12 - Chapter 4 PDF

Revival and Rehabilitation of Sick Units:
Role of BIFR and Financial Institutions

Chapter-IV: Revival and Rehabilitation of Sick Units: Role of BIFR and Financial Institutions 81
4.0 Introduction
Constitution of ‘Board for Industrial and Financial Reconstruction’ (BIFR), an Appellate
Authority, by the Sick Industrial companies Act (SICA), 1985 is a landmark of Indian
industrial economy. The terms ‘revival’ or ‘rehabilitation’ mean the selling off of assets and
starting a fresh industrial undertaking in different places. It also indicates rearrangement or
reorganization of a company. The revival or rehabilitation of sick units is an important step
for industrial development. The number of sick units is rising with the progress of time and
without rehabilitation the economic scenario will not be changed.
4.1 Role of Board for Industrial and Financial Reconstruction (BIFR)

Keeping in view the growing incidence of industrial sickness and the resources blocked in
sick units, it was realized that suitable measures should be taken to rehabilitate sick units and
to overcome the problem of widespread sickness in Indian industry. The role of BIFR as
envisaged in the Sick Industrial Companies Act is:
a) Securing the timely detection of sick and potentially sick companies
b) Speedy determination by a group of experts for taking decision on various appropriate
measures in respect of the sick companies
c) Expeditious enforcement of such measures
This Board has a chairman and may have a maximum of fourteen members, drawn from
various fields including banking, labour, accountancy, economics etc. It functions like a court
and has four constituted benches.
4.2 Reporting to the BIFR

The Board of Directors (BoD) of a sick industrial company is required to report the sickness
to the BIFR within sixty days of finalization of audited accounts at the end of the financial
year when the company has become sick. BIFR has prescribed a format for this report. While
reporting by a company of its sickness to the BIFR is mandatory as per the provisions of law,
any other interested person or party can also report the fact of sickness of a company to the
BIFR. Such interested parties may be the financial institution or bank that has lent loan to the
company, the Reserve Bank of India, the Central or State Government. The BIFR has
prescribed a different format for the report to be submitted by such interested parties. When a
company has been financed by a consortium of banks, it is the Lead Bank that should report
to the BIFR about the sickness and would advice the other participating banks in the
consortium.
4.3 Enquiry by the BIFR

When a case is referred to the BIFR, it is verified by the Registrar of the BIFR as to whether
the fact of the case falls within the provisions of the Sick Industrial (special Provisions) Act,
1985. If so, the BIFR accepts the case and notifies a date for hearing of the case. For
rehabilitating a sick unit, co-operation of various connected agencies is necessary. This
coordination is achieved by the BIFR. The BIFR invites the representatives of the informant
sick company, the representatives of the concerned financial institutions and commercial
banks, representatives of the Central or State Governments, trade union representatives etc.,
to the hearing and inquiry is made to take any decision.
After the hearing, 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. Normally, the lead
financial institution (IDBI, ICICI, IFCI and SFC) or the lead public sector bank that has
financed the company is nominated as the operating agency. Lead institution is one that has
major financial stake in the sick company. The enquiry is to be completed within sixty days.
On completion of the enquiry, the BIFR will declare whether the company is sick or not.
4.4 Different Stages of BIFR

The BIFR follows different stages for revival and rehabilitation of the sick units. There are
seven stages by which the sick units can be recovered from their sluggish condition. These
seven stages are: package approved, prima facie for winding up, final order passed for
winding up, rejected/ dropped/non maintainable, pending case, hearing held so far and revival
as well exit from BIFR. In West Bengal the number of BIFR cases is rising that implies the
sickness in industrial economy. Haora and Hugli districts as industrially advanced districts
are now suffering from same ailment. The number of sick units is rising and with this huge
number of labour has been affected by this type of socio-economic disorder (Fig. 4.1 and
4.2).
4.4.1 Package Approved Cases

Once a company has been observed as sick, the BIFR may grant time to the sick company to
enable it to make its networth positive and bring the company out of sickness, without any
external financial assistance. But when it is found unfeasible for the company without any
external financial assistance or the company cannot make its net worth positive within a
rational time limit, the BIFR will direct the operating agency to prepare a suitable revival
package for restoration of strength of the company.
Temporal Analysis of BIFR Cases, 1989 - 2010
Haora District Hugli District

