Project On

Sick Industrial Company Act, 1985

(SICA)

Submitted By:
G.SRIHITHA
11FLUHH010212

Submitted To:
Prof. Annapurna Devi

ACKNOWLEDGEMENT
I would like to thank Dean Hemalatha Devi for giving me an opportunity to do this internship
and also Advocate Shankar Ramaswamy, without whome this internship wouldnt have been
possible.
I would like to thank other advocates in the Firm who also helped me in completing this
assignment and simultaneously gain knowledge on matters that were new to me and who helped
me understand the Acts which I was new to, which helped me in researching the work given by
them.
I would like to specially thank Mrs. Annapurna Devi who is my SIP guide.
And lastly I would thank my family and friends who have given me some useful insights in this
topic.

THANK YOU ALL

INDEX
S. No.

PARTICULARS

Pg. No.

1.

Introduction- Broad Objectives

2.

Important Provisions and Amendments

5-8

3.

Sick Industrial Companies (Special Provisions) Repealed Act.

9-10

4.

Reasons and Factors for a company to become Sick

11

5.

Prediction on Sickness

12

6.

Board for Industrial and Financial Reconstruction (BIFR)

13

7.

Appellate Authority for Industrial and Financial

Reconstruction (AAIFR)

14

8.

Preparation and Sanction of Scheme for Revival

15

9.

Conclusion and Suggestions

16

10.

Cases-

17-23

11.

Tata Motors Ltd vs. Pharmaceuticals India Ltd

17-18

12.

DRM Steel Industries vs. BIFR

19

13.

Continental Carbon India Ltd vs. Modi Rubber Ltd

20

14.

Alcatel Lucent India Ltd vs. Usha India Ltd

21

15.

Garware Chemicals Ltd vs. BIFR

16.

Bibliography

22-23
24

INTRODUCTION

The main object of Sick Industrial Companies (Special Provision) Act, 1985 is to determine and
expedite the revival of potential viable units or closure of unviable units. The main objective
behind the revival of these units is, that the idle investment in these companies will become
productive and by closure, the locked up investments in unviable units would get released for
productive use elsewhere.
The Sick Industrial Companies (Special Provision) Act, 1985 was enacted with a view to
securing a timely detection of sick and potential sick companies owning industrial undertaking,
the speedy determination by a body of experts preventive, ameliorative, remedial and other
measures which is needed to be taken with respect to such companies and the expeditious
enforcement of the measures so determined, and for matter connected therewith and incidental
thereto.
This Act provided for the constitution of two quasi-judicial bodies namely Board for Industrial
and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial
Reconstruction (AAIFR). BIFR was setup as an apex Board to tackle the industrial sickness
and was entrusted with the work of taking the appropriate measures for revival and rehabilitation
of potential sick undertakings and for liquidation of non-viable companies, while AAIFR was
constituted for hearing appeals against the orders passed by BIFR.

Broad Objectives:1
a. Timely detection of sick and potentially sick companies.
b. Speedy determination by a body of experts of the preventive, ameliorative, remedial and
other measures which need to be taken with respect to such companies.
c. The expeditious enforcement of the measures so determined and for all matters connected
therewith or incidental thereto.
d. SICA was enacted as per art 39 and plus it is a complete act and where there arises a
question between SICA and any other act, SICA would prevail.2

http://business.gov.in/closing_business/sica.php

Tata motors ltd vs. Pharmaceuticals India ltd. and http://indiankanoon.org/doc/643909/

Important Provisions:
The Sick Industrial Company Act, 1985 (SICA) revolves around the industries that have become
sick and they have filed an application before the BIFR (Boards for Industrial and Financial
Reconstruction) under section 15(1) of the SICA.
Section 3 1 (o) of the Sick Industrial Company Act, 1985 defines a sick industrial company:
Sick industrial company means 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.
In the act itself an explanation has been given: for the removal of doubts, it is hereby declared
that an industrial company existing immediately before the commencement of the Sick Industrial
Companies (Special Provisions) Amendment Act, 1993, registered for not less than five years
and having at the end of any financial year accumulated losses equal to or exceeding its entire
net worth, shall be deemed to be a sick industrial company.
After an industrial company has been declared a sick industrial company by the BIFR through an
application made by the company who have been sick or who want to be declared as a sick
company under section 15(1) of the SICA, the BIFR has to appoint an operating agency (OA)
whose work would be to check whether there is a chance for the industrial company to be viable
and running. For this purpose, the OA has to make a scheme for the rehabilitation of the Sick
Industrial Company.
Under Section 16 of the SICA, the board has the power to make necessary inquiry into the matter
to determine whether the company is a sick industrial company.
Section 18 talks about the preparation and sanction of scheme by the OA and under clause 1 the
OA should be expeditious and ordinary in making the scheme. The time limit for the preparation
of scheme is 90 days from the date when the order to make a scheme has been passed.
The scheme shall be made for the following reason (section 18(1)):
a.
b.
c.
d.
e.
f.

