In seventies, the Government realizing that measures undertaken for preventing industrial sickness i.e. nationalization or take over of management of Sick Companies were not effective has decided to conduct studies for effective monitoring. The Reserve Bank of India which was periodically monitoring industrial sickness has in 1975 appointed Tandon Committee, in 1976 H.N. Ray Committee and in 1981 Tiwari Committee for suggesting measures for rehabilitation of sick units and to safeguard interest of Financial Institutions. Arising out of its recommendations of the Tiwari Committee the present Sick Industrial Companies (Special Provisions) Act, 1985 came into shape with the avowed objectives of affording maximum protection of employment salvaging the productive assets, which represent the wealth of the nation and ensuring that they are not wasted away in liquidation proceedings. The social and economic implications of revival of the sick companies through the said legislation are brought out in the judgment pronounced by the Hon’ble Supreme Court of India in
N. R. Kamani vs. R. R. Kamani AIR 1989 SC 9 (1989) 66 Comp. Cases 132. As such the benevolent nature of the SICA enactment is well established. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESIA) was enacted in 2002 to facilitate speedy recovery of dues of banks and FIs from defaulting borrowers. SICA, 1985 was amended through this Act and provided for abatement of SICA proceedings on exercise of powers under SARFESIA.

The act consists of 36 sections and a Schedule. The important provisions, major requirement and procedure for reference to Board for Industrial and Financial Reconstruction (BIFR) by the Sick Industrial Companies, Central and State Governments and other Institutions are as follows:—

Section 3(1)(o) : Defines sick company as an industrial company (as per Schedule-I of IDR Act) being registered for not less than 5 years, which has at the end of any financial year accumulated losses equal to or exceeding its entire net-worth (paid capital and free reserves).

Section 15(1) : When an Industrial Company has become a sick industrial company, Board of Directors (BOD) of the company, shall within 60 days from date of finalization of duly audited accounts of the company for the financial year as at end of which the company has become a sick industrial company, make reference to BIFR. Provided that if BOD had sufficient reasons even before such finalization to form the opinion that the company had become sick, shall within 60 days after it has formed such opinion make reference with BIFR. It is also provided that on or after commencement of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the BIFR, such reference shall abate if the secured creditors, representing not less than ¾th in value of loan disbursed have taken any measures under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESIA).

Section 16 deals with the enquiry stage, Section 17 envisages the action to be taken by BIFR, Section 18 relates to the preparation of "Sanctioned Scheme", Section 19 relates to the provisions of the rehabilitation/ revival of the sick industrial company by providing additional financial assistance and Section 20 pertains to winding-up of the company if none of the alternatives found to be adequate to make the net-worth of the company exceeds the accumulated losses within the reasonable period of time. Section 21 provides that BIFR may for proper discharge of the function under the Act, cause to get prepared various statements and complete inventory of all assets and liabilities through Operating Agency.

Section 22(1) provides that in case of the inquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration by BIFR or any appeal u/s 25 is pending then winding-up of the company, proceedings for sale of assets, proceedings for appointment of receiver, suit for recovery of money and suit for enforcement of any security or any guaranty in respect of any loans or advances granted to the company remains suspended.

Section 22A: provides that if the Board is of opinion that any direction is necessary in the interest of all concerned, by order in writing direct the sick industrial company not to dispose of, except with the consent, any of its assets.

Section 23 deals with the provision of reporting erosion of net-worth by 50% to BIFR and informing the shareholders about the erosion and considering the pros and cons of such erosion. Section 23B provides power of the Board to call for periodical information from sick industrial company. Section 24 deals with misfeasance proceedings against persons found misrepresenting or tampering of documents under scrutiny or for not implementing the scheme.

Section 25 provides that any person aggrieved by an Order of BIFR may appeal against such order before AAIFR. Section 26 relates to bar of jurisdiction,
Section 27 delegation of power by the BIFR, Section 28 returns or information to be furnished by or to the BIFR, Section 29 powers to seek the assistance of chief metropolitan magistrate or district magistrate in particular situation, Section 30 protection of action taken in good faith etc. Section 33 provides penalties of certain offences i.e. any violation of the provisions of the Act; violation of any scheme; violation of BIFR/ AAIFR (Appellate Authority of Industrial and Financial Reconstruction) Order and making false statement and/ or giving false proof to BIFR/AAIFR.

As per published data, the BIFR during the period 1987 till 31-12-2004 received 5147 cases. The BIFR in 1377 cases passed reference dismissal order, in 1302 cases formed opinion for winding-up, in 436 cases have been disposed of and 259 cases are under revival. It indicates that in the 17 years, since the BIFR has set-up, SICA has met with limited success. On the other hand it has drawn a lot of flake on following aspects:—

Though SICA was conceived well, unfortunately it has not only failed to reduce sickness, but also the spread of industrial sickness. Really, it is an accepted fact that some corporate deaths are inevitable aspects of market-oriented economy. In the above background, when we analyze the existing laws, we note that while SICA meets with and incorporates most of the essential features required in restructuring laws, it has proved to be not very effective and has also lent itself to misuse.

With the introduction of the Companies (Amendment) Bill, 2001 and the Sick Industrial Companies (Special Provisions) Repeal Bill, 2001 the Government has presented to the country its panacea for relief from the multifarious ills faced by the socio-economic fabric of the country arising out of industrial sickness. Further, based on major recommendation of Narsimhan Committee and as per advise of Expert Committee under chairmanship of Shri T.R. Andhyarujaina the Government enacted Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESIA). By amendment in SICA, it is provided that on enforcing security interest under SARFAESIA sick companies is barred from filing reference.

SICA has been repealed and work of rehabilitation of sick industrial companies is being entrusted to the National Company Law Tribunal (NCLT) constituted under Companies Act. Many of the provisions of SICA have been incorporated in Part VIA of the Companies Act (Sections 424A to 424L) in a considerably diluted form. On repeal of SICA the reference before BIFR will get abated. So long as NCLT are not constituted, BIFR and AAIFR continue to function and deal with sick industrial companies.