40 60,000 40 50,000
35 35
Employment in number
Employment in number
50,000
40,000
Number of cases
30
Number of cases
30
40,000
25 25 30,000
20 30,000 20
15 15 20,000
20,000
10 10
10,000 10,000
5 5
0 0 0 0
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Y e a r s Y e a r s
Fig. 4.1 Fig. 4.2
Data source: Government of West Bengal
The operating agency prepares a suitable revival package that may vary from one case to
another on the basis of nature of problems. The package should be submitted to the BIFR
within a time limit of ninety days or such extended period as may be allowed by the BIFR.
On submission of the revival package by the operating agency, the Board sends it in a draft
form to all concerned parties (i.e., the sick industrial company, the banks or financial
institutions) who have given financial assistance to the sick company, eliciting their views or
suggestions on the revival package. The draft of the package will also be published in the
news papers that invite suggestions or objections from the shareholders of the sick company,
creditors and employees of the sick company, transferee company and any other interested
party. After careful examination of all aspects, the BIFR will sanction the revival scheme
with or without modifications. The scheme, as sanctioned, will come into force from the
specified date and all concerned parties are required to abide by the provisions of the revival
scheme. However, when any of the involved agencies does not give its consent to the scheme,
the BIFR has no other option but to recommend for winding up of the company.
A large number of units of Haora and Hugli districts are under revival package. Fig. 4.3 and
4.4 depicts that huge number of units of Sadar subdivision of Haora and many units of
Shrirampur subdivision of Hugli have been included in revival packages. In fact in both
subdivisions many engineering units like Vijay Shree Ltd., Meghdoot Projects Ltd., IFB Ltd,
India Foils Ltd., jute textile unit like India Jute Mills Ltd., cotton textile units of National
Textile Corporation Ltd. and miscellaneous units are suffering from sickness. These units are
engaging large number of labour and as a result a mentionable number of labour have also
been affected by this phenomenon. In case of Uluberia subdivision of Haora, jute and cotton
textile units are under this stage. Other two subdivision of Hugli district are not running
satisfactory condition. In Sadar subdivision where jute textile units are mainly suffering from
this condition while many engineering and jute textile units of Chandannagar subdivision are
under packages (Appendix table Ac 22, 23, 24 and 25). This scenario reveals that many
mother units of the both districts are facing financial constraints.
Subdivision-wise Distribution of Package Approved Cases in Haora and Hugli Districts
Number of Cases Number of Affected Workmen

12 25000
Five years moviing average
10

(Number of employment)
20000
(Number of case)
8
15000
6
10000
4
2 5000
0
0
1991
1993
1995
1997
1999
2001
2003
2005
2007
1991
1993
1995
1997
1999
2001
2003
2005
2007
Y e a r s Y e a r s
Sadar-Haora Uluberia-Haora Sadar-Haora Uluberia-Haora
Sadar-Hugli Chandannagar-Hugli Sadar-Hugli Chandannagar-Hugli
Shrirampur-Hugli Shrirampur-Hugli
Fig. 4.3 Fig. 4.4
4.4.2 Winding up Cases
Winding up is a process by which the affairs of the company come to an end. It has been
described as "...a process whereby its life is ended and its property administered for the
benefit of its creditors and members. An administrator, called liquidator, is appointed and he
takes control of the company, collects its assets, pays its dues and finally distributes any
surplus among the members in accordance with their rights" (Grover, 1969).
The Board orders to any sick industrial company for winding up when the accumulated losses
exceeds its net worth within a reasonable period of time and at the same time meet its current
financial obligations. The Companies Act, 1956 provides that in cases where the company is
unable to pay its debts the court can order winding up. The expression ‘unable to pay its
debts’ has to be taken in the commercial sense of being unable to meet current demands
though the company may be otherwise solvent. The fact that the liabilities exceed the assets
does not necessarily mean that the company is unable to pay its debts. It may still be in a
position to meet the demands of the creditor when necessary. However, where the court is
satisfied upon a general perusal of the balance sheet that the company cannot pay its debts
i.e., its assets are not sufficient to satisfy its liabilities, the court may order the winding up of
the company.
The inability to pay debts primarily arises under three circumstances:
a. Where the company fails to clear the debt of the creditor within three weeks
immediately preceding the date of demand for payment being made;
b. Where execution or other process issued on a decree or order of any court in favour of
the company is returned unsatisfied in whole or part and
c. Where it is proved to the satisfaction of the court that the company is unable to pay its
debts.
In cases of winding up where the Board is of the opinion that the sick company should be
wound up, it is required to forward its opinion to the High Court and then the court would
proceed on the basis of the opinion of the Board. The High Court may appoint any officer of
the operating agency as the liquidator of the sick industrial company for the purpose of
winding up. Such liquidator shall have all the powers of the official liquidator under the
Companies Act.
Table 4.1: Subdivision-wise Cases of Prima Facie Conclusion for Winding Up
in Haora District
Sadar Subdivision Uluberia
Subdivision
Years Engineering Jute textile Cotton textile Miscellaneous Cotton textile
No. of Emplo No. of Emplo No. of Emplo No. of Emplo No. of Emplo
units yment units yment units yment units yment units yment
1990 2 550 Nil Nil Nil Nil Nil Nil Nil Nil
1991 2 550 Nil Nil Nil Nil 1 200 Nil Nil
1995 Nil Nil Nil Nil 1 500 Nil Nil Nil Nil
1996 1 300 1 500 Nil Nil Nil Nil Nil Nil
1997 Nil Nil Nil Nil Nil Nil Nil Nil 1 2,700
1998 Nil Nil Nil Nil Nil Nil Nil Nil 1 2,700
Source: Government of West Bengal
In this study area few units are under prima facie of conclusion for winding up and many
units are under final order passed for winding up stage. There is a basic difference between
two terms. The former signifies that there are sufficient evidences to prove the winding up
situation but the unit is not immediately getting the final order of wind up. The later stage is
the ultimatum of the unit which is going to wind up its all aspects.
In Haora Sadar subdivision among all categories of industries, share of engineering industrial
units is highest under prima facie conclusion for winding up stage while in Uluberia
subdivision cotton textile units are under this stage (Table 4.1). In case of Hugli district
engineering and cotton textile units of Shrirampur subdivision are going through this stage
(Table 4.2). Table 4.2: BIFR Cases of Prima Facie Conclusion for Winding Up
in Shrirampur Subdivision of Hugli District
Years Shrirampur Subdivision
Engineering Cotton textile
No. of Employment No. of Employment
units units
1992 1 87 1 701
1995 Nil Nil 1 500
1996 Nil Nil 1 500
*No such cases found in other subdivisions of Hugli district
In the stage of final order passed for winding up, a large number of units have been included
that indicates worst situation for them. In this study area the situation is very painful in Sadar
subdivision of Haora district and Shrirampur subdivision of Hugli district (Fig. 4.5). In Haora
Sadar subdivision the number of winding up cases is rising with the march of time and among
these units the share of engineering units like Ashok Steel Corporation Ltd., Guest Kins
Williams, India Machinery Company, Indo-Japan Steel Ltd., P. K. Iron Works Ltd. is
maximum followed by jute textile units. The trend of these cases is also very significant in
Shrirampur subdivision where a large number of engineering units like Nipha Steels Ltd.
Srilekha Glass Works Ltd., Sree Engineering Ltd., cotton textile unit like Sree Durga Cotton
Spinning Mills Ltd. and miscellaneous units of chemical products named as Durgapur
Malleables (Pvt.) Ltd., People Papers Ltd., were under this stage in 2010. In Uluberia
subdivision of Haora district many cotton textile units e.g. Anantapur Textiles Ltd., Bowreah
Cotton Mills Ltd., Hanuman Cotton Mills Ltd. and one unit of National Jute Manufacturing
Corporation Ltd. in Haora Sadar subdivision while miscellaneous units like East End Paper
Industries Ltd. of Hugli Sadar subdivision had been included under this stage in 2010
(Appendix table Ac 26, 27 and 28). Thus the engineering and cotton textile units of both
districts are in vulnerable condition and a huge volume of work force has been engaged in
Subdivision-wise Distribution of Final Order Passed by BIFR for Winding-up Cases

