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: --
: -- LLM IST YEAR (BUSINESS LAW)
: -- U.S. BENDALE
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1. ABSTRACT 2. IMPORTANCE OF RESEARCH 3. SCOPE OF RESEARCH 4. OBJECTIVES OF STUDY 5. HYPOTHESYS OF STUDY 6. RESEARCH METHODOLOGY 7. CHPTERISATION
– I - INDUSTRIAL SICKNESS--- DEFINITION, i. CHAPTER – OBJECTIVES, CAUSES AND REMEDIES – II - SICK INDUSTRIAL COMPANIES ii. CHAPTER – (SPECIAL PROVISIONS) ACT 1985 – III- BOARD FOR INDUSTRIAL AND iii. CHAPTER – FINANCIAL RECONSTRUCTION (BIFR) – IV- COMPANIES (SECOND) AMENDMENT iv. CHAPTER – ACT, 2002 – V - INDUSTRIAL SICKNESS IN INDIA, DATA v. CHAPTER – REGARDING IT, REHABILITATION AND SUGGESTIONS – VI - INDUSTRIAL SICNESS IN STATE – vi. CHAPTER – INDUSTRIAL CONDITION OF WEST BENGAL
8. CONCLUSION AND SUGESSTIONS 9. REFERENCES 10. ACKNOWLEDGEMENT
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1. ABSTRACT
Present study attempts to understand and analyze the problem of sickness in industries from a sociological perspective. The problem of sickness in industrial units is essentially a sociological problem. An industrial enterprise is a social system functioning in a social environment consisting of various other social systems with whom it interacts in terms of specific role relationships. Accordingly, the problem of sickness may be viewed in terms of the role performance failure of the units concerned and the social entities in their environment. Analogously, the problem may be interpreted in terms of the mal-functioning role relationships based on the reciprocity of expectations amongst the interacting social systems. All organisations are set up with an objective to create value to the society. This necessitates organisations to generate revenues to support all its stakeholders. However, in the rat race to succeed, most organisations are unable to generate revenues for sustainable operations. It is obvious that organisations cannot survive without profits/surpluses and the inability to generate surpluses would lead to industrial sickness. Bringing such organisations back to health requires entrepreneurial strategies at two levels, namely, from the negative to the breakeven and from breakeven to the positive. Hence, the turnaround management is a doubly entrepreneurial act. The objective of this paper is to understand the strategies used in successful turnarounds and compare them with those of the failed ones and thereby help turnaround managers to increase their success rate so as to enhance the value of these organisations to society.
2. IMPORTANCE OF RESEARCH
Present research and study is to understand and analyze the problem of sickness in industrial sector specially in small scale industries. As we have earlier stated that the problem of sickness in industrial units is essentially a sociological problem. Industrial sickness is one of the most complex problems of the Indian economy. Inspite of the different measures taken by the Government the problem persists. The rise has remained unabated, even in the years after the passage of the Sick Industrial Companies Act (SICA) and the creation of the Board for Industrial and Financial Reconstruction (BIFR). The study reveals that sick units have not only lost their net worth, but they have also lost capital raised from sources other than ownership. The extent of accumulated losses of sick units in India, is about two times that of the net worth of the sick units. The study reveals the failure of the policies in controlling industrial sickness in India, and puts forward certain suggestions to revamp the policy framework so as to effectively tackle the problem.
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3. SCOPE OF RESEARCH
There are three good reasons to write a thesis on industrial sickness.
Most importantly, it is a real problem in the Indian economic landscape.
Second, it is associated with heavy economic losses.
Third, thus far, the problem has not aroused the interest of academic researchers in the measure it deserves.
This study aims at identifying and analyzing the factors responsible for sickness in the Indian industrial units specially the small scale sectors and also helping the government in formulating sick industrial policy to revive the sick units.
4. OBJECTIVES OF THE STUDY
Objectives are the ends that states specifically how goal be achieved. Every study must have an objective for which all the efforts have been done. Without objective no research can be conducted and no result can be obtained. On the basis of objective all the research process is followed. Objectives are the main aspect of every study. The objective of the study gives direction to go through the research problem. It guides the researcher and keeps him on track. The objectives of my research are as follows:--
i.
To analyze the various factors of industrial sickness and to find out the causes of sickness.
ii.
To study stud y the impact of industrial ind ustrial sickness, especially in small s mall sector s ector on industrial growth and also on society at large
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iii.
To analyze the impact of remedial measures, adopted by government, financial institutions and entrepreneurs on industrial growth.
iv.
To assess the findings of various studies on industrial sickness in relation to the findings of the present work.
v.
To study and analyze the problems being faced by sick entrepreneurs on causes of sickness especially non-availability of back credit, quality control, in-conductive industrial environment etc.
vi.
To find out the underlying factors differentiating the ‗sick‘ and ‗healthy‘ status of the units investigated in the study.
vii.
To understand the problem of sickness by analyzing the actual and normative role performance of the various variou s social entities in the units u nits social environment. environment .
viii.
To bring out the salient issues underlying the role failure of the various social entities involved in the problem situation including the units concerned.
ix.
To derive a set of policy measures for dealing with the problems of sickness in small scale industry on the basis of the present study
x.
To examine the growth and working of small scale sector along with a description of the role played by the Central and State Governments in financial assistance.
xi.
To analyze the financial structure of small scale industries
xii.
To examine the impact of financial problems faced by sample units and the role played by financial agencies agen cies
xiii.
To bring out the need for proper support from the Government and to make the functioning of small scale industries effective.
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5. HYPOTHESES OF THE STUDY
The following hypotheses are proposed to be empirically tested i.
Industrial sickness has caused due to economic slowdown, marketing competition and changed business environment.
ii.
Improper project planning, multiplication of units is similar line of production ,entry of unmotivated and inefficient entrepreneurs, lack of demand for products, scarcity of working capital and above all infrastructural bottlenecks are the main factors of industrial sickness
iii.
Sick industrial units suffer from tough competition from large industries as well as multinational companies in terms of marketing and procuring raw materials.
iv.
