies having generated cash profits immediately preceding amalgamation. therefore. it was a case when sanction under section 72A was required to be given by the Central Government upon the recommendation of the specified authority thereunder. prior to April 1. that is to say. the economic and social costs to the community would be such as to warrant the grant of the benefit. in the event of the latter. " Section 72A of the Income-tax Act was considered by this court in CIT v. if this income-tax benefit were not to be granted. It may also be stated that. It was not the intention of the Legislature while conferring this discretionary power on the BIFR/AAIFR. dismissed as such. The appeal. liquidity and solvency. as on the date of amalgamation. the sick industrial company's net worth had not yet become positive. [1983] 144 ITR 225. the Notes on Clauses of the Finance (No.e. 1991. This is not the case here. for all the above reasons. the rehabilitation-cum-merger scheme would succeed or fail and if.P a g e | 173 that both these companies are closely held companies and also the fact that all the liabilities of the sick industrial company are in respect of its parent company. The BIFR has wisely and properly exercised this discretion in not granting this benefit. 2) Bill of 1977 and the Memorandum explaining the provisions of the said Bill. and thus was in a stage of incipient sickness and potentially financially viable. would be at the cost of the public exchequer and be thus altogether unwarranted and undeserved. It has been shown above that the sick company had generated cash profits in the preceding two years prior to the date of amalgamation. in this regard. This was thus the basis for the acceptance and sanction of the rehabilitation scheme. Such an exercise of discretion would be unreasonable and would call for judicial interference. the amalgamating company. From the Budget speech of the Finance Minister.. that is.

as the case may be. where there has been under any scheme thereunder an amalgamation of a sick industrial company with another company. and experience had shown that taking over of such sick units by Government was not always a satisfactory or economical solution . the BIFR has to be satisfied that the amalgamating company is not financially viable. and that the amalgamation was in the public interest. The expression 'financial non-viability' has not been defined in the Act. By reason of section 32(2) of the said Act. as the case may be. be satisfied that the amalgamating company was not. subject to this modification that the power of the Central Government is to be exercised by the BIFR without the necessity of a recommendation by the specified authority mentioned in section 72A of the Incometax Act. the Notes on Clauses of the Bill and the Memorandum explaining the provisions thereof make it clear that the financial non-viability of an undertaking has been equated with the 'sickness' of such undertaking and obviously in the context of its revival by a sound undertaking the sickness must be of a temporary character and not any basic or permanent sickness. but the amalgamated company. financially viable and the amalgamation was in public interest. the provisions of section 72A of the Income-tax Act shall apply in relation to such amalgamation. With such objective in view. allowance for depreciation of the amalgamated company in the previous year in which the amalgamation was effected. the financial non-viability spoken of by the section must refer to sickness brought about by temporary adverse financial circumstances that disables the unit to stand and work on its own. and that the amalgamation is necessary or expedient in the public interest. to give to the amalgamated company the benefit of the loss or. by a deeming fiction. This is also made clear by the provision contained in clause (a) of sub-section (1) which states that the financial non-viability of the amalgamating company has to be judged by reference to 'its liabilities. it was felt that a more effective method would be to facilitate amalgamation of sick industrial units with sound ones by providing incentives and removing impediments in the way of such amalgamation which would not merely relieve the Government of uneconomical burden of taking over and running sick units but save the Government from social costs in terms of loss of production and unemployment. which is the effect of sections 17 and 18 of the said Act read together. the accumulated loss or unabsorbed depreciation of the amalgamating company is treated to be a loss or. whereunder. the Central Government must. although a successor-in-interest. section 72A was introduced in the Act. losses and other relevant facts'. in other words. losses and other relevant factors. but the Finance Minister's speech. immediately before the amalgamation. allowance for depreciation of the amalgamating company for the previous year in which the amalgamation was effected for the purposes of the Income-tax Act.P a g e | 174 terms of loss of production and unemployment as also waste of valuable capital assets." Under section 72 of the Income-tax Act. for the purposes of according sanction to a scheme of amalgamation of a sick industrial undertaking with any other company under section 18 of the said Act. which is the effect of section 3(1)(o) of the said Act. An undertaking which is basically or potentially non-viable will ordinarily be incapable of revival and would face a closure. upon the recommendation of the specified authority. would be entitled to carry forward and set-off the accumulated loss and unabsorbed depreciation of the amalgamating company only where the amalgamating company was not. financially viable by reason of its liabilities. This is because. immediately before such amalgamation. Sanction of a scheme of amalgamation under section 18 of the said Act necessarily implies that the requirements . in order to facilitate the merger of sick industrial units with sound ones and as and by way of offering an incentive in that behalf.

a sick industrial company within the meaning of section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act. A. VIVEK KASTWAR. Appeal No. NEW DELHI AJAY K.G. The order under appeal as also the order of the BIFR declining to make a declaration under section 72A of the Income-tax Act in respect of the amalgamation of Sharp Edge Ltd. The conditions for sanctioning a scheme under section 18 of the said Act being the same as those required for a declaration under section 72A of the Income-tax Act. INDERPAL S. SUMANT BATRA. Dy. BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION.6. DR.M. KALRA. The appeal is allowed. PNB. 1985 (SICA). BIFR AND OTHERS. (MIL). JAYASANKARAN. No order as to costs CASE STUDY -.99 in case No. with the apppellant set aside and the BIFR is directed to make such directed. M.M. Advocate. ARYA KUMAR.. IDBI. Legal.. JAIN. Advocate. dated 17. 98 of 1999 (Appeal against BIFR's Order. 35/97 regarding M/s Montari Industries Ltd. Indian Bank . 1999.M. Manager. V.P a g e | 175 of section 72A of the Income-tax Act have been met and the BIFR must exercise the power conferred upon it by section 32(2) of the said Act and make the declaration contemplated by section 72A of the Income-tax Act.6. ORDER This is an appeal against BIFR's order. SAHA. P. T. ASHOK KUMAR. decided on December 22. SHARMA. v. General Manager.99 in Case No. 35/97). for IIBI. G. with PRAVEEN GUPTA AND TARUN SUD. Manager. A. UTI. R. .8 MONTARI INDUSTRIES LTD.M. Finance. J. dated 17. B.G. A.. the BIFR could not have sanctioned the scheme of amalgamation of Sharp Edge with the appellant but declined to make the declaration under section 72A of the Income-tax Act with regard to that amalgamation. for the appellant. Gujarat Lease Financing Ltd.. A.

99 after considering IDBI's application. MIL had been restrained from alienating its assets under section 22A of SICA.2. and made payment of Rs. dated 9.P a g e | 176 2.2. IDBI addressed another letter.10. by a letter. 7. repayable in 12 months within two instalments. 8. Apart from the payment to IDBI. dated 22.8.78 crore (rounded off).67 lakhs for its own working capital purposes. dated 12. was also preparing a draft rehabilitation scheme (DRS) based on OTS of the dues of financial institutions/banks. Thereafter. IDBI.12. By way of security.298 shares of M/s Ranbaxy Industries Ltd. belonging to promoters. 20 lakhs as additional interest- .3.3. IDBI approached BIFR for permission for the sale of shares pledged by MIL with OTS amounts.3. Rs. 2.99 with the direction that the proceeds from the sale will be deposited with IDBI in separate account which will be utilised or spent as directed by BIFR after considering the requests from concerned parties on merit.94.652 shares of MIL belonging to promoters and their associates. MIL also paid an amount of Rs. The OTS terms envisaged substantial relief in interest payable on the loan of Rs. MIL defaulted in repayment of loan to IDBI.090 shares of BLL (owned by MIL and its subsidiaries) and 10. whereby BIFR declared MIL to be a sick industrial company.99 and requesting that IDBI be allowed to appropriate the sale proceeds from the shares. Rs. (BLL) belonging to MIL and its subsidiaries. dated 1. 173 lakhs to some pressing creditors against legal cases and utilised the balance Rs. IDBI informed MIL. 9. 15 crore. inviting objections and suggestions as well as consent from the concerned persons under section 19(2) of SICA. Rs. After protracted negotiations between IDBI and MIL. BIFR permitted MIL to sell the shares as recommended by IDBI under their letter.10.48 lakhs to IDBI in full and final settlement of their OTS amount.3.34 crore as internal accruals. 15 crore to MIL. dated 5.64. about its acceptance of OTS subject to the said amount being paid by 31. The appellant is aggrieved by BIFR's directions contained in paragraph 20(a).3. 26. MIL pledged the following shares with IDBI : 17. 35.36 crore as sale proceeds of BLL shares owned by MIL and its subsidiaries and the promoters and their associates and pledged with IDBI : Rs.201. MIL obtained advance from Kotak Mahindra Capital Co.50 lakhs to ICICI in full and final settlement of their OTS amount. By order.99 to BIFR.99.090 shares of Bausch & Lomb Ltd.99. permitting IDBI to retain lien on the sale proceeds of the shares subject to the provisions that may be made in the sanctioned scheme as to the final disposal of the sale proceeds.(c) and (e) of the impugned order. 10. The scheme envisaged a cost of of Rs.95 lakhs already paid to IDBI. dated 12.85 crore to be financed by : Rs.99. IDBI lent a sum of Rs. dated 1.4.99. BIFR passed a subsequent order. requesting for amendment to their order.99. as the operating agency appointed by BIFR under section 17(3) of SICA.. dated 1. Permission was sought because by earlier order. In all. 394.97. dated 5.725 shares of BLL belonging to the promoters and their associates. 4 The DRS submitted by IDBI to BIFR was circulated by BIFR under their order.1. Under an agreement.47. By a letter. dated 30.725 shares of BLL (owned by promoters and their associates) were sold for a total consideration of Rs. 36. 17.64. to be repaid from the sale proceeds of the shares arranged to be sold through Kotak Securities. 27. 3.

99.12. BIFR had modified its earlier order. the learned counsel for Mudra Ispat Ltd.34 crore. and therefore. included payment to Rs.P a g e | 177 free fund to be brought in by the promoters. 5. dated 30.97 BIFR had directed MIL not to alienate its assets.99 very clearly states that IDBI is permitted to retain she lien on the sale proceeds of the shares subject to the provisions that may be made in the sanctioned scheme as to the final disposal of the sale proceeds.Section 17(4)(b) of SICA authorises BIFR to modify its orders under section 17(3) of SICA on submissions being made by the OA. BIFR's order. an amount of Rs.11 crore was to be utilised in the first year of the scheme. 95 lakhs had already been paid to the IDBI. inter alia. This order superseded BIFR's earlier .8. 28. and as this unsecured creditor is represented before BIFR and can make submissions before BIFR as and when the scheme is considered. for two reasons : Mudra Ispat Ltd. that this direction is meant to facilitate the rehabilitation of the sick industrial company by preventing dilution of assets and to ensure that sale proceeds from the disposal of assets are distributed amongst the creditors in a reasonable manner under the scheme sanctioned by BIFR 8. has no locus standi for making an objection regarding payments to ICICI and IDBI because the DRS envisaged payment from the sale proceeds from the disposal of shares to the F/s 7. 82 lakhs towards capital expenditure and working capital.00 crore as OTS payment to foreign banks and the balance Rs.3. counsel for IIBI.96 crore was paid to IDBI and ICICI towards full payment of their OTS amounts. the real grievance arises on the part of the IIBI and PSIDC who were to get the payment of the OTS amount in the very first year of the scheme. We do not find any merit in the contention of Mudra Ispat Ltd. 27. As against that. we do not accept this contention of Mr. permitting IDBI to hold lien on the sale proceeds from the disposal of shares pledged with IDBI. In the present case. is an unsecured creditor and a provision for payments to unsecured creditor has already been made in the DRS. Therefore. By their order. had raised an objection stating that IDBI and ICICI had been given a preferential treatment and that neither BIFR nor OA had any power to divert payment to one person except under the sanctioned scheme. At the last hearing of this appeal on 1. states that on 1. 2. an amount of Rs. nor the order permitting IDBI to retain its lien can be challenged belatedly 9. As an amount of Rs. the OTS amount required to be paid to the financial institutions in the first year was Rs.29 crore (inclusive of Rs. Batra. 31. neither the sale of the shares pledged with IDBI. its modification being valid by virtue of section 17(4)(b) of SICA.99. 95 lakhs already paid to IDBI) as the OTS amount to IDBI/ICICI/IIBI/PSIDC. Sumant Batra. Mr. 25.3. An amount of Rs. This. 6. dated 30. Mudra Ispat Ltd. because BIFR's direction under section 22A of SICA is one of the general conditions or guidelines laid down by BIFR at the time of appointment of an operating agency under section 17(3) of SICA.

K. Moreover. The arrangement made for the payment of the dues of IIBI as stated in the proceeding paragraph will not be subject to any modification by the . which has been agreed to between IL and IIBI). IIBI (OA) will modify the DRS. 11. a copy of which has been placed before us today (OTS amount is to be paid with interest @ 19. In the write up of the modified DRS. 10. As no balance would have been available after the satisfaction of the IDBI's lien insofar as the sale proceeds of the shares belonging to MIL and its subsidiaries are concerned. With copies to the concerned parties. We have. the PSIDC would be free to make its submissions before BIFR as and when DRS is considered. in this case. IIBI and PSIDC have a reasonable grievance. dated 30. PSIDC is not present today and was not present on 1. Once the lien of the IDBI is accepted. IIBI and PSIDC are secured by charge on fixed assets and did not have any lien on BLL shares pledged with IDBI. dated 5. while the proceedings in relation to sick industrial company are in progress before BIFR. We order accordingly. From that point of view. on instructions from their respective clients. It is seen from the facts of this case that the sale proceeds from the disposal of BLL shares owned by MIL and its subsidiaries were only Rs. the OTS payments to IDBI and ICICI cannot be considered illegal or unreasonable.5% p.2000. However. efforts have to be made to arrest the increase in the liabilities. and this could not have been done without IDBI's consent.99. the remaining sale proceeds were realised from the disposal of BLL shares belonging to the promoters and their associates.99 whereby the sale proceeds were ordered to be kept in a separate account with IDBI.P a g e | 178 order. learned counsel for MIL. As regards IIBI. IIBI will be free to recall the sacrifices made by it and institute/ continue legal proceedings against MIL/guarantors for the recovery of its entire dues and execute the decree that it may obtain. dated 25. Again. Therefore. Sumant Batra. whereas IDBI had no charge on the fixed assets of MIL. after deleting IDBI and ICICI whose dues have already been settled and paid. learned counsel of IIBI. because they expected to share the sale proceeds from the sale of shares. therefore. Moreover. 17 crore (round off).1999 when the appeal was part heard.a. the DRS itself envisaged the utilisation of sale proceeds from the disposal of these shares for the purpose of OTS payments to the financial institutions.11. the above arrangement between MIL and IIBI will be incorporated. the sale proceeds in excess of the satisfaction of the IDBI's lien could only be available for disposal in accordance with the provisions to be made in the sanctioned scheme. it cannot be said that there was any violation of the proposed terms of the DRS or BIFR's order. and submit a modified DRS to BIFR within a month.99. looked at the possibility of finding out a solution to the claims of the IIBI and PSIDC. IDBI's lien could not have been removed or reduced without IDBI's consent because reduction in IDBI's lien on the sale proceeds would amount to financial assistance as defined under section 19(1) of SICA. efforts for the reduction of the liabilities of the sick industrial company have to be encouraged and whenever possible.3. with the stipulation that if the entire OTS amount alongwith interest is not paid by 31.3.12. Shri A.3. have agreed before us that MIL will pledge all the unencumbered MIL shares (stated to be about 6 to 7 lakhs) belonging to promoters and associates with IIBI and make payment of the agreed OTS amount with interest to IIBI in accordance with the terms Of MIL's letter. and Mr. Jain.

dated 16. R. ORDER This is an appeal against BIFR's order.Shri Ghanshyam Das Sarda) and also exploring the feasibility of change in management .1999. dated 16. and Shri Ghanshyam Sarda. 5. counsel. appearing for respondent Nos. Customs and Central Excise. Advocate.1999 to the Indian Bank. for the appellants. to examine both the proposals received from the existing promoters as well as from the prospective co-promoters (respondent No. 6. Shri Alok Dhir. Shri V. directing the O. the first appellant. expressed regrets and prayed for correcting the list of parties by substituting' Jailakshmi Cotton Textiles and others (16 creditors) as respondent No. contained in BIFR's fax message. U. TAPARIA and K. for M/s. DAS. V. Advocate. CASE STUDY – 9 PENGUIN TEXTILES LTD. stated that he has been personally impleaded as respondent No. Ghanshyam Sarda.A. Operating Agency (OA). Advocate. He voiced his grievance against his impleadment personally as respondent No. RAMANA REDDY. ERADI. with copy to the CMD of Penguine Textiles Limited (PTL). ERADI. AND ANOTHER v. for Noma-Enterprise. V. and others. The appeal is allowed. U.8. BIFR's directions in paragraph 20(a) and (e) of the impugned order are set aside. dated 16. U. Eradi. 1999. Correction of the name of the 6th respondent is ordered accordingly. Inspector. BIFR AND OTHERS.8. N. authorised representatives. K.8. NEW DELHI ALOK DHIR. 145 of 1999 (Appeal against BIFR's order. M. Appeal No. POPLI.P a g e | 179 provisions of the scheme that may be sanctioned by BIFR 12. counsel for appellants. BEFORE THE APPELLATE AUTHORITY RECONSTRUCTION. 5 . . respondent No. with L. V. N. 6. decided on December 21. FOR INDUSTRIAL & FINANCIAL B. BIFR shall consider the modified DRS to be submitted by IDBI after hearing the concerned parties and proceed further according to law. for Vijayalakhmi Cotton Co. 5 and 6. secured creditors . 2. Reference to the deposit in a no lien account in paragraph 20(c) of the impugned order is set aside.99 in Case No. 5/96 (IV)). 6 instead of impleading the concerned party `Jailakshmi' Cotton Textiles and others (16 creditors)'.

4. Popli. 65/98.98. it is recorded "Regarding the issue of NE according to the orders of High Court. Popli is not at issue in this appeal. Popli on 17. The BoD of PTL further authorised Shri Ghanshyam Sarda to submit clarification/modification/particulars and do all the acts in connection with the revival of the company. respondent No. M. but the said amount had not been paid. had no locus standi any more. Shri Alok Dhir. dated 27. in fact.1999. Mr.1999 authorising Shri Ghanshyam Sarda (respondent No. Hence. 5 in the present appeal) to submit a revival scheme for PTL as co-promoter to the bank/financial institution/BIFR/AAIFR subject to the company providing a bank guarantee for Rs. the respective rights and obligations of NE and PTL being subject to the final outcome of the proceedings in the civil court and had further directed that NE would cease to be a party as soon as the bank guarantee is furnished by PTL in accordance with the order. if a bank guarantee for their dues of Rs.9. counsel for NE. On this issue. M. N." . argued that statements are made by the counsel only on the basis of the instructions from clients. 100 to NE through the counsel as cost. dated 1.4.1. 100 to Shri N. 16. and that Shri N. the following facts have emerged from the record before us : (a) The Board of directors of PTL passed a resolution on 27. 4. By a letter. authorising Shri Ghanshyam Sarda to submit revival scheme for PTL as co-promoter and also submit clarifications/modifications/particulars and do all acts in connection with the revival of the company. dated 15. this Authority had restricted the scope of hearing NE to its interest with respect to Rs.16 lakhs paid by it to PTL.1999.6.16 lakhs as ordered by the Hon'ble High Court of Andhra Pradesh in LPA 83. Popli and the payment was received by Shri N.1998 of the Division Bench of Andhra Pradesh High Court in LPA 83/98.99. learned counsel for Noma Enterprises (NE). that the point raised by Shri N. (b) In para 6 of BIFR's order. no bank guarantee has been given to NE by PTL. 16. made a payment of Rs. dated 5.1999 in appeal 65/98 this Authority had ordered PTL to pay a sum of Rs. on 7.2.4. M. they have not attended the hearing. M. dated 8. Shri Alok Dhir.P a g e | 180 3. the counsel for appellants committed a fraud on BIFR by stating before BIFR on 1. A further resolution was passed by the BoD of PTI. Popli. counsel for PTL. 16 lakhs was not furnished. M.1998 in MA 38/98 in appeal No. counsel for the appellants. therefore.7. Popli is free to agitate the matter before BIFR. they were entitled to be present. they had no locus standi any more.1. Shri N.1999.1999 that PTL had since given the bank guarantee to NE which. M. 4 submitted that by order. Since the company had since given the bank guarantee to them. further submitted by order.12. PTL informed the Indian Bank (OA) that the scheme formulated by the proposed co-promoter Shri Ghanshyam Sarda was not acceptable and that BoD of PTL had on 11.1999 decided not to take Shri Ghanshyam Sarda as co-promoter and requested the OA not to entertain him in any manner whatsoever as he has no locus standi any more.

and processed further in accordance with law. the BoD of PTL further confirmed the induction of Shri Ghanshyam Sarda and his associates as co-promoters for the revival of PTL by subsequent resolution. 1987. 8. The appellants would not have impleaded NE as a respondent. as the proposal of the existing promoters is yet to be considered by OA.6. a draft scheme should be prepared accordingly. if the bank guarantee had been provided to NE. On the other hand. respondent No.1999. consider OA's report and accordance with law. without giving an opportunity of hearing to the appellants. U. dated 3. 7.1999 referred to above). 6469/97.1999 and.2. dated 5. the impugned order speaks of simultaneously considering the proposal of the prospective co-promotor and also exploring the feasibility of change in management in place of joint venture or induction of co-promoter. dated 20.2. therefore.4. but subsequently. the proposal of Shri Ghanshyam Sarda cannot be entertained by BIFR. As this matter is going back to BIFR.1999 submitted by the Indian Bank (OA). He further submitted that in case the matter is remanded to BIFR in view of regulation 40 of BIFR Regulations. BIFR trust have given an opportunity to all the concerned parties before taking a view on the report. dated 27.1. on 11. 1987. then BIFR should be directed for an early hearing because respondent No. 5 has made payments under MoU. it is open to NE to raise the point at the next hearing before BIFR and also clarify the reason for not attending the hearing on 1. if the proposal of PTL/promoters is should be issued for inviting proposals for the revival of BIFR's directions to Indian Bank . dated 31. dated 7.1.8. If the proposal of PTL/promoters is found acceptable.1999 and 7.1997 in Writ Petition No.1999 between the directors of PTL (in pursuance of the resolution.1999.1. Shri Ghanshyam Sarda has no locus standi and. 6 (16 creditors) are unable to recover their money from PTL due to the statutory bar under section 22(1) of SICA.1. the appropriate course for BIFR is OA's report on the proposal given by PTL/promoters and proceed further in accordance with law. Shri V. BIFR's direction to the OA to consider the feasibility of change in management must also be set aside. By order. Considering the requirement of regulation 40 of BIFR Regulations. Eradi. dated 31. the Hon'ble Andhra Pradesh High Court had directed that the OA should examine/promoters and submit a report to BIFR which should ps for change in management. Now. Shri Alok Dhir challenged the impugned order on two grounds : BIFR passed the impugned order after considering Indian Bank (OA's) report.1999 passed by the BoD of PTL) and 'Shri Ghanshyam Sarda and three others'. 5.7. 5 and associates had made some payments in pursuance of the memorandum of understanding. the BoD of PTL had decided not to take Shri Ghanshyam Sarda as a co-promoter and had informed the Indian Bank (OA) accordingly by a letter. BIFR should have proceeded in court's direction. 1987.10.1999. 5) came in as a co-promoter by virtue of a memorandum of understanding. consequently. there was a violation of regulation 40 of BIFR Regulations. 4 in the present appeal.8.1999 and respondent No.P a g e | 181 (c) NE is respondent No. dated 3.1999. dated 31.1. therefore. the appellants had introduced Shri Ghanshyam Sarda as prospective co-promoter by way of resolutions of the BoD of PTL (resolutions dated 27. counsel for respondents 5 and 6 contended : Shri Ghanshyam Sarda (respondent No.1999. Moreover. 6.

viable sick industrial companies. 22. The Court held as under. with copy to appellants and other secured creditors. it should do so within two weeks from the date of receipt of this order. UCO Bank & Ors.. The potentially viable sick industrial companies are sought to be revived and rehabilitated under SICA whereas the nonviable sick industrial companies are to be dealt with under Section 20 of SICA in order to salvage .P a g e | 182 (OA) to examine the co-promoter and also explore the feasibility of change in management are set aside. AAIFR [2010] 156 COMP CAS 131(CAL) Sanjib Banerjee J [Decided on 2-7-2009] BIFR directed by High Court to reconsider revival of company and to give all parties reasonable opportunities – Whether invitation to outsiders to submit scheme for revival of company is irregular – Held. it has been designed to take care of not only those sick industrial companies which are potentially viable and can be revived and rehabilitated but also of the non. In the case at hand. If the OA has not already submitted its report to BIFR on the latest proposal of PTL/promoters. CRITICISM The Delhi High Court in a recent decision. v. in Dwarikadhish Spinners Ltd. CASE STUDY -. Powers of BIFR – BIFR requiring company and operating agency to assess locus standi of union to represent workers – Whether correct – Held. the question raised before the Hon'ble court was whether a unilateral inquiry could be conducted by any creditor. SANGRAMI SHRAMIK UNION v. We find that as per the statement of objects and reasons of SICA.10 KANORIA JUTE AND INDUSTRIES LTD. No. not being an operating agency under the act. The matter is remanded to BIFR for taking appropriate decision on OA's report on the proposal submitted by PTL/promoters and proceed further according to law. No. 1985. and whether such inquiry / report can be relied upon by the BIFR without independent application of mind. has examined the scope and nature of inquiry under the provisions of the Sick Industrial Companies (Special Provisions) Act.

Before either eventuality is undertaken. it is clear that a reference to BIFR can be made either by the Board of Directors of the company itself or by the Central Government. The legal system is complicated and several references are required to be made before it can proceed with the case. 23. However. the BIFR has been given the duty under the Act to determine whether an industrial company has become a sick industrial company or not. most of the time it had been attempting to restructure or rehabilitate companies that are beyond redemption . make a reference to BIFR for determination of the measures which are to be adopted in respect of the said company. Inordinate delays in disposing of cases only aggravate sickness. without prejudice to the requirement of the Board of Directors of an industrial company which has become sick to make a reference to the BIFR within Section 15(1)." It is apparent from the above definition that an industrial company. in fairness to BIFR it may be pointed out that it is only a recommendatory body which lacks teeth to enforce rehabilitation schemes. which has. When an industrial company becomes sick. BIFR A FIASCO Now even the Labour Ministry has criticized the working of BIFR and SICA in a study prepared for the 36th Indian Labour Conference. within sixty days from the date of finalization of the duly audited accounts of the company for the financial year as at the end of which the company has become sick industrial company. RBI etc. We find that by virtue of Section 15(2). a duty is cast upon the Board of Directors of that company under Section 15(1) to. at the end of any financial year. The expression sick industrial company is defined in Section 3(1)(o) as under: "sick industrial company" means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth.P a g e | 183 the productive assets and realize the amounts due to the banks and financial institutions through liquidation of such companies. the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may. It does not have a free hand to decide on the cases quickly. under Section 15(2). Another problem with BIFR is that because of the legal and other constraints. Thus. accumulated losses equal to or exceeding the entire net worth of the company would be termed as a sick industrial company. can also make a reference in respect of a company in respect of which there are sufficient reasons to believe that it has become a sick industrial company.

QUALIFICATION FOR TECHNICAL MEMBER OF NCLT d. 424B. INQUIRY INTO WORKING OF SICK INDUSTRIAL COMPANIES 21. 4. BENEFITS FOR CONSTITUTING NCLT 18. DIFFERENCE BETWEEN TRIBUNAL AND COURT 16. JUDGEMENT OF SUPREME COURT d. CONSTITUTION OF NCLT b. WAY FORWARD 19. 6. CONCLUSION OF MADRAS HIGH COURT b. 2. POWERS AND FUNCTIONS 8. CONCLUSION . SEC-424A REFERENCE TO NCLT 20. 424C.P a g e | 184 CHAPTER –IV COMPANIES (SECOND AMENDMENT )ACT 2002 SYNOPSYS: 1. CONSTITUTION OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL a. COMMENT 7. SOME DISTINCTIVE FEATURES OF WINDING UP PRECEDURE UNDER NCLT AND BY HIGH COURT 24. SICA VS COMPANIES SECOND AMENDMENT ACT 2002 25. POWERS OF TRIBUNAL TO MAKE SUITABLE ORDER ON COMPLETION OF INQUIRY 22. MY OPINION ON TRIBUNAL f. A CRITIQUE 26. CASE STUDY a. QUALIFICATION AND AGE OF PRESIDENT/ MEMBERS ( S-10FR) 10. THE CHALLANGES TO NCLT AND NCLAT 14. JURISDICTION POWERS AND FUNCTIONING 11. MY APPREHENSION 15. COMMENT ON JUDGEMENT e. MATTERS TO BE DEALT BY NCLT 17. QUALIFICATION FOR JUDICIAL MEMBER OF NCLT c. PROCEDURE AND POWERS OF TRIBUNALS AND APPELLATE TRIBUNAL 13. INTRODUCTION OBJECTIVES OF THE ACT NATIONAL COMPANY LAW TRIBUNAL NEED OF ESTABLISHMENT OF TRIBUNAL POWERS TRANSFERRED TO NATIONAL COMPANY LAW TRIBUNAL CONSTITUTION AND FUNCTIONS OF THE TRIBUNAL a. APPEAL TO THE SUPREME COURT c. NATIONAL COMPANY LAW APPELLATE TRIBUNAL 9. 5. CIRCUMSTANCES UNDER WHICH COMPANY WILL WOUND UP BY TRIBUNAL 23. 3. APPEAL FROM ORDER OF TRIBUNAL 12.

NATIONAL COMPANY LAW TRIBUNAL The Central Government has been positively responding to the changing needs of the corporate world by effecting required changes in Corporate Laws so that they are worthy of meeting the needs of the society from time to time. Judicial Forums play a very important role in the life of a company. 1956. In the corporate structure of our country. 1985.P a g e | 185 COMPANIES (SECONDAMENDMENT)ACT 2002AMENDMENT)ACT 2002 1. OBJECTIVES OF THE ACT  Abolition of present Company Law Board (CLB)  Matters pending with CLB will be transferred to National Company Law Tribunal (NCLT)  Orders already passed by CLB are valid and can be enforced through Court  Jurisdiction of civil court barred where jurisdiction is available to NCLT  Constitutional Powers of High Court remain unaffected 3. It is an Act to consolidate and amend the law relating to companies and certain other associations and is to take the place of Sick Industrial Companies (Special Provisions) Act. Companies are required to cater to the growing needs of the society so as to discharge their responsibilities as corporate citizens for creating value . An Act further to amend the Companies Act. INTRODUCTION The Act was passed by Parliament in December 2002. 2. (SICA).

2002 with effect from 1. 2003 is passed by the Parliament. In fact the Companies Bill. 2002 was insertion of new Parts IB and IC in the Principal Act relating to National Company Law Tribunal and Appellate Tribunal. Keeping this in view. on such constitution. 344(E) dated 31. Term Lending Institutions. Necessary Section . Section 2 of the Second Amendment Act relates to definitions. on and from the commencement of the Companies (Second Amendment) Act. 1956 (Act). 1997 was designed to re-write the Act but the same could not be passed due to different factors.03. 4. 1997 was placed before the Parliament. while Section 6 relates .04.P a g e | 186 and enhancing wealth for all their stakeholders which not only include the equity shareholders and debenture holders but also include the fixed deposit holders. NEED OF ESTABLISHMENT OF TRIBUNAL Accordingly. By a Notification No. Banks. the Central Government has brought significant changes in the Companies Act. 2002 the Board of Company Law Administration constituted under sub-section (1) of Section 10E shall stand dissolved and all matters or proceedings or cases pending before the Company Law Board on or before the constitution of the Tribunal u/s. shall.2003. consume rs and public at large. the 2002 Amendment inserted new Parts IB & IC in the Principal Act for formation of National Company Law Tribunal (NCLT or Tribunal) and National Company Law Appellate Tribunal (Appellate Tribunal) respectively. vendors. the Central Government had brought into force Sections 2 and 6 of the Companies (Second Amendment) Act. One of the most important amendment brought by the Companies (Second Amendment) Act. There was a growing need for empowering the Company Law Board and reducing the burden of High Courts by constituting a high-power Tribunal.2003. 10FB. However. stand transferred to the National Company Law Tribunal and the said Tribunal shall dispose of such cases in accordance with the provisions of this Act. which could take up all matters relating to Company Law and other Corporate Laws at one Forum. Ever since the Companies Bill. the important Amendments were passed by the Parliament on needbased basis from time to time and finally the 1997 Bill is proposed to be withdrawn from the Rajya Sabha after the Companies (Amendment) Bill.Section 10FA was also inserted to provide for dissolution of the present Company Law Board. These Tribunals will be the appropriate Judicial Forums of the future.

1991 which have been transferred to National Company Law Tribunal/ Central Government are shown in the following table: The Act was provides for the constitution of a National Company Law Tribunal (NCLT). BIFR will be wound up. Appeals from NCLT will go to National Company Law Appellate Tribunal and from the decisions of the Appellate Tribunal to the Supreme Court of India. This will help in getting uniform decision on a particular subject by the Appellate Tribunal instead of getting different decisions on the same matter by different High Courts. Thus .P a g e | 187 to insertion of new Parts IB & IC relating to National Company Law Tribunal and the Appellate Tribunal.2003. Till such time jurisdiction of the present Company Law Board will continue to remain unchanged. The powers of the present Company Law Board included inter-alia in the Company Law Board Regulations. It was further clarified that the subject Notification bringing into effect Section 6 of the Second Amendment Act will only set in motion all preliminary steps required for establishment of NCLT and that upon establishment of the same. BIFR (revival and rehabilitation off sick companies) and High Court (winding up of companies )will now be handled by NCLT. NCLT will now be the single forum for companies replacing the existing three forums. Earlier. a separate Notification regarding constitution of NCLT will be issued by the Government. clarifying that the above Notification of 31st March. The functions that are presently being handled by the Company Law Board (CLB) (dispute resolution and compliance with certain provisions of the Companies Act 1956). 2003 was issued only to enable the Government to initiate necessary steps to establish the NCLT and make it operational. the decisions of the Company Law Board were challenged before the Hon‘ble High Court and then in Supreme Court.04. . Immediately thereafter the Central Government came out with a Press Note on 4.

Court NCLT 5 79(3) proviso Power to issues shares at a discount–sick industrial companies. Section Powers transferred/ Words substituted from Subject to NCLT 1 2(33) Definition of ‗Prescribed‘. Company Law Board NCLT 3 58AA Small Depositors Company Law Board NCLT 4 75(1)(c)(ii) Return of Allotment – Issue of shares at a discount. High Court 2 55A Powers of Securities and Exchange Board of India. Central Government NCLT .P a g e | 188 5. POWERS TRANSFERRED TO NATIONAL COMPANY LAW TRIBUNAL AND THE WORDS ―THE TRIBUNAL‖ SUBSTITUTED FOR ―HIGH COURT‖OR ―COURT Sl. No.

Court NCLT 11 104 Liability of members in respect of reduced shares. Any Court Any Court orNCLT 7 100 Court NCLT Reduction of share capital. 9 102 Order confirming reduction of share capital. Court NCLT * Other than those transferred from Company Law Board shown in Table A. 8 101 Application for confirming reduction of share capital. Court NCLT .P a g e | 189 6 80A(2) Bar on power to vary or modify. Court NCLT 10 103 Registration of order of reduction. given above.

Central Government NCLT 17 168 Penalty for default in complying with section 166 or 167 Central Government NCLT 18 203 Power to restrain fraudulent Court Court or NCLT .P a g e | 190 12 107 Rights of dissentient shareholders. Court NCLT 13 111A Rectification of register on Transfer Company Law Board NCLT 14 117B(4) proviso Filing of petition by the debenture trustee – sick industrial companies. Central Government NCLT 15 117C Company Law Board NCLT Debenture redemption reserve. 16 167(2) proviso Power to call annual general meeting –sick industrial companies.

Company Law Board NCLT . Company Law Board NCLT 24 269 Appointment of managing or whole-time director or manager. Company Law Board NCLT 21 243 Application for winding up of a company.P a g e | 191 persons from managing companies. 19 237(b) Company Law Board Central Govenment or NCLT Investigation of affairs of the company in cases other than those referred in Section 235. Company Law Board NCLT 23 251 Saving for legal advisers and bankers. 20 241(2)(dd) Inspectors‘ report. Court NCLT 22 247 Investigation of ownership of company.

Court NCLT 28 392 Power of Tribunal to enforce compromise and arrangement.P a g e | 192 25 318(3)(d) Compensation for loss of office – winding up. High Court NCLT 29 394 Facilitating reconstruction and amalgamation of companies. Chapter IVA (388B–388E) 27 391 Power to compromise or make arrangements with creditors and members. Court NCLT 26 Part VI Company Law Board NCLT Removal of managerial personnel. Court NCLT 30 394A Notice to be given to Central Government – by Tribunal under Sections 391 and 394. Court NCLT .

Court NCLT 32 396 Amalgamation of companies in national interest. New provisions inserted (424A – 424L) by Companies (Second Amendment) Act. Court NCLT . Company Law Board NCLT 34 424 Application of Sections 421 to 423 to receivers and managers. Company Law Board NCLT 33 410 Appointment of Advisory Committee. Court NCLT 35 Part VIA Revival and rehabilitation of sick industrial companies.P a g e | 193 31 395 Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority. 2002 NCLT 36 425(1)(a) Winding up of company by Tribunal.

Court NCLT 39 433 Circumstances of winding up. Court NCLT . Court NCLT 38 427 Obligations of Directors and Managers whose liability is unlimited. Court NCLT 41 439 Applications for winding up.P a g e | 194 37 426 Liability as contributories. Court NCLT 40 434 Company when deemed unable to pay its debts. Court NCLT 42 439A Statement of affairs to be filed on winding up of a company. New Provision NCLT 43 440 Right to present winding up petition where company is being wound up voluntarily.

50 453 Receiver not to be appointed of assets with liquidator.P a g e | 195 44 441 Commencement of winding up by Tribunal. Court NCLT 47 448 Appointment of Official Liquidator. Court NCLT . Court NCLT 46 446 Suits stayed on winding up order. Court NCLT 45 443 Power of Tribunal on hearing petition. High Court NCLT 48 450 Appointment and powers of provisional liquidator. Scope extended to professionals also. Court NCLT 49 451(1) Liquidator to perform such Court NCLT duties as the Tribunal may impose.

High Court NCLT .P a g e | 196 51 454 Statement of affairs to be made to Official Liquidator. Court NCLT 54 457 Powers of liquidator. Court NCLT 57 459 Provision for legal assistance to liquidator. Court NCLT 52 455 Report by Official Liquidator. Court NCLT 55 458 Discretion of liquidator. Court NCLT 56 458A Exclusion of certain time in computing periods of limitation. Scope extended to professionals also. Court NCLT 53 456 Custody of company‘s property.

Court NCLT 64 466 Court NCLT Power of Tribunal to stay winding up.P a g e | 197 58 460 Exercise and control of liquidator‘s powers. Court NCLT 61 463 Control of Central Government over liquidators. Court NCLT 60 462 Audit of liquidator‘s accounts. Court NCLT 59 461 Books to be kept by liquidator. Court NCLT 62 464 Appointment and composition of committee of inspection. . Court NCLT 63 465 Constitution and proceedings of committee of inspection.