in Haora and Hugli Districts

14
9000

12
Five years moving average
10
(Number of cases)
6000
8
6
3000
4
2
0
0
1991
1993
1995
1997
1999
2001
2003
2005
2007
1991
1993
1995
1997
1999
2001
2003
2005
2007
Y e a r s Y e a r s
Sadar-Hugli Shrirampur-Hugli Sadar-Hugli Shrirampur-Hugli
Fig. 4.5 Fig.4.6
Subdivision-wise Distribution of Pending BIFR Cases in Haora and Hugli Districts

10 25000
(Number of cases)
8 20000
6 15000
4 10000
2 5000
0 0
1991
1993
1995
1997
1999
2001
2003
2005
2007
1991
1993
1995
1997
1999
2001
2003
2005
2007
Ye a r s Y e a r s
Sadar-Hugli Chandannagar-Hugli Sadar-Hugli Chandannagar-Hugli
Shrirampur-Hugli Shrirampur-Hugli
Fig. 4.7 Fig. 4.8
these units. These industrial units are incapable to continue with their volume of work force
(Fig. 4.6). In fact after liberalization and privatization as well as globalization the engineering
and different types of miscellaneous industries have been adversely affected. Now they are
compelled to wind up their assets.
4.4.3 Pending Case

The proceedings of BIFR follow different stages which are very long term. When an
industrial company is going under BIFR there are numerous rules and formalities while
approval of these is not very easy. Thus many companies are being included under the
pending situation. Pending cases may emerge under the following circumstances:
a) Prior to reference to the BIFR, b) Before enquiry of the BIFR, c) Appointment of the
Operating Agency, d) Proceeding of preparation or consideration of referred scheme, e)
Implementation of sanctioned scheme and f) Proceedings for winding up of the properties of
the industrial company.
In this study area there are many industrial units under the pending situation. Many jute
textile and engineering units of Sadar and Uluberia subdivisions of Haora district like Viswa
Industrial Company Pvt. Ltd., Victory Iron Works Ltd. and Shree Hanuman Jute Mills Ltd.
were under this stage in 2010. In Hugli district the miscellaneous industrial units of Sadar
subdivision along with engineering and jute textile units of Chandannagar and Shrirampur
subdivisions named as North Brook Jute Mills Ltd., Kusum Products Ltd. and Shalimar
Wires Industries Ltd., were under this stage in the year 2010 (Fig. 4.7 and 4.8). In reality
during this stage the company cannot decide their nature of production and more over
enormous number of labour becomes jobless due to undecided status of the company
concerned.
4.4.4 Rejected/Dropped/Non-maintainable Cases and Hearing Held So Far Cases

The BIFR always does not accept the cases mainly where the financial dealings are not clear.
Cases of such companies are rejected or dropped or non-maintainable. These cases have been
observed in engineering and jute textile units of Haora Sadar subdivision as well as in
miscellaneous units of Shrirampur subdivision in Hugli district (Table 4.3).
Sometimes few units wait for hearing date of the High Court. More over dates are very
frequently failed due to absence of any member of the committee. Some units are also
suffering from subsequent procedures after occurrence of hearing. In this study area only one
miscellaneous unit with five hundred employment of Haora Sadar subdivision is under this
stage.
Above mentioned undecided stages are very crucial for any industrial company because
during these stages no company can take any decision and they lose their economic
condition. The companies are compelled to take lay-off situation, retrenchment or sacking of
labour. By these processes they reduce their costing and want to minimize their losing
margins. If these stages take long time, the financial status may be deteriorated.
Table 4.3 BIFR CASES: Rejected / Dropped / Not Maintainable of Different Industries
in Haora and Hugli District
Years Haora Sadar Subdivision Shrirampur Subdivision