Financial reconstruction.
Proper management by way of change in or takeover of the management.
Amalgamation
Sale or lease of part or whole of any industrial unit of a sick industrial company.
Such incidental, consequential or supplemental measures as may be necessary
Such other preventive, ameliorative and remedial measures as may be appropriate.

Section 19-Rehabilitation can also be done by providing financial assistance.

Section 22(1) - When a sick industrial company is under consideration or has been declared as a
sick industrial company or is under the implementation or consideration of the scheme for
rehabilitation, no suit can be started against the company.
Section 22(a) - when the board is of the opinion that in the interest of the sick company or
creditors or shareholders or in public interest should not dispose of its assets:
a. During the preparation or consideration of the scheme under section 18
b. During the period of beginning from the date of the order given by the Board to wind up
the company.
c.
Section 25- Appeal from the order given by the BIFR
1. The aggrieved party can appeal from the order of the board to the appellate authority
within 45 days. It is up to the appellate authority to entertain the appeal after 45 days but
not after 60 days if it feels satisfied that the aggrieved party has sufficient cause not to file
within time
2. On receipt of the appeal from the party and making further inquiry if the appellate
authority thinks fit, confirm, modify or set aside the order of the Board and remand the
matter to the Board to start afresh.

Section 26- Bar of jurisdiction: No order passed or proposal made under this Act shall be
appealable except as provided therein and no civil court shall have jurisdiction in respect of any
matter which the Appellate Authority or the Board is empowered by, or under, this Act to
determine and no injunction shall be granted by any court or other authority in respect of any
action taken or to be taken in pursuance of any power conferred by or under this Act.
The Board can delegate its functions and powers to any member or secretary or other officer or
any other person who is capable to manage any industrial company or industrial undertaking or
operating agency.3 And the Board can seek assistance from the Chief Metropolitan Magistrate
and District Magistrate.4

Section 33- Penalties:

3
4

Section 27
Section 29

1. Whoever violates any of the provisions of this Act, or the order of the Board, or provides
with false evidence to the Board, or the Appellate Authority shall be punishable with
simple imprisonment of 3 years and shall also be liable with fine.
2. No court shall take cognizance of the offence stated in sub clause 1, except on the
complaint by the Secretary, Board, Appellate Authority, or any member authorized on
behalf of the Board or Appellate Authority.

Amendment to section 22:

Under Section 22 of the Act, an absolute immunity is given to any proceeding that may be
initiated against a sick company and it is the provisions of this section which have generated a lot
of controversy in recent times. Prior to the amendment to this Section in 1994, the provisions of
the section was a bar to any proceeding that could be initiated against a sick industrial company
without the consent of BIFR or the Appellate Authority for Industrial and Financial
Reconstruction (AAIFR). With effect from 1/2/1994, the following was inserted in the section:
..." and no suit for the recovery of money or for the enforcement of any security against the
industrial company or of any guarantee in respect of any loans or advance granted to the
industrial company" shall lie or be proceeded with ....
After this amendment, a question arose as to whether the embargo under the section would also
apply with respect to a suit that may be filed against the guarantor of an industrial company. The
Bombay High Court in the case of Madalsa International Limited vs. Central Bank of India 5 held
that the embargo would not apply to a suit filed against a guarantor of an industrial company
This judgment of the Bombay High Court has since been reversed by the Supreme
Court in Patheja Bros Forgings and Stamping and Another vs. ICICI and Others6. The Supreme
Court, in the above decision, has held that there is no ambiguity in the words used in the section
and consequently no suit will lie or be proceeded with against the guarantor of an industrial
company without the consent of the BIFR or AAIFR.
The avowed object of the Act has completely failed since the Act has been successful only in
identifying sick industrial companies and the schemes evolved have not shown any revival of
these sick companies. Further, the provisions of section 22 with a non-obstante clause have, as
mentioned above, given an absolute immunity to proceedings against a sick company which has
been referred to the BIFR. Section 22 has been used as a shield for any proceeding against a sick
company, which has now been extended to a guarantor of loans advanced to a sick company.
An industrial company may become `sick' on account of ever so many reasons including
diversion of funds, mismanagement, etc. In almost all the cases, it is the financial institutions like
Banks, IDBI, ICICI, where public money is held, which advance huge facilities to the sick
companies. After reference of the sick company to the BIFR, these institutions are practically left
5
6

