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Industrial sickness can cause a terrible impact on Indian economy. Therefore it’s important to revive sick industrial units. In this article we shall discuss the revival process of such companies.
Table of Contents
According to the Sick Industrial Companies Act, 1985[1] Sick Industrial Company:
As per the Companies Act 2013 Sick Industrial Companies Means:
Industrial Companies which has Accumulated losses in any financial year equal or more than 50% of its average net worth during four years immediately preceding the current financial year.
The growth of any country is dependent on how the industries are growing and generating revenue for the economy. With the growth of the industries, the economy will also grow so it is necessary to keep an eye on the growth of industries. As to regulate the Sick Companies, Government of India enacted a special legislation named as Sick Industrial Companies Act 1985. The main aim of the act is to determine the sickness of industrial units and initiate the revival procedure.
It is expected that after initiating the revival procedure the idle investments made in sick units will become productive and by closing such industries the locked up investment will become productive. Earlier SICA was applicable only to industrial companies and not on trading and service companies. Later on the act was modified to include the Government companies.
Earlier all the proceedings related to revival of sick companies were adjudicated by the Bureau for Industrial and Financial Reconstruction (BIFR)after the changes made in the notification of Government of India on May 28th, 2016. Now the National Company Law Tribunal shall adjudicate all the matters of Sick Companies and the earlier cases which are pending with Bureau for Industrial & Financial Reconstruction or Appellate Authority for Industrial & Financial Reconstruction and High Court will be transferred to the National Company Law Tribunal.
An insolvency resolution process can be initiated by either a creditor, or by the debtor, upon an event of default. At present the SICA Act, 1985 is repealed and the company in respect of which such appeal or reference or inquiry stands abated in BIFR and AAIFR may make reference to NCLT under the Insolvency and Bankruptcy Code 2016 by filing fresh application for Corporate Insolvency Resolution Process (CIRP) within 180 days from the commencement of IBC 2016.
Earlier laws pertaining to DRT and SARFAESI were the exclusive forums for banks/financial institutions while BIFR and Companies Act had limited application for sick companies, their revival and/or liquidation. The Insolvency and Bankruptcy Code, 2016 will overcome these kinds of problems.
The revival of sick companies is crucial so as to prevent closing down of such unit which would further lead to hardships for employees. It will also cause loss of revenue to the state. In case you need any additional information, contact Enterslice.
Read our article:Voluntary Liquidation of a Company under IBC
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