Engineering Jute textile Miscellaneous
No. of units Employment No. of units Employment No. of units Employment
1989 1 350 Nil Nil 1 350
1990 2 650 Nil Nil 1 350
1991 2 650 Nil Nil 1 350
1992 2 650 Nil Nil 1 350
1993 2 650 Nil Nil 1 350
1994 2 650 Nil Nil 2 600
1995 1 350 Nil Nil 1 350
1996 1 350 Nil Nil Nil Nil
2010 1 350 1 2,500 Nil Nil
4.4.5 Revival of the Units and Exit from BIFR

It is very important stage for any sick industrial unit. There are few units which have been
successfully revived and came out from BIFR after receiving the packages in this study area.
In fact there are two opposite aspects of any unit after implementation of the packages. One is
revival that is positive aspect and other is winding up of industrial unit which appears to be a
negative facet.
In the year of 2010, two units of Haora Sadar subdivision -- one jute textile unit named as
Howrah Mills Co. Ltd with 5,500 workmen and another is miscellaneous unit named as
Asiatic Oxygen Ltd. with 400 workmen have been successfully revived and came out of the
jurisdiction of BIFR. There are five industrial units e.g. Dalhousie Jute Mills, India Jute Mills
Ltd., Opec Innovations Ltd. and Braithwait and Co. Ltd. as CPSU which have been revived
and made exit from BIFR of Hugli district in 2010 (Table 4.4). It is a positive scenario of this
study area because when an industrial unit faces the order of wind up, it has great negative
impact on the economy and society.
Table 4.4: Units Revived Successfully and Come to Exit from BIFR in Hugli District, 2010
Chandannagar Subdivision Shrirampur Subdivision

Jute textile Engineering Jute Miscellaneous
No. of Employ No. of Employ No. of Employ No. of Employ
unit ment unit ment unit ment unit ment
1 500 1 1,700 1 2,000 2 900
Fig. 4.9 and 4.10 imply subdivision-wise variation of BIFR cases as well as affected
employment in the study area. The concentration of number of cases is very high in Haora
Sadar subdivision followed by that of Shrirampur subdivision in Hugli district and Uluberia
subdivision in Haora district. But concentration is low in Chandannagar and Sadar
subdivision of Hugli district. No BIFR case has been found in Arambag subdivision where
the level of industrialization is low (Fig. 4.9). In case of affected employment, it is obviously
very high in Haora Sadar subdivision followed by Chandannagar and Uluberia subdivisions
(Fig. 4.10). It has been observed that is in Chandannagar subdivision the number of cases is
not very high while the affected employment high. This is because in this subdivision the
BIFR units are mainly jute textile units where employment is much higher than other types of
industrial units. Fig. 4.11 shows the registered BIFR cases in different industrially front
running states of India. The situation of West Bengal is not satisfactory in this section.
From the above discussion it has been revealed that huge number of different types of
industrial units is under various stages of BIFR in both the districts. It envisages an unstable
industrial status which is a long standing socio-economic issue of these districts.
Subdivision-wise Concentration of BIFR Cases in Haora and Hugli Districts,

1991-2010
Number of Cases
No. of cases: 60
‘Z’ score: -0.93
No. of cases: 81
‘Z’ score: -0.78
No. of cases: 263

‘Z’ score: -0.48
No. of cases: 446

‘Z’ score: 1.74
No. of cases: 119

‘Z’ score: -0.52
Fig.4.9 Data Source: Government of West Bengal
Number of Affected Employees
No. of employment: 175,800

‘Z’ score: -0.84

‘Z’ score: -0.07

‘Z’ score: -0.61

‘Z’ score: 1.93

‘Z’ score: -0.42
Fig.4.10 Data Source: Government of West Bengal

Maximum Number of BIFR Cases Registered

in Selected States of India
No. of industrial companies

1600
1200
800
400
S t a t e s
Fig. 4.11 Data source: Pahwa, 2010
4.5 Rehabilitation of Sick Units

Rehabilitation is a remedy considered for industrial units which have already become sick
and are on the threshold of virtual collapse. Some feasible policy measures are essential to
revitalize the sick units. Ad-hoc remedies and only commitments to keep the unit running
would not help to overcome the problem of industrial sickness in the long run. The measures
evolved to rehabilitate sick units at various levels have been discussed in this chapter.
4.5.1 An Overview of Defaulting Employers

Generally the sick industrial units are defaulting in various fields like in repaying the dues
and installments of the dues. In Haora district a large number of industrial units are in
defaulting condition while in Hugli district the number is lesser than that of Haora. Prior to
1994 the number of defaulting employers was much higher than the post industrial policy
period of the Government of West Bengal. It was very alarming that during 1972-1994 many
State and Central Public Sector Undertakings (SPSUs and CPSUs) were defaulting but after
that the number has been reduced (Fig. 4.12, 4.13, 4.14 and 4.15). There is a reason behind
this that is after 1991 many defaulting SPSUs and CPSUs have been transformed into private
enterprises through implementation of dis-investment policy. In case of private enterprises
the number has been declined from 1972-1994 to 1995-2008. Maximum number of
defaulting employers is in Sadar subdivision of Haora district and Shrirampur subdivision of
Hugli district. During 1972-1994 huge number of engineering and miscellaneous industrial
units was under defaulting situation while during 1995-2008 many jute textile units have
been added with engineering and miscellaneous industrial units (Fig. 4.16 and Fig. 4.17).
District-wise Distribution of Un-exempted Defaulting Employers in Different