[2000] 99 Comp Cas 153

[2000] 102 Comp Cas.21

with no remedy to recover their dues from the sick company, not only because of section 22 of
the Act but also on account of section 34 (2) of the Recovery of Debts due to Banks & Financial
Institutions Act, 1993. After the amendment, the promoter-Directors, who are in control of the
company and who are required to give personal-guarantees, are now left scot-free without any
hassles of any proceeding.
In the case of Deve Sugars Ltd vs. SICOM Ltd, a guarantor-company was held liable to be
wound-up because of its failure to honour its guarantee. 7This decision, of course, has not dealt
with the question of Winding-up of a guarantor under section 22 of the Act.
Since the words used in the section are...`suit for the recovery of money... . , it could be
interpreted to mean that the embargo is only for a suit and not in respect of a Winding-up petition
and hence a creditor of a sick company may proceed against a guarantor by filing a Winding-up
petition.8

7
8

[1997] 89 Com Cases 504,512 (Mad).

http://www.taxlawsonline.com/news/showexp.asp?rid=AAAN/bAABAAAO0UAAB

Repealed Act

Sick Industrial Companies (Special Provisions) Act, 1985 was repealed and replaced by Sick
Industrial Companies (Special Provision) Repeal Act, 2003. The new Act diluted some of the
provisions of SICA and plugged certain loopholes. It aimed not only to combat industrial
sickness but also to reduce the same by ensuring that companies do not view declaration of
sickness as an escapist route from legal provisions after the failure of the project or similar other
reasons and thereby gain access to various benefits or concessions from financial institutions.
Under it, the Board for Industrial and Financial Reconstruction (BIFR) and Appellate
Authority for Industrial and Financial Reconstruction (AAIFR) were dissolved and replaced
by National Company Law Tribunal (NCLT) and National Law Appellate Tribunal
(NCLAT) respectively.9
Section 3 of the Sick Industrial Companies (Special Provision) Repeal Act, 2003 talks about:
Repeal of Act 1 of 1986 and dissolution of Appellate Authority and Board:

The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as
the repealed enactment) is hereby repealed and the Appellate Authority and the Board
stand dissolved.

Section 4 (i) and (ii) of the repealed Act talks about the Consequential Provisions where it
states that since the Act of 1985 stands repealed and the BIFR and AAIFR stands dissolved, the
persons who were appointed as the Chairman, Member or other person who was appointed by
the Central Government shall vacate his office and are not entitled to claim compensation for
premature termination of their services.
It is provided that such person should have been appointed on deputation basis to the Appellate
Authority or the Board, shall stand reverted to his parent cadre, Ministry or Department, as the
case may be.
It is also stated in this section that those person who vacate their office shall now be an officer of
the Central Government with the same rights and privileges as to pension, gratuity and other like
matters as would have been admissible to him if the rights in relation to such Appellate Authority
or the Board.
It is also stated that those person who were appointed under the AAIFR or BIFR who were
entitled to pension, superannuation and other likely benefits, the monies relatable to the officers
and employees whose services have been transferred by or under this Act to the Central
Government shall, out of the monies standing, on the dissolution of the Appellate Authority or
the Board, to the credit of such provident fund, superannuation, welfare or other fund, stand
transferred to, and vest in, the Central Government and such monies which stand so transferred
shall be dealt with by that Government in such manner as may be prescribed.
9