Sick industrial units are facing crunch for technological up gradation and utilization of installed capacity.
v.
Sick units are facing challenges from financial delay and financial support from govt sector.
vi.
Sick units are also facing problems due to withdrawal of support from government organizations in terms of purchase of goods and products, extending technical and marketing support and financial assistance.
vii.
the non sick units shows better production performance than the sick units on account of least cost over run and timely completion of the project; better capacity utilisation and uninterrupted production
viii.
the sick units of high location quotient industries are found to be more unviable and non sick units in these groups of industries are more vulnerable to sickness as compared to the sick and non sick units of low location quotient industries.
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6. RESEARCH METHODOLOGY
The present study is empirical one and quantitative in approach. This study is based on primary as well as secondary data. The empirical data have been collected for analyzing financial performance of small scale industries by conducting a survey by using an interview schedule. The primary data were used mainly for evaluating the financial problems of small scale industries. It was also thought proper that view perceptions of entrepreneurs, officials of financial institutions may be sought out through structured questionnaires to suggest the suitable policy measures. So, the researcher also interacted with the representatives of financial and banking institutions for in depth discussions. So that their observations may beconsidered for evolving the strategies of the revival of sick industrial units. Primary data have been collected through interview schedule.. The primary data has been discussed, discus sed, interpreted and analyzed an alyzed while critical appreciation appreciati on of pertinent literature has been ensured in the report. The policy recommendations are based on analysis of research findings and critical review of pertinent literature.
The interview schedule has been structured .For identifying the variables to be used in the interview schedule; the researcher conducted a trial interview with small scale industrial entrepreneurs. A rough draft of the interview schedule was prepared and was circulated among fellow researchers for critical evaluation. The draft was then revised in the light of their comments. Their suggestions were incorporated and the final draft is prepared.
It ha s eq ua ll y fo cu se d on qualitat qualitative ive methods methods of rese research arch.. The The second secondary ary data data are used to analyze the growth, performance of exports and the like of small scale industries at all India level as well as at state level. Secondary and published documented data has been collected through various sources and analyzed accordingly. Secondary data were were also collected from published and unpublished sources. They were collected from books, journals, reports and published documents of District Industries Centre, Indian Overseas Bank, State Bank of India, Department of Statistics, Ministry of Small Scale Industries and Agro Rural Industries, Government of India, New Delhi.
To make the study more meaningful and policy oriented available literature and studies have been consulted and reviewed. rev iewed.
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7. CHAPTERISATION
CHAPTER
CHAPTER – I--
CONTENTS
INDUSTRIAL SICKNESS--- DEFINITION,
PAGE NO
9 - 45
OBJECTIVES, CAUSES AND REMEDIES
CHAPTER – II —
SICK INDUSTRIAL COMPANIES
46 - 100
(SPECIAL PROVISIONS) ACT 1985
CHAPTER – III — BOARD FOR INDUSTRIAL AND
101 - 183
FINANCIAL RECONSTRUCTION ( BIFR)
CHAPTER – IV — COMPANIES (SECOND) AMENDMENT
184 - 250
ACT, 2002
CHAPTER – V –
INDUSTRIAL SICKNESS IN INDIA, DATA
251 - 288
REGARDING IT, REHABILITATION AND SUGGESTIONS
CHAPTER – VI -
INDUSTRIAL SICNESS IN STATE – INDUSTRIAL CONDITION OF WEST BENGAL
289 - 352
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CHAPTER I
INDUSTRIAL SICKNESS DEFINITION, OBJECTIVES, CAUSES AND REMEDIES
INTRODUCTION DEFINITION OF INDUSTRIAL SICKNESS CRITERIA FOR DEFINITION OF SICK UNITS/SYMPTOMS OF SICKNESS HISTORICAL BACKGROUND OF INDUSTRIAL SICKNESS A. PRE INDEPENDENCE PERIOD B. POST INDEPENDENCE PERIOD 5. SOCIAL DIMENSION OF INDUSTRIAL SICKNESS 6. CAUSES OF INDUSTRIAL SICKNESS A. INTERNAL CAUSES i. PLANNING AND MANAGEMENT CONSTRAINT ii. IMPLEMENTATION iii. PROJECT FORMULATION iv. PRODUCTION MANAGEMENT v. LABOUR MANAGEMENT vi. MARKETING MANAGEMENT vii. FINANCIAL MANAGEMENT viii. ADMINISTRATIVE MANAGEMENT ix. PERSONAL ADMINISTRATION B. EXTERNAL CAUSES i. FINANCE CONSTRAINTS ii. GOVERNMENT POLICIES iii. MARKETING POLICIES iv. EXTRANEOUS FACTORS 7. SECTOR WISE ANALYSIS OF CAUSE OF SICKNESS 8. EFFECT OF SICKNESS 9. REMEDIES A. ROLE OF GOVERNMENT B. STEPS TAKEN BY GOVERNMENT C. GOVERNMENT POLICIES D. ROLE OF BANK AND OTHER FINANCIAL INSTITUTIONS E. ROLE OF PROFESSIONALS F. ROLE OF ENTREPRENEUR 10. DEALING WITH INDUSTRIAL SICKNESS 1. 2. 3. 4.
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INDUSTRIAL SICKNESS--- DEFINATION, OBJECTIVES, CAUSES AND REMEDIES
1. INTRODUCTION
This chapter starts out with a thorough discussion of various concepts of industrial sickness.