Industrial Undertakings ( 1 Lakh and Above)
1972 – 1994
HAORA HUGLI
Central Public Sector Undertakings

Central Public Sector Undertakings
State Public Sector Undertakings
State Public Sector Undertakings
Private Sector
Private Sector
Fig. 4.12 Fig. 4.13
Data source: Govt. of West Bengal
1995 – 2008
HAORA HUGLI
Central Public Sector Undertakings Central Public Sector Undertakings

State Public Sector Undertakings State Public Sector Undertakings
Private Sector Private Sector
Fig. 4.14 Fig. 4.15
Data source: Govt. of West Bengal
4.5.1 Relief Undertaking Scheme

The State Government has also participated in the reconstruction / rehabilitation of sick units
by declaring ‘Relief Undertaking Scheme’ under the provisions of West Bengal Relief
Undertakings (Special Provisions) Act, 1972. If a unit is declared ‘Relief Undertaking’ under
this act, it will be able to implement its process of rehabilitation without any inter-reference
from the unsecured creditors. The ‘Relief Undertaking’ units should maintain few rules.
These are:
Subdivision-wise Distribution of Un-exempted Defaulting Employers

in Private Sector Enterprises ( 1 lakh and above)
1972-1994
Fig. 4.16 Data source: Government of West Bengal

1995-2008

a) The rates of wages payable to the workmen and their workloads and the salary
payable to the staff, the payment of bonus, gratuity, compensation and their benefits.
b) The method in which the relief undertaking should be run.
c) The strength of staff and labour to be employed for running the relief undertaking
economically.
d) The manner in which the net profits or net losses or surplus funds should be
appropriated or disposed of.
e) The percentage of profits to be utilized for the benefit of the persons employed in the
undertaking and the manner of its utilization.
f) The approach in which, and the extent to which the representatives of the workmen
may be associated with, or may participate in the management of the relief
undertaking (www.commonlii.org).
In West Bengal many units are under ‘Relief Undertaking’ Act. In Haora district especially
in Sadar subdivision there are many engineering, jute textile and miscellaneous industrial
units which are under this scheme while cotton textile units of Uluberia subdivision are also
under same scheme (Appendix table Ac 37). Few units are under such assistance for a long
period. In subdivisions of Hugli district a large number of jute textile units are taking this
assistance mainly the units in Sadar and Chandannagar subdivisions. The engineering, cotton
textile and miscellaneous units of Shrirampur subdivision are also receiving the assistance
(Appendix table 38 and 39). Most of the units have been included after 1994 when the State
Government took more initiatives for betterment of sick industries. Many units have
recovered from their sluggish economic status after getting the assistance and for this reason
during the last decade the number of relief undertaking units has been reduced. But it is also
true that in the last decade many relief undertaking units have been included in BIFR
assistance scheme. A good strength of labour has also been benefited through such assistance
by appropriate payment of salary as well as payment of bonus, gratuity, compensation and
other benefits. Many industrial units of both the districts were under this assistance for a long
time like Bharat Jute mills ltd, Reyrolle Burn Ltd., Bowreah Cotton Mills of Haora district;
Nipha Steel Co. and North Brook Jute Mills in Hugli district.
4.5.2 Soft Loan Scheme

The soft loan scheme was introduced in November, 1976 for modernization of the five
selected industries, namely, cotton textiles, jute, cement, sugar and specified engineering
industries. The main objective of the scheme is to provide financial assistance on
concessional terms to the weaker units in these five groups for modernization, replacement
and renovation of their old plants and machineries. The scheme is being operated by the
Industrial Development Bank of India (IDBI) with participation of the Industrial Finance
Corporation of India (IFCI) along with the Industrial Credit and Investment Corporation of
India (ICICI). The IFCI is the lead institution for jute and sugar industries, IDBI for cotton
Temporal Variation of Industrial Units and the Benefited Workmen as Relief

Undertakings in Haora and Hugli Districts
6
Haora District 14000
No. of industrial units (five years
No. of employees (Five years

5 12000
moving average)
moving average)
10000
4
8000
3
6000
2
4000
1 2000
0 0
Y e a r s
No. of industrial units No. of employees
Hugli District
7 14000
No. of employees (Five years moving

No. of industrial units (Five years
6 12000
moving average)
5 10000
4 8000
average)
3 6000
2 4000
1 2000
0 0
Y e a r s
No. of industrial units No. of employees
and cement industries and ICICI for engineering industries. However, the overall
responsibility of operating the scheme is vested on IDBI.
Under the soft loan scheme, the units have been categorized into three groups – weak, not so
weak and better off units. ‘Weak’ units are those in respect of which erosion in paid-up
capital and reserves is above 50 percent, ‘not so weak’ units are those in respect of which
such erosion is up to 50 percent and ‘better off’ units as those without such erosion. The
industrial unit should have been in operation for at least ten years to be eligible for assistance
under the soft loan scheme. The plant and equipment proposed to be replaced should have
also been in use for more than ten years. The ten years’ criterion is relaxable, if the project
aims at increase in exports, import substitution, energy saving and anti pollution measures
(Srivastava and Yadav, 1986).
4.5.3 Change in Management or Directorship