Court NCLT .P a g e | 198 65 467 Settlement of list of contributories and application of assets. Court NCLT 66 468 Delivery of property to liquidator. Court NCLT 70 472 Moneys and securities paid into bank to be subject to order of Tribunal. Court NCLT 69 471 Payment into bank of moneys due to company. Court NCLT 71 473 Order on contributory to be conclusive evidence. Court NCLT 67 469 Payment of debts due by contributory and extent of set-off. Court NCLT 68 470 Power of Tribunal to make calls.

etc. Court NCLT 75 477 Power to summon persons suspected of having property of company. Court NCLT 73 475 Adjustment of rights of contributories. Court NCLT 74 476 Power to order costs. Court NCLT 77 479 Power to arrest absconding contributory. Court NCLT 76 478 Power to order public examination of promoters. directors. Court NCLT .P a g e | 199 72 474 Power to exclude creditors not proving in time.

etc. Court NCLT 82 494(5) Power of liquidator to accept shares. Court NCLT .. Court NCLT 84 502 Appointment of liquidator.P a g e | 200 78 480 Saving of existing powers of Tribunal. Court NCLT 79 481 Dissolution of company. Court NCLT 80 490 Power of company to appoint and fix remuneration of liquidators. Court NCLT 83 497 Final meeting and dissolution. Court NCLT 81 492 Power to fill vacancy in office of liquidator. as consideration for sale of property of company.

Court NCLT 88 507 Application of section 494 to a creditors voluntary winding up.P a g e | 201 85 503 Appointment of committee of inspection. Court NCLT . Court NCLT 87 506 Power to fill vacancy in office of liquidator. Court NCLT 86 504 Fixing of liquidators‘ remuneration. Court NCLT 89 509 Final meeting and dissolution. Court NCLT 91 512 Powers and duties of liquidator in voluntary winding up. Court NCLT 90 511A Application of section 454 to voluntary winding up.

Court NCLT 93 517 Arrangement when binding on company and creditor. Court NCLT 96 531 Fraudulent preference. Court NCLT 94 518 Power to apply to Tribunal to have question determined or powers exercised. directors.P a g e | 202 92 515 Power of Tribunal to appoint and remove liquidator in voluntary winding up. Court NCLT 95 519 Application of liquidator to Tribunal for public examination of promoters. Court NCLT . Court NCLT 97 531A Avoidance of voluntary transfer. etc.

Court NCLT 101 536(2) Avoidance of transfers.. etc.P a g e | 203 98 533 Liabilities and rights of certain fraudulently preferred persons. executions. in winding up by Tribunal.. etc. 102 537 Avoidance of certain attachments. Court NCLT after commencement of winding up. Court NCLT 99 534 Effect of floating charge. High Court NCLT 103 538 Offences by officers of companies in liquidation. Court NCLT 100 535 Disclaimer of onerous property in case of a company which is being wound-up. Court NCLT 104 540 Court NCLT .

105 542 Liability for fraudulent conduct of business. Court NCLT 109 546 Liquidator to exercise certain powers subject to sanction. Court NCLT 107 544 Liability under sections 542 and 543 to extend to partners or directors in firm or company.P a g e | 204 Penalty for frauds by officers. Court NCLT 106 543 Power of Tribunal to assess damages against delinquent directors. etc. Court NCLT 110 547(1) Court NCLT . Court NCLT 108 545 Prosecution of delinquent officers and members of the company.

115 555 Unpaid dividends and undistributed assets to be paid into the Companies Liquidation Accout. Court NCLT 114 553 Court NCLT Voluntary liquidator to make payments into Scheduled Bank. Court NCLT 116 556 Enforcement of duty of liquidator Court NCLT . Court NCLT 112 550(2) Disposal of books and papers of company. Court NCLT 113 551(2) Information as to pending liquidations.P a g e | 205 Notification that a company is in liquidation. 111 549 Inspection of books and papers by creditors and contributories.

etc. 117 557 Meetings to ascertain wishes of creditors or contributories.P a g e | 206 to make returns. Court NCLT 118 558 Tribunal or person before whom affidavit may be sworn. Court NCLT 121 581 Suits stayed on winding up order. Court NCLT 123 583 Court NCLT Winding up of unregistered companies. . Court NCLT 122 582 Meaning of unregistered company. Courts Courts or NCLT 119 559 Power of Tribunal to declare dissolution of company void. Court NCLT 120 560 Power of Registrar to strike defunct company off its register.

etc. Court Court or NCLT 129 627 Production and inspection of books where offence suspected.P a g e | 207 124 587 Court NCLT Suits. stayed on winding up order 125 588 Court NCLT Directions as to property in certain cases.. 126 589 Provisions of Part cumulative. Court NCLT 127 610(2) Inspection. Court Court or NCLT . Company Law Board NCLT 128 626 Application of fines. production and evidence of documents kept by Registrar. Court Court or NCLT 131 635(4) Enforcement of orders of one Court by other Courts. Court Court or NCLT 130 632 Power to require limited company to give security for costs.

Company Law Board NCLT 133 637A Company Law Board NCLT Delegation by Central Government of its powers and functions under Act. . 136 Schedule XI Forms in which sections 539 to 544 of Act are to apply to Company Law Board NCLT cases where an application is made under section 397 or 398.P a g e | 208 132 635B Protection of employees during investigation. 134 640A Validation of registration of Company Law Board NCLT firms as members of charitable and other companies. 135 647A New provision NCLT Saving of pending proceedings for winding up. etc. 137 651A Company Law Board NCLT and Court Reference of winding up of companies in other laws.

to Appellate Tribunal Powers transferred/ Words substituted 6. which will be consisting of the Chief Justice of India or his nominee as Chairman of the Committee and Secretaries of the Ministry of Finance and Company Affairs. Section Subject from 1 635B Court Protection of employees during investigation. The qualification prescribed in the Act for appointment as President of the Tribunal is that he should be a person who has been or is qualified to be.P a g e | 209 Power transferred to National Company Law Appellate Tribunal Sl. No. The President will be able to serve upto the age of 67 years while the members will be able to serve only upto the age of 65 years. The President and every other Member of the Tribunal shall hold office as such for a term of 3 years but shall be eligible for re-appointment. CONSTITUTION AND FUNCTIONS OF THE TRIBUNAL a) CONSTITUTION OF NCLT The Central Government shall constitute NCLT on the basis of recommendations of The Selection Committee. a Judge of a High Court. . Labour Law & Justice as members of the Committee. etc.

or has 10 years experience of practising as an Advocate of The High Court or one who has held partly the judicial office and partly practised in High Court. or   is or has been for atleast 15 years in practice as a Chartered Accountant/ Cost Accountant / Company Secretary under the relevant Act i.P a g e | 210 b) QUALIFICATION FOR JUDICIAL MEMBER OF NCLT   has held judicial office for atleast 15 years in an Indian territory.e. CA. for atleast 5 years and has adequate knowledge and experience in dealing with the problems relating to the Company Law. or . or is or has been a Joint Secretary to the Government of India which under the Central Staffing Scheme or held any other post under the Central/ State Government carrying a scale of pay which is not less than that of a Joint Secretary to the Government of India. ICWA and CS Act. has held for atleast fifteen years a Group ‗A‘ post or an equivalent post under the Central Government [including atleast 3 years of service as a member of the Indian Legal Service in grade I of that service] c) QUALIFICATION FOR TECHNICAL MEMBER OF NCLT  has held for atleast 15 years Group ‗A‘ post or an equivalent post under the Central/ State Government [including 3 years service as a member of The Company Law Service (Accounts Branch) in a senior administrative grade]. then taking together both should be 15 years experience or   15 years service with the Central/ State Government on Group ‗A‘ post [including atleast 3 years of service as a member of The Indian Company Law Service (Legal Branch) in a senior administrative grade .

Any other person though otherwise. Tribunal or National Tribunal constituted under the Industrial Disputes Act. the Central Government may allow the Applicant to do so. By reading together. One of the criteria namely 15 years of service with the Central/ State Government on Group A post (with atleast 3 years of service as a member of The Indian Company Law Service) does not appear to be appropriate. or  is or has been a Presiding Officer of a Labour Court. marketing. The President and any Judicial/Technical Member may resign from his Office by notice addressed to the Central Government and on submission of such resignation. The retiring age of the President and members of the Tribunal is 67 years and 65 years respectively. technology. investment. economics. . law. 1947. integrity and standing having special knowledge of and professional experience of not less than 20 years in science. the eligibility criteria for a Technical Member includes within its realm in a residual category Central/ State Government Official with a specified number of years of experience which justify inclusion of everybody and anybody in addition to the professional who deserves more to be a Technical Member. or is a person having a special knowledge of and experience of not less than 15 years in the matters relating to labour. whichever is earlier. industry. The Central Government may in consultation. industrial management. accountancy. which would be in the opinion of the Central Government useful to the Tribunal. could not tie his career with a position that has a limited tenure of 3 years. banking. or the date of appointment of the successor. or he has to wait for a period of 3 months from the date of such notice. or any other matter with the special knowledge or professional experience. industrial reconstruction.P a g e | 211  is a person of ability. Similarly. administration. highly qualified. subject to reappointment. this should imply that those who have retired would only inspire for a position in the Tribunal. In case of any vacancy in the office of the NCLT‘s President it will be filled up by the senior most Member of the Tribunal. matters relating to industrial finance. before the completion of the term. of the Chief Justice of India may remove the President or any member of the Tribunal but no such removal will be done without giving a reasonable opportunity of being heard. not with the approval. or removal. Putting at par such an experience with that of 15 years in a judicial capacity or 10 years as a practising High Court Advocate does not appear to be reasonable. The tenure of the President and of the Members of the Tribunal is 3 years.  d) COMMENT The qualification requirement for the Judicial Member focuses on their judicial capacity or as an Advocate of the High Court.

The Central Government will decide upon the number of Benches to be constituted but in . The Tribunal shall constitute of a President and such number of Judicial and Technical Members not exceeding 62. but if the Members are equally divided. if there is a majority. by general or special order specify. The Tribunal will be functioning through its various Benches all over the country comprising of 2 Members Bench of a Single Member Bench as may be warranted and deemed fit by the President of the Tribunal. including those who first heard it. a Technical Member and a Member appointed under Clause (g) or clause (h) of Section 10FD(3). although one has been convicted of an offence by the Courts of Law but the Central Government finds that such offence does not involve moral turpitude. they shall state the point or points on which they differ. After the Special Bench passes an order in respect of a company to be wound up. and the case shall be referred by the President of the Tribunal for hearing on such point or points by one or more of the other Members of the Tribunal and such point or points shall be decided according to the opinion of the majority of Members of the Tribunal who have heard the case. it shall be decided according to the majority. restructuring or winding up of the companies. the winding up proceedings of such company may be conducted by a Bench consisting of a single Member. from the date of passing of the order and may review its own orders. as the President of the Tribunal may. the President will constitute one or more Special Benches consisting of 3 or more Members each of whom shall necessarily be a Judicial Member. 7. The Bench may also work under a single Member in respect of such class of cases or such matters pertaining to such class of cases. within a period of 2 years. out of which one shall be a Judicial Member and another shall be a Technical Member. For the disposal of any case relating to rehabilitation. If the Members of a Bench differ in opinion on any point or points. The Tribunal will rectify any mistake.P a g e | 212 One peculiar criteria for not removing the President Member of the Tribunal is that. POWERS AND FUNCTIONS The powers of the Tribunal will be exercised by Benches constituted by the President of the Tribunal. Such a set up will enable constituting Benches on geographical or any other appropriate criteria which would expedite the disposal of the cases and at the same time make available the mechanism at the door step of the Companies reducing the cost and efforts involved.

application will be made to Central Government.P a g e | 213 addition to this there shall be a Principal Bench at New Delhi presided over by the President of the Tribunal. in case of a Public Company Petition by Debenture Trustee to impose restrictions on company on incurring further liabilities. which will inter-alia have powers of transfer of proceedings from one Bench to the other after recording the reasons for doing so in writing. The Tribunal shall have power to review its own orders (Section 10FN). Powers To Be Exercised By National Company Law Tribunal Section Number 58A(9) 58AA(1) and (3) Description Ordering repayment of public deposits and payment of interest Intimation to Tribunal in case of default in repayment of deposits from small depositors. in case of a private company Refusal of registration of transfer and Rectification of Register. in case of sick industrial company under revival. if dissenting shareholders object Refusal of registration of transfer and rectification of Register. Directing company to redeem debentures on maturity and pay principal and interest 111A 117B(4) 117C(4) . Tribunal will pass appropriate orders Issue of shares at discount by sick industrial company under revival (in other cases. In other cases. sanction will be by Central Government) Redemption of irredeemable preference shares issued prior to 15-6-1988 Approval of reduction of share capital 79(3) 80A(1) 100 to 104 107 111 Variation of rights of shareholders.

the power will be exercised by Central Government Power to order general meeting to be called (other than Annual General Meeting) Power to restrain fraudulent persons from managing companies Declaring that affairs of the company ought to be investigated. 394A . after inspection is carried out Ordering appointment ownership of company of inspectors for investigating 186(1) 203 235(2) 237 243 247(1A) 250 Imposing restrictions on issue/transfer of shares if company is under investigation Decision whether appointment of managing or whole-time director is in contravention of statutory provisions contained in Schedule XIII Compelling inspection of Register of Directors to persons entitled.P a g e | 214 167 Power to call Annual General Meeting. in case of sick company under revival. Then. if company refuses [Powers concurrently with Central Government] Recommending Removal of Managerial Person from office 269(7) 304(2)(b) 307(9) 388B to 388E 391 and 392 Power to approve compromise or arrangement and its enforcement Reconstruction and amalgamation of companies 394. Central Government must appoint inspectors to investigate Central Government may order inspection if Tribunal is of the opinion that circumstances suggest that inspection is necessary Petition by Central Government to Tribunal for winding up or application for oppression/mismanagement. In other cases. if company refuses [Powers concurrently with Central Government] Compelling inspection of Register of Directors‘ Shareholding to persons entitled. if default is made in holding AGM.

powers in respect of revival and rehabilitation of sick industrial company were with BIFR under SICA and other powers were with Company Law Board [CLB]. under the Act Winding up of Insurance Companies transferred to Tribunal under Insurance Act.. amalgamation/reconstruction and winding up were with High Court. powers in respect of reduction of capital. etc. These powers are now transferred to National Company Law Tribunal (NCLT). .Prior to the Companies (Second Amendment) Act. 2002. if Central Government orders compulsory amalgamation of companies in national interest Application for relief in case of oppression Application for relief in case of mismanagement Ordering appointment of directors by Central Government in case of oppression and mismanagement Ordering prevention of change in Board of company Appointment of receivers/managers in pursuance of an instrument Revival and Rehabilitation of a sick company 396(3A) 397 398 408 409 424 424A to 424L 425 to 560 582 to 589 Winding up of companies Winding up of unregistered companies 610(2) 614 632 Compelling production of documents kept by Registrar (ROC) Enforcement of duty of company to make return to ROC Power to require limited company to give security for costs of legal proceedings Power to impose conditions and levy fees while according approval.P a g e | 215 395 Compelling acquisition of shares of shareholders dissenting from scheme or contract approved by over 90% shareholders Appeal against order of compensation. 637A - Note .

confirming modifying or setting aside the order appealed against. constitute an Appellate Tribunal which will be called as The National Company Law Appellate Tribunal (NCLAT). law. administration. matters relating to labour. economics. or any other matter. marketing. accountancy. industry. pass such order thereon as it thinks fit. the Appellate Tribunal shall. 9. CONSTITUTION OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL a) QUALIFICATION AND AGE OF PRESIDENT/MAMBERS ( S-10FR) The Appellate Tribunal shall consist of a Chairperson and not more than 2 Members. He shall be a person of ability. The Chairperson shall be a person who has been a Judge of the Supreme Court or the Chief Justice of a High Court. banking. industrial management. investment. an opportunity of being heard. Appeal against order of tribunal (NCLT) will be with National Company Law Appellate Tribunal(NCLAT). industrial reconstruction. The Chairperson and every other Member shall hold office for a term of 3 years from the date of their appointment but shall be eligible for re-appointment for another term of 3 years. technology. no specific qualification has been prescribed to become a Member of the Appellate . integrity and standing having special knowledge of and professional experience of not less than 25 years in a specialised subject science. The Chairperson will be eligible to serve upto the age of 70 years while a Member will be able to serve upto the age of 67 years. On receipt of an appeal.Appeal has to be filled within 45 days from the date on which a copy of the said order or decision is received by the appellant. Appeal should be heard expeditiously and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of the same. after giving parties to the appeal. Interestingly.P a g e | 216 8. NATIONAL COMPANY LAW APPELLATE TRIBUNAL The Central Government shall by a Notification in the Official Gazette. the special knowledge of. or professional experience which would in the opinion of the Central Government be useful to the Appellate Tribunal. industrial finance.

as far as may be. The provisions of the Limitation Act. 10. apply to an appeal made to the Appellate Tribunal. for this purpose under the provisions of the Contempt of Courts Act. 1963 shall. APPEAL FROM ORDER OF TRIBUNAL Any person aggrieved by an order or decision of the Tribunal may prefer an appeal to the Appellate Tribunal. shall have the effect subject to modifications that (a) the reference therein to a High Court shall be construed as including a reference to the Appellate Tribunal (b) the reference to Advocate General in Section 15 of the said Act shall be construed as a reference to such Law Officers as the Central Government may specify in this behalf. Every appeal under sub.five days from the date on which a copy of the order or decision made by the Tribunal is received by the appellant and it shall be in such form and accompanied by such fee as ay be prescribed: Provided that the . No a ppeal shall lie to the Appellate Tribunal from an order or decision made by the Tribunal with the consent of parties.section (1) shall be filed within a period of forty. powers and authority in respect of contempt of itself as the High Court has and may exercise. 1971. JURISDICTION POWERS AND FUNCTIONING The Appellate Tribunal shall have the same jurisdiction. 11. The procedure for resignation/ removal and filling up of a casual vacancy are more or less the same as in the case of the President/ Members of the NCLT.P a g e | 217 Tribunal as in case of a Judicial as well as Technical Member of the NCLT although a Member of the NCLAT will be superior to the member of NCLT to review the orders passed by NCLT.

1908 while trying a suit. On receipt of an appeal preferred under sub. confirming. Officers and other employees of the Appellate Tribunal and the President. for the purposes of discharging their functions under this Act. Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the Supreme Court of India within 60 days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such decision or order. Officers and other employees of the Tribunal shall be deemed to be public servants within the meaning of Section 21 of the Indian Penal Code.section (1). . Members. The Chairperson. All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228 and for the purposes of Section 196 of the Indian Penal Code and the Tribunal and the Appellate Tribunal shall be deemed to be a Civil Court for the purposes of Section 195 and Chapter XXVI of the Code of Criminal Procedure. The Tribunal as well as the Appellate Tribunal shall have.five days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from not filing the appeal in time. after giving parties to the appeal.P a g e | 218 Appellate Tribunal may entertain an appeal after the expiry of the said period of forty. the Appellate Tribunal shall. 1973.section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of the receipt of the appea. pass such orders thereon as it thinks fit. The Appellate Tribunal shall send a copy of every order made by it to the Tribunal and parties to the appeal. Members. an opportunity of being heard. The appeal filed before the Appellate Tribunal under sub. the same powers as are vested in a Civil Court under the procedure of Code of Civil Procedure. modifying or setting aside the order appe led against.

(3) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein. PROCEDURE AND POWERS OF TRIBUNALS AND APPELLATE TRIBUNAL (1) The Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure. 1908 (5 of 1908 ) while trying a suit in respect of the following matters. the same powers as are vested in a civil court under the Code of Civil Procedure. and it shall be lawful for the Tribunal or the Appellate Tribunal to send i case of its inability to execute such order. and any other matter which may be prescribed by the Central Government. (c) receiving evidence on affidavits. (4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial . 1872 (1 of 1872 ).P a g e | 219 12. subject to the other provisions of this Act and of any rules made by the Central Government. but shall be guided by the principles of natural j stice and. (d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act. (b) requiring the discovery and production of documents. to the court within the local limits of whose jurisdiction. the person concerned voluntarily resides or carries on business or personally works for gain. the registered office of the company is situate. (e) issuing commissions for the examination of witnesses or documents. namely:(a) summoning and enforcing the attendance of any person and examining him on oath. or (b) in the case of an order against any other person. the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.(a) in the case of an order against a company. (f) reviewing its decisions. for the purposes of discharging its functions under this Act. 1908 (5 of 1908 ). (2) The Tribunal and the Appellate Tribunal shall have. requisitioning any public record or document or copy of such record or document from any office. (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte. (g) dismissing a representation for default or deciding it ex parte.

GANDHI. of the Indian Penal Code (45 of 1860 ) and the Tribunal and the A pellate Tribunal shall be deemed to be a civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure. P Sathasivam & J M Panchal. MADRAS BAR ASSOCIATION [CIVIL APPEAL NO. UNION OF INDIA [CIVIL APPEAL NO. CHALLANGES TO NCLT: The proposed framework could not be implemented due to a legal challenges • Issues at challenge relate to the changes in jurisdiction and powers of the High Courts with regard to Company matters Special Leave Petition before the Supreme Court • • • Refer to Constitution Bench Matter heard. JJ [Decided on 11-05-2010] The five-judge Bench of the Supreme Court of India comprising Justice KG Balakrishnan. Justice P Sathasivam and Justice JM Panchal has delivered its judgment on the legality of the constitution of National Company Law Tribunal and National Company Law Appellate Tribunal under the Companies Act. . 13. 1973 (2 of 1974 ). reserved for order 14. 2002. CASE STUDY UNION OF INDIA v. Justice RV Raveendran. R V Raveeveran. Justice DK Jain.3067 OF 2004] & MADRAS BAR ASSOCIATION V. 1956 through Companies (Second Amendment) Act. CJI.3717 OF 2005] K G Balakrishnan. R.P a g e | 220 proceedings within the meaning of sections 193 and 228. D K Jain. and for the purposes of section 196. PRESIDENT.

The Law Commission of India in its 162nd Report submitted in 1998 reviewed the working of the major tribunals in the country – the Income-tax Appellate Tribunal. Customs. As per the said amendment. 1956. Industrial Tribunals had also been established prior to 1950. The oldest and best known Tribunal is the Income-tax Appellate Tribunal which had been functioning from the year 1941. Their exact number however is not easily ascertainable. and with leave. Madras Bar Association.‖ .Gandhi. Articles 136 and 227 of the Constitution refer to Tribunals. almost all powers exercised by the High Court under the Companies Act. a) THE CONCLUSION OF MADRAS HIGH COURT Justice Jayasimha Babu of Madras High Court has delivered a considered and landmark judgment on the issue of legality of constitution of National Company Law Tribunal and National Company Law Appellate Tribunal. speedier and more accessible justice than ordinary courts are able to provide. has challenged the Companies (Second Amendment) Act. as stated in Wade on Administrative Law. Central Excise and Gold (Control) Appellate Tribunal and the Administrative Tribunals.P a g e | 221 With the intention of establishing a Separate Tribunal to deal with all issues or disputes under the Companies Act. 1956 sought to be transferred to the NCLT and NCLAT except the judicial review powers exercised under Article 226 and 227 of Constitution of India. represented by Shri R. as soon as the Tribunal and the Appellate Tribunal is constituted. The object of constituting Tribunals is to provide a simpler. to adjudicate more efficiently and speedily the matters requiring adjudication in that field. 2002. a Special Tribunal and Appellate Tribunal called National Company Law Tribunal and National Company Law Appellate Tribunal were sought to be established through the Companies (Second Amendment) Act. and make their orders subject to judicial review by the High Court. Numerous Tribunals have been created subsequent to 1950 by Parliamentary as well as State legislation. Yet another object of constituting Tribunals is to create specialist Tribunals which would include specialists in the filed. 2002 and especially the constitution of National Company Law Tribunal and National Company Appellate Tribunal before the Madras High Court initially. The background of the constitution of Tribunals in India as referred in the Judgment is as follows: ―The Tribunals which are largely a twentieth century phenomenon existed in this country even before the Constitution was framed. and thus command the confidence of all concerned in the quality and reliability of the result of such adjudication. to the Appellate jurisdiction of the Supreme Court. and suggested certain changes to improve their functioning.

when considered along with the provisions concerning the Competition Commission under the Competition Act. which have been found to be defective in as much as they are in breach of the basic constitutional scheme of separation of powers and independence of the judicial function. Senior Advocate and Shri V. seems to indicate a pattern of an aggressive executive seeking to take over gradually the judicial power traditionally exercised by the courts under safeguards which ensure the competence. 2002 and the conclusion of the Court on the issue is summed up in one para of the Judgment as follows: ―The constitution of the National Company Law Tribunal and the Appellate Tribunal in the manner now provided. it would be unconstitutional to constitute a Tribunal and Appellate Tribunal exercise the jurisdiction now exercised by the High Courts or the Company Law Board. Most of those powers are only tangentially judicial and are primarily administrative. The Apprehension of the Petitioners who challenged the Companies (Second Amendment) Act. 2002.P a g e | 222 The Operative portion of the Judgment of the Madras High Court is as follows: ―In the light of foregoing discussions it is declared that until the provisions in Parts 1B and 1C of the Companies Act introduced by the Companies (Amendment) Act. and be amenable to the influence of executive superiors and their political masters. summed up in one para of the judgment as follows:— ―The constitution of the National Company Law Tribunal and the Appellate Tribunal in the manner now provided. by removing the defects that have been pointed out. and be amenable to the influence of executive superiors and their political masters. 2002 and the conclusion of the Court on the issue are. the then Additional Solicitor-General has rendered exceptional assistance to the . There is no illegality in such transfer. some of which were earlier exercised by the court. whereby certain powers currently exercised by the Company Law Board.Gopalan. and by persons now serving the executive who will continue to retain their lien and loyalty to the executive branch. when considered along with the provisions concerning the Competition Commission under the Competition Act 2002. independence and impartiality of the judges. seems to indicate a pattern of an aggressive executive seeking to take over gradually the judicial power traditionally exercised by the courts under safeguards which ensure the competence.T.‖ The doyens of the Madras Bar Association Shri Aravind P. The apprehension of the petitioners who challenged the Companies (Second Amendment) Act. and replacing them by persons who have neither a judicial background nor specialized knowledge of the subject for which the Tribunal is created. 2002.‖ The judgment of the Madras High Court was a very detailed.Datar. considered and reasoned judgment. and by persons now serving the executive who will continue to retain their lien and loyalty to the executive branch. are duly amended. 2002. independence and impartiality of the judges.‖ The Judgment of the Madras High Court was a very detailed. considered and reasoned judgment. The petitioners have also challenged the validity of certain provisions of the Companies (Amendment) Act. were transferred to the Central Government. and replacing them by persons who have neither a judicial background nor specialized knowledge of the subject for which the Tribunal is created.

2002. R. and to Mr. but. the Apex Court has upheld the Tribunal being constituted but they have questioned aspects on appointment of its members. . in Union of India v.Arvind Datar. The Madras High Court has never questioned the legislative competency in establishing National Company Law Tribunal.Gopalan. learned Additional Solicitor-General who. While delivering the judgment. which provides for the establishment of the NCLT and NCLAT to deal exclusively with the company cases.‖ b) APPEAL TO SUPREME COURT The Judgment of the Madras High Court on the issue of constitution of National Company Law Tribunal and National Company Law Appellate Tribunal was appealed before the Supreme Court and the Supreme Court has now delivered a land-mark judgment on the issue and the judgment has further strengthened the conclusion of Madras High Court and the apprehensions expressed. and also placed before the court all the relevant materials.Gandhi/Madras Bar Association [2010] 100 SCL 142 the Supreme Court upheld the legality of the Companies (Second Amendment) Act.V. expressed its concern over the independence of the mechanism and its effectiveness. It‘s really laudable.P a g e | 223 Court in the matter before Madras High Court and the same is acknowledged by the Madras High Court in its judgment as follows: ―We place on record our appreciation to Mr.T. and their terms and conditions of appointment. learned senior counsel of petitioner. with his usual fairness presented the case for the respondent with great vigour. It was also clarified that the Tribunal is an alternate judicial forum and requires least interference of the executive in the functioning of the Tribunal. whose research and cogent presentation has helped to clarify and bring out the significance of the issues involved. For this purpose. they have stated guidelines on the appointment of members. c) JUDGEMENT OF SUPREME COURT In the landmark judgment.

only the High Court‘s Judges.P a g e | 224 While delivering the judgment. a judicial member is like a High Court Judge. Besides. Furthermore. It was also mentioned that since the matters from the High Courts too would be transferred to NCLT and NCLAT. (iv) The selection committee must be headed by the Chief Justice of India or his nominee. (iii) Only officers holding the ranks of Secretary/Additional Secretary can be considered for appointment as Technical members. the presiding officers have to be of the rank of the High Court‘s Judges or persons meeting the qualification prescribed for the High Court Judges. This is because the presently proposed three-year term was too short to result in development of additional expertise. If these Tribunals are to function effectively and efficiently they should be able to attract younger members who will have a reasonable period of service…‘ Members cannot retain a lien over their parent cadre . The Supreme Court has also said that bureaucrats could at best be made as technical members of the Tribunals and all appointments to the post of presiding officers have to be made in consultation with a Committee headed by the Chief Justice of India or his nominee and comprising a judge of the Supreme Court or the High Court. or officers in other departments who might have incidentally dealt with some aspect of Company Law. (v) The term of office must be seven years. Secretaries in the Ministry of Company Affairs and Law and Justice. A ‗Technical member‘ presupposes experience in the specific field to which the Tribunal relates. The other two members can be the secretaries of some Government department (such as finance & company affairs. the Apex Court however. The various guidelines prescribed in the judgment are as follows:— (i) Only Judges and advocates can be considered for appointment as judicial members. or Judges who have served in the rank of a District Judge for at least five years. or at the very least. Their expertise in these services can at best mean that they can be considered for appointment as technical members. there is to be a senior Judge of the High Court or the Supreme Court. (ii) Persons who have held a Group A or equivalent post under Central or State Governments with experience in the services such as the Indian Company Law Service (Legal Branch) and Indian Legal Service (Grade-1) cannot be considered for appointment as judicial members. or a lawyer who has practised for ten years. can be considered for appointment as a judicial member. In sum. and because the ‗said term of three years with the retirement age of 65 years is perceived as having been tailor-made for persons who have retired or shortly to retire and encourages these Tribunals to be treated as post-retirement havens. and law & justice). cannot be considered as ‗expert‘ and cannot be considered as being qualified for appointment as Technical member. slammed the practice of filling up the post of judicial members in Tribunals with bureaucrats saying that adjudication of these matters needed judicial bent of mind. who shall also have the casting vote. A member of Indian Company Law Service who has worked with accounts branch of that service. five years.

the number of Technical members cannot exceed the Judicial Members. Whenever any larger bench or any special bench is constituted. the concerned ministry has to take note of the judgment of the Apex Court and should make needed changes to the proposed bill and then. all company related matters pending with the CLB and the Board for BIFR will also be transferred to the NCLT and the NCLAT. the entire Companies Act. (vi) Two-member benches must have a Judicial Member. The Apex Court has also said that barring the judicial review power under the articles 226 and 227 of the Constitution of India. but.P a g e | 225 for a period of more than one year from joining the Tribunal. Now. d) COMMENT ON JUDGEMENT Now. It will take some time. 2009. I don‘t know as to how the Government has proceeded with the Companies Bill when an important issue on the Constitution of National Company Law Tribunal and National Company Law Appellate Tribunal was pending before the Apex Court. This would provide for disposal of company cases in a expeditious manner and would reduce the backlog of the cases pending. 1956 sought to be reorganized with some inclusions and deletions through Companies Bill. the Companies Bill can be introduced in the Parliament and it needs to be passed. . the entire issue can be quicken as the needed infrastructure for the establishment of National Company Law Tribunal and National Company Law Appellate Tribunal was already in place as I believe. In view of the above. Members can be removed/ suspended prior to ending of their term only with the concurrence of the Chief Justice of India. almost all jurisdictions exercised by the High Courts in regard to the company matters would now be transferred to and exercised by the proposed Tribunal and the Appellate Tribunal.

the state transfers its judicial functions and powers mainly to the courts established by the Constitution. so in the case of Tribunals. P. there is no much difference logically between the Court and the Tribunal and both are meant to resolve the disputes. 1952. both the courts and the Tribunals are ‘constituted by the State and are invested with judicial as distinguished from purely administrative or executive functions…’ They are both adjudicated bodies and they deal with and finally determine disputes between parties which are entrusted to the jurisdiction…. Judicial functions and judicial powers are one of the essential attributes of a sovereign State.As in the case of courts. while holding that the appellate authority under the Punjab Welfare Officers Recruitment and Conditions of Service Rules. by appropriate measures.” The observations of Justice Gajedragadkar were also referred in the Judgment of Madras High Court. speaking through our great justice Gajendragadkar. it is constituted under a special enactment and may follow different procedure as enshrined in the enactment. they share with the courts one common characteristic.J.Sharma. to transfer a part of its judicial powers and functions to Tribunals by entrusting to them the task of adjudicated upon special matters and disputes between parties. A constitution Bench of the Supreme Court in the case of Associated Cement Companies Ltd.. it is the State’s inherent judicial function which hey discharge. I disagree with the notion. AIR 1965SC1595. V. The Tribunal is also a Court intended to resolve the disputes. C. The basis and the fundamental feature which is common to both the courts and the Tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign state. it is the State’s inherent judicial power which has been transferred and by virtue of the said power. and on considerations of policy. . but that does not affect the competence of the State. It is really not possible or even expedient to attempt to describe exhaustively the features which are common to the Tribunals and the courts. but. observed: ―…Special matter and questions are entrusted to them for their decision and in that sense. but.P a g e | 226 e) MY OPINION ON TRIBUNAL Many feel that there is lot of difference between a Tribunal and the Court.N. and features which are distinct and separate. Thus. is a Tribunal.

Instant orders were passed if the situation demands and most of the orders passed by the High Court while exercising Company Jurisdiction were obeyed and implemented by the parties concerned. The Company Law Board also discharges complicated responsibilities under section 397/398 of the Companies Act. Again. It is to be seen as to how the proposed National Company Law Tribunal and the National Company Law Appellate Tribunal functions in future. There are many limitations and we know the functioning of the office of the Official Liquidator at present and we also aware of the proposed move to get the services of Advocates and Experts as liquidators. 1956 very well and the proceedings of Company Court were effective to a great extent. . many express their dissatisfaction that they are being unnecessarily troubled and many feel that they are not able to get justice though they could establish a clear case before the Board. the powers of the Company Law Board were limited by the express language used in the Act and also due to the ruling on its own competence and jurisdiction. In my personal opinion. 2009. the High Court was able to discharge its functions under Companies Act. the incorporation and management of Companies have become so easy though there are complications in the Course. It is also frequently seen as to the respect given to the orders of the Company Law Board. when it comes to the proceedings of the Company Law Board. It‘s a serious issue to deal with and requires serious consideration by the Government and also Courts. the High Court discharges very complicated functions under Companies Act. Handling a Company dispute is a complicated thing and requires lot of care. 1956 like entertaining winding-up petitions and entertaining applications seeking sanction of the Court for a scheme of amalgamation etc. We have seen tremendous corporate growth in the recent past and with the technological revolution and its adoption in governance like MCA scheme. concentration and specialization. 1956 and other provisions. These issues are taken note of by the Legislature and sought to be addressed in the proposed Companies Bill. At present. But.P a g e | 227 f) MY APPREHENSION I have the privilege of observing the proceedings of High Court in Company matters and also the proceedings of Company Law Board. Note: I have only given a brief of the issue and I am aware of the fact that a lot can be said on the issue. We need to provide an effective and speedy redressel to the Corporate and they can not be waiting for months and years for a redressel.

16. Further. The procedures to be followed in the case of Tribunal are enshrined in the enactment itself whereas the Court will follow the procedures prescribed under the Civil Procedure Code. A Tribunal is constituted under a special enactment. Now. Further. The disputes relating to reduction of capital. DIFFERENCE BETWEEN TRIBUNAL AND COURT: In this connection. with the constitutional validity by the Supreme Court. The Tribunal is no inferior to a Court and it has got the same rights and powers of a Court. matters relating to oppression and mismanagement and other non-adversarial issues are handled by CLB. the provisions that deal with compromises and arrangements (usually. it has been divided between the High Court and the Company Law Board. hopefully. these would be mergers and demergers) require High Court‘s approvals. Now. the processes will be simpler. rectification of register of members. complaints relating to refusal to transfer/ transmission of securities. One must accept that the present High Court process has worked reasonably well but having said that. If the companies under merger are located in different States. there is no much difference logically between the Court and the Tribunal and both are meant to resolve the disputes. leading to delays in clearances. The procedure may be different in case of Tribunal when compared to the Court. amalgamation and winding up of companies are with the High Court and the power of rectification of register. the span of jurisdiction of the High Courts is vast and it becomes difficult for them to do full justice to the several conflicting priorities before them. all these matters would be dealt with by NCLT. Thus. MATTERS TO BE DEALT BY NCLT In the case of disputes relating to company matters. different High Courts will be involved. the NCLT would regulate merger and demerger schemes and since it is a single body. it is to be noted that there is no difference between a Tribunal and a Court. merger.P a g e | 228 15. all the company matters which are registered under the BIFR and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) which are pending for revival/ rehabilitation would also get transferred to NCLT and .

with these Tribunals in place. the assets of the said companies would be protected. expertise and speed) in the disposal of company matters.. Hence with the implementation of NCLT and NCLAT. Thus. all the parties to the dispute will be bound by the Tribunal‘s orders and in case of non-availability of a workable proposal for revival or rehabilitation etc. multiplicity of litigation before various Courts or quasi-judicial bodies or forums regarding revival or rehabilitation of companies. Sometimes. thus. which will have powers of contempt of Court. we do hope that not only the corporate would stand to benefit but everyone including workers.P a g e | 229 NCLAT. these anomalies would not be there once the NCLT is in place and we can expect speedy disposal of cases which are presently being handled by CLB. Further. many feel or express dissatisfaction with regard to the workings. For this purpose. BENEFITS FOR CONSTITUTING NCLT Business decisions require speedy determination and the long-drawn legal battles in the court of law stifle business impetus. With the constitution of NCLT and NCLAT. NCLT.. the specialized body such as NCLT to deal with company law issues will provide focus and direction (and hopefully. creditors. Thus. the jurisdiction and the competence of CLB are also questioned. the Tribunal can decide the matter on merits. There is also an apprehension that the orders given by the CLB are being taken very lightly and not given effect to in letter and spirit. the Tribunal may introduce its own rules and regulations or any Scheme which would be acceptable to the parties. Petitions relating to merger or amalgamation or winding up will be avoided as all these matters will be heard and decided by a single alternate forum viz. here also. stripping of assets of sick companies will be avoided. In the case of rehabilitation of sick companies. it contains in-built mechanism for seriousness. As in the case of Court. There will be various Benches which will be constituted under NCLT and NCLAT which will reduce the entire process which is presently taking several years. . corporate feel that they are not in a position to effectively pursue their cases to get speedy justice. with the help of the Tribunal. 17. there will be a fund known as rehabilitation and revival fund which will be used to make payment to the workmen of the company which has been declared sick or the companies which are under liquidation process. For instance in the case of winding up petitions. Further. Very often. It is also mentioned here that presently in the proceedings of CLB. individual affidavits will be filed before the NCLT and NCLAT. stakeholders and in turn the economy as a whole would be benefited. Further. This will enable the deponents who will file affidavits to take the cases in a serious manner and. it may take even 3 to 4 years to conclude.