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Industrial sickness: Just like birth and growth, sickness and death is an inevitable aspect of trade and industry. An industry flourishing today may face closure tomorrow while an industry languishing today may turn the corner and grow rapidly tomorrow, this is unavoidable in any economy
Sickness in simple terms means that a firm or an industry is systematically making losses and the accumulated losses outweigh its assets. A sick unit may be defined as one which does not fulfil the minimum standards of productivity and profitability due to internal shortcomings while other units in the industry are flourishing. It fails to generate internal surplus on a continuing basis and depends for its survival on frequent infusing external funds. A sick unit is one in which the capacity utilization is 20% or less. Following Independence in 1947, India has made great efforts to foster industrialization with the aim of promoting economic development. Jawaharlal Nehru, its first prime minister, had great faith in the merits of a planned economy, which, he was persuaded, would be most effective and efficient to realize the four long-term objectives of industrial growth, full employment, the reduction of inequality and the establishment of social justice. Accordingly, the first Five-Year Plan commenced shortly after Independence in 1950/51, and it has been followed by a series of Five-Year Plans up to the very present. Prevention is better than cure — this adage is particularly significant in the context of growing industrial sickness in the country. Fundamental to the criteria used by financial institutions and government agencies to identify sickness is the recurrence of cash loss. Industrial sickness especially in small-scale Industry has been always a demerit for the Indian economy, because more and more industries like – cotton, Jute, Sugar, and Textile small steel and engineering industries are being affected by this sickness problem. Loss making industries, both in the private sector and public sector are contributing for the downfall of industrial economy.
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2. DEFINITION OF INDUSTRIAL SICKNESS
According to RBI a sick unit is that which has incurred a cash loss for 1 year and is likely to continue incurring losses for the current year as well as in the following year and the unit has an imbalance in its financial structure. According to SICA 1985 ---The sick industrial companies (Special provisions) Act, 1985, as amended in 1993 defines sick industrial company as an industrial company (being a company registered for not less than seven years) which has at the end of any financial year accumulated losses equal to or exceeding its entire networth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year. As per section 3(1) (o) of SICA, an industrial company is a sick company, when its accumulated losses are equal to or exceeding entire worth Section 3 (1) (ga) of the amendment act, 1993 defines ‗Net worth‘ as the sum of the paid-up capital and free reserves, while the term ‗free reserves‘ means all reserves credited out of the profitsand share premium account, but does not include reserve out of re-valuation of assets, write back of depreciation provisions and reserves created out of amalgamations. as per section 23 of SICA of the accumulated losses of an industrial company as at the end of any financial year have resulted in erosion of 50% or more of peak net worth of immediately preceding four financial years is considered to be a potentially sick industrial company. According to Companies Act 2002---sick industrial company means an industrial company which has 1. Accumulated losses in any financial year which are equal to 50% or more of its average net worth during four year immediately preceding such financial year 2. Fail to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor of such company.
These definitions view sickness in terms of extreme deterioration in the financial health of the unit. However, the criteria do not warn sufficiently well in advance about the impending closure of a unit. For instance, the wiping out of the entire net worth of a unit accompanied by at least two consecutive years of cash loss clearly signals extreme form of sickness which would in fact take the enterprise to the brink of closure. Similarly, severe cash losses with persistent defaults in institutional debt servicing also indicate fairly advanced stage of sickness on the part of the industrial unit, though this stagewould certainly precede the stage of complete erosion of the net worth of the unit. The criteria, in fact, delay the identification process by at least a couple of years or more
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‗Industry‘ under Industrial Disputes Act – The definition of ‗industry‘ is as follows – ‗Industry means any business, trade, und ertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft or industrial occupation or avocation of workmen. [Section 2(j)]. Thus, the definition is very wide. - - The scope is much wider than what is generally understood by the term ‗industry‘.
In Bangalore Water Supply & Sewerage Board v. Rajappa (1972 SCC 213 FLR 266 1978(2) SCR 213 1978(1) LLJ 349 AIR 1978 SC 548 (SC 7 member bench 5 v 2 judgment), a very wide interpretation to the term 'industry' was given. It was held that profit motive or a desire to generate income is not necessary. Any systematic activity organized by cooperation between employer and employees for the production and/or distribution of goods and services calculated to satisfy human wants and wishes is ‗industry‘. Thus, many hospitals, educational institutions, universities, charitable institutions and welfare organisations have got covered under the Act. Professions, clubs, cooperatives, research institutes etc. are also covered.
3. CRITERIA FOR DEFINITION OF SICK UNITS/SYMPTOMS OF SICKNESS
Actual sickness:
Erosion of net worth by 50% or more
Units being closed for a total period of six months and more during the last year
Default in the payment of loan instalments
According to Dholakia, what is needed is a comprehensive set of empirically tested criteria which would serve as an early warning system. Abnormal fluctuations in a firm's relative position within the industry to which it belongs should be explicitly used to determine sickness at the incipient stage. This is likely to help prevent industrial sickness. However, this would require restructuring of existing systems and procedures adopted by the financial institutions. Bakul H Dholakia is Professor of Economics at the Indian Institute of Management, Ahmedabad
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The Reserve Bank of India identifies sick industrial units on the basis of a mix of criteria including continued cash losses, imbalances in the financial structure,and deterioration in liquidity. "A unit may be considered sick if it has incurred cash losses for one year and, in the judgement of the Bank (RBI), it is likely to continue to incur cash losses for the current year as well as the following year and the unit has an imbalance in its financial structure such as current ratio of less than 1:1 and worsening debt equity ratio" (RBI, 1978).
Leading indicators of sickness: Just as diseases are identified by certain symptoms, industrial sickness can be identified by the following symptoms. These symptoms act as leading indicators of sickness, and if immediate remedial actions are not taken, the sickness will grow to the extent that the organization will find its natural death.Continuous reduction in turnover.Piling up of inventory. Continuous reduction of net profit to sales ratio. Short term borrowings at high interest rate.Continuous cash losses leading to erosion of tangible net worth.Default in payment of interest on borrowings and default in repayment of term loan instalments. The ‗sundry debtors‘ as well as the ‗sundry creditors‘ keep growing and reac hing a disproportionately high level.Approaching the banker for temporary over draft at frequent intervals. High turnover of personnel, especially at senior levels.Change in accounting procedure with to view to window dressing. Delay in finalization of accounts.
Timely action is required for identification of sickness. For this we need to analyze the symptoms which would help us identify the sickness of the unit. This can be traced from the signals that get displayed by the sick units. The signal may be in the form of financial distress starting with short term liquidity problems, revenue losses, operating losses and moving in the direction of over use of external credit until it reaches a stage where it is overburdened with debt and nor being able to generate sufficient funds to meet its obligations In case of large units whose shares are quoted in stock exchanges, a signal of sickness is sent when dividends are skipped and share price sharply declines. This measure, therefore, will have to be used very cautiously with other identifiable symptoms to judge whether skipping dividends indicates sickness or represents a temporary downward slide in financial performance.The existence of these signals and symptoms provides a ground for suspecting that the industrial unit concerned is prone to sickness.
