NATIONAL LAW INSTITUTE UNIVERSITY,

BHOPAL

Company law

End Term Project

On the topic:
“Revival And Rehabilitation Of Sick Industrial Companies.”

Submitted to – Prof. Padma Singh

Submitted by – Shilpa Rawat
Roll no. – 2019BALLB20
Semester – V
Enrolment no – (A – 2062)

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ACKNOWLEDGMENTS

This project is made by the support of many people. Firstly I would like to acknowledge the
efforts of my sir prof. Padma Singh who taught me company law in this semester and gave me
insights and help throughout the development of this paper. Secondly I would like to thank
officials of gyan mandir library for helping me get the sources for preparing this project. Lastly I
would like to thank my mother who gave me an opportunity to study here.

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CERTIFICATE
This is to certify that SHILPA RAWAT of 3rd year BALLB has successfully completed the
project work on the subject law of evidence. The content of the project named “rivival and
rehabilitation of sick industrial companies” are a bona fide work by me submitted to
NATIONAL LAW INSTITUTE UNIVERSITY BHOPAL. It is also certified that this is original
research project and has neither been submitted to any other university nor published anywhere
else.

Signature. Date of submission

Shilpa Rawat. 15/11/2021

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INTRODUCTION

A industrial company is characterized as one that has been enlisted for somewhere around five
years and has gathered loss equivalent to or surpassing its whole total assets toward the finish of
each monetary year, just as money loss in that financial year and the monetary year quickly
going before that financial year. The rising pervasiveness of sickness is one of the negative
patterns saw in India's corporate private area. Organizers and policymakers are amazingly
worried about it. It's additionally setting a ton of weight on the finance sector, especially the ban.
The rising pervasiveness of sickness is one of the negative patterns seen in India's corporate
private sector. Organizers and policymakers are very worried about it. It's likewise setting a great
deal of weight on the finance sector, particularly the banks. India's modern improvement is
represented by the 1956 Industrial Revolution. As far as the quantity of units and extraordinary
bank credits, the issue of modern ailment has been extending at a speed of generally 28% and
13% each year, individually. It is assessed that there are more than 2 lakh sick units in India
today, with an extraordinary bank credit of over Rs 7000 crore. Consistently, almost 29000 units
are added to the list. Apparently the sick companies are weakening at a quicker rate than they
are growing. Modern sickness, especially in limited scope organizations, has forever been an
imperfection on the Indian economy, as an ever increasing number of businesses, like cotton,
jute, sugar, and materials, just as little steel and designing ventures, are tormented by this issue.
Companies that are suffering loss, both private and public, are adding to the decrease of the
economy. Sick units in both the private and public areas are adding to the modern economy's
decrease. In India, both major and little ventures have seen an upsurge in industrial sickness. By
consoling that this is, somewhat, a consequence of modern development, one ought not limit the
gravity of the circumstance. Not exclusively do proprietors, representatives, and creditors suffer
from industrial illness, however it likewise squanders public assets and produces social distress.
Therefore, it is considered basic to make suitable methodologies for managing sick units just as
to make proper frameworks for perceiving manifestations of industrial sickness at a beginning
phase to make safeguard moves. The movement of industrial sickness has been featured from the
pre-freedom time frame to the current circumstance. Rehabilitation is not the answer or the
remedy for sick companies.

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REVIEW OF LITERATURE

The help of many sources is used in the overall development of this project. I have referred to
some books provided by you for reading and I have also taken help of gyan mandir.