http://business.gov.in/closing_business/sica.php

Section 4 b talks about the proceedings pending before the BIFR or AAIFR shall stand abated.
This subsection also provides that those proceedings which are abated may make reference under
Part VIA of the Companies Act, 1956 within 180 days from the commencement of this Act. 10
As for the Sick companies, they can make a reference too under the Part VIA of the Companies
Act, 1956 and within 180 days from the commencement of the Act or within sixty days of final
adoption of accounts after such commencement, whichever is earlier, and reference so made
shall be dealt with in accordance with the provisions of the Companies Act, 1956.
Any scheme sanctioned under sub-section (4) or any scheme under implementation under subsection (12) of section 18 of the repealed enactment shall be deemed to be a scheme sanctioned
or under implementation under section 424D of the Companies Act, 1956 and shall be dealt with
in accordance with the provisions contained in Part VIA of that Act.

10

http://business.gov.in/closing_business/sica.php

Reasons for the Company to turn as Sick Industrial Company.

There are 2 factors that may lead to an Industrial Company to become sick.11
1. Internal Factors:
a.
b.
c.
d.
e.
f.
g.

Mismanagement in various areas like Finance, Marketing and Personnel.

Wrong Location of a unit.
Overestimation of Demand.
Wrong Dividend Policy.
Poor management in respect of inventory of Finished Goods and inputs.
Unwarranted diversion or expansion of the unit.
Poor labor management and relationships which leads to strikes, lockouts etc and
ultimately in low productivity

2. External Factors:
a.
b.
c.
d.

Energy Crisis
Infrastructure problem
Credit squeeze
Market recession and technological changes.
e. International pressures and circumstances.

11

http://business.gov.in/closing_business/sica.php

Predictions on Sickness
Though symptoms of sickness can be observed from the above stated factors, but such factors
may only suggest that the unit is potentially sick. However it is not easily to come to a definite
conclusion about the impending sickness on the basis of the aforementioned factors. A
considerable research has been done to find out other measurable parameters on which prediction
can be done for the potential sick companies and the research was based on 2 analyses:
1. Univariate Analysis:12

In this type, only one financial ratio would be chosen to predict the sickness of the
company and there was no consensus as to what should be the best financial ratio would
be to predict the sickness, until 1966 where Mr. Beaver who published his study on
Univariate Analysis by taking 79 companies that were sick and another 79 that werent
and choose 30 different financial ratios to examine their predicative power.
The main finding of Beaver was that the ratio that is most useful in predicting impending
sickness is the ratio of cash flow to total debt, since this ratio showed the minimum
error in his prediction.
2. Multivariate Analysis:

Univariate analysis examines the predictive power of individual financial ratios. The joint
effect of more than one financial ratio in predicting sickness is not studied in Univariate
analysis. Multivariate analysis, on the other hand, aims to predict industrial sickness by
studying the combined influence of several financial ratios

12

http://www.newagepublishers.com/samplechapter/000922.pdf

Board for Industrial and Financial Reconstruction

The Board has a Chairman and from two to fourteen other members, all to be qualified as High
Court judges or else to have at least fifteen years of relevant professional experience. The Board
only handles large or medium sized sick industrial companies in which large amounts have been
sunk. Under the Sick Industrial Companies Act the Board of a sick industrial company is legally
obliged to report it to the BIFR and the BIFR has the power to make whatever inquiries are
needed to determine if the company is in fact sick.
Among other objectives the act was to provide a way to revive sick industrial companies and
release public funds. If a company is found to be sick, the BIFR can give the company
reasonable time to regain health (bring total assets above total liabilities) or it can recommend
other measures. The board can take other actions including changes to management,
amalgamation of the sick unit with a healthy one, sale or financial reconstruction. The Board can
recommend a sick industrial company for winding up.
The BIFR was intended to bridge the legal gap between sickness and revival. It would impose
time schedules for revival related activities to be completed, oversee their implementation and
conduct periodic reviews of sick accounts. The BIFR would provide a forum for sharing views,
coordinating effort and developing a unified approach to dealing with sick companies, speeding
up the start of corrective action. The BIFR was meant to either turn companies around within six
months or order closure. 13
Authorities cannot start any proceedings without prior permission from the BIFR for which a
sanction scheme is under implementation.14
The authorities have to ask for prior permission from the Board for Industrial and Financial
Reconstruction when the scheme for the revival of the sick company is taking place or it is under
consideration or undergoing implementation of the scheme made by the Operating Agency.
The Board of Directors of a sick industrial company is required, by law, to report the sickness to
the BIFR within 60 days of finalisation of audited accounts, for the financial year at the end of
which 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/party can also report the fact of sickness of a company to the BIFR. Such
interested parties may be the financial institution/bank that has lent loan to the company, the
RBI, the Central/State Governments. The BIFR has prescribed a different format for the report to
be submitted by such interested parties. 15When a company has been financed by a consortium of
banks, it is the Lead Bank that should report to the BIFR about the sickness under advice to other
participating banks in the consortium.
13
14