(1) Where an industrial company. 19. SEC-424A REFERENCE TO NCLT The central govt or the RBI or the state govt or a public finance institution or a state level institution or a scheduled bank can also make a reference in respect of a company which has become a sick company to the tribunal for determination of the measures which may be adopted with respect to such company. the Ministry of Corporate Affairs has to take note of the detailed judgment of the Supreme Court and the conditions attached to it and the necessary and the needed changes should be proposed in the Bill and then the Companies Bill should be introduced in the Parliament. Under SICA.BIFR could only ‗recommend‘ winding up while now the Tribunal can directly ―order‖ winding up. the Board of directors of such company shall make a reference to the Tribunal. 1956 is sought to be revamped with inclusions and deletions through the Companies Bill. and prepare a scheme of its revival and . If the tribunal decides that it is not practicable for a company to make its networth exceed the accumulated losses or make the repayment of its debts within such reasonable time. If the tribunal is of the opinion that the sick industrial company is not likely to become viable. as far sa may be. The winding up of the company shall . it may record its findings and order winding up of the company. legality of the constitution of NCLT was lingering on for years before the Apex Court. 2009. Now. it may direct an operating agency to prepare a scheme providing for such measures in relation to such company. conclude within one year from the date of order of winding up. But the fact is that it will take sometime to effectively constitute the NCLT and we hope that the entire process would be expedited by the Government as the much needed infrastructure for the establishment of NCLT is already in place as it has been contemplated for many years now. has become a sick industrial company.P a g e | 230 18. WAY FORWARD As most of the professionals are aware that the entire Companies Act. it may allow the company to make its networth exceed the accumulated losses within a reasonable time or make repayment of its debt. it was not properly understood as to how the Government proceeded with the Companies Bill when an important legal issue. viz. If the tribunal is satisfied that a company has become sick industrial company after considering all the relevant facts and circumstances.. since the Apex Courthas settled that issue.

an interest in such company. which ver is earlier. make a reference in respect of such company to the Tribunal for determination of the measures which may be adopted with respect to such company: Provided that a reference shall not be made under this sub. or undertaken by it. .P a g e | 231 rehabilitation and submit the same o the Tribunal along with an application containing such particulars as may be prescribed. the Central Government or the Reserve Bank of India or a State Government or a public financial institution or a State level institution or a scheduled bank may.section (3) shall be made to the Tribunal within a period of one hundred and eighty days from the date on which the Board of directors of the company or the Central Government or the Reserve Bank of India or a State Government or a public financial institution or a State level institution or a scheduled bank. by reason of any financial assistance or obligation rendered by it. or less than fifty per cent. if it has sufficient reasons to elieve that any industrial company has become. as the case may be. of the relevant facts giving rise to causes of such reference or within sixty days of final adoption of accounts. (3) Without prejudice to the provisions of sub.section (1). (5) The Tribunal may.section (1). come to know. on receipt of a reference under sub. make a reference to the Tribunal in accordance with the provisions of this sub.section in respect of any industrial company by(a) the Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State. (b) a public financial institution or a State level institution or a scheduled bank unless it has.section (1) or sub.section (1) shall be accompanied by a certificate from an auditor from a panel of auditors prepared by the Tribunal indicating(a) the reasons of the net worth of such company being fifty per cent. (4) A reference under sub. as the case may be.section and thereafter all the pro isions of this Act shall apply to such Government company. for the purposes of this Act. (2) The application under sub. a sick industrial company. for determination of the measures which may be adopted with respect to such company: Provided that nothing contained in this sub. as the case may be. 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 order shall be final.section shall apply to a Government company: Provided further that a Government company may. with respect to such company. or (b) the default in repayment of its debt making such company a sick industrial company. with the prior approval of the Central Government or a State Government..

necessary for discharge of his or their duties. Explanation. or (b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. as the case may be. require by order any operating agency to enquire into the scheme for revival and make a report with respect to such matter as may be specified in the order.For the purposes of this sub. an inquiry shall be deemed to have commenced upon the receipt by the Tribunal of any reference or information or upon its own knowledge reduced to writing by the Tribunal.section (5) shall submit a report to the Tribunal within sixty days from the date of appointment of such director or directors.section (1). under sub.424B. about the state of affairs of the company in respect of whic reference has been made under sub. INQUIRY INTO WORKING OF SICK INDUSTRIAL COMPANIES (1) The Tribunal may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company(a) upon receipt of a reference with respect to such company under section 424A.P a g e | 232 20. (5) Where the Tribunal deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub. (7) The Tribunal may issue such directions to a special director appointed under sub. experience and expertise in terests or in the public interest.section (1) or.section (5) as .section (2).section (1) and such special director or directors shall have all the powers of a director of a company under this Act.one days from the date of such order: Provided that the Tribunal may extend the said period to forty days for reasons to be recorded in writing for such extension. (4) The Tribunal shall conclude its inquiry as expeditiously as possible and pass final orders in the proceedings within sixty days from the commencement of the inquiry: Provided that the Tribunal may extend the said period to ninety days for reasons to be recorded in writing for such extension. (2) The Tribunal may. (6) The special director or special directors appointed under sub.section. it may appoint one or management and control of the affairs of any other company to be a special director or special directors on the board of such industrial company on such terms and conditions as may be prescribed for safeguarding its financial and other i more persons who possess knowledge. if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub.. (3) The operating agency shall complete its inquiry as expeditiously as possible and submit its report to the Tribunal within twenty.

after considering all the rele ant facts and circumstances of the case. the Tribunal is satisfied that a company has become a sick industrial company. shall not apply to any special director or directors appointed by the Tribunal. 424C. POWERS OF TRIBUNAL TO MAKE SUITABLE ORDER ON COMPLETION OF INQUIRY (1) If after making an inquiry under section 424B. as soon as may be. 21. decide.section within a reasonable time. by an order in writing.section (5). (d) not be liable to be prosecuted under any law for anything done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company. and any provision regarding share qualification. . the Tribunal shall. shall(a) hold office during the pleasure of the Tribunal and may be removed or substituted by any person by order of the Tribunal. number of directorships. removal from office of directors and such like conditions contained in any suc law or instrument aforesaid.ection (2) of section 424A within a reasonable time. (c) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement.section (5) shall be valid and effective notwithstanding anything to the contrary contained in any other provisions of this Act or in any other law for the time being in force or in the memoran um and articles of association or any other instrument relating to the industrial company. (2) If the Tribunal decides under sub. (8) The appointment of a special director referred to in sub. (9) Any special director appointed under sub. the Tribunal shall. whether it is practicable for the company to make its net worth exceed the accumulated losses or make the repayment of its debts referred to in clause (b) of sub.P a g e | 233 it may deem necessary or expedient for proper discharge of his duties. give such time to the company as it may deem fit to make its net worth exceed the accumulated losses or make repayment of the debts.section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses or pay its debt referred to in that sub. (b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto. by or er in writing and subject to such restrictions or conditions as may be specified in the order. age limit.

500. review such order and modify the order in such manner as it may deem appropriate. in the case of a Public Company. below seven. CIRCUMSTANCES UNDER WHICH COMPANY WILL WOUND UP BY TRIBUNAL A company may be wound up by the Tribunal in the following cases: 1. if the Company has. below two. 3. or suspends its business for a whole year. a creditor can file a Winding Up petition if the Company is indebted in a sum exceeding Rs.(a) if any of the restrictions or conditions specified in an order made under sub. 2. if the Tribunal is of the opinion that it is just and equitable that the Company should be wound up. if the Company does not commence its business within a year from its incorporation. (4) The Tribunal may. 5. as soon as may be. if the Company is unable to pay its debts. direct any operating agen y specified in the order to prepare. Presently. a scheme providing for such measures in relation to such company. This limit has been increased to Rs. resolved that the Company be wound up by the Tribunal.section (3).P a g e | 234 (3) If the Tribunal decides under sub. or if the company fails to revive in pursuance of the said order. if default is made in delivering the Statutory Report to the Registrar or in holding the Statutory Meeting. . review such order on a reference in that behal from any agency referred to in subsection (3) of section 424A or on its own motion and pass a fresh order in respect of such company under sub. by order in writing.section (2) of section 424A within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 424D in relation to the said company it may. if the number of members is reduced. (b) if the operating agency specified in an order made under sub.section (3) makes a submission in that behalf. 4.section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses or make the repayment of its debts referred to in clause (b) of sub. 22. having regard to such guidelines as may be specified in the order.1 lakh. by special resolution.section (2) are not complied with by the company concerned. and in the case of a Private Company. 6.

Proviso to this Section provides that where the winding up of a company has commenced subject to thesupervision of the District Court or the High Court. 4. 8 and 9 have been added by the Companies (Second Amendment) Act. 2. 2002. if the Company has made a default in filing with the Registrar its Balance Sheet and Profit and Loss Account or Annual Return for any five consecutive financial years. such winding up shall continue to be under the supervision of the District Court or the High Court and the Company shall be wound up in the same manner and in the same incidents as if the Companies (Second Amendment) Act. before the commencement of the Companies (Second Amendment) Act. the security of the State. when opposing any winding up petition. public order. 2002. Now professionals like CA. before any District Court or High Court. . So far only the Government employees can be appointed as the Official Liquidator. CS & ICWA or a body corporate of professionals can also be appointed. 23. Views of the creditors and workmen will be taken into consideration before appointing the Official Liquidator. money and energy. The said statement is very elaborate and if any creditor files any frivolous petition the Company has to incur a lot of time. if the Tribunal is of the opinion that the Company should be wound up under the circumstances specified in section 424G The Tribunal shall make an order for winding up of a Company under clause (h) on an application made by the Central Government or a State Government. 1949 shall be transferred to the Tribunal from the date to be notified by the Central Government in the Official Gazette and the Tribunal may proceed with the matter either de novo or from the stage it was so transferred. had not been passed. Practicing CA. Clauses 7. SOME DISTINCTIVE FEATURES OF WINDING UP PRECEDURE UNDER NCLT AND BY HIGH COURT 1. A new Section 647A has been inserted which provides that all proceedings pending before the commencement of the Companies (Second Amendment) Act 2002. if the Company has acted against the interests of the sovereignty and integrity of India. 5. 9. Section 439A(2) ordains that the Statement of Affairs is required to be filed by the Company at the beginning itself. 8. 1938 or any other law other than the Banking Regulation Act. CS & ICWA can appear before the Tribunal on behalf of the creditor.P a g e | 235 7. under this Act or the Insurance Act. friendly relations with foreign States. 3. decency or mortality. 2002.

However. execution against property of company or winding up proceedings.P a g e | 236 contributory or Official Liquidator. This section provided protection to sick industrial company against suit for recovery of money. There are some major deviations from provisions of SICA and provisions as are now incorporated in Companies Act. Till then the existing rules framed by the Supreme Court will apply. subject to one exception. Major changes are as follows :— Section 22(1) of SICA provided for suspension of legal proceedings when enquiry was pending or scheme was under preparation or implementation or where appeal with AAIFR was pending. 2002. Powers of BIFR [Board of Industrial and Financial Reconstruction] shall be exercised by NCLT (National Company Law Tribunal) and appeal against order of NCLT will be before National Company Law Appellate Tribunal [NCLAT] instead of Appellate Authority for Industrial and Financial Reconstruction [AAIFR]. In sum and substance the effectiveness of the NCLT & NCLAT would depend in the first place upon the intention of those in the Government who would be entrusted with the constitution of the Bench and appointment of its Members 24. winding up proceedings may be kept pending as these are with the same Tribunal. . This protection has not been provided under Companies Act. recovery proceedings and suits against sick company can continue even if the matter is pending with NCLT for revival and rehabilitation of sick industrial company. New rules regarding winding up are yet to be framed by the Central Government. Hence. SICA VS COMPANIES SECOND AMENDMENT ACT 2002 Comparison Between Sick Industrial Companies (Special provisions) Act And Provisions In Companies Act Provisions in respect of revival and rehabilitation of sick industrial company are now merged in Companies Act vide Companies (Second Amendment) Act. as to reference to the High Court will be construed as a reference to the NCLT.

The company has to submit a scheme while making reference to Tribunal (NCLT). before the scheme is approved by the NCLT and grant is received if a creditor files a suit against the Company and takes away the property/ assets of the Company. section 3(aa) has been mentioned in the definition. 2002 and therefore. A cess will be payable by all companies which will be used towards ‗Rehabilitation and Revival Fund‘ to be used for sick industrial companies. Definition of ‗industrial company‘ as incorporated in Companies Act is faulty. This does not seem to be and indeed cannot be the intention. execution against property of the Company or Winding Up proceedings but this provision of SICA was greatly misused by many of the Companies. SICA provided for a moratorium period of five years for a newly setup Company and as such no reference was required to be made to BIFR in the first five years of the registration of the Company. In absence of such overriding powers.P a g e | 237 SICA provisions were overriding provisions. Burden of preparing scheme for revival of sick company is cast on the company itself. only ancillary undertakings as defined under IDRA will be covered under new provisions of Companies Act. They need to make reference only if Central/State Government gives specific approval. except FEMA and Urban Land Ceiling Act. This protection has not been provided in The Companies (Second Amendment) Act. The provisions of SICA prevailed over all other laws. Instead of section 3(d) of IDRA. . because. The application should be submitted along with certificate by auditor from approved panel. NCLT may be handicapped while passing orders for rehabilitation of a sick industrial company. Government companies are out of the provisions for making reference. what is left to be revived. by strict interpretation. The fund will be at disposal of Tribunal. Section 22(1) of SICA provided for suspension of alL legal proceedings when a Company filed its case in BIFR and the enquiry was pending or the scheme was under preparation or implementation with the BIFR or an appeal was pending with the AAIFR and as such the Sick Industrial Company was protected against any suit for recovery of money. pending the proceedings for Revival and\ Rehabilitation of a Sick Industrial Company before the NCLT the Creditors of the Sick Industrial Company may file a suit for recovery of debts. Thus. This provision will create hardship to Companies genuinely interested in revival. This moratorium has been withdrawn by the Amendment Act and now the Company may become sick even in the sec ond or the third year of its registration itself. as per section 32(1) of SICA.

1% of its gross receipts or turnover to the Central Government towards the rehabilitation and revival fund to be used for rehabilitation and revival of sick companies. were not there. which was earlier on the BIFR. The Definition of a Sick Industrial Company has been tightened. companies were not deducting preliminary expenses or development expenses while calculating its net worth. after deducting the provisions or expenses as may be prescribed.005% to 0. Now all companies have to pay cess @ 0. The Application for reference to the NCLT by a company should be accompanied with a Certificate by the Auditor from the approved panel as to the reasons for erosion in the net worth of the Company or default in repayment of debt by the company. and as such. Winding Up proceedings by any Creditor have been kept pending as the jurisdiction over the same is of that of the NCLT. The Net worth has now been defined to mean the sum total of the paid up capital and free reserves. As per Section 32(1) of SICA the provisions of SICA prevailed over all other laws except FEMA and Urban Land Ceiling Act. In the absence of such overriding powers even if the scheme of revival is approved by the NCLT formalities and procedures as required under the Companies Act and other laws will be required to be completed.1 Lakh in the case of a winding up. The definition of an Industrial Company seems to be faulty because by strict interpretation it covers only an ancillary undertaking. Previously no cess was payable. Now the burden of preparing the scheme for revival of a sick company is on the Company itself. .500 to Rs. which indeed cannot be the correct intention of the lawmakers. The quantum of dues unpaid has been increased from Rs.P a g e | 238 However. A Company having accumulated losses in any financial year equal to 50% or more of its average net worth during four years immediately preceding such financial year and which has failed to pay its creditors for 3 consecutive quarters will be a Sick Industrial Company. This may be termed as ―robbing Paul to pay Peter‖. The Companies Act did not define the net worth and as per Section 3(1)(ga) of SICA which defined the net worth the words ‗after deducting provisions and expenses as may be prescribed. Previously.

making a reference has been practically de-linked from finalisation of accounts. However. chances of success in challenge to constitutional validity of provisions seem very remote. Definitions relating to formation of BIFR and AAIFR and hence not relevant now 3(1)(a) to (c) and (g) 3(1)(d) 3(1)(i) Definition of ‗Company‘ . Moreover. only Ancillary Undertakings are covered. As per strict interpretation.No change Definition of ‗Industrial Undertaking‘ as incorporated in Companies Act is faulty. Definition of Industrial Company . COMPARISION BETWEEN PROVISIONS OF SICA AND PROVISIONS AS INCORPORATED IN COMPANIES ACT GIVEN IN FOLLOWING TABLE Section no of Section no of SICA Companies Act Remarks 2 Declaration that the SICA is to give effect to policy towards securing principles specified in Articles 39(b) and 39(c) of Constitution.P a g e | 239 25. 3(1)(da) - 3(1)(e) 2(19AA) 3(1)(f) 2(19AB) . This was made to avoid possible challenge to constitutional validity of SICA. as the words are incorporated in the relevant section itself. There is no similar declaration under new provisions. This appears to be a drafting mistake.Practically same definition Definition of ‗date of finalisation of duly audited accounts‘ omitted.

. provisions which were required were often not made while finalizing accounts. Practically. which was required earlier (2) Accumulated losses exceeding 50% of average net worth during last four years is sufficient to classify a company as sick (3) Alternative criteria of ‗failing to repay its debts within any three consecutive quarters to creditor/s‘ has been added. (4) Any one of the criteria. i. 3(1)(h) - 3(1)(i) 2(31AA) 3(1)(l) to (n) - Definitions of Reserve Bank.Omissions not significant. no change as omission of providing ‗any other institution as State level institution‘ does not anyway alter the position. as definitions are covered elsewhere Definition of ‗sick industrial company‘ considerably modified. Definition of ‗Notification‘ .P a g e | 240 3(1)(ga) 2(29A) Definition of ‗Net Worth‘ in SICA retained but the words ‗after deducting provisions or expenses as may be prescribed‘ have been added. either (2) or (3) above is sufficient to classify an industrial company as sick. . Scheduled Bank and Scheduled Industry Omitted . Similarly. Now this loophole has been (hopefully) plugged. Constitution of BIFR and Appellate Authority Now not relevant as NCLT and NCLAT will be the prescribed authority 3(1)(o) 2(46AA) 3(1)(p) 2(46AB) 4 to 14 - .(1) Requirement of 5 years existence is not required. This is because companies were not deducting preliminary expenses or development expenses while calculating ‗Net Worth‘ and these were shown as ‗Assets‘. Definition of ‗State Level Institution‘ All SFCs and SIDCs covered.e.Omitted as not relevant Definition of ‗Operating Agency‘ widened to include ‗any group of experts consisting of persons having special knowledge of business or industry in which the sick industrial company is engaged‘.

Public Financial Institution or Scheduled Bank can also make reference continues . Earlier. whichever is earlier.P a g e | 241 15(1) 424A(1) and424A(4) Reference to NCLT shall be accompanied by scheme for revival and rehabilitation by the company itself. Reference to be made within 180 days after Board came to know that it is sick or within 60 days after final adoption of accounts. under section 16(1) of SICA. adoption or even preparation of accounts is not the basic criteria. even before making enquiry. Provision that Central/State Government. Tribunal can ask Operating Agency to enquire into scheme of revival submitted by company and make a report. This is similar to admission of petition. 2002. [Such specific order was not required earlier]. [Earlier. Reference is required to be made even if Financial Institutions/Banks have taken over assets under Securitisation and Reconstruction of Financial Assets & Enforcement & Security Act. such order could be passed only after making enquiry. Certificate from auditor in panel giving reasons why company has become sick. Tribunal to make Enquiry if the company is sick.No change Board to decide whether the company has become sick. Thus. Reference may be rejected at that stage itself. the company was not required to submit any scheme and hence Operating Agency only had to submit report on matters as may be specified by BIFR]. Tribunal has to pass specific order under section 424A(5) that the company has become sick. Application to be accompanied by certificate from auditor giving reasons why it has become sick. - 424A(2) 15(2) 424A(3) - 424A(5) 16(1) 424B(1) 16(2) 424B(2) . Government Companies need not make any reference unless approved by Central/State Government. This is a new provision.

It is specifically provided that regard shall be had to guidelines of RBI while preparing scheme. Appointment of special directors by Tribunal . except that the words ‗make repayment of loan‘ have been inserted.P a g e | 242 16(3) 424B(4) Earlier. No change. in view of change in definition of ‗sick industrial company‘. Now.No change Special director not to retire by rotation. Operating Agency should prepare scheme for revival/rehabilitation normally within 60 days. extendable upto 90 days by Tribunal for reasons to be recorded. No change except that earlier 90 days were provided to prepare a scheme.This is a new provision Tribunal can issue directions to special director No change Validity of appointment of Special Director notwithstanding anything to contrary in other provisions . . if Tribunal decides that preparation of scheme of revival is necessary. it may order operating agency to prepare a scheme. provision was that Board (BIFR) shall endeavour to pass final orders within 60 days from commencement of enquiry. not to be liable for prosecution etc. extendable upto 40 days by Tribunal [see section 424B(3)].No change in provision Special director to submit report to Tribunal within 60 days. Tribunal can give time to company to revive itself. the provision is that operating agency.No change to Powers of Tribunal to make suitable orders on completion of enquiry. 16(4) 424B(5) - 424B(6) 16(4A) 424B(7) 16(5) 424B(8) 16(6) 424B(9) 17(1) 17(4) to 424C(1) 424C(4) 18(1) 424D(1) . The Tribunal shall conclude enquiry within 60 days from commencement of enquiry. The order can be reviewed by Tribunal. Alternatively. extendable to 90 days. He will have powers of director of company . shall submit its report within 21 days.

[presumably for inspection . (b) Draft scheme should be kept at registered office. Hence.P a g e | 243 18(2) 424D(2) What revival scheme can provide .Almost verbatim reproduction of clauses (a) to (m) as contained in SICA . Scheme may be sanctioned within 60 days from the date of advertisement/circulation. except that it is specifically mentioned that operating agency. extendable to 90 days.No change [SICA had overriding powers over other laws. [Earlier word used was ‗shall‘ and hence publication of advertisement was compulsory]. Fresh scheme also to be circulated/advertised and then sanctioned . Earlier there was no time limit and the word was ‗shall‘ instead of ‗may‘.New provision 18(3) 424D(3) 18(4) 424D(4) 18(5) 424D(5) 18(6) 424D(6) 18(6A) 424D(7) 18(7) 424D(8) - 424D(9) . There are no similar provisions in Companies Act.No change The draft scheme as approved by Tribunal to be circulated.No change Property/liability transfer as specified in scheme becomes effective on the date when scheme becomes effective . [Similar provision are made in section 424D(1) under which the original scheme is prepared]. Following changes are made .same provision .though these words are not used]. while preparing fresh scheme.(a) Brief particulars of draft scheme may be published. validity of this provision seems doubtful] Sanction of scheme by Tribunal is conclusive evidence . shall have regard to guidelines framed by RBI in this behalf. which could be interpreted to mean that the scheme must be sanctioned by BIFR.no change.No change Copy of sanctioned scheme to be filed with Registrar . Tribunal can review the sanctioned scheme .

New provision Scheme sanctioned will be binding on creditors and all concerned .New provision . Tribunal can pass orders to remove difficulties in implementing scheme . if 75% of creditors agree .P a g e | 244 18(8) 424D(10) Scheme binding on company and others .No change Scheme for rehabilitation by financial assistance/sacrifices to be circulated and their consent/rejection to be given within 60 days extendable by further 60 days .New provision Provisions in respect of preparation and sanction of scheme will apply to scheme prepared by creditors also . as similar provision is already there in section 424D(10).but there seems to be duplication.No change - 424D(11) - 424D(12) 424D(13) 18(9) 424D(14) 18(10) 424D(15) 18(11) 424D(16) Tribunal can distribute sale proceeds as per provisions of section 529A .No change Rehabilitation by giving financial assistance and sacrifices by various agencies .No change Tribunal can monitor the implementation of the sanctioned scheme .No change Scheme if sanctioned is binding on all .No change Tribunal can direct an operating agency to implement the scheme .No change Creditors can also prepare scheme and submit to Tribunal.No change Lead FI and Bank will be responsible to disburse Financial Assistance on behalf of other FIs/Banks No change 18(12) 424D(17) 19(1) 424E(1) 19(2) 424E(2) 19(3) 19(3A) 424E(3) 424E(4) .

under SICA. This power was with BIFR under SICA Winding up should be completed within one year from order of winding up . if consent to distribute financial assistance or making sacrifices is not given by any person . 19(4) 424E(6) 19A 424F 20(1) 424G(1) 20(2) - 20(3) 424G(2) 20(4) 424G(3) - 424G(4) 21 424H 22 - . Preparation of inventory. Now.P a g e | 245 19(3B) 424E(5) Lead FI and Bank will disburse Financial Assistance on behalf of other FIs/Banks . Tribunal can sell assets of the sick company and distribute proceeds in accordance with provisions of section 529A. during the enquiry and implementation of scheme. There is no parallel provision in new law. BIFR could only record its opinion and forward it to High Court.No change Tribunal can order winding up. Provision in SICA was that High Court shall order winding up on receipt of recommendation from BIFR. Tribunal can appoint any officer of Operating Agency as Liquidator. the Tribunal can itself order winding up. recovery proceedings and winding up petitions. this power was with High Court. Now this provision has become redundant.No change Section 22 of SICA provided complete immunity from legal suits.This is a new provision. Earlier.No change Bank/FI/Government/company can apply to Tribunal any time during enquiry.No change Tribunal may order winding up or adopt other measures. list of creditors and valuation. Earlier. accounts . if it is of the opinion that sick company is not likely to revive. agreeing for arrangement to continue operations or suggesting scheme for assistance or making sacrifices .

Now there is no such provision. Now there is no such provision. and to collect from and furnish information to various authorities. appeal will be to NCLAT.No change.No change Protection of action taken in good faith .No change. Now. Tribunal can call for periodic information from company as to steps being taken by it for revival . employee or person appointed to manage industrial company . Now. officer. Delegation of powers by Tribunal to its member. manager or employees . 635A - 31 Saving of proceedings which were pending before High Court when SICA was passed.P a g e | 246 22A 424-I Tribunal can direct company not to dispose of assets without prior approval .No change SICA made provisions for ‗potentially sick industrial company‘. there is no such provision. Board (BIFR) was required to furnish information and return to State/Central Government. Power to seek assistance from Chief Metropolitan Magistrate or District Magistrate to take possession of property . .No change 26 27 10GB 10FO 28 - 29 10FP 30 10FZ.No change 23 & 23A - 23B 424J 24 424K 25 - SICA provided appeal to AAIFR against order of BIFR. Jurisdiction of Civil Court is barred .No change Misfeasance proceedings against directors.

10 lakhs. The lack of institutional framework for sale of assets of the sick unit delays the process. however. thereby diminishing the realization value of the asset. 10 lakhs is specified.(a) Words ‗tampering records of reference or appeal‘ are specifically added (b) Limit of fine upto Rs. making false statement or giving false evidence or attempt to tamper records of reference or appeal. Thus. no thought seems to have been given to curb the past practice of the sick units getting their assets bought back by kith and kin violating arms-length transaction. Now.(after the adoption of the New Economic Policy in 1991).No change 36 642 The above analysis indicates that the new Act has made an attempt to remove the bottlenecks and curb the practice of turning an operationally fit company into a sick unit. undermine Government‘s responsibility to institute proper administrative measures to dissuade deliberate efforts from delaying the regulatory mechanism In the new atmosphere of liberization and openness that has emerged during the last decade. for violation of orders of Tribunal. there is no such provision.there is a clear preference in favour of .P a g e | 247 32 - Overriding provisions to SICA over all laws except FERA and Urban Law Ceiling Act. there is no such overriding provision. wherein. provisions of various laws will have to be complied with to make the sanctioned scheme effective. The need of the time is ―turn arounders‖. Now. This does not. However. The Government deserves a pat for creating an effective legal framework. Power to make rules to Central Government . specialised firms that exclusively work for the revival & rehabilitation of sick\ potentially sick units. Offences by companies . Moreover. Only following changes have been made . the banks\ financial institutions will now not hesitate to provide capital assistance to industrial undertakings. Penalty of imprisonment upto 3 years or fine upto Rs. the absence of well-developed secondary markets in India raises considerable doubt regarding the effective enforcement of recovery proceedings.No parallel provision now 33 424L 34 - 35 - Power to remove difficulties for first three years was given to Central Government under SICA.

Under SICA. The tribunal can accept or reject the reference at that stage itself. 2. when an industrial company falls sick.424G(1) states that the winding up of a company shall.P a g e | 248 liquidation of sick industrial companies rather than rehabilitation. NCLT will be the single forum for company replacing the existing three forums(presently dispute resolution and compliance with certain provisions of the Companies Act. such order could be passed only after making enquiry. on prime facie basis. the Board of Directors of the company is required to make reference to NCLT and submit a scheme of revival reference to NCLT and submit a scheme of revival and rehabilitation. Either. Either of these criteria is sufficient to classify a company as sick. the company was required to submit a scheme for revival. revival and rehabilitation of sick companies by BIFR and winding up of the companies by High Courts) 5. There were delays in finalizing the winding up.it will be classified as sick. 3. 1956. as far as possible .is looked after by Company Law Board . Sec. Under SICA . After receiving reference under section 424(1). the definition of a sick industrial company has been changed and provision has been made for setting up of a National Company Law Tribunal in place of BIFR. . BIFR could only recommended the winding up of the company whereas NCLT can directly ‗order‘ winding up. was the responsibility of bank/financial institution to nurse the ‗sick baby‘. be concluded within one year for the date of winding up order. 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 latter .. the process of winding up of a sick industrial company could extend over years together as the powers of winding up were with the High Court. Accordingly. assisted by Official Liquidator. 4.Under section 424A(1) of the amendment Act. Moreover.the Tribunal may pass an order as to whether 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. The entire focus of NCLT is expected to be on speeding up the process of liquidation of sick company rather than rehabilitation. The definition of sick industrial company has been changed. under Section 15(1) of SICA. laws are being modified to make this easier. Now the work of winding up is transferred to NCLT. under Section 16(1) of SICA. Some important changes in the new Act are as follow: 1. In line with this effort .

restructuring.    Seeks to provide effective mechanism along with SARFAESI However.P a g e | 249 26. 27. rehabilitation of companies and various other issues which a corporate would face and also to expeditiously dispose of the same. A CRITIQUE Objectives are well founded –  To provide an orderly exit mechanism for failed enterprises. proper and efficient mechanism to tackle the disputes. falls short of expediting and simplifying insolvency procedures   Need to introduce moratorium / stand still provisions for seeking alternate solutions Companies only . Handling a company dispute is a complicated matter and . ending unproductive uses of business Assets and transferring them to more efficient market participants. CONCLUSION With the ever increasing corporate growth in the recent past in India coupled with various technological and rapid economic growth. the need of the hour is to have a good.comprehensive bankruptcy/insolvency code required   Fails to provide framework for cross-border insolvencies Need for an effective out-of-court restructuring mechanism  Although enacted. yet to be implemented. amalgamations. revival. mergers.

After the implementation of the NCLT. It may not be out of place to mention that the CLB has also been discharging its complicated responsibilities under the provisions of prevention of oppression and mismanagement and application for relief in case of mismanagement under section 397/398 of the Companies Act.. etc. which to a greater extent performed their part in a well-defined manner with slight minor exceptions.P a g e | 250 requires lot of attention. seeking sanction of the High Court for compromises. The Government needs to provide speedy and effective remedy to the corporate since corporate cannot wait for long to get their disputes/schemes sanctioned. viz. caution. arrangements. BIFR and the High Courts. would discharge their functions in future. mergers. So far. There are no shortcomings in the present system of the High Courts which discharge its functions like entertaining winding up petitions. the functions are handled by the CLB. . 1956 and various other provisions. it is to be seen how the new proposed Tribunals. specilization and we require experts to handle these cases. demergers and for sanctioning scheme of amalgamations. NCLT and NCLAT.

WINDING UP OF SICK INDUSTRIAL COMPANY (SEC-424G) 9. CREDITING PROCEEDS OF CESS TO CONSOLIDATED FUND OF INDIA (441B). REHABILITATION PROGRAMME 23. COMMENCEMENT OF WINDING UP BY TRIBUNAL (SEC-441) 12. . SICKNESS IN LARGE & MEDIUM SECTORS 26. PENALTY FOR CERTAIN OFFENCES (SEC-424L) 11. SANCTION AND FILING UP OF SANCTIONED SCHEME 6. DIRECT FINANCIAL ASSISTANCE FOR THE DEVELOPMENT OF INDUSTRIAL INFRASTRUCTURE FOR SSIs. 16. REHABILITATION BY GIVING FINANCIAL ASSISTANCE (SEC 424 E) 10. APPLICATION OF FUND (441D). PROCEDURE FOR SANCTION OF THE SCHEME 7. PUBLICATION OF SCHEME BY TRIBUNAL 4. 15. 19. PENALTY FOR NON PAYMENT OF CESS (441F). FORWARDING OF REHABILITATION SCHEME BY TRIBUNAL 3. CASE STUDY(3) 8. RECOMMENDATIONS OF THE JJ IRANI COMMITTEE ON COMPANY LAW (2005) 22. 18. FINANCIAL ASSISTANCE TO IT AND RESTRUCTURING OF INDUSTRIAL SECTOR SYNOPSYS: 1.P a g e | 251 CHAPTER V REVIVAL SCHEME AND REHABILITATION OF SICK INDUSTRIAL UNITS. 14. MODIFICATION IN THE DRAFT SCHEME 5. INDUSTRIAL SICKNESS IN SSIs 25. RBI RELEASES REPORT OF WORKING GROUP ON REHABILITATION OF SICK SMEs(SMALL AND MEDIUM ENTERPRISES) 27. SIRP 24. POWER TO CALL FOR INFORMATION (441E). REFUND OF FUND IN CERTAIN CASES (441G). 17. REVIVAL OF SICK UNITS 20. PREPARATION AND SANCTION OF SCHEME FOR REVIVAL (SEC--424 D) 2. LEVY AND COLLECTION OF CESS ON TURNOVER OR GROSS RECEIPTS OF COMPANIES (SEC 441A) 13. COMPANIES BILL. 2009 21. LENDING (FINANCING SCHEMES OF SIDBI) A. REHABILITATION AND REVIVAL FUND (441C).

CPSUs i. BENGAL IMMUNITY LTD. RESTRUCTURING INDUSTRIAL SECTOR 34. Private i. SECTOR APPRAISAL 29. BENGAL SALTS COMPANY 35. INDIA FOILS LTD vi. B. IISCO BURNPUR WORKS ii. NEED OF REVIVAL OF REHABILITATION PROGRAMME 33. ASSISTANCE BY SIDBI TO SSI'S 31. CENTURY EXTRUSIONS iv. SOME SUCCESSFUL CASES OF REVIVAL A. JESSOP & COMPANY C. JV Company i. EMC iii. BENGAL CHEMICALS &PHARMACEUTICALS iii. IS REHABILITATION THE ANSWER? . SSIs AND FIVE YEAR PLANS 32. (NOW SAREGAMA) v.P a g e | 252 B. BANK CREDIT TO SMALL SCALE SECTOR 30. a) b) c) INDIRECT FINANCE BY SIDBI REFINANCE ASSISTANCE SCHEME FOR REDISCOUNTING OF BILLS OTHER SUPPORT THROUGH VARIOUS INSTITUTIONS 28. GRAMAPHONE COMPANY OF INDIA LTD. CALCUTTA CHEMICALS ii.

Any other preventive ameliorative or remedial measures as may be appropriate. or if the BIFR decides that the company can not make its net worth positive within a reasonable time. the BIFR may grant time to the sick company to enable it to make its net worth positive and bring the company out of sickness.  Rationalization of managerial personnel . Incidental or consequential or supplemental measures as may be necessary or expedient in connection with or for the purpose of the measures specified in clauses (a) to (g).P a g e | 253 1. Sale or lease of a part or whole of any industrial undertaking of such industrial company.the management of the sick industrial company. then the operating agency is required to prepare and submit a schedule in respect of the referred company by providing any or more of the following measures. The proper management of the sick industrial company by change in. PREPARATION AND SANCTION OF SCHEME FOR REVIVAL (SEC--424 D) Once a company has been found sick.    Repayment of debt. If it is found infeasible for company to make its networth positive without any external financial assistance.   Financial Reconstruction of the sick industrial company. without any external financial assistance.supervisory staff and workmen in accordance with law. or takeover of. The Tribunal may extend the period of 60 day to 90 days for reasons to be recorded in writing for such extension [sec 424D (1)]. .   Amalgamation with another company or vice-versa. The scheme referred to in sub-section (1) may provide for any one or more of the following. then the Board appoints an operating agency under section 17(3) of the Act.

(b) the transfer to the transferee company of the business. (d) the alteration of the memorandum or articles of association of the sick industrial company or. the payment of cash to those shareholders in full satisfaction of their claims— (i) in respect of their interest in shares in the sick industrial company before its reconstruction or . as the case may be. the transferee company of any action or other legal proceeding pending against the sick industrial company immediately before the date of the order made under sub-section (3) of section 424C. (f) the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Tribunal considers necessary in the interests of the reconstruction. in the transferee company and where any shareholder claims payment in cash and not allotment of shares. properties. of shares in such company or. assets. the capital. such change or appointment shall made and in the case of appointment of a new Board of directors or of any director. name and registered office. (e) the continuation by or against the sick industrial company or. of the sick industrial company and authority by whom. authorities and privileges. as the case may be. or the appointment of a new Board of directors. of the transferee company. or where it is not possible to allot shares to any shareholder. or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation. (g) the allotment to the shareholders of the sick industrial company. of the transferee company for the purpose of altering the capital structure thereof. (c) any change in the Board of directors.P a g e | 254 namely:— (a) the constitution. duties and obligations of the sick industrial company or. assets and liabilities of the sick industrial company on such terms and conditions as may be specified in the scheme. revival or rehabilitation or repayment of debt of such the sick industrial company or for the maintenance of the business of such industrial company. powers. interests. the period for which such appointment shall be made. as the case may be. rights. as the case may be. the manner in which and the other terms and conditions on which.

(i) sale of the industrial undertaking of the sick industrial company free from all encumbrances and all liabilities of the company or other such encumbrances and liabilities as may be specified.P a g e | 255 amalgamation. to any person. (h) any other terms and conditions for the reconstruction or amalgamation of the sick industrial company. or (ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced. including a co-operative society formed by the employees of such undertaking and fixing of reserve price for such sale. (j) lease of the industrial undertaking of the sick industrial company to any person. (k) method of sale of assets of the industrial undertaking of the sick industrial company such as by public auction or by inviting tenders or in any other manner as may be specified and for the manner of publicity therefor. . including a cooperative society formed by the employees of such undertaking. consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation or other measures mentioned in the scheme are fully and effectively carried out. (m) such incidental. (l) issue of the shares in the sick industrial company at the face value or at the intrinsic value which may be at discount value or such other value as may be specified to any industrial company or any person including the executives and employees of such sick industrial company.

