Industrial Sickness

Unit - 2
We will cover these topics – Unit 2

▪ Meaning
▪ Internal / External reasons for
Industrial sickness Industrial Sickness
▪ Symptoms of Industrial Sickness
▪ Measures to overcome sickness
by Government and Stakeholders
▪ Role of BIFR in Sick Industries
Meaning
▪ When any industrial unit is said to be sick , it means to convey that all is
not well with the unit, its operational results are unsatisfactorily and its
survival is doubtful

▪ According to the definition adopted by the Reserve Bank of India, an

industrial unit is considered to be sick if
▪ it has incurred cash loss for one year,
▪ it is likely to continue to incur cash losses in the current year as well as the
following years,
▪ it has a current ratio of less than 1:1, and there is worsening of its debt-equity
ratio.
Reasons and Causes
▪ External Factor
▪ Recession in the Market
▪ Decline in Market Demand for the product
▪ Excessive competition in the Market
▪ Erratic and insufficient supply of inputs
▪ Adverse Government Policy
▪ Unforeseen circumstances like Natural calamities

▪ Internal Factor
▪ Faulty planning in conducting business
▪ Incompetent Entrepreneurs
▪ Problems relating to Management
▪ Financial problems
Symptoms
▪ Decline in capacity utilization; ▪ Frequent breakdowns in plants and
equipment’s;

▪ Shortages of liquid funds to meet short-term

financial obligations; ▪ Decline in the quality of product manufactured
or service rendered;

▪ Inventories in excessive quantities;

▪ Delay or default in the payment of statutory
dues such as provident fund, sales tax, excise
▪ Non-submission of data to banks and financial duty, employees’ state insurance, etc.;
institutions;

▪ Decline in technical deficiency; and

▪ Irregularity in maintaining bank accounts;

▪ Frequent turnover of personnel in the industry.

SICA
▪ Sick Industrial Companies (Special Provisions) Act, 1985 – SICA
▪ The main objective of SICA is to determine sickness and
expedite the revival of potentially viable units or closure of
unviable units
▪ Revival – idle investment in sick units will become productive
▪ Closure – locked up investments – releases for productive use
elsewhere
▪ Act was enacted with a view to securing the timely detection of
sick and potential sick companies
▪ SICA applies to both public and private owning industries
BIFR
▪ Board for Industrial and Financial Reconstruction (BIFR)
▪ Agency of the Government of India, part of the Department of
Financial Services of the Ministry of Finance set up in January
1987
▪ The objective was to determine sickness of industrial companies
and to assist in reviving those that may be viable and shutting
down the others
▪ On 1st Dec 2016 dissolved BIFR and referred all proceedings to
the National Company Law Tribunal (NCLT) and National
Company Law Appellate Tribunal (NCLAT)
BIFR
▪ The National Company Law Tribunal has the power under the
Companies Act to adjudicate proceedings
▪ Initiated before the Company Law Board under the previous act
(the companies Act 1956)
▪ Pending before the Board for Industrial and Financial
Reconstruction, including those pending under the Sick Industrial
Companies (Special Provisions) Act, 1985
▪ Pending before the Appellate Authority for Industrial and
Financial Reconstruction and
▪ Pertaining to claims of oppression and mismanagement of a
company, winding up of companies and all other powers
prescribed under the Companies Act
https://nclat.nic.in/