 Gower, principles of modern company law (sweet and Maxwell south Asian edition-
2018) was read for insights and understanding of my project topic.
 Another book that I took help of was IICA, Corporate Governance, Indian institute of
corporate affairs.
 Sharma Geetanjali, corporate governance in India: principles and policies CENGAGE

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STATEMENT OF PROBLEM

The drive is principally worried about the Indian overall set of laws and doesn't address the
worldwide circumstance. It begins with a prologue to the point and afterward takes you on an
excursion through all of the past wiped out industry regulation up to the current day. The's task
will likely follow the past or history of India's modern infection regulation, just as to lead an
exhaustive assessment of the current and existing guidelines. Legal provisions for revival and
rehabilitation of sick companies have been given in chapter XIX of the companies Act 2013 in
section 253 to269. It is more difficult to revive a firm now because the special provision for the
sick companies was earlier pro promotors/director and now it is pro creditors. The rehabilitation
scheme and procedures are laid down in this chapter. And also the conditions that lead a
company to its sickness. The SICA act 1985 exclusively was applied to industrial companies,
But the 2013 act helps in rehabilitation and resurrection of all types of businesses.

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OBJECTIVE OF THE PROJECT PAPER

The objectives of this project paper are as follows

 To study sickness of companies

 To study how the restructuring of sick companies is done and by what process
 To study the history of SICA act

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HYPOTHESIS

Sickness of a company means that an industrial unit has suffered more than fifty percent of its
total net worth for more than two consecutive financial year and also it is expected to suffer more
loss. So unless there is help of external funds it stays in distress. So in order to revive such units
there’s help provided by various provisions of law. If there’s a company that is experiencing
sickness than the administrator of the company will prepare a scheme for the revival and
rehabilitation. Different acclimations to the Indian lawful structure have been made to the
guideline of debilitated businesses. These progressions have created a ton of turmoil and have
brought about a great deal of regulation. Notwithstanding, lately, Parliament has set up a new
and reliable law that announces all past rules to be revoked. The new Code tries to give a
thorough, adequate, and compelling single piece of regulation overseeing wiped out ventures.

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RESEARCH METHODOLOGY

Doctrinal method of research is used by me to make and present this research paper.

RESEARCH QUESTIONS

Following research questions are answered in this project paper

 How industries get sick?

 What are the legal provisions for revival of sick industrial companies?

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DEFINITION OF SICK INDUSTRIAL COMPANY
What does sickness mean? It’s a term that can be defined in many ways. The reserve Bank of
India says that a industry unit is one that has reported a cash loss for the year of its operation and,
in the opinion of the financing bank, is likely to incur a cash loss for the current year as well as
the following year, and has a financial structure imbalance, such as a current ratio less than 1: 1
and a worsening trend in the debt-equity ratio. According to the State Bank of India, a sick unit is
one that fails to generate an internal surplus on a constant basis and requires on regular capital
infusions to stay afloat.1

Prior to the passage of the Sick Industrial Companies Act, however, there was no consensus on
the criteria to employ when describing an industrial unit as sick. According to SICA, as revised
in 1992, an industrial business can be deemed sick if it has accrued losses equal to or exceeding
its whole net worth at the conclusion of any financial year. It's worth noting that the Sick
Industrial Companies Act (SICA) only applies to companies that have been registered for at least
five years.

Simply described, a sick unit is one that is unable to sustain itself through internal resource
operation. In general, ill units continue to function below break-even, i.e., when total revenue
equals total cost, and are thus obliged to rely on external sources for long-term survival funds.

SSI, small scale industrial unit, is regarded as sick if it has

1. Suffered a cash loss in a previous year and was likely considered to suffer losses in the
current accounting year and those losses are equal to or more than its peak net worth
during the last five years.
2. It has defaulted in meeting four consecutive installments of interest

The above definition of sick industrial unit gives us information about the symptoms of sickness
of the industrial unit. It says that a sickness manifests itself in the form of unbalanced financial
structure, more than 50 percent of its net worth loss, no interest surplus, survival of the industry
on external funds and under utilizatiion of capacity.

1
https://en.wikipedia.org/wiki/Industrial_sickness

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POSITION OF SICK INDUSTRIES IN INDIA

Small-scale industries, in particular, are prone to industrial illness. Industry has always been
a blemish on the Indian economy, as more and more industries, such as cotton, jute, sugar,
textiles, minor steel, and engineering, are plagued by the disease.