MODIFICATION IN THE DRAFT SCHEME The tribunal may make such modifications. also to any other company concerned. 3. if any. in the draft scheme as it mayconsider necessary in the light of the suggestions and objections received from thesick industrial company and the operating agency and also from Transferee Companyand any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies.P a g e | 256 2. PUBLICATION OF SCHEME BY TRIBUNAL The BIFR shall publish or cause to be published particulars of draft scheme so prepared in periodicals and news papers for inviting suggestions and objections within a stipulated period from the following categories of person.The complete draft scheme shall be kept at the place where registered office of thecompany is situated or at the places as mentioned in the advertisement. 4. . FORWARDING OF REHABILITATION SCHEME BY TRIBUNAL The tribunal shall examine the scheme prepared by the operating agency and send a draftcopy of the scheme with modifications. if any. made by it to the sick industrial companyand the operating agency in case of amalgamation.:---shareholders--creditors-.Employees of sick industrial company. or also from Transferee Company in case of amalgamation.

to the sick industrial company and the operating agency and in the case of amalgamation. by a special resolution passed by the shareholders of the transferee company.A copy of sanctioned scheme shall be filed with the registrar within the prescribed time by the company in respect of which scheme relates 6. sanctionthe scheme. by an order in writing. . the said scheme shall be laid before the company other than the sick industrial company in the general meeting for the approval of the scheme by its shareholders and no such scheme shall be proceeded with unless it has been approved. in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the sick industrial company and the operating agency and also from the transferee company and any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies: Provided that where the scheme relates to amalgamation. if any. with or without modification. (b) The complete draft scheme shall be kept at the place where registered office of the company is situated or at such places as mentioned in the advertisement. within such period as the Tribunal may specify. also to any other company concerned.P a g e | 257 5. if any. in draft. PROCEDURE FOR SANCTION OF THE SCHEME (a) The scheme prepared by the operating agency shall be examined by the Tribunal and a copy of the scheme with modification. and the Tribunal may publish or cause to be published the draft scheme in brief in such daily newspapers as the Tribunal may consider necessary. for suggestions and objections. (c) The Tribunal may make such modifications. SANCTION AND FILING UP OF SANCTIONED SCHEME The board after receipt of suggestions/objections shall consider the same in case of Amalgamations‘ BIFR shall proceed ahead once the company has placed the schemeBefore general meeting of shareholders and they have approved the same with or withoutany modifications. They shall after these formalities. made by the Tribunal shall be sent. if any.

then. the provisions of sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under subsection (1). the scheme. or any other measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the Tribunal to be a true copy thereof. . and to the extent provided in. the sick industrial company. (6) When a fresh scheme is prepared under sub-section (5). having regard to such guidelines including the guidelines framed by the Reserve Bank of India in this behalf in order to prepare a fresh scheme providing for such measures as the operating agency may consider necessary. and vest in. (5) The Tribunal may. such other company or person or. as the case may be. and the liability shall become the liability of.P a g e | 258 (4) The scheme may thereafter be sanctioned. shall. (8) The sanction accorded by the Tribunal under sub-section (4) shall be conclusive evidence that all the requirements of this scheme relating to the reconstruction or amalgamation. by virtue of. within sixty days by the Tribunal (hereinafter referred to as the sanctioned scheme) and shall come into force on such date as the Tribunal may specify in this behalf: Provided that the Tribunal may extend the said period of sixty days to ninety days for reasons to be recorded in writing for such extension: Provided further that different dates may be specified for different provisions of the scheme. (7) Where a sanctioned scheme provides for the transfer of any property or liability of the sick industrial company in favour of any other company or person or where such scheme provides for the transfer of any property or liability of any other company or person in favour of the sick industrial company. be admitted as evidence. on and from the date of coming into operation of the sanctioned scheme or any provision thereof. on the recommendations of the operating agency or otherwise. the property shall be transferred to. in all legal proceedings (whether in appeal or otherwise). review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order.

. not inconsistent with such provisions. (16) Where the whole of the undertaking of the sick industrial company is sold under a sanctioned scheme. the Tribunal may. the Tribunal may distribute the sale proceeds to the parties entitled thereto in accordance with the provisions of section 529A and other provisions of this Act. (13) The scheme referred to in sub-section (11) if sanctioned by the Tribunal shall be binding on all the creditors and on other concerned. creditors and guarantors and employees of the said companies. apply to the scheme referred to in subsection (11). the other company and also on the shareholders. on the recommendation of the operating agency or otherwise.P a g e | 259 (9) A copy of the sanctioned scheme referred to in sub-section (8) shall be filed with the Registrar within the prescribed time by the company in respect of which such scheme relates. do anything. (10) On and from the date of the coming into operation of the sanctioned scheme or any provision thereof. direct any operating agency specified in the order to implement a sanctioned scheme with such terms and conditions and in relation to the sick industrial company as may be specified in the order. (12) All the provisions relating to the preparation of scheme by the operating agency and sanction of such scheme by the Tribunal shall. as far as may be. by order in writing. (11) The creditors of a sick industrial company may also prepare a scheme for revival or rehabilitation of such sick industrial company and submit the same to the Tribunal for its sanction: Provided that no scheme shall be submitted by the creditors to the Tribunal unless such scheme has been approved by at least three-fourth in value of creditors of the sick industrial company. (15) The Tribunal may. which appears to it to be necessary or expedient for the purpose of removing the difficulty. by order. the scheme or such provision shall be binding on the sick industrial company and the transferee company or. (14) If any difficulty arises in giving effect to the provisions of the sanctioned scheme. if it deems necessary or expedient so to do. as the case may be.

JJ [Decided on 7-7-2009] Sick Industrial Companies (Special Provisions) Act. SEBI [2010] 155 COMP CAS 201(MAD)] Sivagnanam T.P a g e | 260 (17) The Tribunal may monitor periodically the implementation of the sanctioned scheme. 7. v. . 1985 – Section 19(2) – rehabilitation scheme – Consent not given within period of sixty days from of circulation of scheme – Written request for extension of time also not – Whether deemed consent to be inferred – Held.2 SHREE KARTHIK PAPERS LTD. No. CASE STUDY-. S. Draft date given Yes. J [Decided on 25-2-2010] Sick Industrial Companies (Special Provisions) Act. 1985 – Section 18 – Scheme of rehabilitation-BIFR issuing direction under rehabilitation scheme to stock exchanges and exempting company from various statutory provisions and SEBI guidelines for reducing equity capital and listing of reduced shares – Whether such directions are valid.Held. Lokur & Pathak A. CASE STUDY CASE STUDY –1 DAMODAR VALLEY CORPORATION v. K. AAIFR [2010] 156 COMP CAS 137 (DEL) Madan B.

if the operating agency gives its consent. No. 8. after making inquiry under section 424B and after consideration of all the relevant facts and circumstances and after giving an opportunity sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable i of being heard to all concerned parties. WINDING UP OF SICK INDUSTRIAL COMPANY (SEC-424G) (1) Where the Tribunal. and 22 – Scheme for rehabilitation Financial concession by secured creditors –Objection by minority creditor to scheme – Whether minority creditors can frustrate revival and rehabilitation of sick industrial company Held. O. a d other provisions of this Act. the Tribunal may appoint any officer of the operating agency.P a g e | 261 CASE STUDY -. .3 OMAN INTERNATIONAL BANK S. as the liquidator of such industrial company and the officer so appointed shall for the purpose of the winding up of such sick industrial company. the Tribunal may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and pass orders for distribution in accordance with the provisions of section 529A. the official liquidator under this Act. it may record its findings and order winding up of the company.5-2010] Sick Industrial Companies (Special Provisions) Act. and have all the powers of. v. (3) Notwithstanding anything contained in sub. is o the opinion that the future and that it is just and equitable that the company should be wound up.section (2). G. Mehta JJ [Decided on 5. 19. 1985 – Sections 18. be deemed to be. (2) For the purpose of winding up of the sick industrial company. AAIFR [2010] 157 COMP CAS 149(DEL) Sanjay Kishan Kaul & Valmiki J. A.

as may be allowed by the Tribunal. not xceeding sixty days.section (2) is given by every person required by the scheme to provide financial assistance. shall designate by mutual agreement a financial institution . sanction the scheme and on and from the date of such sanct on the scheme shall be binding on all concerned. the Tribunal may. (4) On the sanction of the scheme under sub. as far as may be. and if no consent is received within such period or further period.section (3). it shall be deemed that consent has been given. as soon as may be. institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. remedial and other measures with respect to the sick industrial company. advan es or nk. 9. lease of assets or any other suitable measure. ameliorative. The revival package may vary from case to case depending on the nature of the problem and may include additional financial assistance. a public financial institution or State level institution or any institution or other authority (any Government.section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period. The revival package should be submitted to the BIFR within a time limit of 90 days or such extended period as may be granted by the BIFR.P a g e | 262 (4) Without prejudice to the other provisions contained in this Act. conclude within one year from the date of the order made under subsection (1). (2) Every scheme referred to in sub. REHABILITATION BY GIVING FINANCIAL ASSISTANCE (SEC 424 E) (1) Where the scheme relates to preventive. postponement of recovery of loan already lent by banks and financial institutions. b provide for financial assistance by way of loans. any scheduled bank or other bank. the winding up of a company shall. change in management. amalgamation. the scheme may guarantees or reliefs or concessions or sacrifices from the Central Government. sale of redundant assets. the financial institutions and the banks required to provide financial assistance. (3) Where in respect of any scheme the consent referred to in sub. a State Government.

.section (4) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard. (2) No court shall take cognizance of any offence under sub. (5) The financial institution and the bank designated under sub. or any order. the Tribunal may adopt such other measures. On submission of the revival package by the operating agency. as it may deem fit.section (1) except on a complaint in writing of an officer of the Tribunal or the Appellate Tribunal or any officer of the Central . if any. 10. and ttempts to tamper the records of reference or appeal filed under this Act. (6) Where in respect of any scheme consent under sub. of the Tribunal or the Appellate Tribunal or makes a false statement or gives false evidence to the Tribunal or the Appellate Tribunal. PENALTY FOR CERTAIN OFFENCES (SEC-424L) (1) Whoever violates the provisions of this Part or any scheme. afford an opportunity to the interested parties to be heard. including the winding up of the sick industrial company. eliciting their views/suggestions on the revival package.e. the BIFR sends the revival package in a draft form to all the interested parties (i. the BIFR may.section (2) is not given by any person required by the scheme to provide financial assistance. he shall be punishable with simple imprisonment for a term which may extend to three years or shall be liable to fine not exceeding ten lakh rupees.. if deemed fit. the sick industrial company. the BIFR will sanction the revival scheme with or without any modifications. After careful examination of all the aspects. from the shareholders of the sick company.P a g e | 263 and a bank from amongst themselves which shall be resp nsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned. On receipt of views/suggestions/objections on the draft revival scheme. the operating agency. the banks/ financial institutions who have given financial assistance to the sick company. creditors and employees of the sick company. the transferee company (if there is a recommendation in the revival package for amalgamation) etc. transferee company and any other interested party. The BIFR will also publish particulars of the draft revival package in newspapers inviting suggestions/objections.

1 per cent. COMMENCEMENT OF WINDING UP BY TRIBUNAL (SEC-441) (1) Where. whichever is more as the Central Government may.'.‖ 12.section (2). by rules made in this behalf. a resolution has been passed by the company for voluntary winding up. 005 per cent. a levy by way of cess at such rat not less than 0. (4) The Central Government may. on the value of annual turnover of every company or its annual gross receipt. in such form as may be prescribed. (3) Every company shall furnish. the winding up of the company shall be de med to have commenced at the time of the passing of the resolution. specify by notification in the Official Gazet e. (2) In any other case. to the Central Government and the Tribunal the details of its turnover and gross receipts with payment of cess under subsection (1). for the purposes of rehabilitation or revival or protection of assets of the sick industrial company. . on proof of fraud or mistake. as the case may be. 11. the winding up of a company by the Tribunal shall be deemed to commence at the time of the presentation of the petition for the winding up. (2) Every company shall pay to the Central Government the cess referred to in sub. and unless the Tribunal. from time to time.section (1) within three months from the close of every financial year. thinks fit to direct otherwise. before the presentation of a petition for the winding up of a company by the Tribunal. specify the manner in which the cess shall be paid under sub.P a g e | 264 Government authorised by it or any officer of an operating agen y as may be authorised in this behalf by the Tribunal or the Appellate Tribunal. LEVY AND COLLECTION OF CESS ON TURNOVER OR GROSS RECEIPTS OF COMPANIES (SEC 441A) (1) There shall be levied and collected. and not more than 0. all proceedings taken in the voluntary winding up shall be deemed to have been validly taken.

APPLICATION OF FUND (441D) The Fund shall be applied by the Tribunal for the purpose of(a) making interim payment of workmen' s dues pending the revival or rehabilitation of the sick .P a g e | 265 13. if Parliament by appropriation made by law in this behalf so provides. such sums of money as it may think fit for being utilised for the purposes of the Fund. (b) any amount given as grants by the Central Government for the purposes of this Fund. out of such proceeds (after deducting the cost of collection). from time to time. CREDITING PROCEEDS OF CESS TO CONSOLIDATED FUND OF INDIA (441B) The proceeds of the cess levied and collected under section 441A shall first be credited to the Consolidated Fund of India and the Central Government may. (e) Amount refunded by the company under section 441G. (d) any income from investment of the amount in the Fund. (2) There shall be credited to the Fund(a) all amounts paid under section 441B. pay to the Tribunal. (1) There shall be formed for the purposes of rehabilitation or revival or protection of assets of a sick industrial company. (c) any amount given to the Fund from any other source. 14. 15. REHABILITATION AND REVIVAL FUND (441C). a Fund to be called the Rehabilitation and Revival Fund.

of the sick industrial company.section. . which in the opinion of the Tribunal are necessary or expedient for the said purposes. or (b) payment of workmen' s dues due to the workmen. such statistical and other information in such orm and within such period as may be prescribed. or (c) protection of assets of sick industrial company.P a g e | 266 industrial company. PENALTY FOR NON PAYMENT OF CESS (441F) (1) If any cess payable by a company under section 441A is not paid in accordance with the provisions of that section. 17. after such hearing. which is in arrears under sub. referred to in sub. (2) The Tribunal may.section (1). it shall be deemed to be in arrears and the same shall be recovered by the Tribunal in such mann r as may be prescribed. and if.section (3) of section 529. or (d) revival or rehabilitation of sick industrial company. such company shall be given a reasonable opportunity of being heard. a penalty not exceeding ten times the amount in arrears: Provided that before imposing such penalty. impose on the company. after such inquiry as it deems fit. POWER TO CALL FOR INFORMATION (441E) The Central Government or Tribunal may require any company to furnish for the purposes of rehabilitation or revival or protection of assets of sick industrial companies. no penalty shall be imposed un er this sub. 16. the Tribunal is satisfied that the default was for any good and sufficient reason.

the State Government attaches equal importance to the revival of sick units. • No land and building tax would be charged from a sick unit during the period of sickness case a revival scheme is drawn by BIFR or financing institutions. other appropriate measures like • The new Sales Tax Incentive Schemes would provide a more liberal incentive to the sick units.One Time Settlement (OTS) etc. in . (2) The amount referred to in sub. which do not fall within the purview of the BIFR. Along with the revival of sick units the State Government is equally concerned with the prevention of sickness in industry. REFUND OF FUND IN CERTAIN CASES (441G) (1) Where the fund has been applied by the Tribunal for any of the purposes specified in clauses (a) to (d) of section 441D.section (1) shall be recovered in the manner as the Tribunal may direct. such amount of fund shall be recovered from the company after its revival or rehabilitatio or out of sale proceeds of its assets after discharging the statutory liabilities and payment of dues to creditors.P a g e | 267 18. • The State Government is planning to set‐ up a separate authority on the pattern of BIFR for dealing with the matters pertaining to revival and rehabilitation of sick units.‖ 19. There are a large number of sick units which if revived can lead to utilisation of the assets and capacity already created. Provided such units have not availed of similar incentive in the past. RIICO and RFC have decided to charge 2% lower interest rate from units making regular payments. • The State level financial institutions will adopt change of management. Also sick units which are being revived with fresh investment through change of management would qualify for incentive equivalent to new units. REVIVAL OF SICK UNITS • While emphasizing new investment in Rajasthan. • The State level financial institutions will devote greater attention to prevent sickness. Series of measures are being taken to rehabilitate the sick units and also to prevent sickness.

Even powers were granted to the creditors to decide on the issue of winding up or the revival of the company by passing a special majority among the creditors. 1956. . Moreover. 20.e. Further the scope of the filing for the determination of sickness which was restricted to the Board now included the creditor or the company. the sale proceeds from such sale would be allowed to betreated as the promoter‘s contribution instead of interest free loan from the State Government in cases where the re habilitation/revival scheme is drawn by the BIFR/financing institutions. 2009 Certain changes were proposed to be made for the rehabilitation and revival of the sick units as from the proposed Companies Amendment Act. converted for industrial purpose after paying the conversion charges. COMPANIES BILL.P a g e | 268 • Exemption from Octroi to sick units which are taken up for revival under the approved rehabilitation plan would be available as agreed in the rehabilitation package. where no concession in land has been granted by the State Government. or the actual consumption • In case of sale of surplus land by units set up on their own lands (i. • The State Level Inter Institutional Committee (SLIIC) has been reconstituted to focus greater attention on units not covered by the Board for Industrial and Financial Reconstruction.The criteria of sickness was changed to include ‗inability to pay debts‘ due to secured creditors representing 50% or more of the outstanding debt. acquired under the Land Acquisition Act by fully paying the cost of acquisition and likewise) may be allowed. the greater powers have been conferred on the creditors to supervise a rescue plan and restrict the powers of management in the rehabilitation of a sick company. • RSEB would charge 1/3 of the minimum charges charges whichever is higher for revival of the sick unit.

e) Modernization of plant and equipment or expansion of an existing programme or even diversification of the products being manufactured. it recommended that CA/CS/CWA/law professionals should play an active role in the insolvency process so that there would be expertise persons dealing with the specialized.P a g e | 269 21. Moreover. It also allowed the debtors to approach the Tribunal with the rehabilitation scheme.taking into account the expected cash generation as per viability study d) Determination of the sources of additional funds needed to refinance. . Further.financial institutions and central government. commercial and technical characteristics of insolvency law. Power was also given to the creditors to oppose the scheme of rehabilitation. 22. It also recommended the establishment of the National Company Law Tribunal on a speedy basis. REHABILITATION PROGRAMME a)Change management b)Development of a suitable management information system c)A settlement with the creditors for payment of their dues in a phased manner. it enunciated that the rehabilitation by cess to be replaced by the ‗Insolvency Fund‖ with optional contribution by companies. RECOMMENDATIONS OF THE JJ IRANI COMMITTEE ON COMPANY LAW (2005) JJ Irani Committee wanted to omit the term ‗sick industrial company‘ and replace it with ‗insolvent company‘ and thereby erase the sickness test on the basis of erosion of networth with that of the liquidity test. f) Concession or relief‘s or assistance to be allowed by the state level corporation.

the team is discussing the demands at length. member of National Planning Commission is the coordinator of the team. So far. pledging more concessions on interest rates and cash assistance for the operation. Among others. he added. Also. . the government has agreed to identify the sick units on the basis of past two year‘s performances for hotels. "A technical team of the Sick Industry Rehabilitation Main Committee has already commenced works to reviewing the existing set of conditions." Rana Bahadur Shrestha. Dr Yuba Raj Khatiwada. Currently. the private sector has urged the government to allow the sick industries rescheduling their loans.P a g e | 270 23. Initially. it was done on the basis of their capacity. he said. The review in terms of sick industry rehabilitation is being done after the private sector pressured the government for incorporating their additional and new demands. SIRP The government is simplifying the previously announced terms and conditions for industries to acquire facilities that the government pledged to sick industries under its Sick Industries Rehabilitation Programme (SIRP). the technical team had recommended for pledging a total of Rs 750 million to hotels and civil aviation sector of which each unit was proposed to be given a maximum of Rs 50 million. medium and large industrial units each would be provided a maximum of Rs 30 million loan said Shreahtha. and medium and large industries. Shrestha said that the technical team would decide on the demands of the private sector in its next meeting. Of major changes endorsed so far. He added that the team would work out new changes and forward the recommendations to the main committee for approval soon. While the cottage and small industries would be provided one third of the required capital as soft loans. the government has already amended the conditions once at the request of the private sector. spokesperson for the Ministry of Finance told The Kathmandu Post. As per the decision of the main committee. the technical team has categorised the industries into two groups including cottage and small industries.

the commercial banks and other financial institutions have slashed one percent interest rate for the SIR loans from 6. ― he said. "It fails to provide services as per the need of the affected industries. on the government instructions. INDUSTRIAL SICKNESS IN SSIs  2  3 the revival of willing and viable SSI units. "Operating cash is the most important part for the company to sustain itself and government should pledge them operating capital rather than soft loans. However. . .P a g e | 271 Despite changes.5 billion for refinancing sick industries under the SIRP. The resolution of such Apex body shall be binding upon all the 3 concerned departments. so that it can effectively implement the management and financial . It has also reduced the refinancing interest rate to 2 percent from 3.5 percent.restructuring. Chandi Raj Dhakal. The central bank. . none of the industries have acquired the soft loans so far. also said that the sick industries require more support on the operation front.. 24. Rajesh Kaji Shrestha. Moreover.form a State Level Apex Body with Secretary of Industries/ Industrial Development 3 Commissioner as its head to cosider such revival efforts. 1   2 State level Apex Body for rehabilitation of sick industry would be vested with The 3 adequate powers. President of Nepal Chamber of Commerce. has set aside a sum of Rs 1. first vice president of the Federation of Nepalese Chambers of Commerce and Industry said that the existing conditions for the rehabilitation of sick industries were not adequate in the present gloomy business environment. the State Government proposes to For .‖ he said.

the defaulting party including the unit and/ or other department.   2 Apex Body shall periodically monitor the progress of the revival package and it The 3 shall have the competence/ authority to take such actions as it may deem fit against . The units declared sick by such body and opting for rehabilitating shall be eligible for relief and concessions by 3 . if such unit fails to pay any installment in time. 4   2 3  Sick units shall be allowed full rebate on delayed payment surcharge during the . 3 . provided the unit has not availed incentives as a sick unit under any earlier 3 industrial policy.by such Apex body on case to case basis without any delayed payment surcharge.f. Appropriate packages of relief and concessions for such 3 . as per the guidelines of the RBI within a specified time frame.P a g e | 272 2  The  2 sick SSI units would be identified by such Apex body w. available to new units under this .policy. period of sickness. the sick unit shall be exempted from AMG . 3 . 3   2  3 Such units shall be eligible for the incentives. for such delay in payment. 6  The  2 balance amount of electricity dues of such sick unit after deduction of the aforesaid amount shall be paid by the unit in such installments as may be determined 3 . charge and other contractual guarantee charges for the period of disconnection. However. 5   2 3  In case of disconnection of electricity.e. 3 .units would be approved for their rehabilitation. such date as per the guidelines issued by RBI. .it shall be liable to pay delayed payment surcharge for such duration at the rate fixed for 7 such delayed payment surcharge. if it is included in the dues of Electricity Board.banks and financial institutions. 3 .

These . for revival of viable sick industrial units including State Public Sector 4 Undertaking in large and medium sector. SICKNESS IN LARGE & MEDIUM SECTORS  2  A committee with Industrial Development Commissioner/ Industry Secretary as 3 its head will be constituted by the State Government to evolve suitable measures . 9 2 3 . . for final decision. .would be placed before the committee headed by the Industrial Development . 8   2  The State Level Apex Body would comprise of such persons/ organisations as may 3 be notified by the State Government from time to time and published in official .Chairmanship of Chief Secretary. in which Finance Department/ Commercial Tax Department shall be 3 necessarily represented. 4 25. 3  Concessions and facilities identified under the scheme of rehabilitation prepared  2 by 3 the BIFR or by State Level Inter Institutional Committee of RBI (SLIIC) . gazette. which would be constituted under the . take appropriate measures which may include manpower 4 rationalisation/ disinvestment/ financial restructuring etc.recommendations would be placed before the Government through state Level 4 Empowered Committee (SLEC). 2   2 Committee will recommend concessions and facilities including those in this The 3 policy statement. undertakings.P a g e | 273 . 1   2  The committee shall make an assessment of sick/ closed State Public Sector 3 Undertakings and for revival of technically and economically viable such . if considered necessary for revival of the such sick units. .

equity participation. . namely. industry associations. 4   2  Rehabilitation measures for sick/ closed but potentially viable industrial units 3 may inter-alia include financial support/ relief and concessions or sacrifices from . etc. Punjab National Bank to suggest measures for improving credit flow to the SME sector as well as measures for early implementation of rehabilitation/nursing of sick SME units by examining feasibility of bringing in additional capital through alternative routes. banks and Government agencies. body/ local authority. such as. 7 26. Chakrabarty. The Working Group submitted its report on April 17. various Government Department/ Organisations and or additional facilities 4 including allocation of power from SEB/ DVC and any other agency/ Statutory .to Government through state Level Empowered Committee (SLEC) for approval. State Government may decide to extend such facilities in public interest on case 4 basis. venture financing. RBI RELEASES REPORT REHABILITATION OF SICK ENTERPRISES) OF WORKING GROUP ON SMEs(SMALL AND MEDIUM A Working Group was constituted under the chairmanship of Dr.   5   2  Such closed and sick industrial units which have earlier already availed various 3 facilities due to its sickness would not ordinarily again get facilities unless the . K. 2008. 6   2 Government shall frame an Exit Policy so as to enable such units which do The not 3 find it possible to continue and intend to dispose off their assets and clear the . . Chairman and Managing Director.P a g e | 274 Commissioner (IDC)/ Industry Secretary for consideration and recommendation 4 . C.bank dues 4 . The Working Group held wide ranging discussions with the stakeholders.

KVIC Margin Money Scheme (for units in rural areas) may be extended for rehabilitation packages also. willful default should not be considered for rehabilitation. . necessary support for business restructuring. Support schemes like Credit Linked Capital Subsidy Scheme in case of units in other (than rural) areas. NABARD. diversification and technological upgradation as may be felt necessary by the lenders may also be encouraged. In order to incentivise the banks to take rehabilitation measures. Medium Enterprises should be taken out of the purview of BIFR and the banks given the responsibility of their rehabilitation. RBI has clarified that units becoming sick on account of willful mis-management. . Sufficient moratorium say. expansion. which need to be taken by banks. two years for repayment of the principal should also be given so as to prevent cases of incipient sickness at the commencement of production and help units to establish themselves in the market at the beginning. Asset Reconstruction Companies especially for Micro Small and Medium Enterprise (MSME) loans are some other suggestions of the Working Group. 1985 (SICA) and their rehabilitation done under the supervision of BIFR . The interest of at least six months after commercial production can be included as a part of the project cost. SIDBI. measures to strengthen the DRT/legal machinery. dedicated Bench for SMEs to expedite the process of recovery. modernisation. The State Governments should introduce a Single Window concept for providing relief and concessions to sick Micro and Small Enterprises (MSEs). the repayment of any additional exposure taken as part of the rehabilitation package should be given priority on the cash flows as well as security as compared to other debt. RBI and State Government for enhancing credit flow to the SME sector as well as for early implementation of rehabilitation/nursing of sick SME units.P a g e | 275 The Working Group has given various recommendations/measures/actions. more so because only a fraction of the medium enterprises are covered under Sick Industries Companies (Special Provisions) Act. Highlights: As an incentive for proper restructuring package at the time of rehabilitation. Raising the limit of Rs 20 lakh to Rs 50 lakh for Lok Adalats.

P a g e | 276 27. REFINANCE ASSISTANCE . LENDING (FINANCING SCHEMES OF SIDBI) A) DIRECT FINANCIAL ASSISTANCE FOR THE DEVELOPMENT OF INDUSTRIAL INFRASTRUCTURE FOR SSIs a) Venture capital / development scheme b) Equipment Finance Scheme c) Integrated Infrastructural Development scheme d) Project Finance Scheme e) Scheme related to Marketing of SSI's Product f) ISO 9000 Scheme g) Micro credit financing scheme h) Short term & long term loan schemes i) Direct Discounting of bil j) TDMF Schemes k) Factoring scheme l) Pre & Post shipment financial assistance scheme m) Export bill financing scheme & so on B) INDIRECT FINANCE BY SIDBI I.

Bank to Intermediacies b) To leasing / hire purchase companies. c) To factoring companies d) To special corporate entities and institutions which are engaged in the business of development of SSIs . SSIDC. Village & tiny Industries b) Scheme for women entrepreneurs Mahila Udyam Nidhi c) SEMFEX Scheme d) Single window scheme e) RTDM Scheme f) RISO-9000 Scheme g) NEFS cheme h) RSR Scheme i) Scheme for SRTOs j) Scheme for ST/SC & Physically Challenged k) Other General Schemes II) SCHEME FOR REDISCOUNTINGOF BILLS a) For equipments b) For Inland supply bills III) OTHER SUPPORT THROUGH VARIOUS INSTITUTION a) SFC's. SIDC.P a g e | 277 a) Composite loan scheme for cottage.

by the mode of refinancing. SECTOR APPRAISAL In general we can say that the small scale sector of India has grown slowly and occupied the very important position in the Indian economy.86 million peoples. In the area of employment generation the small scale sector has provided employment with the help of their more than 3.42 million as at end of March 1974 to 03.P a g e | 278 In conclusion we can say that the SIDBI. 28.37 million modern small scale units around 1. The number of registered units in the SSI sector has increased from 0.37 million at the end of year 2001 march. But we have also unregistered small scale Industries who were working and their contribution was also very valuable for the economy. discounting and rediscounting as well as financial assistance through indirect functions regarding lending to primary institutions. . through its direct assistance to small units and through its various developmental and supporting services.95 millions in the period of 27 years. * Development of rural areas where more than 70% of the population resides. SIDBI obviously engaged in the business of reforming SSIs with its different Rural Industrialization Programs (RIP) with the following aims: * Expansion of small scale sector and increase its share in industrial output. It means the sector has achieved the growth of 2. encouraging small scale sector in Rural India. * Increase the efficiency of SSIs. The small scale sector is providing employment to the rural unemployment to the rural unemployed people. The small scale sector is also playing significant role by their contribution to the socio-economic objective which is related to the –employmentgeneration –Output –Export& – Fostering Entrepreneurship It is well to say that the small scale sectors account for around 95% of the industrial units in the country contributing 40$ of the manufacturing sector output and near by 1/3 of nations export.

interest on the loan amount up to Rs. The small scale sector specially the small scale units are getting refinance facility through SIDBI & its subsidiaries more than 85%. TOTAL BANK CREDIT (RUPEES IN CRORES) YEAR CREDIT INDUSTRY 61576 65240 78662 80482 102953 TO CREDIT SSI"s 17118 17830 20026 22620 27612 TO % SHARE OF SSI's 1991 1992 1993 1994 1995 14.47 13.75 13.P a g e | 279 29.a. SIDC's and other RRB"s providing finance to the developing sector. Where the units which are situated in developed areas they can get finances at rate of 13.50% p.a.05 .17 13.5% p.72 14. The interest charged to the small scale units located in backward have to pay the rate of interest @12.25 lakhs and @ 14% if they are taking the loan more than 25 lakhs. The Bank SIDBI through SFC's . BANK CREDIT TO SMALL SCALE SECTOR The commercial and rural regional banks as well as co-operative banks have been regular finance provides for the small scale sector. SIDBI with the mode of its refinance and rediscount provided and providing financial assistance to the sector.

25 13.3 2672.4 2146.8 .0 2909.49 12.43 17.88 30. ASSISTANCE BY SIDBI TO SSI'S The apex financial institution in the field of development of small scale sector The bank (SIDBI) by the mode of refinance discounting and rediscounting as well as financial assistance through indirect & direct functions encouraging the rural India Rs.3 4706. In Crores YEAR 1990-91 1991-92 1992-93 1993-94 1994-95 SANCTIONED 2408.7 2846.7 3389.5 2027.P a g e | 280 1996 1997 1998 1999 124937 138548 161038 178799 31726 34113 43508 48483 12.2 3356.3 DISBURSMENT 1838.

But.6 crores for the SSI's and disbursed Rs. it is sad to say that the government has given priority to all the large scale and heavy industries and neglected the small scale sector which cause the sickness in small scale industries.0 At the end of year 2001 March. With its direct finance scheme SIDBI has sanctioned Rs.22792. salt industry.P a g e | 281 1995-96 1996-97 1997-98 1998-99 6065. and 8th Five Year plans. paper industry. sugar industry.6 6485.1622. 31. Bills rediscounting. 5th. soap industry and leather industry which were facing a lot of financial and technological problems and fighting for their survival. 7th.2 6441.66299 crores and disbursed Rs. SIDBI has sanctioned Rs.0 4800.1 crores and disbursed Rs.3 7484.6 crores.975. SSIs AND FIVE YEAR PLANS When the First Five Year Plan introduced the industrial base of India was not so good and was very limited. When the Government of India had introduced Second Five Year plan it was given first priority to the industrialization in rural.7 6285.7 5240.2 crores. With its refinance scheme the name has sanctioned Rs.0 2000-01 10821. After neglecting in 3rd. Some important industries of that period were cotton industry. semi-urban and areas of our country. That was a good decision. 12. 4th.9 crores disbursed to the sector.3 crores and disbursed Rs.2 8879.17225. 4190. With bill discounting facility the bank has sanctioned Rs.392 crores by the various mode of its services like – Refinance. 6th. 9948. other scheme and direct finance. Generally.0 1999-2000 10265.46. we can say more than 25-30 years the government realized its mistake and then they had taken actions for rehabilitation of .8 4584. 7115.2260.2 6964.8 crores and Rs. the industrial development based on consumer goods producing industries. From its other various schemes bank has sanctioned Rs.3 crores for the development of SSI's till year 2001.

internal. 157. the ―tightness of constraints‖ at the firm-levelremains an unknown. orsupplies of basic raw materials.93 It is especially the former that have attracted considerable attention from Indian scholars. however. Mishra94) Chattopadhyay (1995). we know what kinds of firms were highlyregulated before 1991 and what types of firms operated under artificially ―soft‖conditions. or a linear model with the ratio of net worth to totalassets as the left-hand side variable and explanatory variables such as the interest-salesratio. import quotas. because of capacity constraints or shortage of essential raw materials. From chapter 2. the wage-sales ratio.comes in the form of a binary indicator model(―1‖ for sickness. The suggestive argument runs that the typical Indian manufacturing firm has been prevented from employing the least costintensiveinput mix. Unfortunately. we take a static view and explore the hypothesisthat the New . Economic distress and eventuallythe phenomenon of industrial sickness then occurred as a natural consequence. In effect. Jain. or credit supply. pp. (1995). depending on whether they are perceived as beyond or within the control of the individual firm (see. Girdhari & Joshi. Greater divergence in efficiency scores combined with93) From Ramakant et al.P a g e | 282 small sick industries by technological reform with sufficient credit facilities and various training programs for the workers engaged in small scale sector. viz. we established that industrywise downturns inproductivity and mean efficiency were accompanied by greater variation inperformance across firms. (1990. for instance.and are not supplemented by either ―desirable‖ outcomes (as often is the case insurvey data). this kind ofinformation is simply unavailable as long as datasets consist of ―observable‖ realizations. pp. Impact of the New Economic Policy Reforms on Sickness Although industrial sickness has been endemic in Indian industriy since the lateseventies. handicrafts and other similar industries got affected due to the negligence of the government which results sickness in small scale sector. external vs. zero otherwise). 45. pp. The industries like powerlooms. 98. handlooms . b). Empirical evidence – if supplied at all . Farsole. An extensive list of contributions from the early nineties divides the ―factors responsible for sickness‖ into two broad classes. as a first step. and various contributions inRamakant et al. the ratio of gross profits to net worth or the share of deferredliabilities per Rupee of sales. For all the difficulties of establishing its causes. coir. or by fixed upper limits on. To addressthe latter. In the previous chapter. for instance Biswasroyee et al. a firm‘s health status would have to be related to the degree to which it is subject to external constraints on performance.94 Yet it is obvious that these ―explanatory‖ variablesdescribe the symptoms of sickness rather than catching its claimed causes. 22-23). These restrictions were reinforced by ―unfavorable government policies‖ in respect of taxation. say. sericulture and silk. chapter 3. 20-29). p. Gupta (1990. Anant et al. Accordingly. there is no doubt that the incidence ofindustrial sickness in the late nineties was much higher than it used to be in the prereformdays. From Ramakant et al.4– 101 –increasing sickness rates suggest that the NEP reforms enabled economically viablefirms to benefit a great deal. Kaur and Singh. 35. pp. If we go through the business area of SIDBI we find that SIDBI governs small scale industrial units which contribute significantly to the national economy in terms of production employment and exports via rural development through rural industrialization. installed capacity. section 3. labor. (1993a): Singh and Bhatia. there have been very few attempts to quantify the factors causing it. pp. (1993b): Khanka. (1993a. Rao andChari.

and what effects are observable from increased The revival package may vary from case to case depending on the nature of the problem and may include additional financial assistance. There is no doubt that the project would have had some weak areas which could have been the cause for the sickness. Since industries are an integral part of a nation's economy. we expect the NEP reforms towork to their disadvantage. This process takes place in a cycle as a sequence of economic restructuring. sale of redundant assets. we investigatewhether firms fall sick because government assistance measures have become lessgenerous. Just as theplanned economy favored selected types of firms (e. andwould these factors adversely affect sickness rates in turn? Here. small scale units. the answer is in the affirmative. formerly protected firms have deteriorated interms of their productive efficiency. both material and human. or because.P a g e | 283 Economic Policy discriminates against the right set of firms.This question leads us to take up the outcomes of the reforms more directly: Why do atriskcandidates eventually fall sick and then recover (or not). from less efficient to more efficient areas is not only expected to increase production and productivity but is also likely to lead to higher employment generation in the long run.g. what drives the level of firm efficiency. change in management. 32. In order to utilize the assets and infrastructure already created for the project. we are confrontedwith core questions in industrial economics: how does the market structure impinge onthe survival (or failure) of firms. uneconomical and inefficient become sick and die out as new and more efficient units come up to take their place. public sectorundertakings. Re-allocation of resources. coincidentally. If so. NEED OF REVIVAL OF REHABILITATION PROGRAMME A project that has gone sick would have already swallowed huge scarce resources. postponement of recovery of loan already lent by banks and financial institutions. rehabilitating the sick project is worth considering since the cost of setting up a new unit might be substantially higher as compared to the cost of . or companies located in remote areas). Inspite of this. the project is to be revived from sickness. To anticipate our findings. amalgamation. we would only have demonstrated that the NEPreforms did not lower their chances of experiencing sickness. and what role is there forprogressive changes in the economic environment? In particular. in a dynamic set up industrial units which are non-competitive. But what if these ‗natural sickness candidates‘ already faced a considerably higher riskof sickness in earlier years? In this case. lease of assets or any other suitable measure. The revival package should be submitted to the BIFR within a time limit of 90 days or such extended period as may be granted by the BIFR.

they can be properly addressed in the revival package. having known the factors that were responsible for leading the unit to sickness. In order to get back the investment of banks and financial institutions. (a) The project may be in a sector that is vital to the economy. also get back their earlier investments that are locked up 33. (b) Many ancillary units may be dependent on the unit that has gone sick. The SICA was later amended in 1991 to bring government companies under its purview and again in 1993 when extensive changes were made in the Act including inter-alia changes in the criteria for determining industrial sickness. (c) Banks and financial institutions would have locked up their money in sick ventures. the project is to be revived and made to work again and generate surpluses. the Government enacted a special legislation namely. Sick Industrial Companies (Special Provisions) Act. The Board for Industrial and Financial Reconstruction (BIFR) was established in January. they will beprepared to implement revival packages if they are convinced that they will.P a g e | 284 rehabilitating a viable sick unit. 1987. Though banks and financial institutions that support a revival programme for the sick unit may be required to fund the project again. The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) was established in April 1987 as the appellate authority for the BIFR's decisions. Protected market structures and policies reflected in high tariffs. Tiwari. Revival of a sick unit may be necessitated or justified in view of the under lying socio-economic objectives such as the following. 1987 which became operational from May 15. Of course. The SICA was enacted with a view to accelerating the process of restructuring through the BIFR and imparting it with the much needed coherence and consistency. . apart from getting back their present investment with interest. 1985 commonly known as the SICA. Based on the recommendations of a Committee of Experts under the Chairmanship of Shri T. Abandoning the project may lead to other socio-economic ill effects. price regulation on inputs and barriers to domestic competition have contributed to cost inefficiencies and dampened the incentive to restructure. quantity restrictions on imports. expedite the revival of potentially viable units and effect closure of unviable units. RESTRUCTURING INDUSTRIAL SECTOR The problem of industrial sickness in India is not a recent one.T. The BIFR was visualised as a fast track facilitation agency with a single-point reference for rapid disposal. it will have a chain effect of all such dependent ancillary units becoming sick. The main objective of SICA is to determine sickness. Unless the sick unit is revived.