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4. HISTORICAL BACKGROUND OF INDUSTRIAL SICKNESS
A. PRE INDEPENDENCE PERIOD
Before 1947, the Indian economy was predominantly agricultural in nature. The development of producers was almost negligible and was inadequate to meet the demands of the market. Only those industries survived who served the interests of the Britishers. There was dearth of private players in the market. The market was unorganized because of the reluctant attitude of the Britishers and due to lack of proper communication facility as well as the shortage of power. This issue was further aggravated with the lack of any proper bank or financial institutions to finance the industrial projects. And, if at all, any help was available from the money lenders, they charged exorbitant rates of interest along with arbitrary terms and conditions. There was also minimal intervention of the Government in the promotion of the industries. As a result, it was difficult for any trader to survive in the market on a long terms basis. Also there were no proper implementation of any policy in regard to the efforts of the Government in the revival and rehabilitation of sick industries.
B. POST INDEPENDENCE PERIOD
After the Constitution came into force, the primary aim was to convert India from a colonial country to a socialist welfare society, as envisaged in the Preamble and the Directive Principles of State Policy. The Government was prompted to go for rapid industrialization of basic and heavy industries to convert India from agricultural to industrial economy. Soon, the Government realized that a large number of units are turning sick. In order to check the growth of the sick units, the Government adopted strategies to takeover of the sick industrial units and restrict the problem if unemployment, labour unrest and social unrest. The Government also took the initiative of taking over the management of sick industrial undertakings for a brief period and returning it back to the owners once the sickness is removed. The Government in its aim of preventing the growth of sickness was given support by various agencies such as RBI, IDBI etc.
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5. SOCIAL DIMENSION OF INDUSTRIAL SICKNESS
The basic deficiency of such a system is that industrial sickness is treated as a financial problem where the concerns of labour are by and large ignored. However, the impact of industrial sickness on workers is outrageous. The immediate fallout of sickness is default in payment of dues including those of workers. As a result of accumulating losses and liquidity constraints, the workers are compelled to go through a process of "belt-tightening" and are called upon to make sacrificess in order to improve the viability and financial health of the enterprise. These sacrifices can be in the form of exemption from wage awards existing as well as prospective, non-payment of bonus, reduction in wages, postponement of annual increments, modification of service conditions, lay off without seeking court permission,retrenchment and lock out of units.
6. CAUSES OF INDUSTRIAL SICKNESS:
Prevention is better than cure‘ is the proverb that reflects the need for knowing the likely causes of industrial sickness so that one can plan to avoid the same. Just as human beings fall sick by two ways, viz., either born sick or acquiring sickness during growth, an industry can either run into trouble even during the implementation stage itself or develop sickness during its lifetime .Some industries are born sick; sickness is thrust upon some, while others become sick due to a number of causes. The general belief is that the incidence of sickness results from the changing economic factors and the external influence, which tilt the economic viability. The causes of sickness may vary from one unit to another. But the most common causes of sickness can be grouped under two heads – internal and external. In India, the Tiwari Committee in its report outlined the causes of sickness into several heads. They can be classified as:
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A. INTERNAL CAUSES
These are those factors which are within the internal control of the management. Sickness arises because of the disorder of the following concerns: Mismanagement in various functional areas of a company like finance, production, marketing and personnel; Wrong location of a unit; Overestimation of demand and wrong dividend policy; Poor implementation of projects which may be due to improper planning or managerial inefficiency; Poor inventory management in respect of finished goods as well as inputs; Unwarranted expansion and diversion of resources such as personal extravagances, excessive overheads, acquisition of unproductive fixed assets, etc.; Failure to modernise the productive apparatus, change the product mix and other elements of marketing mix to suit the changing environment; Poor labour-management relationship and associated low workers' morale and low productivity, strikes, lockouts, etc. - 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:
i. PLANNING AND MANAGEMENT CONSTRAINT
a.
Technical feasibility-- Inadequate technical know-how, locational disadvantage, outdated production process.
b. Economic Viability: High Cost of Inputs, uneconomic size of project, under estimation of financial requirements, unduly large investment in fixed assets, over-estimation of demand. c. Faculty managerial decision in the field of production,marketing etc. d. Faults at the planning and construction stage--the balance will be distributed and turn them into sick units e. Improper corporate planning of product mix,lack of co ordination and control ,resistance to change ,dispute in top management, lack of integrity in top management, managerial ineffectiveness, time and cost over-runs, Ineffective market policies may lead to piling up of inventory, which will only add to the cost of the product.
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ii. IMPLEMENTATION
a. The following are some of the problem areas in implementation stage. The promoters may not be in a position to bring in funds to the required extent in time. In general, Banks/Financial institutions, of late, insist that the promoters shall bring in their capital contribution to the project upfront before release of loan. Any delay in bringing the stipulated capital by the promoters will delay the drawal of loan, which will lead to delay in implementation. b. The loan disbursement may be delayed if the promoters are not able to comply with major terms and conditions of the loan agreement. For example, the loan agreement, inter-alia, may stipulate that collateral security to cover, say 25% of the loan amount shall be offered. The value of the property that the promoters offer as collateral security to the bank/financial institution may be short of the requirement. Or, when the value of the property meets the requirement, there may be other impediments like legal hurdles for clear, unencumbered title to the property etc. c. The cost of different components of project-cost may increase due to price escalation. The cost provided for some of the elements of project-cost might have been underestimated. It is also likely that some elements which are essential might have been left out. These factors lead to cost-overrun which may delay the project implementation. d. There may be delay in getting power connection, water connection, approval from local bodies, approval from pollution control authorities etc., which may postpone project implementation/commencement of production. e. When more than one institution are involved in funding a project, there may be delay in tying up the financial arrangements with the different institutions. This is more so when term loan and working capital loan are provided by two different institutions. The institution that is to lend working capital loan may wish to see that the project comes through successfully and reaches a ready-to-start stage before committing sanction of working capital finance. f. There is likelihood of the capital investment on the project having been fully made and the projectwaiting for sanction/release of working capital finance to commence commercial operations.Any delay in release of working capital finance due to procedural formalities involved will harm the project heavily, as the capital investment will be lying idle, without earning anyreturn. ‗Rethinking‘ of the project during the course of implementation, like changes in production process, use of alternate raw material, changes in technology etc., may hold up project implementation.