www.financialservices.gov.in

Dunlop India Ltd vs. The Tahsildar

15
http://bifr.nic.in. pdf

Appellate Authority for Industrial and Financial Reconstruction

Chairman and the Secretary are defined under the AAIFR rules, 1988. (Section 2 (d) and Section
2 (e) respectively).
The Secretary is the Secretary appointed under the Section 8(1) of the Sick Industrial Company
Act, 1985.
Under the AAIFR rules, 1988 under section 4 of this rules additional powers and duties are given
to the Secretary namely:
1. Receive all references, documents, application, reports, letters etc.
2. Decided all the questions that arise out of the reference before those questions are
registered in the office of the AAIFR.
3. Fix the dates to hear the references and or other proceedings in the light of the directions
given by the AAIFR or the Chairman.
4. Direct any formal amendments to the record.
5. Grant leave to inspect the records.
6. Dispose of all the matters relating to the references or summons or any other process or
for extending time should be done by way of advertisement in the newspaper.

Section 3(2) - The appellate authority can take assistance from the Secretary in discharging his
functions and the Secretary is bound to assist the Appellate Authority.

Preparation and Sanction of Revival Scheme

Once a company has been found sick, the BIFR may grant time to the sick company to enable it
to make its net worth positive and bring the company out of sickness, without any external
financial assistance. If it is found infeasible for company to make its net worth positive without
any external financial assistance, or if the BIFR decides that the company cannot make its net
worth positive within a reasonable time, then the Board appoints an operating agency under
section 17(3) of the Act, then the operating agency is required to prepare and submit a schedule
in respect of the referred company by providing any or more of the following measures:
1. Financial Reconstruction of the sick industrial company; 16
2. The proper management of the sick industrial company by change in, or takeover of, the

management of the sick industrial company;

3. Amalgamation with another company or vice-versa;
4. Sale or lease of its undertaking;
5. Rationalization of its staff;
6. Any other preventive or remedial measures; and
7. Incidental or consequential measures.

The revival package may vary from case to case depending on the nature of the problem and may
include additional financial assistance, postponement of recovery of loan already lent by banks
and financial institutions, change in management, amalgamation, sale of redundant assets, lease
of assets or any other suitable measure. The revival package should be submitted to the BIFR
within a time limit of 90 days or such extended period as may be granted by the BIFR.

16

http://bifr.nic.in/guidelines_for_rehabilitation_scheme.pdf

CONCLUSION AND SUGGESTIONS

Rehabilitation is not the answer and solution for sick industrial companies. It should be closed
down as it puts additional burden upon the government to take care of them. It is opposed by the
Federation of Indian Chambers of Commerce & Industry of India (FICCI) on the ground that
healthy and sound companies should not suffer for faults of others.
The government should not intervene into the affairs of the industrial company and let the market
forces decide it, whether company can be run or not. The government should segregate itself
from the affairs of the industrial company and should do its own job.
Industrial sickness is a problem all economies big and small have to face. What is important is to
evolve a proper regulatory and institutional mechanism to deal with the situation. While there
should be a mechanism to safeguard the interests of workers, a suitable exit policy for the nonviable units should form an integral part of the new approach. A stringent mechanism should also
be devised so that the directors of the company should not play fraud on the unit to bring it
within the purview of sickness. NCLT should also be made to come into force to ensure speedy
disposal of cases looking into the sluggishness of the disposal of cases by BIFR.17
The approach of the government towards rehabilitation of a sick unit being very selective, the
government is now convinced that there is no point in throwing away further resources in
support of the units which are irretrievably sick. Only such units which are found to be
potentially viable need to be taken up for formulation of rehabilitation packages to restore them
to health. Package consisting of concessions from banks, financial institutions, government
(Central/State), government agencies, shareholders, labour, and suppliers of goods should be
provided to those units where chances are subsisting for the revival of the sick unit.
The enactment instead of fruitful it proved burdensome on the healthy companies. The
rehabilitation fund are created by imposing tax on the good working companies which puts
additional burden on them without their own fault.
The Parliament itself is not sure whether rehabilitation should be given to the sick company
which is evident from the act of the parliament itself. Parliament repealed the very first
enactment of SICA after seventeen years just because it did not confirmed the purposes set out in
the enactment and inserted few sections in the companies Act, 1956.

