BHARATI VIDYAPEETH NEW LAW

COLLEGE, PUNE
MERGER AND
11/22/2021
ACQUISITIONS
RESEARCH PAPER

NAME OF THE STUDENT- ADITI SRIVSTAVA

ROLL NUMBER-33
SUBJECT- MERGER AND ACQUISITIONS.
NAME OF THE TOPIC- AMALGAMATION OF SICK
COMPANIES
.
 INDEX
Sr. contents Page No
No.
1. List of cases 1
2. Research Questions 2
3. Abstract of Research 2
4. Sick company 2-5
5. Conclusion 5
6. Reference 5-6

CASE LAWS
1.) Coimbatore vs Lakshmi Machine Works Ltd on 13 February,
2019- The absence of concurrent satisfaction of the two conditions
under section 263 of the Act, the action of the CIT was contrary to
statute and liable to be set aside. In the light of the aforesaid
discussion, the appeal filed by the Revenue is dismissed. The
substantial question of law is answered in favour of the assessee
and against the Revenue. No costs
2.) U.P. State Sugar Corpn. Ltd. vs U.P. State Sugar Corpn.
Karamchari Assn. and Others- The appeal is accordingly
allowed, the judgment of the High Court dated December 9, 1994
is set aside and the writ petition filed by the petitioners is
dismissed. Nor order as to costs.
Appeal allowed.
3.) Patheja Bros. Forgings & Stamping and another vs ICICI ltd.
And others- As of today, there is an appeal in respect of the first
appellant pending be- fore the Appellate Authority under the said
Act. Therefore, the first respondent's suit for the enforcement of
the guarantees in respect of the loans granted to the first appellant
cannot be proceeded with unless consent as required by Section
22 is obtained. The appeal is allowed. The order under appeal is
set aside. No order as to costs.

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 2) RESEARCH QUESTION
1. What is sick company?
2.What are the Causes of Sickness?
3. What is The Sick Industrial Companies Act, 1985?
4. What measures have been suggested for the revival and rehabilitation
of sick company under the Act?
3) Abstract of Research
Industrial sickness is defined as 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 and has also suffered cash losses in such financial year and the
financial year immediately preceding such financial year.
4)
i. Sick company
A sick company, according to Sick Industrial Companies (Special
Provisions) Act, 1985, is one where at the end of a financial year,
accumulated losses are equal to or more than its net worth. Also, it
should have completed five years of incorporation under the Companies
Act, 1956. Further, the company must have had more than 50 workers
on any given day of 12 months prior to the financial year in which
sickness is claimed. There are other stipulations as well.
Once a company has made a reference to BIFR and it is being
considered, or if a scheme for it is under consideration or has been
sanctioned, no suit for recovery of money can be initiated without the
consent of BIFR or the appellate authority.
If it is decided that the company can be revived, financial assistance,
relief and concession is provided through financial and other institutions.
However, if it is found that the company is unlikely to improve its net
worth that exceeds the accumulated losses in a reasonable period of
time and is not in a position to fulfil its financial obligations, action can be
initiated to wind it up.
This legislation was enacted in 1985 because of the distress in the
industrial environment in the 1980s. The primary objective of the sick
industrial companies Act is to determine sickness and speed up the

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 revival of companies or shut those that are unviable. The idea is to make
investments more productive in case of sick companies and unlock value
from the unviable ones, so that it can be used elsewhere in the
economy.
A sick unit is one which has reported cash loss for the year of its
operation and in the judgement of the financing bank is likely to incur
cash loss for the current year as also in the following year and unit has
an imbalance in its financial structure such as, current ratio is less than
1:1 and there is worsening trend in debt-equity ratio.
ii. causes of Sick Company
Internal causes for sickness
We can say pertaining to the factors which are within the control of
management. This sickness arises due to internal disorder in the areas
justified as following:
a) Lack of Finance: This including weak equity base, poor utilization of
assets, inefficient working capital management, absence of costing &
pricing, absence of planning and budgeting and inappropriate utilization
or diversion of funds.
b) Bad Production Policies : Another very important reason for sickness
is wrong selection of site which is related to production, inappropriate
plant & machinery, bad maintenance of Plant & Machinery, lack of
quality control, lack of standard research & development and so on.
c) Marketing and Sickness : This is another part which always affects the
health of any sector as well as SSI. This including wrong demand
forecasting, selection of inappropriate product mix, absence of product
planning, wrong market research methods, and bad sales promotions.
d) Inappropriate Personnel Management: Another internal reason for the
sickness of SSIs is inappropriate personnel management policies which
includes bad wages and salary administration, bad labour relations, lack
of behavioural approach causes dissatisfaction among the employees
and workers.
e) Ineffective Corporate Management: Another reason for the sickness
of SSIs is ineffective or bad corporate management which includes
improper corporate planning, lack of integrity in top management, lack of
coordination and control etc.