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g. Over spending on travel, entertainment and non-productive assets like guest houses, compound walls, staff quarters etc., may result in cost-overrun, which in turn may delay project implementation. h. Adverse foreign currency exchange rate fluctuations may affect projects involving imported plant and machinery and may result in cost-overrun. This is an external factor over which the management has no control. However, a prudent management can guard against adverse foreign currency movement by entering into forward contracts etc.,
iii. PROJ ECT FORMULATI ON:
Most of sickness is attributed to ill-conceived projects. A project that may, prima-facie present a rosy picture may have many hidden pitfalls. Irrational, hasty, over-optimistic decisions may result in choosing projects that may have inherent weaknesses. A project that has an inherent weakness is very unlikely to be a successful project. The existence of a few players in the chosen field who are doing well, is not always a sound proof that the project will be a success. The existing players may have their own special advantages due to which they could have overcome the hurdles and pitfalls that are present in the project. A thorough investigation of the project during the identification and formulation stage is the sinequa-non of any project proposal. ―Think before you act‖— is the proverb that is worth practising. Any amount of time and efforts spent at this stage is worth it as any hasty decision made at this stage will be very costly. External factors play a major role in project formulation stage. The present stage of and the future course of the external environment are to be carefully studied for their influence on the project. Project implementation: Delayed implementation gives a project a difficult start. Unduly long time taken for project implementation results in timeoverrun which is invariably followed by costoverrun. Cost-overrun has the ill effect of affecting the financial viability of the project since a project that is viable at a capital cost of say Rs. 100.00 lakhs may prove to be unviable when the cost raises to, say Rs. 150.00 lakhs due to cost-overrun. The problem of cost-overrun will get more compounded if the finance necessary to meet the increased cost can not be arranged in time. Any delay in arranging for the finance needed to meet the cost overrun will only further tend to increase the cost and this may land the project in trouble leading eventually to the death of the project and the project may not take off.
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iv. PRODUCTION MANAGEMENT
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 The major aspects of production that may lead to sickness are —
Increase in the cost of production
The increase in cost of production may be due to external factors like increase in the cost of raw materials, increase in the cost of consumables, power, etc., or due to internal factors like improper choice of raw material/raw material-source, wrong choice of production process etc.
Decrease in the quantity of production---
Decrease in quantity of production may be due to defects/under performance of plant and machinery, defects in production process etc.,
Quality of product not meeting the standards/customer expectation,
Producing more quantity than can be sold, leading to accumulation of stock.
Defects in quality of products may be due to defects in raw material used, or due to unsatisfactoryperformance of machinery or due to ineffective supervision.
Advent of new technology:
Inspite of the raw material, machinery and supervision being good, the advent of new technology may bring in product-obsolescence andthe product may loose customer preference. Wrong selection of site which is related to production,
Wrong demand forecasting,
Selection of inappropriate product mix
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Lack of standard research & development
Cost over-runs resulting from delays in getting licences/sanctions etc., inadequate mobilization of finance.
Financial problems right from the stage of planning and construction the stage of implementation and beyond turn them sick .
Plant and machinery
plant and machinery finally selected and installed by them turns out to be defective ,these units are bound to suffer losses and turn sick.inappropriate plant & machinery, bad maintenance of Plant & Machinery, Defective plant and machinery — lack of technical and professional skill,lack of technology,in efficient in machine,high maintenance
High wastage
Poor capacity utilization .
v. LABOUR MANAGEMENT:
Labour problem — lack of efficient labour,lack of co ordination in work,unsatisfied labour.Excessive high wage structure, inefficient handling of labour problems which resulted in strikes lock outs, excessive manpower, lack of trained/skilled component personnel.
vi. MARKETI NG MANAGEMENT
Marketing occupies an important position in the organization of any business unit. The prime objective of marketing is the satisfaction of customer‘s needs. Marketing functions include all functions necessary to satisfy the customers. Marketing includes all activities starting with
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the idea of producing a product to satisfy the needs of the consumers and ending with the satisfaction of the consumer even after the product is sold. Thus, it involves planning and producing to meet the customer needs and also servicing the customers after selling the product. In the present day situation where buyer‘s market has come to stay almost for all products, any organization that does not give due importance to marketing is bound to find its sales turnover taking a downward trend. The problem areas may be summarized as under.
Introduction of better substitute products by competitors.
Absence of product innovation and new product development.
Failure to maximize the potential of existing products.
Poor and inadequate distribution system.
Failure to meet the agreed delivery schedules.
Absence of correct costing and correct pricing system for the products
Dependence on limited number of customers,
poor sales realization,
defective pricing policy,
weak market organization,
Bad sales promotions.
wrong market research methods,
lack of market feedback and market research,
Lack of knowledge of marketing techniques.
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vii. FINANCIAL MANAGEMENT:
Finance is the lifeblood of business. It links and passes through all areas of a business unit. The problem areas may be summarized as under
Under-financing by banks and Over-financing by bank and Delay in disbursement of loans. Lack of working capital or short supply of imported raw material and lack of demand, some units are not able to produce up to their capacity and turn sick. Availability of finances, that also in time, is very important for the smooth functioning of an enterprise. But many sick units suffered from the severe problem of delay in disbursement of loans by banks and other financial institutions. Delay in detecting early symptoms of sickness and delay in decision and action to rehabilitate the unit also affected the units at their troublesome days of sickness. It is also an interesting finding where some units had expressed an external problem due to overfinancing by the banks.