Sick industrial company should be left on their own condition and let the market forces to decide
the fate of the company. Government should refrain itself from intervention. If at all government
wants to do fruitful help for the industrial company, it should help taking the affairs of the
industrial company in its own hand for a particular period of time.

17

http://www.taxmann.com/TaxmannFlashes/flashart22-1-10_4.htm

CASES
Case 1
Tata motors ltd vs. Pharmaceuticals India ltd.18
IN THE SUPREME COURT OF INDIA
Tata Motors Ltd.....

Appellant
Vs.

Pharmaceutical Products of India Ltd. & Anr. ....

Respondents

Facts:
The respondents are a registered company under the Act of 1956 and have taken a loan from the
Appellant at 18% p.a. Disputes arose and the matter went to arbitration proceedings and an award of Rs.
1,51,36,795/- together with the interest.
Respondents were unable to make the payment and made reference to the BIFR under section 15of SICA.
The BIFR appointed IDBI as an Operating Agency. BIFR had passed an order for winding up of the
company. An appeal was made to the Appellate Authority for Industrial and Financial Reconstruction
(AAIFR).
That the revival/rehabilitation of the company was under consideration of a specialized body formed
under the Sick Industries Act which is a special legislation and would prevail over the provisions of the
Companies Act.
That the non-obstante clause contained in the Sick Industries Act will have the effect of overriding and
excluding the provisions of the Companies more so where there is an overlapping between the two Acts.
Contentions:

Appellant:

Mr. R.F. Nariman learned Senior Counsel appearing on behalf of the appellant, in support of this appeal
would submit:
1. SICA being a special statute, the provision thereof shall prevail over the provisions of the 1956 Act.
2. The High Court committed a manifest error in entertaining the Respondents application for merger
under Sections 391 to 394 of the Act, although the matter was pending before the AAIFR.
3. The High Court failed to notice the binding precedent of this Court in NGEF Ltd. vs. Chandra
Developers (P) Ltd wherein it has clearly been held that SICA will prevail over the 1956.
18

Arising out of SLP (C) No. 20289 of 2006

Respondent:

Mr. C.A. Sundaram, learned senior counsel appearing on behalf of the respondent, on the other hand
would urge:
1. The operation of the order of BIFR having been stayed, the Company Petition was maintainable at the
instance of the respondent.
2. Section 19 of SICA will have no application as it speaks of financial assistance by the persons specified
therein.
3. Section 22 of SICA must be read in the context of Section 19 thereof.
4. Section 26 or any other provision of SICA does not oust the jurisdiction of the Company Court.
5. SICA as interpreted by this Court in NGEF Ltd. (supra) would prevail over 1956 Act only if the
provisions of the latter are inconsistent with the provisions of SICA and not otherwise.
6. The Scheme in question being subject to approval by BIFR and that BIFR by a reason of its order dated
1st May, 2007 had granted approval thereof, the legal requirements must be held to have been complied
with.
It was ruled that the Company Court and the BIFR do not exercise concurrent jurisdiction. 19
In view of IDBI's recommendation of the revival cum merger proposal submitted by PPIL, which is in
accordance with Bombay High Court's order dated 13.2.2006, we set aside the impugned order dated date
of this order and take necessary further steps for the revival of the appellant company in accordance with
law 27.10.2004 and direct BIFR to consider the scheme vetted by the OA within a period of three months
from the date of this order and take necessary steps for the revival of the appellants company in
accordance to law.
Held:

19

The order of BIFR is not an outcome of any pre-application of mind. There is no finding that the
Board has taken into consideration all the relevant facts. There is nothing to show that such an
order is fair or reasonable or meets the requirements of law.
The court is, therefore, of the opinion that not only the judgment of the High Court but also the
orders of BIFR as also the AAIFR should be set aside and the matter should be remitted to the
BIFR so as to enable it to proceed in accordance with the provisions of SICA afresh.
The appeal is allowed with the aforementioned observations and directions. In the facts and
circumstances of the case, there shall be no order as to costs.