The main reason for the good performance of the industrial sector during the eighties was starting of the liberalisation process and a number of policy measures including changes in the areas of licensing and procedures. the protective barriers for the Indian industry started getting dismantled one by one.3 per cent in 1992-93 to 6. inability to make stipulated margins.4 per cent in 1994-95 and 12. Detailed guidelines have been issued for rehabilitation of these units and matters relating to better coordination between commercial banks and term-lending institutions for formulation and implementation of rehabilitation programmes. However. diversion of sale proceeds through accounts with other banks and return of cheques. Certain broad parameters have been evolved for granting reliefs or concessions by banks as part of the revival packages. there was a decline in the growth rate of industrial production and it may be less than 5 per cent during the financial year 1998-99.P a g e | 285 The Reserve Bank of India (RBI) has also been attaching a lot of importance to revival of potentially viable sick industrial units. in a few years the overall rate of industrial growth gradually recovered. a fully-owned CPSU has recently been handed over to Jadavpur University by Government of India after prolonged persuasions by GOWB. manufacturing and electricity generation slumped to 0. 9.0 per cent in 1993-94. Since 1996-97.6 per cent in 1990-91 as a short-term response to the reform process. The average annual growth rate of the industrial sector including mining. binding difference between outstanding balance and sanction limits. import of technology and capital goods coupled with a reasonable rate of public investment and almost total protection to domestic industries from international competition through quantitative restrictions on imports as well as high tariff rates.1 per cent in 1995-96. however. It increased from 2. 34. IISCO BURNPUR WORKS . Banks have also been advised to set up cells which could make use of the information system suggested by the Tandon Study Group and detect the early warning signals which include nonsubmission/incorrect submission of stock statement. CPSUs An important development is that the closed unit of M/s National Instruments. With the launching of the new economic policy during the nineties. Comprehensive half-yearly returns are to be submitted by the banks in respect of sick/weak industrial units for monitoring their progress made by them in the matter of rehabilitation. SOME SUCCESSFUL CASES OF REVIVAL A.

State Government shared its revival efforts initiated by GOI and granted a soft loan of Rs 2. EMC Both of its closed units located at Beliaghata and Agarpara have been reopened by its new management and are being rehabilitated successfully with the support of the State Government. On further persuasion. . of India/Ministry of Chemicals & Fertilizers has reconsidered to run this closed unit for revival through a JV partner since selected. GOWB committed monetary sacrifices of around Rs 500 crore towards various reliefs for IISCO-revival.P a g e | 286 BIFR-sanctioned revival scheme is in successful progress of implementation. B. JV-Company JESSOP & COMPANY This JV-company presently having minority share participation of GOI after disinvestments has been successfully revived and ceased to be sick with substantial financial assistance C.25 crore to enable the said sick unit to settle its past dues of sales tax. Govt. A modernization plan of Rs 9600 crore has already been approved by GOI and is being implemented. BENGAL IMMUNITY LTD. GOI/MoC&F has since sanctioned around Rs 400 crore towards implementation of its modernization plan as well as restructuring of GOIloans. BENGAL CHEMICALS &PHARMACEUTICALS This pioneering pharmaceutical company has been rehabilitated successfully with GOI-funds through implementation of BIFR-sanctioned scheme. of India/Ministry of Steel has decided for merger of IISCO with SAIL. Private CALCUTTA CHEMICALS This pioneering cosmetic and home-care items manufacturing unit has been successfully revived by its new management through implementation of a revival scheme approved by BIFR with financial support of the State Government. BIFR-sanctioned scheme has failed in respect of this CPSU and it was decided to wind-up the unit. Govt.

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CENTURY EXTRUSIONS This aluminium-extrusion unit at Kharagpur Industrial Growth Centre has successfully implemented its revival package with financial support from State Government in the form of soft loan and has revived itself. GRAMAPHONE COMPANY OF INDIA LTD. (NOW SAREGAMA) This pioneering CD/Music cassette manufacturing works turned sick due to product obsolescence but subsequently revived itself through implementation of a BIFR-approved revival scheme with the support of State Government. INDIA FOILS LTD.

State Government has since identified one new entrepreneur group M/s ESS DEE Aluminium, Mumbai, which has taken over the units of India Foils Ltd.. While it‘s Kamarhati unit has put into regular production with proposed expansion programme, the Hoera unit has since been reopened. Necessary repairs/renewal of this closed unit has since been started and its new management expects early resumption of production activities. BENGAL SALTS COMPANY The unutilized land of this closed unit earlier engaged in salt-manufacturing has since been resumed and handed over to Power Department to start a new project of ‗Wind Firm‘ for production of 50 MW of electricity for distribution of power in the locally through WBSEDCL, a State-owned power supply agency.

35. IS REHABILITATION THE ANSWER?

No Rehabilitation, it is not the answer and solution for sick industrial companies. It should be closed down as it is undue exercise and puts additional burden upon the government to take care of them. In addition, it also places burden upon all the existing well running industrial units SICA impose cess on companies to build up a fund for rehabilitation of the assets of the sick companies. It is opposed by the Federation of Indian Chambers of Commerce & Industry of India (FICCI) on

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the ground that healthy and sound companies should not suffer for faults of others.[19] The government should not intervene into the affairs of the industrial company and let the market forces decide it, whether company can be run or not. It should leave the industrial company on its own condition and should afford an opportunity to the company to decide its own fate in this era of cut throat competition. The theory of survival of the fittest should be applied in this particular realm, it says competition for survival or predominance and ―survival of those who are better equipped for surviving‖. The government should segregate itself from the affairs of the industrial company and should do its own job.

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CHAPTER VI
INDUSTRIAL SICKNESS IN THE STATE---INDUSTRIAL CONDITION IN WEST BENGAL SYNOPSYS:
1) IRD(INDUSTRIAL RECONSTRUCTION DEPARTMENT) a) FRAMEWORK b) IMPLICATIONS c) REASONS FOR SICKNESS d) ACTIVITIES OF THE DEPARTMENT e) APPLICABILITY f) ELIGIBILITY g) SUPPORT MEASURES 2) FACTORY CLOSURES AND PLIGHT OF WORKERS: A COMPREHENSIVE SUMMERY OF BENGAL‘S INDUSTRIAL CONDITION A. SECTION 1: ABSTRACT B. SECTION 2: VOICES FROM BELOW C. SECTION 3: SICKNESS PROFILE i. SECTION 3: SICKNESS PROFILE – I: NATIONAL TANNERY: A STORY WHICH STANDS OUT ii. SECTION 3: SICKNESS PROFILE - II. KOLAY BISCUIT: 25 GLORIOUS YEARS OF CLOSURE iii. SECTION 3: SICKNESS PROFILE - III. EASTERN PAPER MILL: LOCKED OUT BUT OPEN iv. SECTION 3: SICKNESS PROFILE - IV. DUNBAR COTTON MILLS: RESUMING LAND: GOVERNMENT STYLE v. SECTION 3: SICKNESS PROFILE - V. METAL BOX: A SCENE FROM THE ASSEMBLY vi. SECTION 3: SICKNESS PROFILE - VI. AMCO: TWENTY ONE YEARS

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vii. viii. ix. x. xi. xii. xiii. xiv.

OF UNPAID DUES SECTION 3: SICKNESS PROFILE - VII. BENGAL LAMP : WORKERS IN DARK SECTION 3: SICKNESS PROFILE - VIII. SMALL TOOL MANUFACTURING COMPANY: WILL IT EVER BE REVIVED? SECTION 3: SICKNESS PROFILE - IX. BASANTI COTTON MILL: HE BITTER SWAN SONG SECTION 3: SICKNESS PROFILE - X. BANGODAYA COTTON MILLS: PEERLESS ILLEGALITY SECTION 3: SICKNESS PROFILE - XI. SULEKHA WORKS : A BLOT OF INK SECTION 3: SICKNESS PROFILE - XII. BENI LMTD.: STILL A GOING CONCERN SECTION 3: SICKNESS PROFILE - XIII. MOHINI MILLS LTD. No. 2: ABANDONED AND DESERTED SECTION 3: SICKNESS PROFILE - XIV. INDO-JAPAN STEELS LTD.: REDUCED TO JUNK

D. SECTION 4: REGIONAL ROUND UP OF INDUSTRIAL BELTS i. ii. iii. iv. v. vi. SECTION 4.I. ON THE EASTERN FRINGES SECTION 4.II: INDUSTRIES ALONG B T ROAD SECTION 4.III: INDUSTRIES ALONG DUM DUM – LAKE TOWN – PATIPUKUR SECTION 4.IV: INDUSTRIES ALONG JADAVPUR – TOLLYGUNJ SECTION 4.V: INDUSTRIES ALONG TARATALA – HYDE ROAD SECTION 4.VI: INDUSTRIES ALONG BELEGHATA – PHULBAGAN – KANKURGACHI

E. SECTION 5: FACT SHEET i. ii. iii. iv. v. SECTION 5: FACT SHEET - I: INDUSTRIAL POLICY AT A GLANCE SECTION 5: FACT SHEET - II: ECONOMIC REVIEW: EFFORT TO COMBAT SICKNESS SECTION 5: FACT SHEET - III: A SURVEY ON 500 CLOSED AND SICK INDUSTRIES SECTION 5: FACT SHEET IV: RAJARHAT SATELLITE TOWNSHIP SECTION: FACT SHEET - V: ‗EXCESS‘ INDUSTRIAL LAND

F. SECTION 6: SUMMARY i. ii. SECTION 6: SUMMARY: WORKERS: SHIFTING SAND SECTION 6: SUMMARY: EMPLOYMENT: JOB LOSSES OUTSTRIP

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iii. iv. v. vi. vii.

GENERATIONS SECTION 6: SUMMARY: CLOSED, SICK AND LOCKOUTS: STAGGERING REALITY SECTION 6: SUMMARY: FAWLOI SCHEME: MILES TO GO SECTION 6: SUMMARY: PROVIDENT FUND: TURNING A BLIND EYE SECTION 6: SUMMARY: ESI: A MOCKERY OF SOCIAL SECURITY SECTION 6: SUMMARY: MINIMUM WAGES: MAXIMUM CHAOS

3) SUGGESSTION 4) CONCLUSION

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1. IRD(INDUSTRIAL RECONSTRUCTION DEPARTMENT)

a) FRAMEWORK With 'Industries' being a subject on the Union List, the legislative frame-work within which the State Government has been required to design initiatives in this field are mainly 'The Companies Act 1956', 'The Sick Industrial Companies (Special Provisions) Act 1985' and ‘The Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002’. All these statutes are Central legislation.

b) IMPLICATIONS All these legislations have given priority to the secured creditors mainly Banks and Financial Institutions attached to any sick/weak industrial units in recovering their secured debt by inter alia, seeking winding-up of the Company or by taking possession of the secured assets of the borrower Company with right to transfer the same by way of lease, assignment or sale. Whenever, any industrial unit turns weak or sick and makes any default in repayment of its secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as ‗non-performing asset‘, they fail to get any financial support from the Banks/Financial Institutions concerned. This puts the sick units into threats of permanent closure.

c) REASONS FOR SICKNESS It is a fact that many industries in the large and medium sector were first established in West Bengal. But their failure to modernize and diversify along with fast technological obsolescence and changing market conditions has led to industrial sickness. In this connection, it is important to note that sickness in industries has been a countrywide problem.

d) ACTIVITIES OF THE DEPARTMENT

Notwithstanding this limitation, the efforts of State Government have been to evolve a

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coherent policy for the benefit of all concerned. To discharge its responsibilities, the Department is required to undertake, interalia, the following activities towards this objective during the period: Preliminary enquiry in respect of sickness and closure of a unit; To facilitate the formulation of proposals for rehabilitation and reconstruction of sick and closed industrial units with reference also to direction of the Board for Industrial & Financial Reconstruction (BIFR), under SICA;

To deal with civil rules and other cases arising at various Counts of law viz. Debt Recovery Tribunal (DRT), Hon'ble High Court/Supreme Court in connection with the implementation of various industrial rehabilitation schemes; arrange the appointment of Government Counsel to represent the interest of the State and keep a watch on developments in each case; To consider proposals under various Incentive Schemes of the State Government announced from time to time with a view to provide support to the revival/rehabilitation of eligible 'closed', 'sick' or 'weak' industrial units; To encourage measures for the operation of closed/sick industrial units by workers through Co-operative Societies, if feasible and where promoters are unwilling to make investments in their revival/rehabilitation effort.

e) APPLICABILITY

This department had introduced a Scheme ‗West Bengal Industrial Renewal Scheme 2001‘ (WBIRS) w.e.f. 1st January 2001 and that has been extended up to 31st December 2007 with certain modifications. This is applicable to all cases proposing the rehabilitation or revival of 'closed', 'sick' or 'weak' industrial units and also to the expansion in respect of 'closed', 'sick' or 'weak' units if forming a part of such rehabilitation or revival proposals as accepted by State Government. Such units can be in the private sector, co-operative sector, joint sector as also companies/undertakings owned or managed by the State or Central Government, in the large/medium sector. Cases of revival/rehabilitation of manufacturing industrial units in the small-scale sector as selected in consultation with the Micro & SSE & Textile (erstwhile Collage & Small Scale Industries) Department can also be considered for support under this Scheme, if otherwise eligible.

to generate resources for investment in revival/rehabilitation efforts. 2. 2009 This comprehensive report was prepared by Nagarik Mancha in 2005 and first appeared on sarai.P a g e | 294 f) ELIGIBILITY To be eligible for consideration. if a closed unit be purchased by another entrepreneur. g) SUPPORT MEASURES According to the modified notification by the State Government. Limited window strictly according to the need and as a special consideration for disposal of surplus land assets. proposals for the comprehensive and long-term revival/rehabilitation of 'closed'. Waiver of Electricity Duty up to a period of five years.net . Re-scheduling of arrear sales tax dues to long-term soft loans. the incentives/support measures available to sick/weak/closed industrial units are at present limited toRemission of stamp duty and registration fee up to 50%. FACTORY CLOSURES AND PLIGHT OF WORKERS: A COMPREHENSIVE SUMMERY OF BENGAL‘S INDUSTRIAL CONDITION FEBRUART 9. 'sick' or 'weak' industrial units are required to be formulated and submitted with the support of Financial Institutions/Banks having interest and the employees of the industrial unit whose revival/rehabilitation is proposed.

III: INDUSTRIES ALONG DUM DUM – LAKE TOWN – PATIPUKUR SECTION 4.VI: INDUSTRIES ALONG BELEGHATA – PHULBAGAN – KANKURGACHI . SULEKHA WORKS : A BLOT OF INK  SECTION 3: SICKNESS PROFILE .XIV. BASANTI COTTON MILL: HE BITTER SWAN SONG  SECTION 3: SICKNESS PROFILE . MOHINI MILLS LTD. No.VIII. KOLAY BISCUIT: 25 GLORIOUS YEARS OF CLOSURE  SECTION 3: SICKNESS PROFILE .V: INDUSTRIES ALONG TARATALA – HYDE ROAD SECTION 4.VII.P a g e | 295 o SECTION 1: ABSTRACT o SECTION 2: VOICES FROM BELOW o SECTION 3: SICKNESS PROFILE  SECTION 3: SICKNESS PROFILE – I: NATIONAL TANNERY: A STORY WHICH STANDS OUT  SECTION 3: SICKNESS PROFILE . METAL BOX: A SCENE FROM THE ASSEMBLY  SECTION 3: SICKNESS PROFILE .: STILL A GOING CONCERN  SECTION 3: SICKNESS PROFILE .V. ON THE EASTERN FRINGES SECTION 4.XI. SMALL TOOL MANUFACTURING COMPANY: WILL IT EVER BE REVIVED?  SECTION 3: SICKNESS PROFILE .I.III. 2: ABANDONED AND DESERTED  SECTION 3: SICKNESS PROFILE .IV: INDUSTRIES ALONG JADAVPUR – TOLLYGUNJ SECTION 4.II.: REDUCED TO JUNK o SECTION 4: REGIONAL ROUND UP OF INDUSTRIAL BELTS       SECTION 4.II: INDUSTRIES ALONG B T ROAD SECTION 4. EASTERN PAPER MILL: LOCKED OUT BUT OPEN  SECTION 3: SICKNESS PROFILE . BENI LMTD. BENGAL LAMP : WORKERS IN DARK  SECTION 3: SICKNESS PROFILE .IV. DUNBAR COTTON MILLS: RESUMING LAND: GOVERNMENT STYLE  SECTION 3: SICKNESS PROFILE .XIII.X. INDO-JAPAN STEELS LTD. AMCO: TWENTY ONE YEARS OF UNPAID DUES  SECTION 3: SICKNESS PROFILE . BANGODAYA COTTON MILLS: PEERLESS ILLEGALITY  SECTION 3: SICKNESS PROFILE .XII.IX.VI.

It will also study the extent of rehabilitation or self-employment and trace its impact on the surrounding urban infrastructure like markets. coupled with demands for new housing. SICK AND LOCKOUTS: STAGGERING REALITY SECTION 6: SUMMARY: FAWLOI SCHEME: MILES TO GO SECTION 6: SUMMARY: PROVIDENT FUND: TURNING A BLIND EYE SECTION 6: SUMMARY: ESI: A MOCKERY OF SOCIAL SECURITY SECTION 6: SUMMARY: MINIMUM WAGES: MAXIMUM CHAOS A. Conversely capital. attempt to estimate the social cost of this loss of skill.V: ‗EXCESS‘ INDUSTRIAL LAND o SECTION 6: SUMMARY        SECTION 6: SUMMARY: WORKERS: SHIFTING SAND SECTION 6: SUMMARY: EMPLOYMENT: JOB LOSSES OUTSTRIP GENERATIONS SECTION 6: SUMMARY: CLOSED. It is necessary to zoom in on the state of being of these ―de-skilled‖ workers.III: A SURVEY ON 500 CLOSED AND SICK INDUSTRIES SECTION 5: FACT SHEET IV: RAJARHAT SATELLITE TOWNSHIP SECTION: FACT SHEET .II: ECONOMIC REVIEW: EFFORT TO COMBAT SICKNESS SECTION 5: FACT SHEET . triggering dismantling of industrial units on the plea of sickness. tea shops and trading points. purchasing power and livelihood and assess the impact of factory lockouts on the urban space these workers once occupied. unprotected workers. leading to thousands of jobless. observe and analyse the effect of closure on the non-worker section of this urban space. This study primarily aims at closely inspecting this synergistic relation between closing down of factories and urban space. on the changes in their lives. instinctively moving from manufacturing sector to real estate business is. SECTION 1 : ABSTRACT Lockouts in the factories of West Bengal continue to play havoc while the plight of workers of locked-out factories remains largely ignored.I: INDUSTRIAL POLICY AT A GLANCE SECTION 5: FACT SHEET . schools. .P a g e | 296 o SECTION 5: FACT SHEET      SECTION 5: FACT SHEET .

The only time his feathers got ruffled was when he said. He was a blower. A tap has been conveniently set up from which we share water. Sixteen years back when Bengal Lamp closed down. But there was no rent either! I must bow my head to the total support we received from the local citizenry.2: Bengal Lamp . Once within earshot distance we asked him which the main gate was. ―Some say that the gates are going to open soon and residential apartments are going to come up. turned around and pointing to a clump of trees at a distance said. Within a month I started this tea stall here. This entire place has changed in front of my eyes‖. ―When I came to Jadavpur from Mymensingh after partition in 1952 I was 14 years old. He got for himself a job in Calcutta State Transport Corporation but moved to Bengal Lamp later. SECTION 2 : VOICES FROM BELOW Section 2. There was no looking back. originally from Siwan.‖ Kanti-da did his LME from Jadavpur Poly-Technique after pursuing studies at the City College.1: Bengal Lamp – Kantida Located opposite the 8B bus terminus. like hundreds of others. expected the reputed ‗Bengal Lamp‘ to open its gates to the workers once again. There were at least 700 workers at the gate. who would blow into the bulbs to give them their shape. Maybe we will then get our arrears including PF dues‖.Jugal Prasad There was this solitary figure walking towards us down the lane that leads to the gates of Bengal Lamp. ―That is the gate through which I entered when I was a worker there‖. his children are graduates today. Kanti-da recounted the events of the day. he said rather matter-of-factly. 16 years back. ―Whom would I protest to? Who would care to listen?‖ in response to a query asking for his reactions about not getting his legitimate dues even after 16 years. It was all over. and a makeshift arrangement for the electricity connection would not have been possible without the initiative of the local youth. He looked up with a hint of a smile and said nothing when one of us asked him about how he felt at the loss of his skill.‖ He proudly declared that despite his meagre earnings. he earned monthly wages of Rs 1800 besides a minimum . ―There was no electricity and water. Pranab Roy officially. He was skilled and worked for years at the glass lamp plant. Being in his mid-fifties. Kanti-da‘s ‗Mithu Tea Stall‘ on the pavement is a popular rendezvous specially for the medical representatives who throng to it throughout the day. He had been compelled to move into one of the dilapidated Bengal Lamp ‗quarters‘ at Ganguly Bagan. he said with his eyes going misty. He measured us nonchalantly. the first shop on the right as one proceeds towards Jadavpur Coffee House. when Bengal Lamp closed down. That was way back in early January 1989. His looks said it all and we knew when to stop! Section 2. Bihar. He was Jugal Prasad. ―It was the day after pay-day! When we arrived at the gate we found that our factory was closed. he did not make any career moves during the early years of closure since he. about ten years back.P a g e | 297 B.

sixteen years later.3: Sulekha Works . But there was fire in his eyes when he spewed venom while speaking about the later day trade union ‗leaders‘! ―If only we were given our PF dues!‖ he said with a body language indicative of exasperation. which shares the common boundary wall of the factory. Maybe very soon the end is going to come.‖ he said responding to the query as to how much income his vocation generates. Unfortunately his newfound contractual job there was short lived since the furnace blew up. Buoyed by virtue of his immense experience and skill he reached Mumbai after Bengal Lamp was locked out. Now. ―Even educated persons like Lalu of Bengal Lamp or Naren Kar of Sulekha are selling potatoes sitting on the pavements for over a decade now! Who cares for them?‖ he said looking straight at us through his high-powered glasses. I don‘t feel like getting up. ― Who knows whether you will be able to find me or not! Every morning my body and soul is getting increasingly demotivated. he gave us a toothless smile and said. For 26 years he toiled it out at Sulekha Works. ―Mine was the only shop in the vicinity – now there are a dozen of them‖. as ―security‖ of one of the apartment buildings. Section 2. I came back to the city where I had grown up expecting the company to reopen. more since I was getting old. Instead of going back to his village with a substantial amount that had accrued from his life‘s savings. ―My son has found himself a job of a driver and does look after his family. and all my money is still locked up‖. he was nearing the age of superannuation. he said with a distinct sign of resignation. but the food did not suit me. I just have a few years left – hundreds of workers are no more‖. ―Then I went to Chennai to work for the makers of Borosil. Narayan said with a wry smile! He is too old now to go through the rigours of frying pakoras. It didn‘t.P a g e | 298 of Rs 400 by way of production bonus.‖ . said Jugal even as a huge sigh escaped shattering the calmness of his seemingly composed exterior. His skeletal physique and laboured breathing indicates that he is not only old but could be sick too. He sits in a ramshackle wayside tea-stall with some jars of biscuits with his aging wife to help him out. When Sulekha was locked out. ―Two meals a day is all that we desire. When we told him that we would come back to him on some other day for some photographs. he earns Rs 1200 per month for providing round the clock vigil. manufacturing ink for fountain pens.Narayan Das Narayan Das came from his ancestral home in Orissa way back in 1955. he had to sit on the pavement frying pakoras and sundry to make two ends meet. a household name in West Bengal.

―Since lockout was declared I earn a modest living by performing puja for families who have been the clients of my father. ―I am just back from Gariahat where I supplied the lunch ‗dubba‘ to a shop-owning family after collecting it from their home at Subhashgram. The patter of drain drops on the polythene sheet conveyed a loud and clear story! Perhaps to save us further embarrassment Manu Sen. you see!‖ He had worked at Sulekha for 27 years and just the other day was shocked to see that there were no longer any machines inside his erstwhile workplace. They give me Rs 500 per month and the cost of a railway monthly between Ballygunj and Subhashgram stations. But what about our unpaid dues?‖ he asked looking straight into our eyes. towards the ceiling fan and tube light in this dark. also a ‗purut thakur‘ (a Brahmin performing various religious rites)‖.5: Beni Engineering . perhaps by reflex action. I could not pay the bills‖. ―See how she suffers? Who will believe that my father was a medical practitioner respected by each and every worker of Beni Engineering‖. ―It has been difficult to pay even the monthly rent of Rs 75 for quiet a few months – how can I dream of repairing the leaking roof spending thousands in the process?‖ His home was pretty near his workplace but now it is rather dilapidated in a state of utter disrepair with even the bared bricks on the wall outside showing signs of weathering. ―Yes. Manu said pointing at his father picture hanging beside the one of Lenin. You have to do such odd jobs to survive. suffering from a nerve disease is like a walking skeleton – symptoms of malnutrition clearly evident in this 16-year-old.Manu sen A large portrait of Lenin hung from the discoloured and damp wall. ―They have disconnected our electric meter.Kalidas Bhattacharya ―I can tell. with a lot of fanfare the factory is said to be reopening. Section 2. Manu said. ―You see that sewing machine? That is what feeds us these days‖. He had somehow married off his elder daughter but the younger. The rain outside and the gloom inside were mentally suffocating for even the bravehearted. he pointed at his dress and said.P a g e | 299 Section 2. hot and humid room. he said when he saw one of us glancing. that you very well know how it is for us!‖ said Kalidas Bhattacharya. .4: Sulekha Works . but what about us? Will we get our dues? Someone said that a part of the factory premise will be handed over to promoters who have plans to build a residential high rise and instead of ink Sulekha will produce ballpoint refills and phenyl. who was a worker at the Sulekha Works before it closed down in January 1989. On being asked as to whether he could earn enough to support his family. There was a polythene sheet draped over the bed. an assembly line worker at the erstwhile Beni Engineering said.

It was established way back in 1908 and when it was locked out it was a Central Government Undertaking managed by the National Textile Corporation Ltd. a losing battle to arrange for a square meal a day. like any brand name. just in front of Prabartak Jute Mill on BT Road. I am dependant on my son‘s income for surviving‖. 2) Ltd. but previously it often crossed Rs 1000. which he can call his own home. Sitting in his home this experienced but now virtually deskilled worker did not look up when he said. He is better off than some of his ex-colleagues since he has an eight by eight room. ― I went to another state but there too the factory was closed down. ―I took my diploma from ITI. a neighbour gave me contacts and I worked as a male attendant at a Hospital for a few years. ―I will never forget the day when I sent my elder daughter to her final Class X examination after offering her two biscuits and a glass of water!‖ Section 2.6: Beni Engineering .Birjan Prasad Sitting on some folded gunny bags under a tree.P a g e | 300 Section 2. Birjan Prasad sells khaini (tobacco for chewing). as ‗Mohini‘ bricks. He has been doing this for the last 18years now – since the day Beni Engineering dropped its shutters way back in 1987. Brick by brick the walls of the sheds.7: Beni Engineering . It was a symbol of pride for this skilled worker who is fighting. Sisir Sarkar was a viceman-fitter at the Beni Engineering. He lives with a relative from and hence does not have to spend for his accommodation. Lakhs of such bricks have been pilfered from the Mohini Mills (No. A . Since I lost that job. said Sisir rueing the fact that in spite of his acquired skills he could not get suitable re-employment to sustain his family when Beni locked out its gates. I need at least three to four hundred rupees per month for my food and the rest I can send back home. buildings and boundary have been dismantled and then heaped by the side of Belgharia Station on the Sealdah Main line. even if.Sisir Sarkar The framed but faded certificate which hung on the wall from which plasters were peeling off was just not a piece of paper. Gariahat and faced a tough interview to get employed‖. a skilled worker of great value to any engineering enterprise.8: Mohini Mills to Mohini Bricks A brand of second-hand bricks is available for building construction in and around the BelghariaBirati-Agarpara area.‖ he said while talking about his family staying at his ancestral village home in Bihar. When I returned. The brick is referred openly. Sisir said with misty eyes. ―I earn at least Rs 500 per month these days. Section 2.

‖ He spoke about the long drawn battle between the State Government and the Punjab National Bank regarding the land of Basanti Cotton Mill. You would see them collecting subscriptions and special donations when we earned. ―Why have most of the looms in West Bengal closed down? What is the use of sharing our experience? We remain in the margins of the society – for eighteen long years – what has anyone done for us?‖ We just had to look away. I have run out of steam! Nothing has happened till then. Time will tell as to how the State Government will be using this resumed land and what responsibility it will take about the unpaid legal dues of the workers. Now. Section 2. He stared us in our eye and shot off a series of questions. they are struggling too. I had filed a case and in October 2003 the District Magistrate (Collector) was instructed to make arrangements for payment of my gratuity. conjures up the spirit of the ‗swadeshi‘-era. He had married off his only daughter by selling off a portion of the land. He said he was not sure whether he would get anything before his death. is ideal for a huge residential enclave. sitting in his Ranibag labour-line room. mosquito nets.‖ said Das with a hint of empathy. which he thought. said Das with a far away look. was not too far away. ―All the unions are the same.P a g e | 301 household name for its dhotis. ―I had been working in this Mill from 1955 and when it finally closed down in May ‘87 I was earning about Rs 2100 per month.9: Basanti Cotton Mills . while its 2079 workers or their legal heirs wait for 8. Basanti Cotton Mills later became one of the famous Swan Group of Mills‖.Sudheer Chandra Das Sudheer Chandra Das is waiting for his twenty six thousand rupees for more than 18 years now! He used to work in a factory whose foundation stone incidentally was laid by no less a person than Rabindra Nath Thakur. 90 bighas of prime land within stones throwing distance from Belgharia station. ―Things have changed so much. They have done absolutely nothing about our legitimate demands or arrears. like the workers. way back in 1934. the West Bengal Government has recently notified that it has resumed the land on which Mohini Mills stands. Besides our wages we had so many other benefits. Responding to what had been done about their legal dues he sounded angry when he said. There is no one to follow it up. . ― The Goenkas took over from the Poddars in 1967. Basanti Cotton Mills. long cloth. bed sheets and shirting. He had earned enough to buy a piece of land and construct a small little house in his village in Nadia district where his wife and two sons live. Interestingly. saris. who had taken over from the Mitras sometime in the early 60‘s. set up by the Mitras. Believe me we were so happy when the factory was open. And now I am a hawker selling gamchas (hand woven cotton towels)‖ he said.5 crores dues. Look at those shops! They had a steady stream of customers. which would in the near future be linked by the Kolkata Metro railway. Mohini Mills now is ‗supplying‘ clandestine bricks.

with support from local citizens. Some of the workers from this unit had regrouped and the well-attended meeting they had organised. As if adding colour to the proceedings there stood a man selling his gas-filled balloons tied by strings to his machine on a cart. His legal dues amounted to Rs. ―I have read the handbill and I am sure we will be able to do something. ―These are there!‖ What he said next came as a sucker punch! ―What can we do? We do not have any strings anymore.11: Hindwire . And he died without food or medicine!‖ How we hoped that the heart wrenching economics rendered by this ordinary worker could cut ice! ―Bhaaion. Just to engage him into a conversation I asked about how many balloons he lost everyday by accident. Previously there were hundreds of stalls and makeshift shops. from a local locked out industry.P a g e | 302 Section 2. Gulab Goyala.T.‖ He was from the same locked out factory and since he wanted to attend the meeting he had parked his cart nearby and did not take the usual route as on other days. Road . The neighbours would feed this jobless hungry man. Section 2. made this Sukchar Morh a hubbub of activity. So the problem of closed units is not for us – the directly affected workers – alone.‖ he said sounding optimistic.Gulab Goyala ―The nature of this intersection has changed beyond recognition. From sunrise till late night. where do you want to go? Back to Bihar/UP from where you had to run away as a child?‖ were his words as he ended his ‗speech‘ at one of the preparatory meetings to the run up to the proposed ‗May Day Bhukha Michhil‘. Hindwire.10: B.wire manufacturing company A leading wire manufacturing company had been locked out for almost 8 years. . 000 of unpaid dues when his factory was locked out in 1998. What about the auto rickshaw operators? We now walk three kilometres instead of jumping on to a shuttling auto since even Rs. was underway. He said.40. vegetable producersturned vendors and shops selling everything that the working population needed. eating houses. Now eight large and many more small units have closed down in the vicinity and the working population are in dire economic straits. ―Don‘t be surprised! Sarkar-da. who was old and sick and unable to walk the streets for work died just last Sunday.000. Like a natural philosopher he tugged at the taut strings to which the balloons were straining against and said. 85. had around Rs. We learnt a lot and we spoke with many of Gulab‘s coworkers telling them that we would come back to learn more from them. The venue was right by the side of the busy BT Road – the ‗Barrackpur Trunk‘ Road – passing through one of the most thriving industrial hubs of yester years. So the balloons have scattered in all directions. 3 is hard to come by!‖ said Gulab while imploring the locals to realise that the demands of workers from closed out units were not only just but also beneficial to the rest of the society.

This was ideally suitable for an exceptionally located riverside residential complex! Before we could complete shooting we were given the charge and the escape route. located similarly beside the river. we were told! Theft. We had to have a suitable escape route since we were not stealing any property. when we used to get our wages. We were keen to take some photographs since we were sure that a closed down unit today could be a residential apartment tomorrow.Singheswar Ram Singheswar Ram hailed originally from Muzaffarpur. 1000 per month. It is ominous when one takes note of the fact that West Bengal Government has identified 1. ―The Government has purchased this unit but has not opened it for 13 years! Why doesn‘t it give us our dues? Just a few months back the Left Front Government has removed all machines and broken down even the sheds from our factory.36. Ram received his provident fund dues in 1989 but he is yet to receive his gratuity sum even after 13 years of the closure. ―Separating one layer of hide from another required good eyesight and high skills‖.12: Thermal Power Station. Is it wrong to hope that they will now give us our dues?‖ he said clinging perhaps to a hope that he would receive his .P a g e | 303 Section 2. Later we heard from various sources that perhaps the Sahara Group was in the run to create a residential township in this industrial ‗fallow‘ land! It was really big! We also came to know that in another nearby Cotton Mill. He was a highly skilled worker in the hide separating section of National Tannery. And this was big! We skirted the boundary and approached it from the riverside. To supplement this poor income Singheshwar does some odd jobs for a pittance. negotiation was on to evict the workers from their quarters and to sell off the quarters to proper ‗promoters‘ who would then get some lovely riverside apartments in place. Local activists told us that there were security personnel galore and half a dozen Doberman guarded the huge area inside. ―In 1989. chosen with care. and maintaining a six-member family was no big deal‖.000 bighas of land stuck up in locked and closed industries and naturally it is considering its ‗fair‘ use! We sincerely hope that the Government will not embark on a project of ‗unfair‘ land speculation in a big way. engulfed us in a maze of lanes through one of those clusters of riverside ‗jhopris‘ beyond the control of the private security personnel.residential complexes The huge Thermal Power Station had been shut down at Shyamnagar. in connivance with those in charge – earth to boiler parts – was rampant. Bihar. I earned about Rs 1700 a month. Section 2. said Singheshwar whose son now works in another leather factory and earns Rs. Shyamnagar . It would help the ‗company‘ financially and would also be a bane to those who would not be able to afford the expensive Sahara flats! It is a pity that the State Government too has actually given a green signal to such a proposal. Singheshwar said with a faint twinkle in his aging eyes. North 24 Parganas.13: National Tannery . it was alleged.

He had to sell a portion of their homestead land to marry off two of his three daughters. Our two own hands were making Bata shoes like ‗North Star‘ and ‗Quo Vadis‘! We worked hard. I distinctly remember those few days in mid-1987 when with a lot of fanfare one Anup Dhar. we never stopped production. Section 2. said Nimai like one possessed. along with his father. He had a vacant look in tandem. was initially a landless labourer tilling some one else‘s land as a tenant at Dhapa – Kolkata‘s waste dumping area in the eastern periphery – where the organic landfill was and is ideally exploited for supplying almost 30% of fresh vegetables to the city markets. For 15 years this skilled worker toiled away on his land by the side of his . popularly referred to as AMCO. ―Otherwise I have to sell whatever little land I have in Bihar before I die!‖ were his parting remarks. Later it acquired a name for producing aeroplane and helicopter parts. ―I joined in the year 1963 and remained in employment till 1985 when the factory was locked out.Jatila Mandal Jatila Mandal was an expert moulder at the Aluminium Manufacturing Company.14: National Tannery . ―After the closure I had to go back to my land to try and earn whatever I could. said Nimai almost smiling as he recalled the good times he had been through. he said rather apologetically. In 1982 he was transferred to the shoe division and by 1989 he was earning to the tune of Rs 1800 per month. ―Then I got sick. How will I manage without the Rs 600 she gives me every month‖. He hated the months during which the Committee of Management ran the Company on a cooperative basis. But nothing happened. ―We were so proud about National Tannery. even in those days I earned almost a thousand rupees per month‖.P a g e | 304 gratuity from National Tannery and pay off his loans in the near future.Nimai Adhikary Nimai Adhikari. The doctor said I had blood sugar and a nerve disease. AMCO was famed initially for its aluminium utensils for domestic use. It was so very difficult after so many years. I have given our farmland on rent. who had bought the company. almost to himself. my family members felt that our hard times were over! I worked very hard and in two years I was no longer a helper. I could no longer work as hard as before. My two daughters had to go to work in a local bulb factory‖.15: Aluminium Manufacturing Company (AMCO) . market was strong – but still the company turned sick. My son and my daughter help me to run the family. declared that the factory would reopen. ―When I got the job of a helper at the National Tannery in 1968. I do not know what will happen when my youngest daughter gets married. Section 2. said Jatila sitting on the steps of his home in the Rajarhat area to the NorthEast of Kolkata. How? Who was to blame?‖ asked Nimai. Though it sounds like a fairy tale. I had no other option but to take to agriculture‖.