There is an industrial disease in both the large-scale (non-SSI) and small-scale (SSI) sectors.
One of the most important issues confronting India's industrial sector is the rising frequency
of illness. These ill industrial units are home to large sums of money from banks. In 1976, an
estimated 300 medium and large scale facilities closed or were on the verge of closure,
according to estimates. A total of 10% of the 4 lakh units were said to be defective. And this
will continue to be the case in the next decades. The number of ill units in scheduled
commercial banks' portfolios at the end of 1986 was 1.47,740, with an outstanding bank
credit of Rs. 4874 crores. Even before the new liberalisation and globalisation policy was
established in 1991, there was a problem with rising industrial disease. As a result, the
number of SSI sick units grew from 58,551 in 1982 to 2.21 lakhs in March 1991 and 2.52
lakhs by the end of March 2001. Table 38.1 shows the number of sick industrial units in the
small and non-small scale industrial sectors, as well as the outstanding bank loan they have.
According to the report, 3,317 non-SSI ill industrial units had an outstanding bank credit of
Rs.21, 270 crores as of March 31, 2001. Textiles, engineering, electrical, chemicals, and iron
and steel accounted for around 56 percent of total outstanding bank credit, according to
industry data. Over the last few years, there has been a meteoric spike in industrial disease.
It's worth noting that disease has spread faster in the small-scale sector than in the large- and
medium-scale sectors. There were 252,947 ill units at the end of March 2001. Small-scale
sick units accounted for 249,630 of these, with a total outstanding bank credit of Rs. 4,506
crores.

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LEGISLATION RELATING TO REVIVAL OF SICK INDUSTRIES IN
INDIA

Rebuilding, here and there known as Revival, is a kind of corporate action that includes
significantly adjusting an organization's obligation, activities, or design to keep away from
monetary misfortune and further develop the organization's presentation. At the point when a
firm is having issues making obligation installments, it will frequently merge and change the
details of the credit in an obligation rebuilding, permitting bondholders to be paid. An
organization rebuilds its activities or construction by lessening its size or reducing expenses,
like finance.

SICA, SICK INDUSTRIAL COMPANY ACT 1985

Several corporations grew ill during the 1970s and 1980s as a result of financial troubles. Due to
the intricacy and variety of laws, the actions attempted to revive them were ineffectual. Even
when the government took over administration, they were unable to be revitalised and were
forced to close down. Accordingly, a law was required that could distinguish disease sooner
rather than later and make a proper remedial move. Siou Industrial Companies (Special
Provision) Act, 1985 (SICA) was intended to address this. SICA has abrogating power over
every single existing standard, in this way in the event that a modern organization gets unwell, it
doesn't have to follow a plenty of guidelines; consistence with SICA will get the job done.

MAKING OF BIRF: Even with a sharp expansion in the quantity of wiped out ventures, the job
of the Board for Industrial and Financial Reconstruction should be rethought. The BIFR was set
up to help with the recovery of debilitated businesses. At the point when an industry ends up
being wiped out, BIFR capacities as a working organization to foster a proposition for a
restoration technique. Due to contending interests among firms and leasers, just as certain defects
in the SIC Act, progress in the appropriate removal of sick organization cases recorded with
BIFR has been lethargic. The recovery programs bombed 40-45 percent of the time, requiring the
resuming of various cases.

MAKING OF IRBI: The Industrial Reconstruction Bank of India (IRBI), which was established
in 1985, has taken a number of efforts to slow the spread of industrial disease and aid in the

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resuscitation of the Indian economy. The name of the Industrial Investment Bank of India (IRBI)
has been modified since April 1997. (IIBI).2

