The Government of India, in order to tackle the problem of industrial sickness, had set up a Board for Industrial and Financial Reconstruction (BIFR), under the purview of Sick Industrial Companies (Special Provisions) Act,1985 (SICA). It had been established as a quasi-judicial body in the Department of Economic Affairs, Ministry of Finance, for revival and rehabilitation of potentially sick undertakings and for closure/liquidation of non-viable and sick industrial companies. The Industrial Finance Division of the ministry dealt with the appointment of the Chairman and the Members of BIFR and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) as well as with all the other matters relating to industrial sickness.

Under SICA, it is mandatory for the Board of Directors of a sick industrial company to make a reference and report to BIFR for formulation of revival and rehabilitation schemes and other remedial measures to be adopted with respect to such a company. BIFR, since its inception in May 1987 till the end of September 2006, has received 6,991 references.

References to BIFR as on September 30, 2006
Sl. No.	Status	Private	Central PSUs	State PSUs	Total PSUs	Total
1.	References received	6,695	108	188	296	6,991
2.	Registration declined	1,484	17	66	83	1,567
3.	Under Scrutiny	12	0	0	0	12
A	References registered (=1-2-3)	5,199	91	122	213	5,412
5.	DISPOSALS Dismissed
	(i) as non-maintainable	1,660	11	36	47	1,707
	(ii) as multiple registered	218	0	0	0	218
6.	Rehabilitation schemes approved/sanctioned
	(i) by BIFR	695	27	26	53	748
	(ii) by AAIFR/SC	11	1	0	1	12
7.	Declared on longer sick out of SI No. 6	462	9	14	23	485
8.	Winding up recommended to the concerned high courts	1,234	29	40	69	1,303
9.	Dropped now	119	5	3	8	127
B	Total (5+6+8+9)	3,937	73	105	178	4,115
C	Pending
10.	Draft schemes circulated	42	2	0	2	44
11.	Winding up notice issued	85	1	4	5	90
12.	Pending for sickness determination	357	2	1	3	360
13.	Declared sick	678	11	10	21	699
14.	Schemes failed and reopened	8	1	0	1	9
15.	Pending cases remanded by AAIFR	43	1	2	3	46
16.	Stay ordered by courts	46	0	3	3	49
	Total (C=A-B)	1,262	18	17	35	1,297
Source: BIFR, Department of Economic Affairs, Ministry of Finance

On receipt of such a reference, BIFR will conduct an inquiry and ascertain whether the company is indeed sick or not. For this purpose, the Board may, through any operating agency, cause to prepare with respect to the sick company:-

• A complete inventory of that company which includes all assets and liabilities as well as all books of accounts, registers, maps, plans, records, documents of title or ownership of property and all other documents of whatsoever nature relating thereto;



• A list of shareholders and of creditors (showing separately the list of secured creditors and unsecured creditors);



• A valuation report in respect of the shares and assets of the company;



• An estimate of its reserve price, lease rent or share exchange ratio; and



• Performa accounts, where no up-to-date audited accounts are available.

On the basis of such an enquiry, if BIFR is convinced that the company has become sick, it will either give reasonable time to the company concerned to make its net worth positive or it will appoint an operating agency consisting of certain banks and financial institutions to prepare a package for the revival of such sick industrial units. The package may consist of any one or more of the following measures:-

• Restructuring the capital base of the company.



• Inducting more capital to improve its resource position.



• Merger and amalgamation of the sick company with a healthy unit.



• Providing soft loans to the company.



• Bringing about technological changes and modernisation in the company.



• Bringing about a change in its management



• Writing off the interest burden of the company.



• Rescheduling its loans.



• Providing fiscal concessions like tax rebate,tax exemptions or tax reliefs to it.

If BIFR is of the opinion that the sick industrial company is not likely to make its net worth exceed its accumulated losses within a reasonable time and that it is not likely to become viable in future and also it is just and equitable that the company should wound up, it could imitate proceedings with the High Court, for winding up of the company.

The decision of the BIFR is binding on all the concerned parties. The entire responsibility for diagnosing, identifying, investigating, rehabilitating, reviving and ultimately recommending the winding of such a sick unit lies with the BIFR. Along with it, certain measures may also be initiated by the Reserve Bank of India (RBI) by instructing banks to keep a constant track of borrower's profile and try to identify sickness at the initial stages,that is,when a unit has started becoming weak. It has issued detailed guidelines for rehabilitation of these units and matters relating to better coordination between commercial banks and term-lending institutions for formulation and implementation of rehabilitation programmes.

But, under the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, which replaced Sick Industrial Companies (Special Provisions) Act,1985 (SICA), the Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) stand dissolved. The work of revival and rehabilitation has been entrusted to National Company Law Tribunal (NCLT) in place of BIFR and any appeal against the order of the NCLT will be made to the National Law Appellate Tribunal (NCLAT) instead of AAIFR.

The institutional structure relating to NCLT/NCLAT has been provided under the Companies (Second) Amendment 2002. According to the Act:-

• The Central Government shall, by notification in the Official Gazette, constitute a Tribunal to be known as the National Company Law Tribunal to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.



• The proposed NCLT shall continue the functions and powers currently discharged by the Company Law Board, the BIFR and the High Courts in respect of liquidation, winding up, amalgamation and merger of a sick unit.



• It shall consist of a President and such number of Judicial and Technical Members not exceeding sixty-two, as the Central Government deems fit, to be appointed by that Government, by notification in the Official Gazette.



• Under the Act, the Board of Directors of a sick company shall make a reference to the NCLT and prepare a scheme of its revival and rehabilitation and submit the same to the Tribunal along with an application containing such particulars as may be prescribed, for determination of the measures which may be adopted with respect to such a company. The application shall be accompanied by a certificate from a panel of auditors approved by the Tribunal indicating the reasons for the net worth of the company becoming fifty per cent or less; or for default in repayment of its debt making such company a sick industrial company, as the case may be.



• If the Tribunal, after considering all the relevant facts and circumstances, is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company is not likely to become viable in future and that it is just and equitable that the company should be wound up, then it may order winding up of the company.

^ Top