When I told him that there were quite a few workers from that unit campaigning from the tableau his eyes lit up and without a backward glance he ran towards the tableau.16: An ousted worker on the streets of Belgharia We were walking along the crowded streets of Belgharia. ―I am being repeatedly deprived of my livelihood. once bustling with large and famed industries like Mohini Mills (NTC). They came in dozens. I stood a while and asked him about his unit. Beni Engineering. Howrah. with his hands firmly clasped behind his back. ―I sit there!‖ Embarrassed for having passed him by unintentionally and touched by his interest in what we had to say. they came in twos and threes. He did keep his promise! Section 2. I lost my job and then here I am losing my land‖. Has he resigned to his fate and is walking. ― Now see for yourself what has happened to my agricultural land! The West Bengal Government has taken it away for a pittance. He was from a composite steel mill at Belur. Feeling a light touch on my elbow I turned back to find a frail smiling man who wanted the leaflet.‖ Pointing at his meagre wares spread out on the roadside. towards pauperisation? Section 2. It was almost five years since they had met! He came back beaming and promptly promised that he would join the Bhukha Michhil on May Day when workers from locked out units would take to the streets of Kolkata. They are building the New Town – Mega City – and they will not allow us to sell our land directly to the developers and promoters. The plans of building multi-storeyed apartments at AMCO made Jatila jobless. said this worker turned peasant who is now struggling as a helper of a construction worker that too when he does get a chance. while the warm reunion unfolded in front of my eyes. too. ― I am a worker of a locked-out unit.P a g e | 305 homestead with help from some hired hands. Our tableau was ahead and a few of us were distributing leaflets as a rearguard. maybe since they are not deemed to be workers . Workers from locked out industries spread far and wide. these days. The current paradigm of development catering to the dreams of some to be able to live in picturesque city extension projects put paid to the aspiration of Jatila‘s peasant self. ask them to attend.17: May Day 2005 On May Day 2005. He looked into my eyes and said. locked out almost ten years back. rather shyly he said. No one. I stood there guarding his ‗shop‘. and others. Whom do I blame? Who cares for people like us?‖ said Jatila Mandal as he walked away with his hands firmly clasped behind his back. They were not obliged to go to the May Day meeting at Shahid Minar organised jointly by all the left Central Trade Unions since their issue was not on the day‘s agenda.

arranging for two square meals a day seemed to be a Herculean task‖ said Balai. And they all walked in the May Day Bhukha Michhil – with banners. 500 per month‖ he said. said Pushpa Pal when .19: Siddhartha Apparels. After closure. he was on a salary to the tune of Rs. Section 2. No wonder since they would earn to the tune of Rs. colourful posters and full throated in their response to the 13 demands of the day. He was a fitter and an expert in dynamic balancing of paper machines. In 1990 I set up a shop. stocking lungi. It requires special skill. slippers. 150 per day besides the usual PF. He suffers from diabetes. At the time of closure in 1986. After 2002 that too has become history. ―My income was enough and everything seemed to be sailing smoothly. After the closure of the factory he rented out one of the rooms to another household and now earns Rs. They were the ones who stitched together the famous ‗Park Avenue‘ shirts. heart ailment and fading vision. When the head of the family can not earn. Balai lived in a two-roomed accommodation in Pragati Pally on Jessore Road. His wife is also not keeping well. marketed by Raymond. So did a couple of hundred seemingly ‗unrelated‘ members of the civil society. They were present in solidarity. ―Frankly there is no value of my life any more.18: Easter Paper Mill .P a g e | 306 any more! They had not heard about Daabi Mancha earlier. No more now. Dum Dum.Pushpa Pal While the state of affairs pertaining to employment of women in industries. but they knew that all the 13 demands being pressed for were related to them. and fight for their just and legal demands. 1500 per month. Section 2. the ‗Park Avenue‘ girls at Siddhartha Apparels did deserve special mention. The grand total – between eleven and fifteen hundred – was immaterial. working with zest and involvement. Balai‘s health is failing these days. who is going to pay heed to even his advice?‖ said Balai rather cynically. It was a hot and humid Sunday afternoon! What is important is that we are now in touch with hundreds and hundreds of hitherto ‗unknown‘ workers from scores and scores of locked out industries who are not only suffering but are also prone to come out of the rut. “Park Avenue” shirts . ESI.Balai Parui Balai Parui was a highly skilled worker of Eastern Paper Mill. in and around Kolkata is grim. They thought quite a few of the 13 demands could be pressed home without much ‗pressure‘ on the cash strapped State Government. into which they have been pushed into. Gratuity and 20% bonus! ―We were a happy lot and we worked with enthusiasm‖. 600 as rent. So they came. 3000 per month. Dynamic balancing is not a job that any fitter can do. bath towels. etc. ―Presently my son is working for a local cable operator and earns Rs. The average profit doesn‘t exceed Rs.

I cannot express how I feel! They will give us more money – 1 crore to be divided among 900 ex-workers – but did they have to break it down?‖ he asked with a tinge of sadness which weighed down heavily on all those present. The economy of our families is in shambles‖. I have been staying in ‗Batli Sau-er Bagan‘ but it seems that we will get evicted since the slum is going to make way for big buildings!‖ said Ambika and a sigh escaped subjectivising his feelings.‖ said Sumita Chakraborty with great conviction. ―I cannot go to a chest specialist and so every month I visit the Homoeopathic Hospital at Salt Lake. Rs 150 per month takes care of my . Back in 1980 he had an assured earning of more than Rs 900. Section 2. ―My factory is gone and now they say it is the turn of my home. ―The management wants to reopen the factory.Ambika Majhi Ambika Majhi. This closure we are certain is to convert protected workers to bonded labour. fresh from Bihar. At the onset shirts from this modern and mechanised unit were exported to Germany when duty exemption was almost 70%. ―I just have about Rs 11000 left from what I got from my Provident Fund. However khaini has been sustaining him for 24 years now. at the age of 24. ―We are determined to fight though our number is shrinking.Bholanath Kundu Bholanath Kundu used to work in the Packaging Division of Kolay Biscuit. There were 169 permanent and 46 casual women working at this unit. Someone has bought Kolay Biscuit and they are breaking it down.21: Kolay Biscuit . Kolay Biscuit celebrates Silver Jubilee of its closure this year (2005). They are saying openly that sooner all of us ‗resign‘ more the chances of reopening early‖. sells khaini on the roadside very near the gate of the factory in which he was a worker. said the likes of Manisha Purkait or Dipali Chowdhury who come to inspect the factory once in a while and almost invariably notice signs of some clandestine work being carried out within the premise perhaps with outside contractual workers. but before that they would like to transform us from wage workers to contractual workers. ―You must be remembering Lacto Bonbon lozenges? It was one of the most popular brands till mid70‘s? I worked in that department!‖ said Ambika running his hands through the white flowing beard while his eyes glittered as it does when one traverses a long forgotten path down memory lane.20: Kolay Biscuit . ‗Park Avenue‘ shirts marketed by Raymond was their staple brand. now well past 70. Later when such exemptions were removed.P a g e | 307 we met a group of about 15 female workers in front of the closed gate of Siddhartha Apparels. He had worked for 28 years after having joined the company. He is in his mid-60‘s and has some serious problems with his heart. said Malati Kundu. Section 2. ―Some of us have to work as hospital attendants and maid servants but most of us are jobless.

―Now I live at Kailash Bose Street in Central Kolkata and as means of living some of us have teamed up to cook food during marriage ceremonies and also serve the food. Section 2. ―The way they treated us that day was shameful.‖ They live in a makeshift shelter by the side of the train line and even to repair it he has to spend Rs.‖ said Bholanath rather shyly for his age. At that time many from Orissa came to work in the bakeries and biscuit factories in West Bengal. 500-1000 at least once a year. Selling a gunny bag of potato leaves a profit of Rs30. Our family now is made up of our grand daughter and the two of us. ―Our elder son is an alcoholic.Anando Ganguly Anando Ganguly joined Metal Box as a fitter in the year 1956 and within 3 years became a permanent worker. I was among the large group of Oriya workers who left Britannia Company and came over to Kolay Biscuits. since its inception. Throughout the 70‘s Harekrishna was at the front of all political activities in this area.Harekrishna Mishra ―I had joined Kolay Biscuit in 1966.‖ said Harekrishna with a defiant look. ―Yes.‖ said Harekrishna Mishra. The Beleghata Local Committee of CPI (M). ―I had been promoted and at the time of closure I was earning to the tune of Rs 6000 per month. Interestingly his membership was not renewed since by then he had started expressing his strongest reservations about the manner in which some of the party leaders and trade unionists were out to please the owners of Kolay Biscuits to remain in their good books. For 15 months the workers were asked to clean the premise of Kolay Biscuit and help in maintenance and we did so with all seriousness against a daily wage of Rs 40. He became a party member in 1974 and remained so till 1992. I was from Basudebpur in Bhadrak District of Orissa.P a g e | 308 medicine bill. Was this the same party for which we were prepared even to give our blood?‖ asked Harekrishna and one knew that the fire within him was still burning. He signed off when he looked up and said. and up to mid80‘s. Not looking at us he said. Finally on 3 September 1997 when the Chief Minister and dignitaries came to start production we were not allowed to enter the factory. Quite a few of us refused to shift to Government jobs since during our time the . The youngest is physically challenged.23: Metal Box . I sell potato on the streets. had such workers in its fold. we are still alive!‖ Section 2.22: Kolay Biscuit . but he too is an alcoholic and he begs for alms to sustain himself. As a result he along with some of his colleagues had to stay away from the factory and from his Kolkata home between 1972 and 1977 like thousands of other CPI (M) activists during this period. He was one of those workers who were closely associated with the CPI (M).

What do they expect me to do? They have lost my file. ―They say that my file has been lost. Actually feeling harassed I had given a lady officer a piece of my mind and I am sure she did not like it. After the closure he took three consecutive jobs in small containermanufacturing units.Anima Chakraborty Tapan Chakraborty used to work at the garage in Metal Box.‖ he said with a longish sigh. where the private security men stay these days. As per rules Anima was supposed to get Rs 500 from the State Government as financial assistance being a widow of a worker of a locked out industry. Can you believe that?‖ said Anando almost quizzically. he told us that it had earlier been their canteen and recalled how they were given a lavish lunch for 31 paisa during the heydays of the company.‖ She earns a pittance as a tutor and somehow survives with some help from well wishers. ―All of them closed down after one or two years! Can you beat that?‖ he said almost in triumph! His wife fell down and fractured the head of the femur bone and now Anando has to stay at home to do the needful. We have nothing left. Anima Chakraborty. I have gone there repeatedly but to no avail. with his name and number embossed on it. Pointing at a building. These days I am a petty salesman distributing whatever comes my way for a commission – be it tea or plastic bags. He remembered the costly Rolex watch. presented to him when he completed 20 years of service at Metal Box. ―How can they boast about industrialisation when they stand as spectators while hundreds of factories like ours get locked out?‖ Anando said with discernible tinge of exasperation. ―My son works in a automobile company and his ESI coverage saved us from further problems. But we could not save him. the benefits in cash and kind were innumerable and one did enjoy a better social status and respect. He was the generator operator at the time of closure. Will I have to beg to them?‖ said a visibly resilient Anima. Those were hard times but nothing compared to what we had in store! The doctors told us that he had cancer. I think they are doing it on purpose. ―We could not believe that a factory like Metal Box could close down and remain closed. Section 2. At times he would cycle to as far off as Dakshineshwar to deliver packets. his wife said ―My husband used to work with a courier company after the company closed down.24: Metal Box .P a g e | 309 salary at companies like Metal Box was much better. We sold our ornaments and took loans from family members and friends and he was operated upon. One cannot be a woman who protests to get things done in a Government office! . For the first few months she did get it but then it stopped.‖ Anando said while standing in ‗his‘ factory amidst the rusted idle machines many covered by bushes.

it may sound unsound. The symptoms of destabilisation of the economic equilibrium of the region around the locked out industries have become so tell tale. including foreign textile. This is where the unemployed youth would work for gain. The two doyens of Indian nationalism – Acharya P C Ray. It was surprising to hear the emotional outbursts of surviving old timers when they recalled the economic and other support offered by the company for meeting the expenses of religious festivals. Economic support for children‘s education was easily available from the management. Sri Durga. After partition members of refugee colonies secured employment. Mohini were high up on this list. Bangodaya. which has precipitated a crisis in the lives of the lakhs of workers? There has been commonly uttered concepts like ‗social responsibilities of workers and their preparedness to make sacrifices‘. National Tannery was set up in 1905. SECTION 3 : SICKNESS PROFILES In this section the state of affairs in 14 industrial units have been discussed in brief. Annapurna. Sickness profile I: National Tannery: A Story Which Stands Out 1. social gatherings and special celebrations which were organised invariably within the campus of the mills.25: Endpiece In the Swadeshi era the movement for boycotting foreign goods. which came up in Undivided Bengal. ‗assurance by the government to become more human‘. Then there was an effort to provide economic independence to women and hence mills like Basanti had crèches even 70 years back. It was really astounding to hear these senior citizens recount the various humanitarian responsibilities over and above the economic benefits accorded by the various mill owners of bygone eras. was magnificently complemented on the industry front when a number of Cotton Mills were set up and Basanti. The State Government with great conviction talks about poverty being a matter of the past and prophetically announces fulfilment along the road ahead. were aimed not only to reap profit. The mill owners. Most of these mills supported setting up of consumer cooperatives to offer workers with fair price shops. What has happened during the last few decades. the famous Professor of Chemistry and research scholar who championed the cause of . The jobless and hungry workers and their relatives stare blankly and ask weakly – ―Who goes ahead and who falls behind?‖ C. Dozens of such cotton textile mills.P a g e | 310 Section 2. had other social aims too.

the proposal submitted to the West Bengal Government was pretty rational. The State Government declared National Tannery as a ‗relief undertaking‘ to insulate the sick company from the creditors who were thus prevented from going into legal action including liquidation suits. In 1974 IRCI (later known as IRBI and presently IIBI) made some investments in National Tannery on pledging shares to different financial institutions. In the first 4 months of 1983 (January to April) workers did not get their wages. ‗Quo Vadis‘ and other value-adding products for Bata. It was a peculiar norm adopted by the IRCI. 7. Other than the Bata India Ltd. 5. 9. which had all the potential to become viable. 2. The Company started turning sick from early ‗70‘s owing to lack of initiative of the management and alleged financial irregularities. Working capital. could not be reopened owing to the lack of a suitable entrepreneur. Sanjay Sen. Interestingly. The BIFR. It used to produce ‗North Star‘. Mr. 11. 4. 3. He marked how salted cowhides were limed to take of hair and how dyeing was done. Nil Ratan Sarkar. In May 1983.P a g e | 311 indigenous industries competing bravely with the capital intensive British companies. During late ‗80‘s. West Bengal Government told the Calcutta High Court. a legendary physician of the period – took lead roles to establish it. the Company‘s loans rose to a whopping Rs. National Tannery survived only on job work. that National Tannery. The company flourished in the mid-1950s under the stewardship of Sanjay Sen. refused to grant an appointment to SC Sen.Products of National Tannery earned reputation worldwide. with the Janata Dal-led Government at the centre and Sri Arun Nehru the Union Commerce Minister. agreed to act as part-time chairman on being requested by the West Bengal Government. Coal India. 12. Much later. Bata was the main customer. During this period. during whose regime in the pre-IRCI period. term loans and even cash loans were liberally sanctioned to the erstwhile managements of sick companies. However in 1985 IRBI dissolved the Board of Management and virtually abandoned the Company. Its footwear division was established in 1969. Rs 9. The Reserve Bank of India in more than one study concluded that more than 80 per cent of companies became sick due . for unknown reasons. Leather and chemicals were supplied by Bata and for each pair of ‗North Star‘ shoe. Kumarmangalam died in 1987. Strangely the State Finance Minister. 10. put it on liquidation. in the absence of any rehabilitation scheme.9 crores. and Dr. There was no ‗proverbial‘ labour unrest or dearth of market whatsoever. Workers did not get even half of their wages during the period. The last full time Chairman. the State Trading Corporation proposed to set up a production unit at National Tannery. National Tannery was the only factory in Eastern India. M K Gandhi visited the National Tannery in Calcutta and with keen interest saw the process of manufacturing chrome leather. Later on Sanjay Sen became the owner of the factory. a Bengal based industrialist. which had a footwear division. for example. in spite of the fact that the same management was responsible for the economic doldrums. Chairman STC. Since the Company already had the basic facilities.50 was paid to National Tannery. 6. 8. The NTCL was referred to the Board for Industrial Finance and Reconstruction in 1989. formerly Chairman. J G Kumarmangalam. in the year 1997. IRBI took over the management of National Tannery. The Board of Directors included some representatives from those financial institutes but was chaired by Mr.

The Government representative went on record stating that the government would sit with the workers and solve the . notice was released in the newspaper for sale of the Company. the Calcutta High Court ordered that the canteen should be reopened. 21. Ultimately. work to be started and salary to be paid from February 1991 to August 1991. declaring lockout. Workers who were present in the High Court appealed to the Court to accept the LF Government‘s proposal. 17. On 10 July 1990 Calcutta High Court ordered the sale of the Company as a going concern. 14. The Chairman of the Committee of Management was the General Secretary of CITU-led union.300 to Rs. Despite repeated protest and deputation given to the Labour Minister. 2 from INTUC and 1 from Officers‘ Association. Its advocates in a reply submitted that the Government of West Bengal would purchase National Tannery as ―a going concern‖. Union election did not take place for a long time.P a g e | 312 to ‗management deficiency‘ and seldom due to militant trade unionism. A Committee of Management consisting of 5 workers‘ representatives was formed under the Official Liquidator to run the Company during the interim period. the Committee of Management closed down the factory. The Committee of Management was formed without bothering for the opinion of general workers and employees. 50 lakhs. Most probably. The five-man body pasted a notice at the factory. on 11 March 1991. the canteen was closed without any notice and workers‘ salaries were also stopped.5 crores but declined to increase wages. There was no proper accounting of job work. by order of the Court. 20. West Bengal there was no result. It consisted of 2 from CITU. The High Court admitted the petition of the workers. The High Court also ordered that all machines removed from the factory should have to be returned and reinstalled. Ultimately the workers went to Calcutta High Court against the Official Liquidator and the Committee of Management making various allegations of corruption. The Calcutta High Court ordered that Rs. agreeing to take over the responsibility of paying workers‘ dues amounting to nearly Rs 3. 400 per month. This was for first time when two labour unions. On 12 September 1991. The State Government submitted to the Court that the West Bengal Government was prepared to take over the factory at a price of Rs. 19.8 lakhs should be given to the employees as salary arrear. During the period regular work had been stopped other than sundry job work. During a 10-month period after formation of the Committee of Management workers did not get their salary for 7 months. belonging to CITU and INTUC. But the High Court was unwilling as the price was exceptionally low. But this order was also disobeyed. 13. Self-proclaimed leaders of the union who had seized union leadership incurred wrath of the common workers and employees. In May 1991. month after month. there is no recurrence of it to date. 15. had shut down any establishment in India. in response to the said notification for auction by the High Court. As a matter of revenge. 16. Employees and workers did not get even Rs. appointed a Special Officer and ordered an enquiry. 18. The account presented by the Special Officer to the Court revealed financial irregularities and a gap of Rs. Management deficiency very often was in content financial mismanagement including siphoning of funds. But this order was never obeyed. 8 lakhs during the 10 month period when the Committee of Management ran the factory. The State Government offered to acquire the National Tannery on liquidation. Customers of the company for job work were asked to remove their materials. 5 machines of the Footwear Division were also removed.

50 lacks to be deposited by the State of West Bengal and the Hon‘ble Justice was. 22.09. With the operation of tanneries being specifically prohibited in this area beyond February 2002. in an environmental-friendly industrial unit to be established by resourceful entrepreneur/business house duly selected by State Government. In March 1994. It was also submitted that the Government would be agreeable to work in such a joint venture project and also agreeable to compensate those workers who may be found not capable of being absorbed on health ground or otherwise. 28. the State Government has paid Rs 3500 to each worker incurring another 15 lakhs in the process. 31.11. besides the 50 lakhs it had invested initially.15 lacks i. Since then. which wants to set up a Garments Park.3500 per head have been paid to the workers and that the factory will be reopened soon.1991 the Hon‘ble Justice Ruma Pal passed an order directing sale of National Tannery in favour of the Government at a cost of Rs. On 18. Rs. 25. National Tannery has not opened till date. the said tannery. 27. despite sincere efforts of the state government cannot be reopened at the place where it is situated. 29. The present market value of these is conservatively estimated at Rs 50 crores. However. The workers severed links with CITU or INTUC.76 crores for the assets in addition to Rs 65 lakhs to the workers‖. however. . However till date the Government has not gone into any negotiation with the workers. But then it stopped paying instalments. stated in the ‗Economic Review‘ that the State Government had bought National Tannery. The STC offer apart. On 10. The government paid Rs 5 lakhs being the first instalment of Rs 50 lakhs and another Rs 10 lakhs thereafter.1994 the Government informed the Hon‘ble High Court that a sum of Rs. But there was a decade long gap between the purchase of National Tannery by the State Government and the SC verdict. the State Finance Minister. 23. The AG was actually referring to a Supreme Court order (M C Mehta case) for relocation of such factories from residential areas or around. The Official Liquidator then moved the High Court for forfeiture of Rs 15 lakhs.5 crores by way of outstanding dues to workers of National Tannery.e. By that time National Tannery Bnachao Committee (Save National Tannery Committee) was formed comprising of 305 out of 365 workers. This despite the commitment in High Court that it will pay 3. He stated in the High Court that the ―tannery unit was located in a congested area. He made a commitment before Justice Ashim Kumar Banerjee of HC of Calcutta on 4 July 2003 to ―pay a sum of Rs 1. Dr Ashim Dasgupta. The State Advocate General did not show any interest about the proposal. 24. as per Supreme Court order. 32. Hence. It was only then that the advocate-on-record appeared before the High Court. The state government has now decided to go for a joint venture‖. The State Government took over National Tannery in September 1992. NTCL has free-hold land measuring 7 acres plus leasehold lands measuring 4 acres at 19 Canal South Road under Tangra Police Station. NTCL was transferred to the Commerce & Industries Department of this Government.P a g e | 313 issue of outstanding dues. as assured. Basanta Saha. 30. 26. State Government proposed before the Hon‘ble Court for utilization of the assets of this unit. pleased to direct the Government that the workers dues shall be settled in consultation with the workers. seeking time to pay the remaining Rs 35 lakhs. Industrial Reconstruction Department has since considered that it has no expertise in the promotion of industrial investments in the State. owner of Amicos Chem (India) offered to take over National Tannery.

Sickness Profiles . appeared in the advertisements for Kolay Biscuit. The Shramik Karmachari Sanghati Committee (meaning Workers and Employees Unity Committee) a non-affiliated body. 12. 5. The Kolay‘s were a Zamindar family hailing from the Bankura district of West Bengal. Machines and equipment of National Tannery were being dismantled or broken into pieces. which on 11 August 1991 sent the unit to the High Court for liquidation. is the largest wholesale vegetable market in West Bengal. on behalf of the workers of Kolay Biscuit appealed to the High Court for payment of their outstanding dues. Bimal Krishna Kar and Kamal Krishna Kar as its three Directors. 3. 2. 9. The owner of Kolay Biscuit was Jagannath Kolay. was sold at over Rs 1. Kolay Biscuit: 25 Glorious Years Of Closure 1. United Bank of India‘s appeal for sale cancellation at the High Court was dismissed in December 1996. 34. (c) Rs 1200 would be given to each worker and as a result 300 workers were paid the said amount by October 1997. December 15. (b) when need for more workers would arise at a later point of time. Both were household names even if for different reasons. This money will go to the state exchequer. a Congressman who once became a Central Minister. It was sent to the BIFR. 2004 witnessed an unprecedented scene at Tangra in east Kolkata. This family took keen interest in industries and one by one set up factories like Nafar Chand Jute Mill. This is nearly double that the state government incurred so far towards the National Tannery and its staff members. such workers would be employed from the families of retired workers.II. 14. 4. 13. The new owners took over possession of the factory in December 1996. Kolay Market. in July 1996. Kolay Biscuit was locked out on 17 October 1980 right in the middle of Durga Puja that year. according to a very reliable source. Inability to withstand increasing competition and the failure to invest for timely modernisation resulted in sickness and closure of all the industries once owned by the mighty Kolays. the High Court issued a sale notice for Kolay Biscuit as a going concern. Indrani Soft Drinks was the lone bidder who brought the unit for Rs 67 lakhs when the valuation was just ten thousand rupees less. Renovation work started in January 1997 while by August in the same year trial production runs were started. 11. resulted in serious trouble for these otherwise viable industries. Kolay Steel and Kolay Biscuit beside some other lesser-known factories.P a g e | 314 33. 8.2 crores. One of the machines. 7. in response to an appeal by the Sanghati Committee. 10. Family squabbles resulting in fragmentation of the property followed by ups and downs in the power corridors at both the Central and the State. and the same was accepted on 21 April 1995. A memorandum of understanding was signed on 25 July 1997 between the workers and the new management in which it was stated that (a) able bodied workers would be re-employed. next to the Sealdah Station. At the auction in August 1996. The Kolay Biscuit Company (1996) was set up with Nani Gopal Das. . Later. Even in the 70‘s the unparalleled superstar of Bengali film world. Uttam Kumar. 6. Biscuits thus produced were distributed free in the adjoining locality. thus taken away.

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15. On 3 September 1997 the then Chief Minister Jyoti Basu formally ‗inaugurated‘ the factory in presence of a galaxy of political bigwigs. The list on that day included Ajit Panja (MP), Santosh Mohan Dev (Central Minister) and Manab Mukherjee, Subhash Chakraborty, Mrinal Banerjee – all State Ministers. 16. Within days of this ‗inauguration‘, Greater Calcutta Gas Supply Authority, a Government of West Bengal undertaking, stopped the supply of gas to Kolay Biscuit as a result of which the unit could not start its commercial production. 17. Till date it has not produced another biscuit. 18. West Bengal Industrial Development Bank sanctioned Rs 33 lakhs for purchase of new machines with which to start the factory. The machines were ready for production. 19. On behalf of the workers, Sanghati Committee submitted a claim to the Official Liquidator for the arrear salary for the month of October 1980, the bonus for the same year and outstanding gratuity payment. 20. United Bank of India, a secured creditor, appealed and the Supreme Court on 20 August 2000 cancelled the 1996 sale of Kolay Biscuit to the Indrani Soft Drinks, further ordering for revaluation of property and fresh sales proceeds. 21. Consequently on 28 November 2003 Kolay Biscuit was put to auction and Comsource Data System, Information and Technology paid up Rs 1.01 crore to take possession of the company. 22. In July 2004 the factory sheds, buildings and machines were dismantled.

Sickness Profiles - III. Eastern Paper Mill: Locked Out But Open

1. Eastern Paper Mill is situated on the VIP Road – which takes one to the Kolkata Airport – near Ultadanga at Dakshindnari. 2. Paper machineries were manufactured at this unit. 3. Upwards of 30 leading paper mills are locked out or closed in West Bengal, including the famous Titagarh Paper Mill and the Bengal Paper Mill. 4. The cardinal reason for sickness in the Paper Mills of the State emanates from the paucity of raw materials, bamboo, which stopped coming in from Assam since the AASU movement. Factually the modernisation and appropriate mechanisation of these Paper Mills, which could have utilised locally available alternative raw materials for manufacture of paper, did not come about. 5. Most of the Paper Mills in West Bengal, which almost invariably were sent to the BIFR, were granted approval for huge investments for revival. In many cases Banks and Financial Institutions invested according to revival schemes but nothing worthwhile evolved. 6. Eastern Paper Mill was sent to the BIFR in 1989. 7. In mid-1991, the Company sold 42 kathas of prime land adjacent to the premise to one Ganesh Prasad on the plea that they had to mobilise resources for depositing the promoter‘s contribution related to the Revival Scheme to be submitted to the BIFR. The management also promised to pay two months wages to all the workers, though they coughed up a month‘s salary later. 8. The Management of Eastern Paper Mill appealed for permission to sell its land but in absence

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of any viable revival package BIFR ordered for winding up on 12 November 1991. 9. Eastern Paper Mill appealed against this order of the BIFR at the AAIFR, which on 26 August 1993 ordered for liquidation. 10. The owners of this unit went to the High Court and filed a writ petition against the liquidation order passed by the AAIFR. The Calcutta High Court dismissed the appeal on 3 August 1994. 11. The Company once again moved the High Court against the winding up order passed by the BIFR. The Calcutta High Court dismissed the appeal on 29 July 1997. 12. On behalf of the workers, Sangrami Shramik Union (meaning struggling workers union) moved the Company Appeal Court, which consequently, on 9 August 1999, dismissed the appeal of the management for being allowed to sell all property including land. 13. The Sangrami Shramik Union appealed to the Kolkata High Court demanding for winding up of Eastern Paper Mill as per clause 529A of the Company Act. Interestingly, in connection with the said petition, the High Court has allowed the management to sell the land of this factory in what now is a prime residential area to the north-northeast of the city. 14. As per High Court order dated 1 February 2005, the Company was permitted to sell only the surplus land and the outstanding dues of its secured creditors would have to be paid. However the said order did not mention anything specifically about the outstanding dues of the workers. 15. The Management of Eastern Paper Mill had informed the High Court that they would get Rs 24 crores by selling the land while the total workers dues including due wages, bonus, gratuity and Rs 45000 to 200 workers as VRS stood at Rs 4.86 crores. 16. However between 1996 and 2002 every single mou between the Company and the workers it had been mentioned that the total outstanding labour dues stood at Rs 11.63 crores. 17. It was further ordered that the sum of money be deposited with the two Special Officers appointed by the High Court. 18. Eastern Paper Mill has 28 bighas of land of which sheds, buildings and machines occupy 11 bighas. Whether it is the Company or the UBI, which is going to dismantle and remove these machines, is sparking off a lot of controversies at present. 19. The Regional Provident Fund Commissioner in connection with PF default has attached a little over 4 bighas of land belonging to the Company. 20. There is a three-storied incomplete construction adjacent to the factory, which in 1979-80 had come up for a tissue paper plant. It was said that Eastern Paper Mill had an order for Rs 35 crores worth of tissue paper for which UBI sanctioned a loan of Rs 7 crores. Presently the outstanding dues have gone up to Rs 15 crores and the building remains unfinished. 21. The Company had started a foundry at Narayanpur, which also had been locked out long back. 22. Financial assistance of Rs 500 per month given by the West Bengal Government to workers in locked out industries (FAWLOI Scheme) have not reached the toilers at Eastern Paper Mill. This despite the favourable decision of the Scrutiny Committee of the FAWLOI Scheme. The concerned department has opined that Eastern Paper Mill has not been properly locked out as per law. It is held that the company is virtually open. The workers have no work, no wages but were required to give their attendance every day at the main gate between 2001 and 2003. 23. On 12 March 2001 a landmark fiasco was enacted in front of the Main Gate of the Eastern Paper Mill. From a dais especially set-up for the purpose, the West Bengal Finance Minister Ashim Dasgupta in presence of other State Ministers including Mrinal Banerjee, Subhash Chakraborty, the owners and trade union leaders said, ―Come to the Writers Building tomorrow

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itself and take Rs 50 lakhs. Give some money to the workers and open the factory right away!‖ 24. The headlines of leading dailies applauded the ‗reopening‘ of a closed unit after 11 long years. It was stated that with the co-operation of the West Bengal Government, Rs 21 crores would be mobilised by selling land and the owners would contribute Rs 70 lakhs. 25. The factory did not open; the 550 workers did not get back their work or any of their outstanding dues. Moreover caught up in a controversy about its status, the workers were denied the monthly financial assistance of Rs 500. 26. Presently the workers have united again. They are fed up with promises and assurances of revival. They insist that their outstanding dues be paid and they do not care any more whether the sum is made available by selling the land or through other means.

Sickness Profiles - IV. Dunbar Cotton Mills: Resuming Land – Government Style

Dunbar Cotton Mill had remained locked out for 19 years. Locked out remained the legal dues of the workers too. On 28 June 2005, Land and Land Reforms Officer, Barrackpur-1, issued a notice, which was pasted at the gates of Dunbar Cotton Mills. The notice informed all concerned that all efforts to hand over or take possession of the 56.919 Acres of land, previously belonging to Dunbar Cotton Mills, was illegal since the said land has been resumed by the West Bengal Government as per Rule 6(3) of West Bengal Zamindari Abolition Act vide Order No. 1979 LR/5M-2/05 GE. (M) dated 6.6.2005 of the Land and Land Reforms Department, Government of West Bengal. Some time prior to this effort of the Government of West Bengal to resume the land, there was considerable tension following the attempts of one Mahesh Agarwal who on behalf of Emtec Dealers tried to take possession of the land belonging to the Dunbar Cotton Mills. The workers were pretty apprehensive about the possibility of eviction from the labour barracks. The local Legislator, Haripat Biswas, stood solidly beside the workers and came out with scathing attack on the role of all the trade unions and his own party. At this point of time the District Superintendent of Police had given commitment that the workers would not be evicted and till all arrears were paid to the workers no one would be allowed to take away anything from the factory premise. To protect the rights of the workers, ‗Dunbar Bnachao Committee‘ (Save Dunbar Committee) was formed which, with full support of the local Legislator, demanded that nothing but industries would be allowed in the premise of Dunbar Cotton Mills. Under such circumstances, this latest move by Government of West Bengal to resume the said land has thrown open the issue into utter confusion. Workers in the past had been told that a new owner had taken over Dunbar Cotton Mills and that all arrears and dues would be cleared within a month. Nothing happened even after three months. Similarly they had witnessed the efforts of one V P Sarkhel who had submitted a counterfeit cheque while taking over the factory and before the fraud was detected, removed materials and machinery worth a crore of rupees and cut down and removed quiet a few trees from within the

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premise. Later, however, the police arrested him. Presently the owners of above-mentioned Emtec Dealers have moved Court in connection with taking possession of the land in question. The workers are, perhaps understandably, apprehensive about getting their legitimate dues.

Sickness Profiles - V. Metal Box: A Scene from the Assembly

Metal Box located in the Taratala-Hyde Road Industrial Area towards the Southwestern part of the city has left its signature in dozens of items used by millions. The product line included the tube of toothpastes; containers for coconut oil, shoe polish and rasogollas; seal of the batteries; ornament boxes; five litre tins for oils etc. Metal Box has not reopened after 28 December 1987. On 10 May 2005, a letter was despatched by the OSD, Industrial Reconstruction Department, Government of West Bengal to Sri Vinod Krishnan, Chairman & MD, Metal Box stating that the Minister Sri Nirupam Sen has directed the Department to communicate that in connection with reopening of Metal Box, No. 1 Unit, a meeting has been arranged for at the Minister‘s Chamber in Writers Building on 17 May 2005. Incidentally such letters have been sent on a number of occasions in the past but the Chairman & MD, Metal Box had not turned up for such meetings. On 29 June 2005, the Leader of the Opposition Sri Pankaj Banerjee addressing the Minister Sri Nirupam Sen stated on the floor of the Assembly that the Management of Metal Box, without informing the State Government or discussing with the Unions had resorted to lock out way back on 28 December 1987. At that point of time there were 2600 workers at Metal Box. Since then 10 workers have committed suicide, about 350 workers have died of ill health caused by joblessness, non-payment of dues and hunger while at present there are only 500 odd workers below the age of superannuating. According to their balance sheet their outstanding PF dues stand today at Rs 5 crores. Today they are selling off their property at their erstwhile headquarters at 59C Chowringhee Road and the premises on New Road and Belvedere Road. Neither had the management taken permission of the Minister nor did they hold any discussion in this matter. He asked as to what the IR Minister Sri Nirupam Sen is thinking and what he intends to do about Metal Box. In reply to this the Minister Sri Nirupam Sen said, ―It is clear from the letters read out by the Hon‘ble MLA Sri Pankaj Banerjee that the State Government has not been sitting idle… The properties you referred to have been sold by the orders of the Court and the State Government has very little power in this regard. Anticipating that they might demolish the property, clear up the land and then try to use the land for any other purpose I have asked the Kolkata Corporation to keep a letter ready…What I want to state is that in respect to the laws of the land and considering the limitations that the State Government has about being capable of reopening Metal Box, we have repeatedly tried to arrive at a solution, which is amply clear from the letters you had read out. I am not aware as to what else we could have done given the state of the legal position pertaining to this matter.‖

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Responding to the above statement of the Minister Sri Nirupam Sen, Sri Pankaj Banerjee said, ―The Hon‘ble Minister has stated that he has not been able to do much owing to the legal framework of our country. May I state for your information that Smt Jayalalitha, the Chief Minister of Tamil Nadu, had confiscated the entire property of the Metal Box in Chennai and told the management to seek permission from the State Government before selling the property and pay all the outstanding dues of the workers after selling the same. In this way the management of Metal Box had to sign on a written commitment before seeking the permission of the court to sell the said property. Since the same set of laws holds good in all States, the Government of West Bengal could also confiscate the property of Metal Box. But no such action was taken! Allow me to inform the Hon‘ble Finance Minister that the management of Metal Box is so dishonest that they have Rs. 71,35,21,254 as outstanding Sales Tax dues. You did not do anything and when they went to Court the State Government remained un-represented. As a result a one sided arbitrary decision was taken.‖ Metal Box management had given cheques to about 200 workers as payment in settlement of their PF accounts. All these cheques bounced. FIR‘s were lodged but no action was taken. Sri Nirmal Ghosh, MLA, who is also a member of the All India PF Trustee Board, lodged this complaint. On 29 March 1999, the then Industrial reconstruction Minister Sri Mrinal Banerjee had announced that in order to open the factory the West Bengal Government would give Rs 5 crores as loan to the Metal Box management. This decision was communicated to the Delhi High Court where a case pertaining to revival of Metal Box was being heard. It was also communicated that the West Bengal Government would allow Metal Box to sell off as much of its property as it wished for the sake of rejuvenation. As per the revival package No. 1 Unit of Metal Box was supposed to be reopened in 2003 and 1000 out of a total of 1800 workers was to get back their jobs.