NGEF Ltd. vs. Chandra Developers (P) Ltd.

Case 2

D.R.M. Steel Industries vs. Board for Industrial and Financial Reconstruction 20
1. The representatives of the petitioners came to know that the respondent no. 5 had filed an
application before the BIFR but as no copy had been served to the petitioner, the
representatives of the petitioner had filed an application for serving the copy of the
application.
2. This application had not been attended to by the BIFR and the matter came up for
hearing. The petitioner contended that this was a clear violation of the principles of
natural justice and was arbitrary.
3.

It further contended that BIFR had already declared the petitioners company as a sick
company under SICA and also contended that the BIFR had not taken into consideration
the concept of ownership which has a wider meaning. Even an industrial undertaking
under a lease is under the jurisdiction of BIFR even if its sick.

4. The petitioners challenge the territorial jurisdiction of the court in which the case has
been appealed. In the Writ Petition it has been clearly stated that the BIFR had served the
application to the petitioner at their Kolkatas address.
5. The respondent no. 5 shall serve a copy of the application and the petitioner is entitled to
file written objections for the same.

6. The application is allowed.

20

AIR 1996 Cal 54, (1995) 2 CALLT 181 HC, 1998 93 CompCas 667 Cal, 100 CWN 257.

Case 3
Continental Carbon India Ltd. vs. Modi rubber Ltd.21
ISSUES
1)

Whether on approval of a scheme by the BIFR under the Sick Industrial Companies
(Special Provisions) Act, 1985 (hereinafter referred to as the SICA), an unsecured
creditor has the option not to accept the scaled down value of its dues, and to wait till the
scheme for rehabilitation of the respondent-Company has worked itself out, with an
option to recover the debt with interest post such rehabilitation?
HELD: There could not be any unilateral appropriation of the insurance amount by the
petitioner bank leaving the other bank high and dry in an unequal bargaining position in case
rehabilitation scheme was to be propounded and the secured creditors are liable to be treated at
par.

2) Whether the petitioner was required to give any financial assistance, Section 19 (1) of the
SICA would have no application?
HELD: A pure commercial transaction of supply of goods and corresponding entitlement to
recover balance unpaid price would not fall within this category and benefit of provisions of
Section 19 (2) of the SICA are not available to such a party.

21

2012 (131) DRJ 294

Case 4
ALCATEL LUCENT INDIA LTD vs. USHA INDIA LTD.22

ISSUES
1) Whether remedy was available to be the petitioner as protection under Section 22 is not
absolute?
HELD: Even though no reference is pending at present, the case eloquently demonstrates
that there has been misuse of the machinery provided under the SICA. When the effect
submission of reference under Section 15 is that Section 22 gets triggered, appropriate
steps need to be taken to ensure that this provision is not misused. Present case appears to
be one where prima facie the provisions of Sections 22 are taken undue advantage of
Guidelines can be issued to ensure that the fresh reference in subsequent years should not
be mechanically entertained. Section 22 of SICA is not absolute and any person seeking to
proceed against the Company has a right to apply and take leave of the BIFR or AAIFR in
this regard and proceed against the company. In this context, the learned counsel
emphasized the following aspects:(I)

That the petitioner is not pressing any application under Section 22 (1) of the SICA
before AAIFR to proceed against the respondent company.

(ii) The petitioner has filed execution proceeding against the respondent M/s Koshika
Telecom ltd. and there has been no impediment, preventing the petitioner from pursuing
with the execution proceedings. On the contrary, the execution proceedings were delayed
as M/s Koshika Telecom ltd. is in liquidation and all its assets are in possession of the
Official Liquidator attached to this Court and the petitioner had not approached the
Company Court despite the liberty granted by the Ld. Single Judge 5 years ago and has
failed to file its claim before the official liquidator attached to this Court.
2) Whether reference under Section 15 is complete and that the same can be put up before
a competent Bench of the BIFR?
HELD: BIFR is thus limited to examining whether reference under Section 15 is complete
and that the same can be put up before a competent Bench of the BIFR. Regulation 19 of the
BIFR Regulations indicates the same, whilst sub regulation (1),(2) and (3) of Regulation 19
of the BIFR Regulations provide for manner of making and communicating the reference to
the BIFR. Sub Regulation (4) and (5) of Regulation 19 provide for the receipt and scrutiny of
the reference respectively.