The promoters might have chosen a project which is beyond their financial capacity. This often happens due to over ambitious approach of entrepreneurs. A bigger project needs a bigger investment and accordingly a higher promoter‘s contribution in absolute terms. If the promoters are not able to mobilize their contribution, with the sole idea of implementing the project, they often resort to borrowings, invariably at higher interest rates with the hope of clearing the high cost borrowings once the project takes off (a hope that rarely comes through!).
Funding a project with a higher debt component than that it can safety bear is another reason for sickness, since such projects will not be able to service the high interest charges. On the other hand, inadequate long-term debt component will also be detrimental since the project will either not take off due to the promoter‘s inability to raise the required capital or will be funded by high cost short term borrowings which is harmful.
Using short term funds for acquiring fixed assets is an area of concern. This will put the liquidity position of the business in strain when the short term obligations become due for repayment.
Improper inventory management policy will lead to holding huge stock of finished products, late realization of debts from sundry debtors, lack of proper planning to pay
P a g e | 24
to creditors of raw nmaterials, etc., which will all have telling effects on the operation of a business unit.
weak equity base, poor utilization of assets,
inefficient working capital management,
absence of costing & pricing,
absence of planning and budgeting
Inappropriate utilization or diversion of funds.
Poor resource management and financial planning,
liberal dividend policy,
application of funds for unauthorized purposes,
deficiency of funds,
over-trading,
inadequate working capital,
lack of effective collection machinery
viii. ADMI NISTRATIVE MANAGEMENT
Administration difficulties and high rate of interest for borrowed funds,
Over centralization,
P a g e | 25
Lack of professionalism,
Lack of feedback to management ( management information system),
Lack of adequate controls,
Lack of timely diversification,
Excessive expenditure on R&D,
Incompetent and dishonest management
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.
ix. PERSONAL ADMI NISTRATION
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.
The 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.
Delay in detection of early symptoms of sickness
Delay in decision and action to rehabilitate the unit.
Incompetent entrepreneur-unit set up by incompetent entrepreneur will turn sick
Faculty managerial decision in the field of production, marketing etc.
Dispute/difference of opinion among the promoters/directors.
P a g e | 26
Poor industrial relations leading to labour unrest.
Lack of motivation and co-ordination.
Lack of manpower planning.
Lack of assigning equal importance to all areas of business. It is generally observed that the main promoter takes more interest in the area of his specialisation and ignores other aspects of the business. For example, technocrat entrepreneurs, by their nature are more inclined to improving the technical aspects of the product. The result may be that the product will not be a commercial success though it may have technical excellence.
Projects that solely depend upon the skills of a key promoter may find it difficult to sail through in the event of death or ill-health of the key person.
The 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.
Sl. No.
Internal causes of sickness
No. Of respondents
Results in percentage
1.
Faulty project selection
12
24
2.
Marketing problems
10
20
3.
Financial problems
20
40
4.
Production problems
8
16
5.
Personnel problems
-
-
-
-
Others
Total
50
100
P a g e | 27
B. EXTERNAL CAUSES
These are those factors which are not within the internal control of the management. Power cut-lack of power electricity support and shortage in electricity Erratic supply of inputs---shortage of raw material, lack of transportation facility, high price Demand and credit restraints — no equal balance of demand and supply and lack of credit facility, storage expenses, chances of out of fashion Government policy — change in govt policy, lack of govt support, high authority to large unit
i. FINANCE CONSTRAINTS
The 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., unfavorable investments, fear of nationalization.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., unfavorable investments, fear of nationalization.
ii. GOVERNMENT POLI CIES
Sometimes, Government itself becomes the villain of these unfortunate sick industries. It can be proved from the Table 3 that 58.0 percent of the total sampled units suffered from redtapism by government officers (29 units). No doubt, change in government policies was also a major factor (26.0 percent) as far as industrial sickness is concerned. Delayed in payment of bills by the govt. departments also affected some of the sick units (8 percent). Change in government policies Delayed in payment of bills by the government departments Red-tapism by government officials Others. Government price controls, fiscal duties, abrupt changes in Government policies related to import export industrial licensing taxation etc., procedural delays on the part of the
P a g e | 28
financial/licensing/other controlling or regulating authorities (banks, RBI, financial institutions, Government departments, licensing authorities, MRTP Board).
Sickness made by Government:
Sl. No.
Causes of sickness
1
Change in government policies
2
Delayed in payment of bills by
No. Of respondents
Results in percentage
13
26
the govt .departments
4
8
3
Red-tapism by government officials
29
58
4
Others.
4
8
Total
50
100
The Government taking into consideration all the factors resulting into industrial sickness, accepted the recommendations of the Tiwari Committee with some modification, and thus, the Sick Industrial Companies (Special Provisions) Act, 1985 was, accordingly enacted.
iii. MARKETI NG POLI CIES
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 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.
P a g e | 29
iv. EXTRANEOUS FACTORS
Natural calamities
political situation (domestic as well as international)
War
sympathetic strike
early or late moonson
multiplicity of labour unions
Energy crisis arising out of power cuts or shortage of coal or oil;
Failure to achieve optimum capacity due to shortage of raw materials as a result of production set-backs in the supply industries,
Poor agricultural output because of natural reasons
Changes in the import conditions
Infrastructural problems like transport bottlenecks
Credit squeeze
Large number of industrial units is facing power cut problems time to time.
Some industrial unit depends on scarce raw material whose supply is erratic.
Recession in the market causes a steep decline in the demand resulting in unsold stocks and losses to industrial units.
Changes in technology
International pressures or circumstances, etc.
Fault at the planning and construction stage —
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Wrong location area
Absence of market analysis,
Unbalance capital structure.
Financial problem — unable to repay payment
Lack of supportfrom bank and institution,
Entrepreneurial incompetence — lack of knowledge of market, lack of efficient professional skill,lack of innovation
Infrastructural bottlenecks – Non-availability/irregular supply of critical raw materials or other inputs, chronic power shortage, transport bottlenecks.
Management problem-inefficiency of management function,lack of expert opinion
External problems
Sl. No.