Sickness Profiles - VI. AMCO: Twenty-One Years of Unpaid Dues

1. Aluminium Manufacturing Company, popularly referred to as AMCO, was established in the year 1922. 2. Of its products ‗Crown‘ brand was a household name. 3. When it was locked out in 1984, there were 1100 workers in AMCO. 4. The secured creditors including IRBI and other banks appealed to the High Court and consequently it was sent for liquidation. 5. On 3 July 1987 the entire property of AMCO was handed over to the Oriental Sales Agency against payment of Rs 1.5 crores as orders of Justice Manjula Bose. 6. Justice Bose categorically stated that the bid of the Oriental Sales Agency was upheld in spite of a number of higher bids that day, since the new promoter had ―also accepted the Courts view that the sale is for the purpose of running the factory and not for the purpose of dismantling the same.‖

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7. In the order of Justice Bose it was reiterated that ―it is made clear that the sale is being confirmed only taking into account that the factory premises being purchased … for the purpose of running the factory and the interest of the workers, the same will not be dismantled at any point of time.‖ 8. On that day a concern that had prayed for dismantling orders offered to pay Rs. 2 crores and yet this higher bid was disregarded in order to allow AMCO to be sold only as a going concern. 9. Another part of the said order of Justice Manjula Bose read ―… as the Court considered the interest of the workers to be of paramount importance and a matter to be considered along with the interest of the Company, inasmuch as it was the hard labour of the workers which was created the Company to exist all these years. Now that the Company faced closure, it would not be right to throw them out on the street, when there is an offer for the Company to run, and an offer made to re-employ all the workers who had been on the payroll…factory should be sold in running condition so that the factory workers should not be thrown out of work and / or employment.‖ 10. The humanitarian angle in the said order is truly exemplary. During the last two decades when the juggernaut rolled over thousands of factories a High Court Justice coming out in open support for the right to life, livelihood and work of lakhs of workers in locked out industries is indeed a rare event. 11. A few days prior to take over of AMCO, Sri Anup Dhar the owner of Oriental Sales Agency, signed a mou with the Joint Action Committee, which was formed with representatives from all the Unions of the unit. It was stated that the workers would be given Rs 66 lakhs in 3 instalments comprising of wages/salary for 10 months; those who were above 55 years would be removed from service after payment of an additional amount corresponding to 16 months of salary. This was contrary to the letter and spirit of the High Court order. 12. Similarly the Court order was again violated when all the plants and machineries were removed from the factory on the plea that these old machines were to be replaced by new ones in order to restart the factory. 13. Since then what remains of this factory is the skeleton of the shed and the empty land! 14. In the meanwhile in July 1987, the news of the ‗victory‘ celebrations appeared in ‗Ganashakti‘ and the luminaries who were present included the Labour Minister, Sri Santi Ghatak, Sri Subhash Chakraborty and leading CITU and INTUC leaders of the area. 15. In 1989 the non-affiliated workers organisation – AMCO Sanghati Committee (AMCO Unity Committee) – appealed to the High Court. 16. In a order signed by Deputy Secretary, Land and Land Reforms Department, Government of West Bengal dated 14 June 1994 it was stated ― therefore in exercise of power conferred by subsection (3) of Section 6 of the said [West Bengal Estate Acquisition Act 1953], the Governor is pleased to declare that 14.7055 acres of land as described in the enclosed schedule stands hereby resumed by the Government as the same is not required by the said Company and as such, the said Company is not entitled to remain in possession of the said 14.7055 acres of land.‖ 17. It transpired from the statements of the then Deputy Secretary that following an enquiry made by the department the government has come to know about 300 such instances where land of such locked out industries is lying unused or in some cases such land has been handed over without permission or where the nature of land use has changed. The government had decided to resume the said lands like those at Hindustan Textiles, Motor Machinery, Beni Engineering and so on. 18. By reasonable estimate the Government of West Bengal would ‗earn‘ Rs 43 crores if it resells

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the resumed land of AMCO. 19. But the workers of AMCO are still awaiting payment of unpaid dues.

Sickness Profiles - VII. Bengal Lamp: Workers in the Dark

1. Bengal Lamp was established in the year 1913. 2. The Roy Brothers – Tapan Kumar Roy and Tapas Kumar Roy – were the Joint Managing Directors of the Company. 3. Bengal Lamp had two manufacturing Units – one at Jadavpur, Kolkata while the other was at Bangalore. 4. The primary products of Bengal Lamp were fluorescent lights, tube lights and filament bulbs. 5. Suspension of work was declared at the Jadavpur unit of Bengal Lamp on 7 January 1989. 6. Bengal Lamp Management refused to reopen the factory contrary to the suggestion of the State Government. Under such circumstances as per Section 18A of Industrial (Development and Regulation) Act 1941, Government of India initiated action to take over the Company. The Company promptly filed a writ petition against this decision and on 14 May 1990 the High Court of Calcutta ordered that before the take over a date for a hearing be fixed to allow the Management of Bengal Lamp to express its viewpoint. 7. Before any decision was taken by the Central Government (in response to the said High Court order) the Company made reference to the BIFR under section 15, registered as Case No. 72/90. 8. In October 1990, the BIFR asked the Company to submit a revival package and the IRBI was appointed as the Operating Agency. 9. Though the Roy Brothers were supposedly ready to reopen the factory but they declared that they were not in a position to deposit Rs 6 crores by way of promoter‘s contribution essential for the implementation of the revival scheme. 10. At this point of time differences started surfacing regarding the attitude of the two brothers towards the future of Bengal Lamp. One of them seemed more eager to allow take over of the Company by Philips India, which in the recent past had shown keen interest to do so. 11. BIFR ordered the management to deposit 50 lakhs by 18 June 1992 and also enter into an MOU with the unions. 12. Within the stipulated time frame, with the active efforts of the State Government, a draft of the MOU was agreed upon and the unions signed on it. However one of the two brothers – Tapas Kumar Roy – declined to sign the same. It was alleged that he by then was more interested to farm out the entire manufacturing activity. 13. Shortly the Management appealed to the State Government for permission to sell some of the factory land. 14. Side by side the Management appealed to the AAIFR challenging the order of the BIFR though ultimately this appellate body upheld the latest order of the BIFR. 15. In October 1993, IRBI, the Operating Agency, was directed by the BIFR to invite proposals for the revival of the Company from any other party.

Shortly afterwards the Roy Brothers appealed to the Calcutta High Court for a stay order against the BIFR direction. non-payment of the stipulated deposit and the lack of faith of the workers union on its management. On 9 December 1994 the BIFR ordered that in the absence of any revival scheme on behalf of the Bengal Lamp management. the OA should insert ―advertisements in two national dailies for inviting offers 18. 237 workers below the age of 58 presently receive Rs 500 per month as financial assistance to workers of locked out industries from the Government of West Bengal. STM is located in Kankurgachi area on CIT Road (in between Phulbagan and Kankurgachi crossings). The Company once again moved a writ petition in Calcutta High Court challenging the BIFR‘s direction. Of the 480 workers and employees of Bengal Lamp at the time of suspension of work. This Company did have experience in glass and engineering industries. 5. M/s Om Development Ltd. 17. The Unions also filed a petition appealing in order to be heard in the case. At the same point of time Roy Brothers filed a writ at the Bangalore High Court in this matter. There were 275 workers at the Krishnanagar .‖ 6. 2. Winding up stayed and revival scheme approved by the High Court is being implemented. the Karnataka High Court had restrained the BIFR in this case. 21. Small Tools Manufacturing Company: Will it Ever be Revived? 1. Provident fund dues stand at Rs 2. 4.VIII. As per ‗Labour in West Bengal‘ – a State Government document – published in 2005. Simultaneously they appealed to the State Government and the Unions for support. Sickness Profiles . As per the BIFR Report dated 31 March 2005 the status of STM is as follows: ― Revival scheme failed. 22. For 10 long years nothing happened and presently the draft scheme of BIFR for prima facie conclusion of the winding up process of Bengal Lamp is under consideration. At the Bangalore unit 170 are employed at present. 3. for revival of the Company or take over/lease/merger as provided for under Section 18. In response to the said advertisement. 87 are getting financial assistance of Rs 500 as per FOWLAI Scheme. was also a sitting MP from Krishnanagar in Nadia District of West Bengal. which is about 13 km of straight drive from the Dum Dum Airport. Ila Pal Chowdhury. of the 277 workers/employees in STM. The writ was rejected and the High Court ordered that the direction of the BIFR be implemented.P a g e | 322 16. the owner of STM.85 crores. The quality of tools manufactured at STM was acclaimed both in India and abroad. 20. appealed to the High Court for taking over Bengal Lamp in January 1995. In his judgement the Hon‘ble Justice of Calcutta High Court mentioned that though there was ample justification of the BIFR to issue prompt directions in order to dispose this long standing case. Suspension of work was declared at STM on 11 March 1996.‖ 19.

Where then is the factory which is to be revived? No one really knows about the future of STM. Basanti Cotton Mills.P a g e | 323 unit of whom 105 are receiving the financial assistance mentioned above. hence conjures up the spirit of the ‗swadeshi‘era. a huge number of his direct students and followers had set up cotton. set up by the Mitra family. ‗wrapping‘ besides 100 looms and . Acharya Praphulla Chandra Roy. 9. ‗colour winding‘. Basanti Cotton Mill was set up in the year 1934 having been inaugurated by Rabindra Nath Thakur. the wife of Desbandhu Chittaranjan Das. 6. Charged by this philosophy. However later in 1967 Basanti Cotton Mills passed on to the Goenkas.640 spindles and the total employment at the time of closure stood at 1025. 3. It is perplexing to note that whereas permission for selling a portion of its land was granted to the Company for ‗revival‘ of the factory. sheds demolished. It was symbolically named after Basanti Devi. leather. 8. In 1979. Ground level reality as of date is that machines have been removed from the factory. flaunted as ‗Kankugachi‘s tallest luxurious apartment‘ building is under way on the very premise where STM stood. cotton-textile. all these mills were amalgamated with the Swan Group of Mills of which thus Basanti Cotton Mills became a subsidiary. 7. This area on both the sides of BT Road also had a variety of industries owned by the famous ‗Ispahan Group‘. Sickness Profiles . This area had a cluster of textile mills. 5. Right after amalgamation the Swan Group management started closing one department after the other of Basanti Cotton Mill on the plea that these were no longer profitable. tobacco and engineering units. 7. the famous among them being Sodepur Cotton Mill and Bangodaya Cotton Mill. ‗cheese dyeing‘. The Goenkas took over the Swan Mill at Mumbai and later the Kurla Mill too. ‗hand-dyeing‘. Basanti Cotton Mill is located on the BT Road next to the Panihati Municipality building. 8. Later on a majority of these factories were taken over by the ‗Goenka Group‘. There were 356 looms and 28.IX. Another family – Poddars – had taken over the Basanti Cotton Mills from the Mitras sometime around early 60‘s. which owned a number of jute. 2. ‗printing‘. had on innumerable occasions underlined the need for Indians to set up indigenous industries. Basanti Cotton Mill: The Bitter Swan Song 1. and preparations for ‗Orchid Towers‘. a doyen of Indian nationalism. 9. chemical. Besides there were upwards of 50 power looms which had sprung up in this area. The ‗process house‘. the entire factory has been dismantled and the entire premise is being used for real estate purposes with ‗Orchid Towers‘ proposed on the premise. Most of the industries with ‗Bengal‘ or ‗National‘ as a prefix have a similar history. Hundreds of factories exist only in Government reports while multi-storey buildings keep changing the urban space beyond recognition. 4. pharmaceutical and rubber industries during the 20‘s and 30‘s.

P a g e | 324 6000 spindles met with the same fate between 1979 and 1986. 12. Incidentally Bangodaya Cotton Mill has earned the dubious distinction of being the first well-known industrial unit. For all practical purposes the Mill was reduced to becoming a captive plant of sorts left with little value adding capability. Our Association gives you a full guarantee as we know that Basanti Cotton Mill has its tradition and is fed with the blessings of people of hallowed memory like Rabindranath Thakur. 13. which has been wiped away from the face of the earth in flagrant violation to the laws of the land. Peerless Abasan exists now for over a decade! 5. . 2. Bangodaya Cotton Mills: Peerless Illegality 1. Acharya Praphulla Chandra Roy and Lokmata Basanti Devi. A visit will reveal that Bangodaya Cotton Mill is no more and after total dismantling a huge block of apartments called ‗Peerless Abasan‘ occupies this piece of urban space. Factually that is the only place where it still exists! 4. All through this period ‗grey cloth‘ from the Basanti Cotton Mill was ‗sold‘ to its other subsidiaries of the Swan Mills Group. Since nothing happened many more ‗entrepreneurs‘ ventured into this ‗business‘ learning its lessons from Peerless. However after amalgamation the processing jobs were all shifted to the Mumbai mills of the Swan Group and that put paid to the plans of ‗modernisation‘ of Basanti Cotton Mill. 10. In some of the yearly reports of the West Bengal Government mention is still being made of the Bangodaya Cotton Mill. but the then management could not properly supply our needs. Finally it was locked out on 30 May 1987 and it is yet to reopen. 24 Parganas in a letter dated 29 October 1988 wrote. resold the land and paved the way for the residential blocks to come up. 14. 11. In 1977 the management had borrowed heavily from banks and financial institutions for the purpose of modernisation at Basanti Cotton Mill. ― We write to inform you that we had been taking cloth from your Basanti Mill before. However little really changed on the shop floor level. The workers dues make them by far the ‗highest‘ creditor with gratuity and other dues piling up to Rs 3 crores. For example a machine for the process house worth Rs 21 lakhs in those days figured prominently in the list.‖ 15. The bidder who had purchased Bangodaya Cotton Mill at the auction in the High Court as a ‗going concern‘ has effectively removed the sheds and machines. Sickness Profiles . That there was a great demand for the products of Basanti is evident from the fact that the Power Loom Owners Association based at Khardah. Bangodaya Cotton Mill was locked out on 21 January 1984.X. The Mill was closed down for little over 14months with effect from 29 February 1984. 3. There were 234 looms and 12844 spindles and the total employment at the time of closure stood at about 1200. We would be glad to consume the entire products of cotton and sized beam and wastage at market price.

In 1989 the management of Sulekha Works as pre-conditions of reopening proposed that they be allowed to build a housing complex on a part of the land of its Works at Jadavpur. Kolkata. 4. 5. In 1994 Alipur Court appointed a receiver to look after the entire property belonging to Sulekha Works. The entry of Peerless Group into the arena of real estate promoting started inauspiciously in the land of this dismantled factory virtually illegally handed over to them with full knowledge and support of the government-municipal corporation-trade union combine. Sulekha Works: A Blot of Ink? 1. Kalyan Mitra was the owner of Sulekha Works. 11. only 90 workers would be retained in service and the rest given VRS. It was Rabindranath Thakur who formally named this unit ‗Sulekha‘ when this enterprise came up to produce an alternative to imported fountain pen inks. 10. 7. Besides the main unit at Jadavpur. However this too was not implemented. Last but not the least mention may be made of the unpaid dues of the workers who are still languishing not too far off from their past place of employment expecting that something might happen and the unpaid dues might some day be given to them. if they can organise the necessary amount of Rs 6 crores for diversification they would retain 100 more workers. 7. In most parts of the country Sulekha Ink in the age of the fountain pen was a brand name of choice. there were two other units of Sulekha Works – one at Sodepur on BT Road and the other at Gaziabad in UP. which dropped its shutters for the last time on 1 January 1989. Since 1985 the management had repeatedly sat with the workers with various proposals but the management had honoured none of them. Needless to mention the land use pattern of this piece of land earmarked for industrial use has been changed without going through any legal process. 8. 6. Sickness Profiles . The total strength of the two West Bengal based units at Jadavpur and Sodepur was around 330. 9. .XI.P a g e | 325 6. In the same year in connection with the proposed housing complex to be build on Sulekha land for the middle class the management said that if need be the erstwhile workers of Sulekha could also buy their own flats in the complex. which strongly opposed these pre-conditions. During 1997-98 there was a proposal to sell the land at Sodepur and use the money to reopen the Jadavpur unit. There was an effort on the part of the management to sell of 12 bighas of land at the Sodepur Works and 4 bighas at Jadavpur but with the workers appealing to the High Court against the sale of land this effort was stayed. 2. The State Government was not averse to give permission to sell a part of the land at Sulekha Works. 8. 3. Jadavpur had it not been for a strong stand taken by the CITU union.

in the meantime. railway AC dynamo. The ministers. a large proportion of the workers have committed suicide or have died of lack of healthy food and health care or have crossed the age of superannuation. It was remarkable that ‗pre-conditions‘ of reopening in 1989 and the present declarations by the management were almost the same: . Since being set up in the year 1960 it was closed down for the first time in 1979. Only that. Since the management of Beni Limited did not have a revival proposal. With great fanfare a programme was organised at the Sulekha Works were Ministers. Beni Limited reopened again in 1983 only to be closed down permanently in 1988. leaders and trade unionists too are almost the same 15. Sickness Profiles . The Company was referred to the BIFR in 1987 citing financial crisis. When Beni Limited was sent below the auction hammer the Official Liquidator had specifically mentioned that the company would have to be purchased as a ‗going concern‘ and all its eligible workers were to be re-employed. and announcement of housing complex. Strangely enough it was mentioned in the Report of the Official Liquidator that the total land holding of Beni Limited was 40 bighas while later enquiry revealed that actually there was 66 bighas of land belonging to the company. The product line of Beni Limited included sophisticated electrical equipments for Railway and Defence including anti aircraft guns with harness. the Rs 20-30000 given to the workers were actually worth maybe Rs 2000 at 1989 price level. 13. the Sulekha management formally announced their plans to use the ‗excess‘ land at Jadavpur for housing purposes and to reopen the factory after necessary product diversification.selling of excess land.P a g e | 326 12. the land price at Jadavpur during the last 15 tears have shown a ten-fold increase. winding up orders were passed by the BIFR on 20 September 1990. employing a quarter of the workers. leaders and trade unionists were present.XII. Beni Limited: Still a Going Concern Beni Limited was located within the Panihati Municipality on BT Road. It was announced that workers able enough to work would be given employment while all the erstwhile workers were given between 20 to 30 thousand rupees. tramway receivers and a wide range of sophisticated electrical engineering products. generators. On 22 July 1994 the Calcutta High Court passed liquidation orders for Beni Limited. . Ganesh Singhania of Ratnagiri Engineering accepted all the conditions laid down and bought Beni Limited on 15 March 1996. 14. The Management of Ratnagiri Engineering announced that the company would start two new projects – iron foundry and a fan-manufacturing unit. The new line of products would include ball pen refills and other stationery products. certain factors have changed: the net profit for the Sulekha Works from the proposed housing complex will be higher. signalling equipments. Finally in June 2005.

able-bodied workers would be inducted in phases and within a year of reconnection of electricity the process would be completed. high-tension wires and even a part of the factory shed was found to be missing. On 23 August 1997 Ganesh Singhania wrote a long letter to the State Labour Minister informing him about the response expressed to him by 7 companies who were eager to buy plots of land inside the Beni Limited campus. old machines and non-essential assets would be removed from the premise. On 27 June 1998 Beni Bnachao Committee moved the Calcutta High Court for payment of dues and compensation to the workers. It transpired that 40 of the above mentioned 66 bighas was taken on lease from the Iliyas Free School Trustee Board who now approached the High Court for justice. Another company which he had virtually reduced to scrap was Calcutta Fan which he had bought from the Calcutta High Court at Rs 1. Ratnagiri Engineering was attracted most to the 66 bighas of land at the disposition of Beni Limited.41 crores back in April 1994. It was also agreed upon that those who will be employed will have to accept fresh employment on production of proof of employment at Beni Limited and that the wages would be decided once the new company goes into production. It was also mentioned that the company has decided to bring about thorough change in the production process and product line. in order to augment funds the godowns would be demolished and sheds would be hired out/leased/sold to third parties. the workmen may move the Calcutta High Court for proceeding against the buyer for contempt of Court and for cancellation of the sale in favour of the buyer…‖. leaving enough land for the new project the remaining land would be sold or leased out. three lawyers on behalf of the workers of Beni Limited moved the High Court against the Ratnagiri Engineering. The Report of the Official Liquidator stated that on enquiry it was revealed that none of the machines or equipments (excepting 2) listed at the time of the sale was found. on 11 November 1997 the workers. Later it was also learnt that the remaining 26 bighas also belonged to the same trustee. There was no tangible sign of any effort to restart the factory and on the contrary water pipelines. If the buyer does not carry out the same. the company would reserve the right to employ contract labour as and when required. to set-up the new unit all scraps.P a g e | 327 On 11 August 1996 Ganesh Singhania signed an agreement with the workers in which it was stated that on the basis of need. Obviously the Government was well aware about the intention and ulterior motive of this unscrupulous ‗entrepreneur‘ who by then had gathered much infamy for being an expert scrap dealer and a land shark in the guise of a highest bidder for buying out closed unit at auctions. along with one Ramen Bhattacharya (a HMS leader) were caught red handed by the Police at a restaurant near the Kolkata High Court while accepting Rs 1 lakh as bribe from the tainted Ganesh Singhania himself. and that the unions would have no right to protest or intervene in any such matter as stated above. held at Calcutta in June 1997 where he observed that ―…the undertaking given by the buyer is not being carried out. Citing the observations of Justice Rajindar Sachar while chairing the ‗Fact Fining Commission on the Plight of Workers‘. On 15 April 1999 Sri Lakshmi Chatterjee. a North 24 Parganas District level well known leader and also the president of the CITU unit at Beni Limited. already aggrieved with the agreement. formed a non-affiliated initiative called Beni Bnachao Committee. After finding that the company did not reopen even after a year. . The Calcutta High Court ordered the Official Liquidator to enquire into the matter and on 21 April 1998 the team of enquiry found substance in the complain of the workers.

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Though since long stories about such under hand deals between owners and trade union leaders were doing the rounds in this state, this incident sent shock waves all around. Since 1988 about 400 of the 1306 workers at Beni Limited have died of suicide, joblessness, hunger and lack of health care. Ultimately during 2002-3 after a protracted and intense legal battle Beni Bnachao Committee have been able to get Rs 1.9 crores by way of PF arrears and another Rs 1.3 crores from Ratnagiri Engineering by way of compensations. Ratnagiri Engineering had bought Beni Limited as a ‗going concern‘ but the factory remains closed even after almost 10 years. They might have sold the machines, equipments and scraps worth Rs 8 crores. The land they had at their disposal at the time of buying would be having a market value of Rs 15 crores.

Sickness Profiles - XIII. Mohini Mills Ltd. No. 2: Abandoned and Deserted

1. Mohini Mill Ltd. opened its first mill at Kushtia (now in Bangladesh) in 1908. Later this mill at Belgharia was set up. 2. It was a composite textile mill and its product line included dhotis, long cloth, saris, mosquito nettings, bed sheets, shirting etc. 3. Mohini Mill products catered to the needs of the rural poor and the urban middle class downwards. 4. There were 436 looms and 32100 spindles and the total employment at the time of closure stood at about 2079. 5. Since the early 70‘s Mohini Mill started to be dogged by frequent closures. It remained completely closed between 1979 and 1981. 6. Mohini Mill was taken over by the Government of India under ID&R Act, 1951 as per Gazette notification dated 23 October 1981. 7. The National Textile Corporation (NTC) was immediately authorised to take over the management of Mohini Mill. 8. Since there was no further extension of the period of take over of Mohini Mill by the NTC, the said Mill was denotified by default and ceased to be Government of India undertaking with effect from 22 June 1988. 9. After remaining in charge of Mohini Mill for almost 7 long years the management of NTC, a Central Public Sector Undertaking, virtually abandoned and deserted the unit without even declaring closure as per ID&R Act, 1951. 10. Petitions at the Calcutta High Court on behalf of the unions praying for extension of takeover remained pending for decades. 11. In April 1990 the BIFR submitted a report stating that Mohini Mill was not any more in a position to carry out the much-needed modernisation after taking care of the past liabilities. BIFR

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opined that Rs 17.17 crores would be necessary to revive Mohini Mill. 12. On 11 October 1993 the Calcutta High Court directed for the sale of Mohini Mill as a going concern. 13. Approximately 90 bighas of land lie within the boundary of Mohini Mill which by current valuation could fetch 30 crores in open market. More so since this land is located within stone throw distance from the Belgharia station and is by any standards prime land. 14. Around 600 workers and their families at present share the 400 labour-quarters within the premise of Mohini Mill. 15. Factually the quarters though dilapidated are the only structures which are still standing inside Mohini Mill. The machines, equipments, factually everything that can be removed have been taken away. Even the walls are being dismantled brick by brick. The administration was a passive and indifferent onlooker throughout this phase of pilferage in broad daylight. 16. Almost 85% of the workers who were on payroll at the time of closure have crossed the age of superannuation in the meantime. 17. Since 1988, the workers were left to suffer their plight without any intervention from any quarters. When there was nothing left of anything the Banks stepped in to lay claim to the land on the plea that they were ‗secured‘ creditors and Mohini Mill owed them a lot. 18. Finally the State Government stepped in with aplomb. On 1 September 2003 the mighty Government of West Bengal hung up notices all around that it had ‗resumed‘ the land of Mohini Mill. The logic was that once upon a time, this land was made available to the Mohini Mill for constructing the factory. Now that it is closed the West Bengal Government deems it to be fit and proper to take back or resume the land of Mohini Mill in its favour. 19. The workers of Mohini Mill are still languishing and their outstanding dues from whosoever is in charge amounts to a whopping Rs 12.55 crores, by way of unpaid wages and salaries, gratuity, bonus and closure benefits. 20. It is to be seen whether the step initiated by the Government of West Bengal in resuming the land of a closed industrial unit has any positive effect on the plight of these suffering workers at Mohini Mill.

Sickness Profiles - XIV. Indo-Japan Steels Ltd: Reduced to junk

1. Late Y L Agarwala who was the founder promoter of the Company established Indo-Japan Steels Ltd. in 1966. 2. The factory situated at 5/1 G T Road near Belur Math, Howrah was perhaps one of its only kind in the private sector in Eastern India where steel making from ingot stage to cold rolling was done under the same roof. 3. Indo-Japan Steels was a heavy engineering industry having its facilities of electric arc furnace for making steel (MS and alloy steel) ingots, hot as well as cold rolling mills for manufacture of

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different types and sizes of hot/cold rolled products conforming to mild, alloy and other special steels. Indo-Japan Steels was also well equipped with all the ancillary equipment and other infrastructural facilities with a dedicated and skilled work force of about 800. The Indo-Japan Steels was working satisfactorily since its inception and encouraged by its results and the market, the management went for significant expansions during 1982-3 when they installed two new cold rolling mills one of them imported from France. 4. However around 1984 the management started failing to utilise the enhanced installed capacity of the plant due to inadequate supply of raw materials, spare parts and consumables triggered reportedly by fund crunch. This vicious cycle dipped threateningly and soon production became uneconomical and the company started incurring heavy losses. 5. Indo-Japan Steels in 1985 imported a steckel mill taking loan from IOB but was unable to clear it from the godowns of the Calcutta Port Trust. This resulted in a huge blockage of capital in the form of an interest bearing term loan and ever increasing demurrage charges payable to Calcutta Port Trust. 6. In view of the increasing losses Indo-Japan Steels was referred to the BIFR in 1990. 7. The BIFR ordered winding up of the company on 12 August 1993 against which the management appealed to the AAIFR. 8. Despite the hard times the company remained in production surviving, but barely so, on conversion jobs. Sensing that all could be lost the management resorted to illegal activities which was hitherto not in practise. The wages and salaries were left unpaid; the full and final settlement of retirement dues withheld; diversion of funds and various such activities were resorted to. When the Indo-Japan Steels Ltd. Employees Union, an independent union not affiliated to any central trade union, demanded the workers dues, Indo-Japan Steels was locked out on 13 May 1995. 9. Though the lock out was lifted in little over 3 months following a tripartite agreement also involving the Labour Commissioner, West Bengal, the management repeatedly failing to honour the agreement finally declared lock out on 17 July 1996. 10. The AAIFR too ultimately recommended winding up of Indo-Japan Steels on 13 November 1996. 11. Given the skill, technology and infrastructure available at Indo-Japan Steels, and the positive demand in the market for the company‘s products, the Employees Union had submitted revival schemes for running the factory on co-operative basis to both the BIFR and the AAIFR. The West Bengal Government too was approached on several occasion seeking its support and cooperation in this regard. Unfortunately the State Government in spite of everything failed to stand by the side of the motivated workers.

D. SECTION 4
In this section we have dealt with 6 Industrial belts and have described the present conditions along with an attempt to relate as an overview the maladies affecting each geographical region.

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Regional Roundup of Industrial Belts - I On The Eastern Fringes Starting from South Beleghata and running southward along Tangra, Topsia and Tiljala this industrial belt was a hubbub of activity in the past. It is bounded on the East by what now is an important landmark of Kolkata – the Eastern Metropolitan Bypass beyond which, to the east lie the East Calcutta Wetlands. The western boundary was comprised of the rail line towards South 24 Parganas originating from Sealdah. The residential areas of Picnic Garden lies on the South while the Northern boundary comprises of the Beleghata Main Road. This belt was dominated by manufacturing units producing leather, rubber, chemicals and ceramics. Most of the larger units in this area had been nationalised in the past. Let us briefly run down the list of prominent industries and there present status: 1. Tyre Corporation of India (TCI): - The Tangra Unit of TCI, a Central Government Undertaking, once upon a time employed 4500 workers. Very recently the 77 workers, who had not accepted VRS earlier, have been heard to give up their resistance. The huge premise is all set to become a residential complex. 2. Bengal Pottery: - Situated again in Tangra, this unit was shut down for good in the year 1993 with 4900 workers in its roll. The Central Government had taken over this unit but since it was not nationalised within the stipulated 17 years Bengal Pottery was de-notified. This unit was a household name and its products ranged from cups, dishes and other household pottery to electrical ceramics. The workers have been paid their PF and Gratuity dues and the West Bengal Government bought the land and sheds for Rs 12 crores. Later in early 2005, the State Government has declared its intentions of setting up an Industrial Estate in the premise. 3. National Tannery: - This was the first mechanised tannery in India and was set up in the year 1907. Pretty nearby came up the Leather Technology College. National Tannery, which was famous for its leather processing, also developed a modern shoe division functional since 1965. Even after it turned ‗sick‘, the infrastructure of this unit and the skill of its workers were utilised by Bata who, through ‗job work‘ got its famous brands like ‗North Star‘ and ‗Quo Vadis‘ made at National Tannery. After BIFR ordered winding up, the State Government purchased the unit as a ‗going concern‘ in 1992 spending a paltry 50 lakhs for the 1. purpose. Despite repeated pledges inside and outside the High Court the West Bengal Government has neither reopened it nor settled the unpaid dues of the workers. The State Government till date had handed over a sum of Rs 3500 to each worker. Since December 2004, the Left Front Government, like any other promoter, has started dismantling the sheds and removing the machineries with hundreds of erstwhile workers silently suffering the pangs of joblessness and

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abject poverty. It is alleged that after having ‗invested‘ Rs 65 lakhs over the last 12 years, the State Government has already earned Rs 3.5 crores through the process of dismantling the plants and machinery. The land too will be used for setting up a Garments Park and the process too should yield crores in the near future. Till date 107 of the 400 workers have died of suicide, hunger and disease and most of those who still survive are barely alive. 4. Bharat Brakes and Valves: - This Central Government Undertaking has been closed for long and only in the year 2003 around 550 workers have been given VRS. 5. Smith Stanisstreet: - This Central Government Pharmaceutical unit was located opposite the Entally Police Station and employed 900 workers/employees. It was closed in 2001 and presently effort is on to allow residential apartments to come up on the said piece of prime land. 6. EMC: - The Electrical manufacturing Company popularly referred to as EMC has two units – at Dum Dum and Beleghata – and is owned by Central Minister Sri Kamal Nath. The Beleghata unit has been under closure turning 1800 jobless in the process. The workers, as in hundreds of such units, are yet to get payments while multi-storeyed residential blocks on the factory premise may just be a matter of time. 7. Sur Enamel: - There were around 300 workers working in this unit. The owners have gone into a contract with Purnendu Chatterjee and have also obtained permission from the High Court to sell a portion of the land. 8. Scientific Indian Glass Company: - Closed for more than 25 years. A huge complex of six multistoreyed apartment blocks collectively referred to as Brindaban Gardens is already in place. 9. In the Tangra/Topsia/Tiljala area about 550 tannery and rubber units faced closure by virtue of Supreme Court order pertaining to environmental pollution. The Supreme Court had also ordered for alternative relocation for all the closed units at the proposed Bantala Leather Complex. Recently on 30 July 2005, the said complex has been formally inaugurated and 34 units have been shifted to this new venue. The area in question involves about 100 bighas of land within a short distance of the Eastern Metropolitan Bypass. Some of these old tanneries owned by Chinese families are being transformed into Chinese Restaurants while residential blocks are replacing some tanneries owned by Muslim owners. The much-hyped plans regarding setting up of ecofriendly projects in this area remains mere good empty words till date. Upward of 20,000 skilled workers have been rendered jobless. They should be viewed as the ‗victims of pollution-free development‘. Whereas the Supreme Court order has been cited while declaring closure of these 550 industrial units, the other relevant portion of the said SC order pertaining to payments to workers have remained a far cry. So here too development gallops while workers languish. The Supreme Court had stated that during the period of relocation the workers would be deemed to be in active employment with full wages payable and without break of service. A years salary as ‗shifting bonus‘ would be payable to workers who opt for resuming duties after the relocation is completed. If a company fails to relocate to Bantala Leather Complex its workers would be treated as retrenched and over and above the compensations and legal dues

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payable as per Section 25b of ID Act, an additional amount equal to 6 years wages has to be paid to the workers as compensation. Again those workers who choose not to work at the relocated factory will also have to be treated as retrenched and over above the dues as per ID Act a year‘s wages have to be paid as compensation. The Supreme Court has also clarified that the amount of gratuity payable will be as per law and will have nothing to do with the compensation packages. A huge majority of these workers have not been given their stipulated compensation as per order of the Supreme Court.

Regional Roundup of Industrial Belts - II Along B T Road Barrackpur Trunk Road. Not too far back, this north-south trunk road was synonymous to trucks and chimneys – the hallmark of an industrial belt. Factories dotted the municipalities of Kamarhati, Panihati and Khardah. Around 1985, and within a span of about ten years, a huge majority of these factories were locked out – legally and illegally. Soon weeds, bushes and trees overran the premises. Theft of machines became routine since allegedly the local police and administration were hand in glove with the criminal nexus. Most of the leading factories belonged to the engineering, cotton and pharmaceutical industries. Yet another characteristic of this area was the predominance of local Bengali workers in the above-mentioned industries. Refugees from erstwhile East Pakistan had settled down on either side of the Bangaon-Sealdah railway line during the 50‘s and 60‘s. Youth from Belgharia, Kamarhati, Panihati, Sodepur, Agarpara, Khardah got themselves employed for gain at the Basanti Cotton Mill, Mohini Mill, Bangodaya Cotton Mill, Sodepur Cotton Mill, Beni Engineering, Dipti Hurricane Lamp Factory and scores of other such names, which are the part of history now. Those which are still running including Wimco safety match factory, Texmaco blade factory do not employ even a third of its original strengths. Conversely migrant workers, from Bihar and UP, comprised of the dominant majority in the Jute Mills, Rolling Mills and Paper Mills of this area. The pattern of ruthless disintegration has been strikingly consistent. First came the takeovers, promising to treat the units as going concerns; the second step was the calculated removal, tantamount to theft, of everything worth removing including machines, sheds, bricks and even the underground wires; third step involved the arrival of the realtors and appearance of the multi-storeyed residential apartments. Recently another variant of the above-mentioned third step is becoming popular – the West Bengal Government for so long a passive and indifferent observer jumps into the fray and starts ‗resuming‘ the land, given way back to industries, as if not any longer to be left out of this real estate bonanza. No one seems to be responsible, or for that matter bothered, about the legitimate

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dues of the workers of these locked out industries, leave alone their plight!

Locked out industries and changing urban space is no longer just a possibility. ‗Peerless Abasan‘ has come up after dismantlingBangodaya Cotton Mills at the intersection of Panihati and BT Road crossing; Oriental Metal Industries manufacturers of Dipti hurricane lamps has made way for a residential complex at Agarpara; Structural Engineering, Sekhar Iron, Beni Engineering are just a few of the scores of factories of repute in this ten square kilometre area on which multi-storeyed residential blocks have come up or are coming up thereby changing the urban space of Suburban Kolkata.

Between Baranagar and Barrackpur there are six Jute Mills, which remain closed more often than not every year. That these units are not giving way to real estate is owing to the fact that the ownership pattern in these Mills are immensely complicated or rather mind boggling. The two units of Titagarh Paper Mill used to employ about 4500 workers only the other day. Now 400 contract workers are employed and this ‗Paper Mill‘ currently produces wagons. The developmental model of urban expansion pursued by the State Government however is soon going to pave the way for residential apartments in industrial land if something ‗unforeseen‘ does not happen.

Regional Roundup of Industrial Belts - III Dum Dum-Lake Town-Patipukur

This was yet another well-known industrial belt towards the northeast of the city. The tall chimneys; early morning sirens acting as clarion calls for the starting shift; hundreds pedalling in unison on their bicycles along Jessore Road, Dum Dum Road and VIP Road; commuters streaming out in hundreds from Ultadanga and Dum Dum Railway Stations – this was a common sight. They were workers in the scores of large, medium and small factories in this industrial belt. This entire urban space has changed visibly during the last 15 years.

The workers have in part being transformed into helpers in construction sites maybe at buildings rising on the same premise where their factory stood. Maybe when the construction gets over some of them might find jobs as security guards in these building complexes.

During the last 20 years adjacent to the Dum Dum and Ultadanga Stations on the Sealdah Main line, groups of workers are found to gather around 6-7 in the morning. These are referred to as

New Luck Rubber (residential apartment constructed). Airport Hotel. Vegal Engine and Engineering. ARP Rubber (residential apartment constructed). Motor Machinery Manufacturing.IV Jadavpur-Tollygunj The industries were virtually embedded in this predominantly residential area. Business Firms (preparation ongoing for residential apartment). Hindustan Iron popularly called ‗rod call‘ (residential apartment constructed). Paul Lehman. meaning labour markets. AMCO. The semi-rural somewhat suburban characteristics of this area to the South of Kolkata were radically changed after partition when a huge number of refugee colonies came into being. wives and other relatives gather there in search of daily employment. EMC (residential apartment to be constructed). The list of locked out industries in this area is pretty long.P a g e | 335 ‗majoor bazaars‘. Eastern Paper Mills. Before long the South Suburban area was an integral part of the city and almost around this time the factories in the area started closing down. With the passage of time the one-time settlers were given the land rights and refugee colonies gradually changed as small concrete houses started coming up on the self-owned plots. Only the land belonging to the locked out industries were suitable enough for multi-storey apartment buildings. and many Plywood Factories on R N Guha road have been locked out. Siddheshwari Hosiery (residential apartment under construction). BMT Mills (residential apartment under construction). By mid-70‘s the refugee colonies were a thing of the past and most of this area was a typical middle class-low middle class residential area. However large apartment blocks were conspicuous by its absence since the predominantly small land holdings did not allow ample room for such constructions. Regional Roundup of Industrial Belts . As the sun climbs higher. Gradually the large factories and scores of smaller ones employed the bread earners and urbanisation and industrialisation went well in tandem. . daughters. Sexual harassment and abuse is rampant in case of women workers and as yet they are compelled to come back early next morning. East Anglia Plastics. Asila Pharmaceuticals. The most prominent among them are: Apollo Zipper. the rates offered plummet. Labour contractors bargain heavily and minimum wage norms are blown away in the wind. Workers of closed and locked out industries or their sons. Ruby Paints (residential apartment constructed).