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 External causes for sickness
a) Personnel Constraint: 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.
b) Marketing Constraints: The second cause for the sickness is related
to marketing. The sickness arrives due to liberal licensing policies,
restrain of purchase by bulk purchasers, changes in global marketing
scenario, excessive tax policies by govt. and market recession.
c) Production Constraints: This is another reason for the sickness which
comes under external cause of sickness. This arises due to shortage of
raw material, shortage of power, fuel and high prices, import-export
restrictions.
d) Finance Constraints: Another external cause for the sickness of SSIs
is lack of finance. This arises due to credit restrains policy, delay in
disbursement of loan by govt., unfavourable investments, fear of
nationalization.
e) credit squeeze initiated by the government policies.
iii. The Sick Industrial Companies Act of 1985 (SICA) was a key piece of
legislation dealing with the issue of rampant industrial sickness in
India. The Sick Industrial Companies Act (SICA) was enacted in India
to detect unviable ("sick") or potentially sick companies and to help
with their revival, if possible, or their closure, if not. This measure was
taken to release investment locked up in unviable companies for
productive use elsewhere.
The Sick Industrial Companies Act (SICA) was enacted in 1985 to
address a chronic problem in the Indian economy: industrial sickness.
The act defined a sick industrial unit as one that had existed for at least
five years and had incurred accumulated losses equal to or exceeding its
entire net worth at the end of any financial year.
iv.
 In October 1981, the Government announced guidelines to its
Ministries, State Governments and financial institutions, regarding the
sick industrial undertakings. Accordingly, responsibility was assigned
to the concerned ministries for the prevention of such sickness as
also for coordinated remedial action. Banks and other financial
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 institutions providing credit facilities to the sick units were requested
to ensure that such credits are utilised properly.
 The Government also announced a ‘margin money’ scheme (effective
from January 1, 1982) for reviving viable sick small-scale units. Under
the scheme, a sick small-scale unit was sanctioned a minimum loan
of Rs. 1, 000 and a maximum of Rs. 20,000. These minimum and
maximum amounts have now been raised.
 In April 1983, the RBI advised financing banks that they should
evolve methods to diagnose sickness in industrial units at the
incipient stage itself and bring it to the notice of the concerned
Ministries and Finance Ministry.
 In August 1984, through a Parliamentary Act, the Industrial
Reconstruction Corporation of India (IRCI) was converted into a
statutory body called the Industrial Reconstruction Bank of India
(IRBI). This new bank has been established with a capital base of Rs.
50 crores which could go up to Rs. 200 crores, for the purpose of
rehabilitating and reconstructing ailing industrial concerns.
5.) CONCLUSION
One of the adverse trends observable in the corporate private sector of
India is the growing incidence of sickness. It is causing considerable
concern to planners and policymakers. It is also putting a severe strain
on the economic system, particularly on the banks. Of course, sickness
is not a special problem of India. It is, undoubtedly, a global
phenomenon. Even in industrially advanced countries there are
numerous cases of bankruptcy or liquidation.
These sick units are nursed back to health through mergers,
amalgamations, takeovers, purchase of assets, or outright
nationalization. When a company is having trouble making payments on
its debt, it will often consolidate and adjust the terms of the debt in a
debt restructuring, creating a way to pay off bond holders.
6.) REFERENCES
 http://indiamicrofinance.com/revival-and-rehabilitation-of-
companies.html
 https://www.taxmanagementindia.com/visitor/detail_manual.asp?
ID=64
 www.lexvidhi.com

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 https://aishmghrana.me/2014/02/07/revival-and-rehabilitation-of-sick-
companies