COMPANIES ACT 2013

The requirements for the revival and rehabilitation of ill firms are laid out in Chapter XIX of the
2013 Act, which also attempts to propose the repeal of the SICA, albeit it never became law. The
circumstances that lead to a firm's designation as a sick company are discussed in this chapter, as
well as the company's rehabilitation procedure. Despite the fact that it aims to provide
comprehensive provisions for the revival and rehabilitation of sick companies, the fact that
several provisions, such as particulars, documents, and the content of the draught scheme in
respect of application for revival and rehabilitation, etc., have been left to substantive enactment
leaves room for interpretation. The 2013 Act does not recognise the role of all stakeholders in a
sick company's resurrection and rehabilitation, and its provisions are primarily focused on
secured creditors. The presence of unsecured creditors is only felt when the scheme of revival
and rehabilitation is approved under the 2013 Act. A corporation is deemed sick in line with
section 253 of the 2013 Act if its secured creditors demand payment of 50% or more of its
outstanding debt:

1. The corporation did not pay the loan within 30 days of receiving the demand letter.
2. The corporation has not been able to secure or compound the debt to the creditors'
reasonable satisfaction.

Process

If the Tribunal is satisfied that a company has become a sick company as a result of an
application made by either the secured creditor or the company itself, it will give the company
time to settle its outstanding debts if the Tribunal believes it is practical for the company to repay
its debts within a reasonable time.

2
www.oiirj.org/oiirj/sept2017-special-issue(02)/14.pdf

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An application to the Tribunal under section 254 of the 2013 Act may be submitted once a firm
has been determined to be sick. Act to determine the procedures that may be used by a secured
creditor or the firm itself to revive and rehabilitate the diagnosed ill company. The application
must be accompanied with audited financial accounts for the previous fiscal year, a draught
programme for the company's resurrection and rehabilitation, and any other documents that may
be required. Following receipt of the application, the Tribunal would be needed to mark the
calendar for hearing and name a interim administrator under Section 256 of the 2013 Act to call
a gathering of the organization's lenders in accordance with the terms of Section 257 of the 2013
Act. Sometimes, the Tribunal might designate a interim administrator as the organization
manager to complete the Tribunal's guidelines. Measures for the revival of the identified sick
units is prepared by the appointed administrator. The measures provided under sec261 of the
2013 act.3

Section 261: Before submitting the scheme to the Tribunal for sanctioning, it must be approved by
secured and unsecured creditors representing three-quarters and one-quarter of the total
representation in amounts outstanding, respectively, as required by section 262 of the 2013 Act.
After reviewing the scheme, the Tribunal will approve it with or without modifications. The scheme,
once accepted, will be communicated to the ailing company and the company administrator, as well
as any other companies involved in the merger.

1. Financial reconstruction
2. Change in or overtake of the management
3. Merging of sick company with other company or another sick company
Before lodging to the Tribunal for permitting the plan as per the requirement of segment 262
of the 2013 Act, the plan must be supported by the got and unstable leasers addressing three-
fourths and one-fourth of the total portrayal in sums exceptional individually. Following an
analysis of the plan, the Tribunal will offer its approval, with or without minor changes. The
plan, which has been approved, will be sent to the defunct organisation and its director, as
well as any other organisations involved as a result of the merger. The authorization agreed

3
https://www.icsi.edu/portals/70/14092013LUD1.pdf

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by the Tribunal will be interpreted as indisputable proof that every one of the prerequisites of
the plan connecting with the recreation or blend or some other measure indicated in that have
been consented to.
INSOLVENCY AND BANKRUPTCY ACT 2016
Section 255 of the Insolvency and Bankruptcy Code of 2016, according to a Ministry of
Corporate Affairs statement. The Companies Act, 2013, has been updated in accordance with
Schedule XI of the Insolvency and Bankruptcy Code, 2016, with effect from November 15th,
2016. The Central Government has announced that the game plans of section 255 of the
Insolvency and Bankruptcy Code, 2016 will take effect on November 15, 2016. The
Companies Act, 2013 shall be amended in the manner set out in the Eleventh Schedule[32] of
the Insolvency and Bankruptcy Code, 2016 as part 255 of the Insolvency and Bankruptcy
Code, 2016. “The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 has
likewise been declared repealed, effective December 1, 2016. As a result, as of that date, all
proceedings pending before the BIFR and the AAIFR under the Sick Industrial Companies
(Special Provisions) Act, 1985 have been suspended. Within 180 days of December 1, 2016,
any corporation with such actions pending may make a referral to the competent adjudicating
authority under the Code.”