The wealth and prosperity of any company partially depend on the management section of the
company. The choice of a good manager can make a big difference in a working unit. In
many sick units the management section is completely responsible for its deteriorating
condition. Due to the wrong steps of the management the labour agitation and unrest take
place that reduce the utilization capacity of any industrial unit. It has been observed that in
many sick units of both the districts the management has been changed and after that the
productivity and profit of these units have been increased. Not only these improvements but
the labours have increased their productive capacity also and the plants have been expanded
with thrust on modernization. In Haora district there is an example of West Bengal Agro-
textile Corporation Ltd. (Bharat Jute Mills) where soon after the change in the management
loss was arrested and the profit margin was increased. There is another example of India Jute
Mills of Hugli district. According to statement of labours the productivity and the quantity of
sales have been increased after the change of manager.
‘In India, there appears to be shortage of top level management personnel. The sick unit
which required better management becomes a victim of this acute shortage. Managers of
proven ability are usually absorbed by the healthy units’ (Srivastava and Yadav, 1986). In
fact these sick units are suffering from appropriate corporate planning and management fails
to inspect accurate requirements of the company.
4.5.4 Reduction of Asset

Reduction of asset is another option for rehabilitation of an industrial unit. To generate
immediate cash the industrial company sales surplus or under-utilized assets. The company
may sale their non-productive assets which are not relevant to their essential business
activity. They may also sale their real estate like administrative buildings, showrooms,
apartments etc. and if the company has the vacant land in its territory, they may sale it. The
sick units when fail to run they take these steps for generation of fund. There is a company in
Hugli district named as Hindusthan Motors Pvt. Ltd. which has sold their associated
enormous land for cash. Such a bold step they explored prior to becoming a sick unit.
4.5.5 Restructuring the Labour Force

Excess labour or non-productive labour force is a major problem of these units. When an
industrial company becomes sick, the production of that unit becomes inevitably low. The
company wants to reduce their overhead costing through postponement of new recruitment,
retrenchment of contractual as well as casual labour and providing Voluntary Retirement
Scheme (V.R.S.) to the aged labour. These strategies help them to recover the profit margin.
The sick units of this study area have also taken the strategy of restructuring the labour force.
In many cases they have become successful.
4.5.6 Conversion of Loan to Equity, Mergers and De-mergers

The sick industrial units need to be restructured to make it financially viable. Financial
restructuring is possible through various ways among which most important are conversion of
loan to equity, amalgamation of units and de-merger of undertakings.
4.5.6.1 Conversion of Loan into Equity

As a part of the financial restructuring package, lenders are converting interest or overdue
principal or unsustainable debts into equity capital or redeemable preference share capital
which shall be normally payable to the lenders upon completion of repayment of loan
liabilities.
4.5.6.2 Amalgamation of Sick unit with Healthy Unit

As a part of the rehabilitation package, when it is difficult to translate negative net worth to
positive within reasonable period of say five years, the company is being merged either with
the healthy unit of the same management group or with the other group of management.
4.5.6.3 De-merger of Sick industrial Undertaking and Raising of Funds

In case the sick industry is having more than one undertaking, then it is possible to divest or
de-merge one of the undertakings so as to raise adequate funds in hands.
4.6 Delays in Process of BIFR

Despite best efforts of the Board to expedite disposal of cases, considerable delays are caused
due to the following factors:
a) Non-compliance or delayed compliance of the guidelines of the Board by the sick

companies, operating agencies, Financial Institutions (FIs) and banks;
b) In spite of the guidelines issued by the RBI, the FIs and Banks have been increasingly
hesitant to increase their exposure to the sick companies thereby impeding the process
of rehabilitation of sick companies;
c) Delays on the part of the Central / State Governments in conveying their final
decisions regarding capital restructuring, induction of additional capital, grant of
reliefs and concessions etc.;
d) Filing of appeals by different parties against the interlocutory orders of the Board,
thereby extremely delaying rehabilitation of the sick companies;
Both the Central and State Governments take unduly long time in deciding strategies for
revival of sick Public Sector Undertakings (PSUs) and their inability to take timely decision
on rehabilitation packages has largely contributed to delays in deciding cases of PSUs. Lack
of timely response from the concerned Governments in winding up of unviable PSUs
increases the debt burden of these companies and consequential loss to secured creditors.
4.7 Role of Financial Institutions in Rehabilitation

Since independence the Financial Institutions (FIs) play significant role in the economy of
India. These FIs bear close relationship with industrial sickness. The leading FIs were shaped
between 1948 and 1964. Among these FIs most mentionable are the Industrial Reconstruction
Corporation of India Ltd., the Industrial Reconstruction Bank of India Ltd., the Industrial
Development Bank of India Ltd., the Industrial Credit and Investment Corporation of India
and the Industrial Finance Corporation of India which have great contribution.
4.7.1 The Industrial Reconstruction Corporation of India Ltd.