External problems
1
Raw-materials
2
No. Of respondents
Results in percentage
8
16
Power
19
38
3
Marketing
14
28
4
Labour
-
-
5
Finance
9
18
6
Others
-
-
Total
50
100
P a g e | 31
Sector-wise Analysis of Causes of Sickness
S No.
. Causes
Private Sector
(1)
No. (2)
Joint Sector % (3)
No. (4)
% (5)
Total No. (6)
% (7)
A. Internal Causes 1. Management Related Deficiencies (a) Managerial
371
79.10
52
66.67
423
77.33
(b) Production
315
67.16
52
66.66
367
67.09
(c) Financial
300
63.97
53
67.95
353
64.53
(d) Marketing
216
46.06
35
44.87
251
45.88
2. Labour & Industrial Relations
257
54.80
23
29.49
280
51.19
196
41.79
42
53.84
238
43.51
1. Infrastructural Constraints 183
39.02
38
48.72
221
40.40
2. Raw Material Problems
169
36.03
33
42.31
202
36.93
3. Market constraints
202
43.07
28
35.90
230
42.05
24.09
28
35.90
141
25.78
9.17
11
14.10
54
9.87
3. Cost-Overruns Project Planning & Implementation B. External Causes
4. Government controls & policies 5. Other Extraneous factors
113
43
Note: i) Number of companies are those which were affected by the particular clause. ii) The percentages in column (3), (5) and (7) are calculated with respect to the total number of cases in each case i.e. 469, 78 and 547 respectively.
P a g e | 32
7. EFFECT OF SICKNESS
A sick industrial unit is like a patient at home. A patient ,in addition to suffering from ailment himself causes inconvenience to others and often , spells ruin to the family particularly when the treatment is prolonged and expensive. A sick unit too will have serious repercussions on the economy as a whole,besides adversely affecting the interest of people directly connected with it. Impact of sickness on economy is easy to guess. In the first place sickness contributes to high cost economy.thus,in turn,will affect the competetiveness of the economy at home and abroad.. Secondly industrial sickness is mainly the problem of 88% terminally sick units,investment in which is completely dead. Dead investment is a burden on both banks and budget and ultimately consumers have to pay the high cost. Thirdly,persistent nature of the industrial sickness,especially when policies do not allow flexibility for exit and other forms of adjustment,not only tends to restrict new employment opportunities but also constrict technological innovation,thus keeping the formal sector employment stagnant. Unvialble units remain closed and employment in these units,in effect,is disguised unemployment. Finally industrial sickness worsens the problem of stringency of financial resources in the economy. Money locked up in sick units gives no returns and affects availability of resources to other viable units. This also increases the non-performing assets (NPAs) of banks and financial institutions;
The continued operation of chronic loss making firms snatches markets from more efficient producers and acts as a drain on the financial system. Besides, the huge amount of capital, running into many thousands of crores, which is invested in sick units, is being wasted which a capital scare country like ours can ill-afford.
It leads to loss of substantial revenue to the Government and enhances its public expenditure;
It leads to loss of production and productivity in the economy;
P a g e | 33
It vitiates the industrial disputes,strikes,lock-outs,etc;
atmosphere
and
leads
to
worker-management
It undermines the public confidence in the functioning of the organised sector in the country which in turn affects the overall investment climate of the economy.
Set back to a employment prospects — lack of opportunity,lack labour intensive,high unsatisfaction rate
Fear of industrial unrest---high unemployment rate,low productivity,unfavour of trade union Wastage of resources---lack of infrastructure facilities,block of capital equipment
Adverse impact on related units — channel breakdown between industries
Adverse effect on investor and employment ---low satisfaction of investor,negativeeffect on the same line entrepreneur,effect on the growth rate of industry
Losses to bank and financial institution---low recovery rate of bank and financial institutions,loss image in the market,lack of financial support for the new industries
Loss of revenue to govt — loss of income to govt,loss of govt.
8. REMEDIES
A. ROLE OF GOVERNMENT
In a developing country like India, the Government is often a dominant stakeholder even in privately owned enterprises. The various tax relief and subsidies it provides its ownership or control of the institutions that finances organisations, its enterprises related policies stemming from its overriding concern with industrial development, etc. make it a major stakeholder even in minor enterprises. Its actions often affect the health of whole industries. New units come up through appropriate policies, tax incentives, subsidies, infrastructural facilities, etc. and they also disappear or get sick like a simple magic. The policies of financial and
P a g e | 34
infrastructural support provided or withheld by the government is a determinant of health and sickness of many an industrial unit. Frequent changes in Government policies need to be avoided to reduce industrial sickness.
The Government can play a crucial role by ensuring adequate supply of power, transport and raw materials and taking care that its policies formulated to achieve certain social objectives do not affect the industrial units. The possibilities of creating a fund for the purpose need to be exposed.
B. STEPS TAKEN
BY GOVERNMENT
The Government taking into consideration all the factors resulting into industrial sickness, accepted the recommendations of the Tiwari Committee with some modification, and thus, the Sick Industrial Companies (Special Provisions) Act, 1985 was, accordingly enacted.
C. GOVERNMENT POLI CIES
Government policy on industrial sickness: In the light of the above consequences of sickness and its growing incidence by size, region and industry followed by its far-reaching adverse socio-economic effects, the Government has been taking many steps and remedial measures in order to tackle this problem in India. The govt. Announced its policy on industrial sickness on may 15,1978. The salient featurs of the policy are as follows.
Special cell on sick units in the RBI should be formed to monitor to the performance of sick units and to suggest corrective measures in regard to the rehabilitation of sick units. Similarly regional monitoring cells have to be formed with experienced and qualified staff to give counselling assistance to agencies financing small scale units.
The financial institututions should jointly set up a group of professional directors to become ful time employees of theinstitution and who could be nominated on the board of directors the companies with doubtful management competence or integrity.
P a g e | 35
In case the management is incompetent or it has indulged in malpractices , the financial assistance will not be provided to it unit the management is changed.
The govt should set up a Screening Committee under the chairmanship of the secretary (industrial development) to make recommendations relating to the take over of the management of a sick undertaking.