Procedure:

A request for indebtedness is submitted to the settling authority NCLT by monetary or

activity loan bosses or the corporate account holder itself. The most extreme time permitted
to either acknowledge or dismiss the request is 14 days. On the off chance that the request is
acknowledged, the council needs to choose an Insolvency Resolution Professional (IRP) to
draft a goal plan inside 180 days which is likewise extendable by 90 days. Following which
the Corporate Insolvency Resolution process is started by the court. For the said period, the
directorate of the organization stands suspended, and the advertisers don't have anything to
do with the administration of the organization. The IRP, whenever required, can look for the
help of the companies the executives for everyday tasks. on the off chance that the IRP
comes up short in resuscitating the organization the liquidation cycle is started.
CONCLUSION:

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Growing sickness in the industrial and corporate private sector of India is hugely observed. It
is putting the economic system in strain, specially on banks. Planners and policy makers are
also concerned in this regard. This is a global concern as well, and can’t be taken as only
suffered in India. Even in countries where industrial advancement is at peak there are
numerous cases of bankruptcy and liquidation in them. The companies act provides special
provisions for the revival of sick companies, and the tribunal is given the responsibility to
take required measures for the rehabilitation and revival of companies. Before implementing
any application for appeal for revival, it is advised to check the grounds, facts and papers.
By the act of merging, amalgamation, takeovers of assets or outright nationalization the dick
industrial companies can be revived. There was a need for law which help in this regard and
was ip to date. Which first detected the sickness of a company and thsn gave measures for its
betterment and revival. The government first provided sick industrial companies special
provision act 2985 that is the SICA and was amended by companies act in 2013 and was
finally replaced by the insolvency and bank

SUGGESTIONS:
The legal system of India is flexible and goes through various amendments with time,
similarly the introduction of a new law regarding the sickness of industries also took place.
Changes have shown significant ineffective legislations and created many confusions. The
parliament have enacted a new and better uniform law which has so far been cogent
sufficient and effective piece of legislation for the sick industrial units. Comparing to the
previous legislations the insolvency and bankruptcy act of 2016 has been quite effective and
better. However, the difficulty is that when laws are formed, they are always made perfect
for the time period in which they were enacted, but as time passes, their effect begins to
wane. It is due to the changes in society brought about by the passage of time. Every new
technological advancement, as well as any other process or instrument, creates a new
difficulty for the law to address. As a result, legislation must be scrutinised on a frequent
basis. The laws, particularly those pertaining to business matters, must be reviewed on a
regular basis. And, as new technologies are introduced, the law should be updated as well.
In addition, to eliminate ambiguity and confusion, there should always be a single legislation
on a particular subject. It has also been demonstrated in the past that a single law on a

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particular issue produces greater effects than a large body of legislation on the same subject.
The more words there are, the more perplexing it becomes. Because of our proclivity for
enacting numerous laws, Indian law is seen as a lawyers' paradise, which is not a good thing.
As a result, the Single Legislation concept must be advocated.

BIBLIOGRAPHY
1. SICA Amendment act, 1994
2. Companies Act 2013
3. Sick industrial companies (special provisions) repeal act 2003
4. Income-tax act, 1961
5. Sick industrial companies (special provisions ac)t, 1985
6. Insolvency and bankruptcy act 2016

Websites
https://www.legalserviceindia.com/legal/article-5418-revival-and-restructuring-of-sick-
companies.html
https://www.indiafilings.com/learn/revival-and-rehabilitation-of-sick-companies/
https://www.google.com/amp/s/blog.ipleaders.in/procedure-revival-sick-company-
companies-act/%3famp=1

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