The Industrial Reconstruction Corporation of India (IRCI) Ltd. was established in 1971 and
it’s headquarter was in Kolkata. It was formed to tackle the problems of sick units especially
in West Bengal. The main objective was rehabilitation of industrial units which had either
been closed down or were facing closure in whole or in part, but had potential viability for
revival. It was set up primarily to take care of sick units; its role is described first. Its most
important functions are creating provision of long term loans on soft terms, equipment
leasing hire purchase assistance, consultancy and merchant banking. The loans that it gave
were at comparatively low rates of interest for capital expenditure, expansion, modernization,
diversification, purchase of technological up-gradation etc. In July 1982, the equipment
leasing scheme was introduced to assist industrial units both sick and non-sick units. This
scheme enabled them to replace and acquire necessary capital equipment on lease basis and
make additions to their capital stock.
In the later period IRCI decided to change its strategy towards rehabilitation of sick units
were as follows:
a) Revival of fresh sick units be restricted, unless absolutely essential.

b) Cash losses and unproductive investment be reduced to the bars minimum and greater
emphasis was placed on capital expenditure for purposes of modernization,
diversification, technological up-gradation etc. in rehabilitation scheme.
c) Projections of future operations were made with sensitivity analysis during
preparation of the feasibility reports and other plans based on earlier experience.
d) The assisted units, it was emphasized, should seek assistance at the incipient stage
itself.
e) Normally the executives leave the sick units and new executives are reluctant to join
the sick units. The IRCI therefore set up an Industrial Management Pool to which the
executives and professionals are recruited from the market and they continued on
IRCI’s pay rolls.
f) Obsolescence of plant and machinery along with technological up-gradation were
identified as the key areas that needed close attention for the survival of the assisted
units in a competitive environment.
g) Extension of assistance to non-sick units for the purpose of achieving economic size,
modernization of plant and machinery, cost reduction etc., as a preventive measure,
was emphasized since 1986.
4.7.2 The Industrial Reconstruction Bank of India Ltd.
The Industrial Reconstruction Bank of India Ltd. (IRBI) was set up as the principal credit and
rehabilitation agency for revival of sick and closed units. The Government of India imparted
greater financial flexibility and withdrawn the stipulation that 60 percent of its portfolio
should consist of sick companies. IRBI now provides financial assistance to all industrial
enterprises like any other financial institution. The IRBI Act envisages the setting up of a
Special Fund, the Reconstruction Assistance Fund, to meet such special financial needs of
assisted units for their survival and rehabilitation which cannot be obtained from banks and
financial institutions in normal circumstances.
4.7.3 The Role of Industrial Development Bank of India (IDBI) Ltd., Industrial Credit
and Investment Corporation of India (ICICI) and Industrial Finance Corporation of
India (IFCI)
These institutions were established to provide development finance to industries. Assistance
to sick units was not their objective. Even so, these institutions have also played a meaningful
role in combating industrial sickness. After formation of BIFR, these FIs also act as operating
agencies. Their functions are Soft Loan Assistance Scheme, Textile Modernization Funds,
assistance for expansion / diversification and modernization, operating agencies of the BIFR
and rehabilitation of sick units.
4.7.3.1 Soft Loan Assistance Scheme

In November 1976, the scheme was introduced for financing modernization programme of
five selected industries viz. cotton textile, jute, cement, sugar and specified engineering
industries. It did not envisage wholesale replacement of existing assets or provision of
assistance to sick or closed units. The role was preventive rather than curative in relation to
sickness. In the Seventh Plan of Planning Commission this scheme was attached for up-
gradation of technology and reduction in cost of production. The plant and equipment
proposed to be replaced should have been in use for at least one decade. However, the
condition was relaxable in the case of industries with fast changing technology. No minimum
and maximum limits for individual loans were prescribed and the period of repayment was
fixed on the basis of repaying capacity of the borrowing concern.
4.7.3.2 Textile Modernization Fund

The cotton and jute textile industries required special support for their modernization and the
IDBI set up the fund on 1 st August of 1986. This fund, by earmarking 150 crores over a year
for the next five years, increased its own size to 750 crores, 190 crores were reserved for
healthy units and 560 crores for weak but viable units (Gokak, 1998). The special loans
were to carry at six percent rate of interest and the period of repayment was twelve years that
included a moratorium period of six years. But the scheme was discontinued from August
1991 due to serious resource constraint.
4.7.3.3 Jute Modernization Fund

This fund was introduced with effect from 1 st November of 1986 and the All India Financial
Institutions (AIFIs) participated in the scheme with IFCI as the nodal agency. It aimed at
giving loans to healthy and weak but viable units and providing a special loan at six percent
rate of interest with a repayment period of twelve years.
4.7.3.4 Function as Operating Agencies

The enactment of the Sick Industrial Companies (Special Provisions) Act, 1985 has given a
new dimension to the importance of FIs that can play numerous roles in industrial sickness.
The BIFR can appoint one of the FIs as operating agencies for reconstruction and
rehabilitation schemes. The revival of sick units partially depends on the portfolio of these
agencies.
4.8 Role of Reserve Bank of India (RBI)