22

2012 174 Comp Cas 1 (Delhi)

Case 5

Garware Chemicals Ltd.

Appellants
vs.

Board for Industrial and Financial Reconstruction and Anr.23

Respondent

Facts:
The petitioner is a manufacturer of one DMT product. The company has the paid up capital of 17 crores
and free reserves of 35 crores and that year the company incurred losses worth 73 crores. So in the AGM,
the BOD was of the opinion that since the company has incurred losses more than the net worth of the
company, it satisfies the conditions of becoming a sick company under SICA.
A reference was filed under section 15(1) of the Act to the BIFR and the application was rejected by the
Board on the ground of limitation period. The period of limitation to file for a sick company is 60 days
and the BOD took sixty days to file the application after the books of accounts were settled. Under section
15(1) of the Act states that reference has to be made within 60 days from date of finalization of duly
audited accounts of the company for the financial year. The Board had rejected the reference on the
ground that it ought to have been filed within 60 days from the date of formation of opinion by the BOD.

Contentions:

Petitioner:
Mr. Datar was of the opinion that the Board had totally misconstrued the provision 15(1) of the
Act. The provision creates an obligation on the BOD to go to the Board with the reference for the
better interest of the company and public, creditors and financial institutions. But the plain
reading of the section doesnt imply and the Boards too should not take the 60 days as the period
of limitation. The counsel for the petitioner was of the opinion that if the legislation wanted to set
a period of limitation and debarring a reference after the limitation is over, the language in the
section would have been different. Therefore the Board is incorrect to reject the application and it
amounts to non- application of mind.

23

Writ Petition No. 4811 of 2003

Respondent:
Mr.Gangapurwala urged that the section 15(1) of SICA has used the word shall and it should be
read in the same context and object with which the legislation has laid down in the enactment. He
moreover states that the period is for the early and or timely realization of sick and potentially
sick industrial company. Therefore, the BOD has an obligation to file a reference within 60 days
and as they have not filed, the reference is not maintainable.

Issues:
1. Whether a reference to the Board is rejected solely on the ground that they have filed it
after the period of limitation.
2. Also whether the period prescribed u/s 15(1) of the act is the period of limitation so as to
bar a reference after the expiry of the said period.

Held:
We are inclined to hold that Section 15(1) does not lay down any period of limitation, although it
creates an obligation upon the Board of directors to approach the BIFR within the time stipulated
by the section; and failure to discharge the obligation may entail penal consequences as provided
by Section 33(1) of the Act. However, we may hasten to add that the Board would be within its
rights to reject the reference where the Board finds that the directors are guilty of supine
indifference or there is lack of bona fides on the part of the directors or where the only purpose of
making reference is to take shelter on the protection given by the Act. In such cases, the Board
would be undoubtedly justified in rejecting the reference on the ground of delay and latches. In
the present case, the delay in approaching the BIFR is only around 45 days. Moreover, we are
informed that IDBI who are the 80% creditors of the company, have not raised any objection to
the registration or the reference and the company being declared as a sick unit. In the
circumstances, the impugned orders of the BIFR dated 30 April, 2002 and 28 July, 2003 cannot
be sustained and some are hereby quashed and set aside. The BIFR is directed to consider the
reference made by the company afresh in accordance with the provisions of the Act in the light of
our judgment. It is needless to say that it would be open for the BIFR to consider the merits of the
reference including the question whether other norms are satisfied by the company.

Accordingly, the rule is made absolute and the petition is disposed of in the terms of the above
order.

Bibliography:

1. http://bifr.nic.in. pdf
2. www.bifr.nic
3. www.taxmann.com/TaxmannFlashes/flashart22-1-10_4.htm
4. http://bifr.nic.in/guidelines_for_rehabilitation_scheme.pdf
5. www.financialservices.gov.in
6. www.business.gov.in/closing_business/sica.php
7. Sick Industrial Companies Act, 1985 (Bare Act)
8. http://business.gov.in/closing_business/sica.php

THANK YOU