Siddhartha Apparels. Of the 220 major The list is long and some of the well known ones is as follows: American Refrigerator (ARCO). Paradoxically perhaps this industrial belt is virtually devoid of any significant signs of activity since most factories in this area are locked out and closed. two distinct reasons seem to be common in most of the units in this Taratala-Hyde Road industrial belt. tall buildings are perhaps going to change the urban character of this industrial belt once again. opposite the Jadavpur University campus is hot in pursuit for real estate gains and it might well be a matter of time. Bengal Lamp with its sprawling complex in ruins.P a g e | 336 Ekta Heights has come up on Annapurna Glass factory premise. Das Reprographics.Sulekha Works has obtained permission for building residential apartments on its land in Jadavpur. Rolls Print. The West Bengal Government went for a tripartite agreement and as a result reportedly the countries largest residential complex – South City – is coming up on the Anwar Shah Road premise of Jay Engineering (brand name Usha). Kesoram Cotton. has created history by most handsomely paying dues and compensation to its ex-workers. Glaxo. Farinni. Regional Roundup of Industrial Belts . Avery. Shalimar Tar. The ‗real estate‘ factor. Yes. APJ India. Machinery Manufacturing Company (MMC). WEBEL. Air Condition. Angel India (state public sector undertaking). Rolls Mills.V Taratala-Hyde Road This entire industrial belt since 30‘s and 40‘s was considered to be a cut above the other such belts since it had a cluster of factories run by foreign companies. Dabur has also gone the real estate way. Steel and Allied Products. Mahindra and Mahindra. The per capita value addition and the per capita productivity in the respective . Poddar Projects. universal Autocraft. which is not even a kilometre from the Jadavpur Crossing. Bengal Ingot. Metal Box. and time will tell what the Government plans to do with the land also well within a kilometre from Jadavpur Crossing. ALCON. does not have much to do with the lockouts in this area since the land on which the factories were built belongs to the Kolkata Port Trust. Krishna Glass a Government of West Bengal Undertaking. Delving deeply into the individual cases and observing on the one hand the phases of sickness and on the other the nature of the degradation of the employer-employee relationship. Chopra Motors and Chaliha Rolling Mills in Tollygunj have been closed since long and everything is possible pertaining to its landed property. so dominant in other industrial belts of the City. The State Government has decided to close down Jadavpur TB Hospital and sell off the land for promoting purposes.

judges and the judicial system. This should be definitely viewed in conjunction with the protracted and strong labour movement roughly between 1960 and 1985 as a result of which the labour wages were comparatively higher than at other industrial belts. Labour rights were usurped one after the other. The philosophy was simpler – permanent workers with assured social security is tantamount to low production since the sword then does not hang threateningly. more often than not. to ascertain the minimum labour cost at which level workers would maintain the ‗desired‘ productivity.P a g e | 337 types of industries were lower as compared to similar industries in other parts of the country. Then more changes were ushered in. Soon in perfect tandem – a dream come true for any conductor – the orchestra started. The fact is there is no need for any skilled workers any more. That was hardly a shared point of view. For new skills to develop retraining was a must. With the market calling shots as never before the product ranges changed. a social security network of sorts and the heavily subsidised canteens. Organisational strength and party based trade unionism forced surplus labour to continue as idle labour. Workers lost their jobs at which they were skilled. modernisation and diversification were needed for survival. The wage component had to be slashed. the Labour Department. reduction in bonus. complex and opaque.. the number of trade unions in an industrial unit increased. In a role reversal the management went on rampage. Mechanisation. Wage cuts. In the organised sector there was job security. picnics. The objectives became simpler – to find out the maximum increase in production and the corresponding quantum of profit. Then started the ‗lockout era‘. PF and ESI defaults. The need of the hour is a few sincere . One scratches the surface and all these tumble out though they are things of the past. It was iterated that the workers should not get too bothered about whether minimum wages was given or whether job security was being provided – they will have to take up jobs as and when offered. some of them with dubious credentials very often with covert patronage and support of the management. The ‗sense‘ of security must go. It was stated matter of factly but politely that the workers should adjust to the changing scenario after understanding the nature of the changing world. The industrialists needed all round support. Labour relations deteriorated with the multiplicity of trade unions making matters that much more worse. With crisis brewing. Control over the market reversed into market driven profit margins. all of these and more now became the order of the day. non-payment of gratuity after super superannuation. When such pressure was turned on the productivity was perhaps understandably affected. They needed the Government. Hence the existing labour overhead component could definitely be ‗felt‘ to be deflating profitability. various cultural and social programmes with aid from the management. Competition made the need to add value stronger.. instances of total surrender increased and the noose tightened that much more. gifts and such other ‗perks‘. the trade union leaders and the citizenry. the legislators. withdrawal of subsidy. Then everything changed! For industrial capital value adding became the order of the day. When terror struck.

unbridled lust for profit has ushered in an inhuman system. 10 December 2003 started with trademark fanfare marking the Human Rights Day. Regional Roundup of Industrial Belts . The need of the hour is employees with sufficient sense of insecurity at every moment of their existence which will make them terrorised enough to keep themselves clear of expressing dissatisfaction or create problems by protesting or demonstrating. Starting from small ones like the lamp factories.VI Beleghata-Phulbagan-Kankurgachi The Beleghata Canal towards the north and eastern part of the City is dotted by hundreds of factories. . will be used as a waterway for mass passenger transport. which demands nothing less than ‗slave workers‘ for our industries. free market economy. The same day saw thousands of ‗citizens‘ being evicted from hundreds of jhopris along this Beleghata Canal. The path through which slave labour was finally transformed into wage labour was long and tortuous. This was reminiscent of another such eviction drive a year back when for the sake of extension of Metro Railway thousands of similar ‗citizens‘ were evicted along the Tolly‘s Canal in the southern part of the City. Metiabruj. The suburbs are being sucked into the vortex of an expanding metropolis – a mega city with a ‗future‘! This is how Jadavpur.P a g e | 338 operators who will be trained during the trial period by the agency supplying the machines. It took centuries of long and protracted struggle by millions of the downtrodden world over even after ‗slavery‘ was legally banned. Mankind feels proud that it had been able to eradicate the utter dehumanisation of slave labours and had put the labour laws in place. The omnipotent dominance of capital. Historically this waterway was once the mainstay of cheap goods transport but gradually it fell into disuse owing to lack of State attention. board mills and small engineering units right up to heavy weights like Kolay Biscuit and EMC. Many are those who are parroting the efficacy of this new paradigm and branding it as inevitable unknowingly paving the way for a return trip to the dark ages. Slavery is looked down upon by one and all. The image of the City benefited since it got that much more cleaner. Khidderpur. We talk highly of those social reformers who fought against this dehumanising practise even though slavery was ‗profitable‘ to those who ‗owned‘ slaves. The areas where the working class resided. saw mills. is changing at a gallop. the city of factories so essential for their life and livelihood. Garden Reach and Behala are now an integral part of the expansionist Kolkata Municipal Corporation. Kolkata is changing rapidly. The Beleghata Canal. The time has come now to ‗rewind‘ history at a breathtaking pace. it has been heard for couple of decades now.

Development is oozing in from the EM Bye Pass end too! The first landmark is ‗Swabhumi‘. The road which stretches eastwards from this intersection travels past Phulbagan as Narkeldanga Main Road and cuts Eastern Metropolitan Bypass at Kadapara. During the last decade or so the scene was showing signs of slow but steady change but now during the last couple of years an aggressive unfolding of ‗urban‘ development is changing this space beyond recognition. Those who stayed back as street hawkers bore the brunt of the infamous ‗Operation Sunshine‘ in 1996. But for how long. about a kilometre to the north. Calcutta Jute Mill – to name some of the prime locations – have become the happy hunting grounds for the promoter-developers. the ‗heritage‘ cum amusement park. Units like Orient Fan are already experiencing the throes of sickness and with the entire two-kilometre stretch showing a recent transformation into an ‗avenue of under-construction multi-storeys‘.P a g e | 339 As one moves northwards from Sealdah Station. Mandal Rubber. Maybe this was fate accompli of sorts! The hitherto unplanned growth of this urban conglomerate was a constant source of resentment and frustration among the ‗bhadrolok‘ society. established by Kali Mandal. live under the same roof. passing into Salt Lake near the Salt Lake Stadium – and the five star Hyatt Regency next to it. nothing stands. And now the eviction of slums is on the cards. The land – or the hillock – to the Neotia‘s had reportedly come for free. and somewhat posh. all the tell tale signs of a working class neighbourhood. stands closed. As one proceeds from the predominantly residential area of Phulbagan towards Kadapara on the Eastern Metropolitan Bye Pass. Between Phulbagan and Kadapara – less than two kilometres on foot – thousands and thousands of workers worked for gain at hundreds of small and large factories. surrounded by lush greenery. a predominantly Muslim area. The curved belt of industries running north to south along the eastern periphery of Kolkata around the central core is gradually being wiped clean. is the moot point! Roughly parallel to this road. small scale engineering units and lathe machine workshops a vast majority of which are presently locked out. Next and adjacent to Swabhumi. the walls are what remain of the Bally Jute Mill of the Birlas. Kankurgachi-CIT Road crossing and the EM Bye Pass. With the plague like social malady called ‗industrial closures‘ spreading its tentacles. the ‗rubberking‘. . away from human gaze. Gobinda Sheet Metals. also affectionately referred by the old-timers of Beleghata as the potential ‗Dhirubhai‘ of the east. a prominent Central Kolkata landmark. scores of wire mesh manufacturing units. Tata Oil Mill and Santosh Biscuits are closed. No more security in the form of twenty or fifty-rupee worth of monthly accommodation. The roadside premises ofSurah (Bally) Jute Mill. with state-of-the-art comfort. Kedar Rubber. Bengal Chemicalhas sold some of its ‗excess‘ land on which a multinational school has come up. mostly workers and ex-workers. ‗matching‘ price line and usual concentrate of fast food outlets. as if in eager anticipation for real estate activities to start at a prime residential location. Inside. death of such other sickness prone factories could indeed be imminent. some ex-workers dispersed looking for a livelihood. is an almost a twin set-up along the road connecting the busy. However maybe a hundred yards down the road the scene changes: rickety road side shops. dozens of storage lead battery manufacturing units. rubber based units. one reaches Rajabazar. on a hillock – which was not too long ago a largish mound of urban solid waste. is ‗89‘ a cine-multiplex. a huge building in which about a thousand residents.

The State Financial Corporations (SFC) were established at state level in 1951 to supplement the work of IFCI by financing medium and small-scale industrial concerns. which came into circulation in1944. In the 'Bombay plan' the Indian industrialists had categorically stated that the capital intensive heavy and core industries should be established and run by the state owned 'Public Sector‘ given the fact that the private capital should not be compelled to invest so heavily in such industries and its associated infrastructure development. Fact Sheet – I Industrial Policy and Sickness: At a Glance After independence the first national Industrial Policy was formulated in the year 1948. since the juggernaut has arrived! E. Urban expansion has put paid to their modest livelihood.P a g e | 340 In between Phulbagan and Kankurgachhi crossings one comes across the Small Tools Manufacturing Limited. which have relevance to the present policies governing urbanisation and industrialisation. Land is in great demand. . Once not so long back. The twin set-ups between Phulbagan-EM Bye Pass and Kankurgachi-EM Bypass have a lot in common. Those who still live in the vicinity can feel that their days are numbered and soon they would have to move. In essence it had included much of what was laid down in the 1941 recommendations of Sir A. Dalal and also the 'Bombay Plan' or 'Tata-Birla plan‘. upward of 15000 families earned their living as workers in these two adjacent localities. Move away. However it was envisaged that after 15 years the heavy and core sector would be handed over to the private sector. SECTION 5 In this section we have prepared 5 fact sheets. which has been dismantled of late paving the way for the proposed ‗Orchid Towers‘. The Industrial Finance Corporation of India (IFCI) was established in 1948 with an objective to provide medium and long-term credits to the public sector limited companies in order to facilitate post-war rehabilitation and development.

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The Industries (Development & Regulation) Act, 1951 came into being. Primarily it aimed at categorising and scheduling the various industries thereby working its way towards an industrial licensing policy. However around 1953 this Act provided the Central Government with adequate powers to assume direct management and / or control of some private sector units in certain cases of proven mismanagement or in broader public interest thus paving the way for nationalisation, which emerged as a trend later. Industrial Development Bank of India (IDBI) was established in 1964 as a coordinating body for financial and banking institutions engaged in financing, promoting or developing the Indian industry on the whole. In 1970, The Monopoly & Restrictive Trade Practices (MRTP) Act was enacted with the purpose of enforcing control over large powerful monopoly houses and there related trade practises. Industrial Reconstruction Corporation of India or IRCI was set up (which was later to be transformed into IRBI) with its head quarters at Calcutta in 1971. The ongoing economic depression, overall mismanagement, labour troubles, shortage of raw materials, lack of market demand, stringency in import restrictions were officially put forward as main reasons of closure and sickness of many industrial units particularly in West Bengal. It was envisaged that IRCI was to revive and revitalise the closed and sick industrial concerns by removing the shortcomings. IRCI was expected to reconstruct and restructure the financial base as well as the management of the assisted units, besides providing financial assistance and technical/managerial guidance. The control measures to be adopted by IRCI included transfer of major shares in the name of IRCI; appointment of IRCI nominees in the Board of Directors of the sick unit; appointment of personnel and nominees in key managerial post and purchase/sales committees; frequent plant and factory inspections and so on. Industries (Development & Regulation) Act, 1951 was further amended in 1971 empowering the Central Government to take over industrial undertakings which special emphasis on sick units. By an amendment in the relevant Act the IFCI with effect from 1972 was empowered to extend its assistance to private limited companies. Foreign Exchange Regulation Act (FERA) enacted in 1973 was aimed at limiting the share of foreign companies in any Indian industry to 40% of the total capital. The Reserve Bank of India set up a study group in 1975, which was called the Tandon Committee, and a guideline was laid down governing the participation of banks in the management of various sick industries. The Reserve Bank of India (RBI) in the year 1979 conducted a study to identify the causes of sickness in 378 such large industrial units Mismanagement accounted for 52% (197 cases); market recession 23% (86 cases); faulty planning and technical drawbacks 14% (52 cases); power cuts,

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shortage of raw materials etc. 9% (34 cases); followed at the end by labour trouble 2% (9 cases). The Tiwari Committee on Rehabilitation of Sick Units was constituted in 1981. This committee was formed in view of the mounting industrial sickness in the country and its serious ill effects on the national economy. Shri T. Tiwari, Chairman of IRCI (later IRBI), headed the 11-member committee constituted by the Reserve Bank of India. The committee was to examine the legal and other difficulties faced by banks and financial institutions in the rehabilitation of sick industrial undertakings and to suggest remedial measures, including changes in law. It submitted its report in 1983 along with a model bill. On the recommendations of an expert committee that the IRCI should be converted into a statutory corporation with 'powers' to restructure the capital base of assisted industrial unit, freeze pastliabilities and even sell units free from encumbrances the Central Government by the Industrial Reconstruction Bank of India Act, 1984, established a separate statutory body called the Industrial Reconstruction Bank of India or IRBI, as a successor to the IRCI. Largely based on the model Bill suggested by the Tiwari Committee, the Sick Industrial Companies (Special Provisions) Act 1985(SICA) was enacted. According to Central Government statements, sickness of industries was causing loss of production, employment revenue along with a locking up of a large chunk of bank funds. The alarming rate of increase of sickness was dangerous. So it was felt by the government that viable sick units should be revived, vitalised or rehabilitated as early as possible while non-viable units should be liquidated to salvage reusable bank funds. SICA would play a 'stellar' role in this direction vis-à-vis the existing multiplicity of laws, which created hindrances in dealing effectively with sick industries.

The SICA paved the way for setting up in 1987 of a board of experts acting also as an appellate authority, called the Board for Industrial & Financial Reconstruction or BIFR for reconstruction of sick & potentially sick units. The BIFR armed by SICA hence became the apex body on whose hands rested the future of most sick units.

1991 was the year of the legendary 'New Industrial Policy'. For all practical purposes nationalisation, or take over by way of I (D&R) Act, was scrapped. The Public Sector Units would be sent oven to the BIFR if found sick or potentially sick, as per SICA descriptions. Needless to say they would be wound up if found 'non-profitable'. Privatisation was on the cards save 8 heads of industries, which would be 'left' for the Public Sector.

In 1994 the Government of West Bengal announced the Industrial Policy Statement.

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Fact Sheet – II

Economic Review: Efforts To Combat Sickness The Government has initiated the ‗West Bengal Industrial Revival Scheme 2001‘ to offer support to sick industries. Industrialists have submitted around 175 proposals but since the Financial Institutions have shown stark disinterest in providing working capital, the effectiveness of this scheme is being hampered. Most of the proposals submitted concerns applying for bridge loans in order to pay back outstanding loans at high interest rates. Between 2000-01 and December 2004 Rs 30.89 crores have been doled out as loans to only 14 units. Of these in only one case Rs 22.56 lakhs have been given as a subsidy to capital investment. 7 weak or sick units have been allowed waiver of Rs 94.5 lakhs towards electricity duty. It has been declared that henceforth the support forthcoming as per the ‗West Bengal Industrial Revival Scheme 2001‘ would remain restricted within the following framework: If an industrialist purchases any other closed unit, a discount of 50% would be allowed on the values of stamp duty and registration fee; The outstanding sales tax of the sick unit will be allowed to be transformed into a loan on easy repayment schedule and low interest; Electricity duty will be waived for five years; In order to revive or rejuvenate the sick industrial unit the industrialist would be permitted to mobilise cash by selling the excess and belonging to the particular sick industry. Regarding point number 2 mentioned above, the Economic Review states that in 13 industrial units employing 17,160 workers a total of Rs 29.93 crores of outstanding sales tax has been transformed into loans. These loans will be payable within 11 years and during the first 3 years the principal would not be required to be repaid. The rate of interest will be 8.75% and a further rebate of 2% will be up for grabs if the repayment is done within the stipulated period. Most of these units are jute mills.

In industrial units like NTC (WBABO), Tyre Corporation of India (Tangra Unit), Joy Engineering Works, Howrah Mills, Small Tools, Sur Enamel, Stamping Ink Company and Haldia Textiles Ltd., the West Bengal Government has permitted the sale of excess land in order to revive the sick unit in question. In some other units it has been principally agreed to permit such sale of excess land for purposes of revival and the list includes: Kusum Products, Calcutta Silk, Standard Pharmaceuticals, NICCO Corporation, Annapurna Textile Ltd.

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Besides pursuing the ‗West Bengal Industrial Revival Scheme 2001‘, the West Bengal Government has declared 33 sick units as a Relief Undertaking between April 2003 and December 2004, so that during prescribed period no creditor can prefer any claim, or move the court against the unit for recovery of dues and also that winding up will not take place in consequence to liquidation cases filed by creditors.

Fact Sheet – III

A Survey on 500 closed and sick industries: WEBCON has carried out a survey for The Department of Industrial Reconstruction, Government of West Bengal among 500 closed and sick industrial units in the State. Of these: 402 are sick and weak and the remaining 98 are closed 64 are in the public sector and the remaining are private run 327 are large or medium employing 3,38,920 workers and the remaining 173 are small units employing 13,343 workers Of the 327 large and medium units 226 have been referred to the BIFR Of the 500 studied some of the important industries are as follows:

Iron and steel (87); Chemicals and pharmaceuticals (62); Engineering (46); Electrical and electronics (38); Jute (37); Textile (29); Plastic and rubber (28); Paper (22); Cement (18); Agrobased (17); other metals (14); Food processing (13).

Regarding the reasons of failure of these units he perception of the Management and the Banks/Financial Institutions have a varying viewpoint: Whereas the management says failure of planning is to be blamed in 19.95%, production related failures in 44.18% and other factors in 34.61% cases the Banks/Financial Institutions hold that failure of planning is to be blamed in 9.52%, production related failures in 56.19% and other factors in 32.38% cases.

According to the report, leaving aside the casual workers, there are 3,52,223 affected workers in these 500 closed and sick industries.

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Touching upon the geographical distribution of the sick industries under survey the report reveals that of the affected workers 1,57,000 are in the district of Bardhaman; 65,492 in North 24 Parganas; 32,576 in Howrah; 31,632 in Kolkata; 30,918 in Hugli; 30,918 in South 24 Parganas and the remaining 16,221 in six remaining districts.

Fact Sheet – IV

Rajarhat Satellite Township:

On 1 June 1995 the Government of West Bengal officially announced that adjacent to Bidhan Nagar, popularly referred to as Salt Lake, a New Town will be built on 2750 hectare of land covering 21 moujas in the Rajarhat Police Station area. In a notification published in 1994 it was announced that land falling within the following 21 moujas viz. Tarulia, Gopalpur, Salua, Chandiberia, Hatiara, Aatghara, Kaikhali, Tegharia, Nawpara, Dasadrone, Raigachhi, Mahishgote, Shulongari, Mahishbathan, Rekjoani, Ghuni, Baliguri, Thakurdaari, Chak Pnachuria, Jatragachhi and Kadampukur would be taken by the Government of West Bengal for the Satelite Township Project. A total of 1,31,000 inhabitants would be evicted in the 21 moujas. As per the Census report of the 2750-hectare of land in these 21 moujas 2095 hectares are agricultural land. A large portion of the said land yields two crops of paddy per year. In some areas wheat is grown during the summer. There are number of fisheries in the area. Kadampur and Sikharpur moujas are famous in the state for its flowers. There are about 15 lakhs of trees in the area. 1 lakh 31 thousand inhabitants live in 40 villages. 12,500 of these are involved in agriculture, 4000 with fish farming and 4650 are landless labourers. The Rajarhat Satellite Township Project involves an estimated expenditure of Rs 5000 crores with a projected capacity of 50,000 flats. After the Environment Impact Assessment (EIA) 4 more moujas have been added to the original 21 as a result of which the total land acquired increased from 2750 to 3075 hectares. Very soon announcement for acquiring of land falling in 6 more moujas is expected.

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Fact Sheet – V

‗Excess‘ Industrial Land:

Some industrial units have appealed to the Government of West Bengal to allow them to use some of their ‗excess‘ industrial land for the purpose of constructing residential apartments. They have clarified that the profit generated would be suitably utilised for modernisation purposes. The following are some of the leading factories and the amount of land they plan to build residential apartments on: 7.5 of the 12.5 acres at the Sahagunj Unit of Dunlop; 4 acres at the Gramophone Company in Dum Dum; 300 acres at the Hind Motors in Hugli District; 10 acres at a few Jute mills in and around Kolkata.

In 2003, the Government of West Bengal had asked WEBCON (a State Government public sector consultancy firm) to carry out a study on the ‗excess‘ land located within various industries. The study revealed that there were about 41,000 acres of ‗excess‘ land in just 500 industrial units in West Bengal.

It is expected that immediately after the Land Reforms Bill is passed the Government of West Bengal will announce a guideline for ‗utilisation‘ and probably ‗fair-use‘ of the ‗excess‘ industrial land. The guideline supposedly mentions that when on a piece of land a commercial project will be envisaged, the Government will set up the base price and the rest will be decided in an auction.

Minister of Housing, Sri Gautam Deb, has given his consent to the plan to build residential apartments in the ‗excess‘ land belonging to industrial units. The Government‘s eagerness stems from a objective that in the next 20 years 90,000 families would have to be provided with proper housing. The first target would be to utilise as soon as possible the land locked up in locked out industries and closed Central Public Sector Undertakings.

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F. SECTION 6 : SUMMARY

SUMMARY POSITION Central Sector Out of 25 units of Central sector, implementation of revival packages has been successfully completed in 4 units under the provisions of the revival packages approved by BIFR and these units have revived themselves. These are IISCO, Braithwaite, Jessop and Becco-Lawrie; Remaining 7 units are at various stages of implementation of their respective revival packages approved by BIFR. The units of Bengal Chemical, Andrew Yule and Eastern Coalfields are indicating successful revival. Revival packages are in process of finalization in 2 cases viz. Hindustan Cables and Tyre Corporation; 12 units have however, been recommended by BIFR for winding-up in absence of any supportworthy revival proposal from any corner; An important development is that the closed unit of M/s National Instruments, a fully-owned CPSU has recently been handed over to Jadavpur University by Government of India after prolonged persuasions by GOWB. Some of the closed/non-operating units have been decided by GOI for revival; These include both units of Hindustan Fertilizer. Strategic JV partners are being identified for reopening and revival of closed MAMC unit at Durgapur and some jute mills of National Jute having major activities in this State. Efforts have been taken by GOWB in consultation with GOI so that some other closed CPSUs could be revived with permission of the Hon‘ble High Court. Private Sector Out of 324 units in private sector, respective revival schemes for 69 units have been approved by BIFR so far. Out of these, 27 units have so far been successfully revived and came out from BIFR under the provisions of SICA 1985. cases of ABB ABL (now Alstom Power), Gramaphone Company (now Saregama), Century Extrusion, Khaitan Agro, Dalhousi Jute, Champdani Jute, Sri Badrinarayan Steel etc. Implementation of respective revival schemes of remaining 42 units is either in progress or under revision as their original BIFR-schemes has been decided by BIFR as ‗failed‘. Meanwhile, the units like Dunlop, Air Conditioning Corporation and GKW have come out of BIFR upon receipt of verdicts of Hon‘ble Courts of Laws and AAIFR in respective cases, although revival

78 units have been decided by BIFR for final closure in absence of any support-worthy revival proposal. assets of 7 units have been purchased by prospective promoters for further industrial activities. Remaining cases of 38 units are not under the purview of this State as their works are outside the State.84% between 1991 and 2001. Andrew Yule. Out of these liquidated Companies. References have been made as they are originally incorporated in West Bengal. Cases of 26 units have been rejected by BIFR as non-maintainable under SICA. e. These units are presently being rehabilitated successfully. Their liquidation proceedings are either stuck in appeals before the Appellate Authorities or underway before the Hon‘ble High Court. Nuddea Mills and Deepak Industries.39 lakhs in these 10 years. lockouts and retrenchment. Summary: EMPLOYMENT: Job Losses Outstrips Generation . India Machinery.67% [marginal workers are those who get 183 days of work per annum]! In ten fateful years the percentage of marginal workers in the state rose from a modest 1. It is pretty evident as to what is happening to the lakhs of toilers who are losing their jobs from the organised sector owing to industrial closures. Recon Castings and Hindustan Pilkingston etc. Summary: WORKERS: Shifting Sand The total working population of the state is rising at a higher rate when compared to the increase in the rate of total population.06% that is a third less than the rate of total population increase (17. Duroplyprene. Various options towards revival measures in respect of 113 units are under consideration of BIFR. The picture will be clearer when one finds that the number of marginal workers increased from 13. Versatile Wires.03% of the total West Bengal population. This means a huge lot of workers lost their jobs in the organised sector. But this seemingly positive trend is not really positive for the industrial scenario. The figures will reveal a lot about the plight of workers. for which State Government has already granted ―in principle‖ clearance are presently under consideration by the Finance Department. For example.84%). (a CPSE). Eastern Explosive.62%. State Government is in search of new investors out of them a few have evinced interests in taking over some closed units upon seeking permission from the Hon‘ble High Court. which is a whopping increase of 412.97% to 8. This will be clear when one observes that during the same period. the total working population increased during the same period by 34. the workers in the primary sector increased by 12. Whereas the total population of the state increased by 17.g. Admissible relief/concessions for some deserving/eligible units having fully tied-up revival schemes duly approved by BIFR. Gourishankar Jute Mills.P a g e | 348 in respect of their units located in the State have not yet been completed.34 lakhs to 64. as per census figures.

35. Such lockouts initiated by management accounts for 94% of the annual man-days lost in the State. Summary: CLOSED.P a g e | 349 In the year 2003. Of the total number of cases where factories stop production 92% are due to lockouts declared by the management.000 workers lost their jobs for varying periods owing to lockouts and strikes in 432 factories.120 workers in 238 factories set up during the year.2% of the registered 69. Only 28% of the factories are registered. In the year 1981 for every crore of Rupees invested. However this estimate could be rather optimistic.78 lakh factories are unregistered and information about the number of closed units are officially unavailable. Summary: FAWLOI SCHEME: Miles To Go As per FAWLOI scheme (Financial Assistance to Workers of Locked Out Industries).775 crores created 62. Similarly there are no official figures of medium and small-scale factories. In the year 2003-2004. SICK AND LOCKOUTS: Staggering Reality 42. 500 is payable to workers below the age of 58 in units under lockout for more than a year.404 fresh jobs – at an average rate of little over 3 jobs per crore. there are 4. The number of unregistered factories total up to 1. Tall claims apart the reality on ground level is simply appalling. During 1991 and 2001 19. It is obvious that nature of industries being set up in the state is in no way solving our employment related problems.78. 24. which are sick. Rs.269 factories in West Bengal are closed. Compounding this is the unabated trend of job losses. which is a thing of the past. It is popularly stated that there are 55. the Government of West Bengal spent Rs. Hence the number of workers affected by industrial sickness could be nearer to the 1 million mark. The budgetary allocation is Rs 50 crore of which not even half was utilised for the scheme whereas 2 lakhs of workers in West Bengal are in locked out medium and large industries of this state.55 crores by way of financial assistance to 42. there were fresh jobs created for 9. which are officially sick.000 closed and sick industries in West Bengal.27.750 affected workers. given the fact that 1. On the other hand 6. As regards the spiralling trend of lockouts one can only state that it is a social malady much worse than the much-criticised phenomenon of militant trade unionism. In the 288 large units alone. which is pushing the workers against the wall.729 workers in 263 units. 228 workers got fresh employment. The workers are on the back foot while the management is on the rampage. Whereas the Government of West Bengal deserve to be applauded for this exemplary gesture .120. During 1999 the same crores created 16 job opportunities.

by now. Summary: ESI: A Mockery of Social Security Shockingly the number of beneficiaries covered by the Employees State Insurance (ESI) Scheme has taken a nosedive having been reduced to less than one-third of its value in 14 years – from 10. The PF Board of Trustees in the exempted category group comprises of representatives of both the employers and the employees. whose loss. Summary: PROVIDENT FUND: Turning A Blind Eye Only 8. There are 5. the workers get punished! This paradoxical situation is presently the hallmark of this important arm of the social security network. remains an unanswered question! . In West Bengal the total PF dues have tripled in the span of fifteen years – from Rs 113. 62% of this entire arrear is accounted for by default from the Jute industry alone.75 lakhs in 1990 to 3. Whose profit. The units under the exempted category covers about 25% of the total workers but are responsible for 70% of the PF dues.938 un-exempted units. The small-scale manufacturing sector stays outside the ambit of ESI and hence about 35 lakh prospective beneficiaries remain uncovered. but by default.69 lakh workers in 654 factories under exempted category and 17. Misappropriating the PF has almost become a legitimised business practice in thousands of industrial units. Despite such huge dues not a single case have been lodged against these Trustee Boards.89 crore in 1989-90 to Rs. There own money remains locked up in these funds for years and decades while they struggle to obtain a square per day. Despite the extent of default the ESI Corporation has accumulated Rs 39 crore as excess of income over expenditure during the last 6 years.348. The workers in the long run bear the brunt of the seemingly inert behaviour of the Government machinery.P a g e | 350 towards workers of locked out industries it must be stated that this social security net. In the absence of any State intervention this malpractice is assuming unmanageable proportions.7% of the total workers in the state have PF coverage.5 lakhs in 2004. The defaulters are not punished. The Jute Industry alone accounts for about 36% of the total PF dues in West Bengal during 2003-2004. should have covered more workers deserving assistance.67 lakh of workers in 18.11 crore in 2003-2004. During the same period the unpaid ESI dues have sky rocketed from 35 crore to 203 crore.

There are 341 Minimum Wage Inspectors in 345 blocks of the State and as yet information regarding minimum wages in various parts are as yet unknown to those who matter. it has to be said that a strong determination is needed for dealing with the disease of industrial sickness.P a g e | 351 Summary: MINIMUM WAGES: Maximum Chaos 57 categories occupation or industry has been included in the schedule of minimum wages while minimum wages have been fixed for 53 occupations or industry. SUGGESSTIONS At the very outset. The number of enquires carried out annually regarding Minimum Wage violation has fallen by 24% in the last five years – from 37971 in 1999 to 28979 in 2003 – while the number of cases in which conviction was made came down to a third of its value in the same period – from 628 in 1999 to 206 in 2003. the same disease is definitely bound to spread to the . leaving out a multitude of others. 3. As per rules the minimum wages are to be revised every 4 years but in 22 occupations there has been no revision for over 20 years now. but has done scanty little to bring those errant employers to book who violates the Government order in letter and spirit. Otherwise. All this has culminated from the industry-friendly posture the Government of West Bengal seems to be projecting – all at the cost of unorganised sector labour. The Government has computed the minimum wage in every occupation at Rs 2700 per month.

The Rehabilitation given to sick industrial companies is not the answer and solution for them. Not only we are required to bring about changes in implementation process but also we need to change our thought process towards rehabilitation of sick companies. thus. The following suggestions are made to prevent and avoid industrial sickness in Manipur: The progress of industrial sickness has been highlighted from the period before Independence to the present prevailing condition. The issue which. As the Companies Bill 2009 which changes the entire framework of laws relating to corporate has been pending to be passed. Otherwise. The best advice here would be. As it is always said something is better than nothing same applies here keeping sick companies and rehabilitating them will be a better option instead of closing down the organization. 4. the idea of a new legislative framework in regard to sick companies is futile.economic setup of the state in particular and the country in general. Attempt towards rehabilitation is required rather than just helping the organization in becoming bankrupt. the ever increasing incidence of industrial sickness may threaten the whole socio. any good legislative framework for its triumph is dependent upon effective judicial process attached to efficient implementation apparatus. arises for deliberation and discussion is as to why SICA has been called as a fractured regime and why it has been a fiasco in rehabilitation of sick companies. . CONCLUSION The intrinsic Characteristics governing a model recognized restructuring process in any part of the planet are universal if not similar though they may be prearranged differently. on the above principles. every effort should be made for its maximum utilization and the question of resources being kept idle and unproductive should not be tolerated. In a state like Manipur where resources are very scarce. Sick Industrial Companies Special Provisions Act. more or less. 1985 is planned. The call for commercial approach towards sick companies is called for and it is the need of the hour in this era of globalization.P a g e | 352 whole industrial sector.

Sick industrial company should be left on their own condition and let the market forces to decide the fate of the company. While there should be a mechanism to safeguard the interests of workers. labour. and suppliers of goods should be provided to those units where chances are subsisting for the revival of the sick unit. Government should refrain itself from intervention. a suitable exit policy for the nonviable units should form an integral part of the new approach. it should help taking the affairs of the industrial company in its own hand for a particular period of time. NCLT should also be made to come into force to ensure speedy disposal of cases looking into the sluggishness of the disposal of cases by BIFR. government agencies. financial institutions. . If at all government wants to do fruitful help for the industrial company. CONCLUSION AND SUGGESTIONS Industrial sickness is a problem all economies big and small have to face. Package consisting of concessions from banks. A stringent mechanism should also be devised so that the directors of the company should not play fraud on the unit to bring it within the purview of sickness. shareholders. government (Central/State). The approach of the government towards rehabilitation of a sick unit being very selective. The enactment instead of fruitful it proved burdensome on the healthy companies. The rehabilitation fund are created by imposing tax on the good working companies which puts additional burden on them without their own fault. The Parliament itself is not sure whether rehabilitation should be given to the sick company which is evident from the act of the parliament itself.P a g e | 353 8. What is important is to evolve a proper regulatory and institutional mechanism to deal with the situation. Only such units which are found to be potentially viable need to be taken up for formulation of rehabilitation packages to restore them to health. the government is now convinced that there is no point in throwing away further resources in support of the units which are irretrievably sick. 1956. Parliament repealed the very first enactment of SICA after seventeen years just because it did not confirmed the purposes set out in the enactment and inserted few sections in the companies Act.

business.prsindia.in www.ac.com www.sidbi.ac.in www.in www.indianmba.org www.inflibnet.com www.com www.P a g e | 354 9.vikalpa.org www.com www.indlaw.docstoc.in www.slideshare.org www.com www.financialexpress.in www.in www.ernet.inflibnet.in www.com www.taxmann.org www.oecd.com .employment.com www.adb.com www.mgu.planningcommission.pib.ideas.scribd.com www.nic.dhakachamber.net www.authorstream. REFERENCES www.repec.com www.shodhganga.newagepublishers.nic.gov.indiabudget.nic.

 Balakrishna.  Sahu. &Meher. ―New dimensions in industrial sickness‖. Delhi. (Ed. Satish (1999).  Bhatia. & Mishra.  Panda. Place and problems of small scale industries. Basu. ―Management of sick industries‖. an unpublished  S. p. Pvt. ―The critical appraisal of industrial sickness‖. Bidani and P.  Development Commissioner. Calcutta: Mukerjee and Co. Mitra (1982). Mittal Publications. Raj Kishore (1992). ―Report on the census of small scale industries unit‖. ―Industrial sickness and key areas of management‖. A Study Of Restructuring Of Sick Industrial Companies Under Part Via Of The Companies Act Vis-A Vis Sick Industrial Companies (Special Provisions) Act. New Delhi. Deep & Deep Publications. Government of India. B. ―Industrial sickness in Manipur. ―Industrial sickness : A study of small scale industries‖. Report of the Committee to Examine the Legal and other difficulties faced by the Banks and  Financial Institutions in Rehabilitation of Sick Industrial Undertakings and Suggest Remedial Measures including changes in the Law.  S.S.N.K. Small Scale Industries. Financing of Small Scale Industries in India 1950-5.  Companies Bill. Vision Books. Report of the proceeding of the seminar on financing of small scale industries in India. p. (1977). B. 115. (1997).) (1978). . TombaKh. Jaipur. New Delhi. Subline Publications. 2009  RBI. R. (Chairman: T. Dave (1987). Managing Industrial Sickness.1985  Prof (Dr. Small and Medium Enterprises. 2.A case study of small scale industries‖. pp. Deep and Deep Publications.L. 2007. New Delhi.N. 1984. P. Kanishkaublishing House. ―Sickness in small scale sector‖. Ashish Publishing House. ―Credit Management (Planning.K. S.  SubhashGangwal (1990). 429-431  Singh. D.K. Ministry of Micro. 2005. & Batra.  Simha. Concept Publishing Company.  Annual Report (2009-10). 1st edition.com  Reserve Bank of India. appraisal and supervision)‖. ―Industrial sickness: Role of banks‖. Industrial Sickness in India: Weed for Comprehensive Identification. Bombay.P a g e | 355 www.  Nalini. Madras. Tiwari). New Delhi  Balan K. V. 1996  Bhaskar Amit.  Mathur. Institute for Financial Management.S.) Sreerenganadhan K. G. Bomaby: Asia publishing House. (1992). ―Industrial sickness – Identification & rehabilitation‖. Ltd. 2007. (2002). Management of Industrial  Dholakia H Bakul.luthra.P. Delhi. Miss Varghese Roshna.K.

I havefurthermore to thank my college faculty also to encouraging me to go ahead with this project. 1978". for providing the necessary guidance and facilities for carrying out this project. Part-I. Sec. 10. Dr.I am deeply indebted to the Principle Sir . Mayura Pawar. U. reproduced in Government of India. Mukund Sarda whose help. 1982. Ministry of  Industries. Policy and Procedures. stimulating suggestions and encouragement helped me in carrying out this exercise. I want to thank Mrs. .P a g e | 356  "Statement on Policy of Sick Industries.Bendale and Mrs.relating to revival of sick industrial units. II-. ACKNOWLEDGEMENT I would like to express my deep gratitude to the following people for their support and Assistance and who made it possible for me to complete this project. Guidelines for Industries.S.

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