The Reserve Bank of India through its Sick Industrial Undertaking Cell which was created in
1976 in its Department of Operations and Development (DOD) performs some important
functions:
a. monitoring of the performance of commercial banks in identifying the sick units
b. implementation of appropriate remedial measures
c. coordination of the efforts among government, banks and financial institutions in
rehabilitation of potential viable sick units
d. processing of applications received from banks for credit authorization in respect of
sick units
e. receipt of quarterly statement of all sick units from the concerned banks
A committee was appointed by the Reserve Bank of India under the Chairmanship of Shri T.
Tiwari (Chairman, IRCI Ltd.) to look into the legal and other difficulties faced by banks and
other financial institutions in rehabilitation of sick units.
The RBI in November 2000 had constituted the Working Group on Rehabilitation of Sick
Small Scale Industrial Units under the Chairmanship of Shri S.S. Kohli, Chairman of Indian
Bank’s Association. The roles of this committee are:
a) Review of the existing guidelines in regard to rehabilitation of sick small scale units
b) Recommendation on the revision of the guidelines for rehabilitation of current sick
and potentially viable SSI units
Thus the RBI significantly controls the rules and regulations of the sick industrial units
through proper monitoring and different notifications.
4.9 Conclusion
The revival and rehabilitation of sick industrial units both are necessary and in this
mechanism BIFR is at central place. But BIFR has mandatory powers in certain areas like
winding up, financial reconstruction, change in management, leasing/sale of units and
determination of the price of shares. In other areas the Board has recommendatory powers.
For this reason the Board cannot take quick steps for rehabilitation or other aspects. As a
result delay in the process is obvious. The process of revival or rehabilitation is very
complicated and time consuming. One industrial unit cannot easily get any scheme or relief
from this process. Thus the units lose their markets on one hand and waste their stocks and
assets on the other. The FIs and banks cannot respond promptly for loans. A large number of
units in the study area are under different stages of BIFR for a long time. Some units have
been revived but most of them are either wind-up or go under any crucial stage of BIFR. If
quick revival happens the sick industrial units can overcome their moratorium period within
short time. Many engineering, jute textile and cotton textile units are under BIFR and a large
number of labour have been engaged in these units. The permanent labours are in working
condition but with the march of time they retrench their contractual and casual labours. More
sick units imply more jobless labour. This type of weak industrial scenario may be overcome
through quick revival of units and emergence of new units as supportive to sick industrial
units.
References
Print media
Gokak.A.V. (1998): Industrial Sickness, B.R. Publishing Corporation, Delhi, P- 67

Government of West Bengal (1975): Labour in West Bengal, Bureau of Applied Economics
and Statistics, Labour Department, Kolkata
Ibid. (1980)
Ibid. (1985)
Ibid. (1990)
Ibid. (1995)
Ibid. (2000)
Ibid. (2005)
Ibid. (2010)
L.C.B. Grover (1969): The Principles of Modern Company Law, 3rd ed, p. 647.
Pahwa. H.P.S (2010): Sick Industries and BIFR, Bharat Law House, New Delhi, pp. 26-30
Srivastava. S.S. and Yadav. R.A., (1986): Management and Monitoring of Industrial
Sickness, Concept Publishing Company, New Delhi. Pp- 206, 207 and 227
Electronic media
www.commonlii.org: The West Bengal Relief Undertakings (Special Provisions) Act, 1972,
retrieved on 16.10.2014

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Revival and Rehabilitation of Sick Units:

Role of BIFR and Financial Institutions

4.1 Role of Board for Industrial and Financial Reconstruction (BIFR)

4.2 Reporting to the BIFR

4.3 Enquiry by the BIFR

4.4 Different Stages of BIFR

4.4.1 Package Approved Cases

Temporal Analysis of BIFR Cases, 1989 - 2010

Haora District Hugli District

Subdivision-wise Distribution of Package Approved Cases in Haora and Hugli Districts

Number of Cases Number of Affected Workmen

Five years moviing average

Subdivision-wise Distribution of Final Order Passed by BIFR for Winding-up Cases

Number of Cases Number of Affected Workmen

Five years moviing average

Subdivision-wise Distribution of Pending BIFR Cases in Haora and Hugli Districts

Number of Cases Number of Affected Workmen

4.4.3 Pending Case

4.4.4 Rejected/Dropped/Non-maintainable Cases and Hearing Held So Far Cases

Years Haora Sadar Subdivision Shrirampur Subdivision

4.4.5 Revival of the Units and Exit from BIFR

Chandannagar Subdivision Shrirampur Subdivision

Subdivision-wise Concentration of BIFR Cases in Haora and Hugli Districts,

No. of cases: 263

No. of cases: 446

No. of cases: 119

Fig.4.9 Data Source: Government of West Bengal

Number of Affected Employees

No. of employment: 175,800

No. of employment: 274,275

No. of employment: 204,742

No. of employment: 529,100

No. of employment: 229,045

Fig.4.10 Data Source: Government of West Bengal

Maximum Number of BIFR Cases Registered

No. of industrial companies

Fig. 4.11 Data source: Pahwa, 2010

4.5 Rehabilitation of Sick Units

4.5.1 An Overview of Defaulting Employers

District-wise Distribution of Un-exempted Defaulting Employers in Different

Central Public Sector Undertakings

Central Public Sector Undertakings Central Public Sector Undertakings

4.5.1 Relief Undertaking Scheme

Subdivision-wise Distribution of Un-exempted Defaulting Employers

Fig. 4.16 Data source: Government of West Bengal

Fig. 4.17 Data source: Government of West Bengal

4.5.2 Soft Loan Scheme

Temporal Variation of Industrial Units and the Benefited Workmen as Relief

No. of employees (Five years

Fig. 4.18 Data source: Government of West Bengal

No. of employees (Five years moving

Fig. 4.19 Data source: Government of West Bengal

4.5.3 Change in Management or Directorship

4.5.4 Reduction of Asset

4.5.5 Restructuring the Labour Force

4.5.6 Conversion of Loan to Equity, Mergers and De-mergers

4.5.6.1 Conversion of Loan into Equity

4.5.6.2 Amalgamation of Sick unit with Healthy Unit

4.5.6.3 De-merger of Sick industrial Undertaking and Raising of Funds

4.6 Delays in Process of BIFR

a) Non-compliance or delayed compliance of the guidelines of the Board by the sick

4.7 Role of Financial Institutions in Rehabilitation