After take over of the management, the unit could be sold as a running concern or alternatively, a reconstruction of the undertaking could also be done. Such reconstruction will include writing down the share values, conversion of loans to equity, acquisition of shares by the govt.,constitution of a new board of directors. Etc.the main thrust of the policy is to reduce the incidence of sickness in industry and also dishonest management.
Sick units in the small sector are to be given special attention . state financial corporations and commercial banks will devise a scheme for revival and rehabilitation of the sick units in small scale sector . besides th egovt. And other purchasers of the products of small scale industry should be directed to settle these due on a priority basis.
It was announce don sept 23 1990, that a decision has been taken to sell some of the public sector undertakings to the private sector. Many of them were taken over by the govt as they had fallen sick under private management. Since the govt hasfailed to revive these units it is felt that they should be sold back to the private sector. Another significant measure has been the enactment of the Sick Industrial Companies (Special Provisions) Act,1985 (SICA) which is discussed in detail later.
Policy frame work of the govt -
According the guideline that are lying on the- according the guideline that are lying on theoctober 1981 that monitor the sickness of october 1981 that monitor the sickness of industry .industry .- swot analysis of industry- swot analysis of industry- liberalization on sick industries- liberalization on sick industry Consessions by government giving high facilities to large industry who take- giving high facilities to large industry who takeover the small sector for revivalover the small sector for revival- high liberalizations in terms of financial rather - high liberalizations in terms of financial rather than intervention.than intervention.
P a g e | 36
-Introduce the scheme for sick industryIntroduce the scheme for sick industry.
Steps for detecting sickness earlySteps for detecting sickness early corrective action taken by the RBI- corrective action take
The industrial investment bank of indiaThe The industrial investment bank of India
Set up the IRCI (industrial reconstructionset up the IRCI (industrial reconstructioncorporation of india.)Corporation of india.)- convert IRCI into IRBI in March 20 ,1985- convert IRCI into IRBI in March 20 ,1985- convert IRBI into IIBI in march 27, 1997- convert IRBI into IIBI
D. ROLE OF BANK AND OTHER FINANCIAL I NSTITUTIONS
The steps to be taken to rehabilitate sick units are far more important than the establishment of units. In this context, banks and other institutions must play a significant role. In fact, the funds already invested in sick units can be realized if these units are revived. If they are not rehabilitated, then they may sink and have to be closed down. In these regards, the following steps gather immense importance:
Banks and other financial institutions must undertake a careful project appraisal before assisting an industrial unit. At the same time, financial transactions of their clients must be closely monitored by sending questions and information instead of just receiving periodical but out dated returns from them.
Banks must supervise the assisted units relating to debit and credit balances, forwarding and b made to sister concerns, relatives etc.
One or two staff members of the banks and other financial institutions must be always in charge of periodical inspection of the assisted units so as to ensure its efficiency and proper review of production schedules, stock of raw materials and finished goods.
P a g e | 37
Any sort of discrepancies in collecting information or from the unit should not be tolerated. The service of efficient financial analysts must be available to each bank branch at short notice.
As a general rule, banks and other financial institution must nominate directors in the industrial units, more particularly those which are likely to detect sickness.
Utmost care must be taken in financing stocks of raw-materials and finished goods which are often affected by sharp price fluctuations.
In case of overdrawing, the assisted firms needs to be suggested about its underlying problemsand should also be ensured that remedial measures are initiated.
Banks needs to be extra careful when they have to provide large funds to neglect and priority sectors. Such lending should not be at the cost of financial prudence (Simha, S.L.N.: 1978).
Steps taken by banks
giving adequate working capital when there is a-shortage.shortage.
recovery of interest reduced rate- recovery of interest reduced rate
defining the special cell in the RBI-arrange the special committee of state level in the local branch for link between financial institution and govt agency
P a g e | 38
Problems relating to banks and other financial institutions:
Sl. No.
Causes of sickness
No. Of respondents
Results in percentage
1
Under-financing by banks
8
16
2
Over-financing by banks
4
8
3
Delay in disbursement of loans
19
38
4
Delay in detection of early 10
20
9
18
Others.
-
-
Total
50
symptoms of sickness 5
Delay in decision and action to rehabilitate the unit.
100
E. ROLE OF PROF ESSIONALS
Professionals such as financial analysts, project coordinators, accountants etc. has a big role to play in checking and signaling the industrial sickness through continuous study adopting different models for forecasting of sickness. It sh uld be the joint efforts of accountants, engineers, marketing personnels and production people to avoid sickness and even if so happens, for revival of sick units.
But in a small state, small entrepreneurs cannot bear the cost of such professionals. In order to overcome such a problem, the state government should make a provision to establish consultancy cells in banks, other financial institutions, District Industry Centres and other Government Departments, Management Convergence consisting of professional in different fields of industrial operations. This will help in smooth functioning of industrial units and at the same time, helps in preventing and revival of the sicks unit by closely monitoring the implementation of rehabilitation package.
P a g e | 39
F . ROLE OF ENTREPRENEUR
To conclude, the role of the concerned entrepreneur is very important as far as to avoid industrial sickness. It is the sole responsibility of the concerned entrepreneur to avert sickness in the unit set up by him.
This can be possible if the entrepreneur does his job properly while preparing his project work, if he understands and pays adequate attention to the deficiencies pointed out by the aspiring officials of the banks and other financial institutions, if he selects the required capital goods carefully, if he appoints only the efficient and required number of worker in time, if he implements his project within his estimated cost and as per time schedule
G. OTHER REMEDI ES
Beside these steps Major reasons for industrial sickness can be prevented if we ensure:
That the project is viable.
That the approved and clearances for finance and the assistance are available in time under simplified procedures and one windows service.
That there is no delay in clearance for importing capital goods and raw materials.
That the project is implemented and commenced as per schedule. That the action to modify the product mix is in time if there are changes in the marketdemand.
That there is uninterrupted power supply for the industrial purpose.
That the entrepreneurs are sincere, efficient and accountable and at the same time, punishment must be awarded for delay, negligence, mismanagement of mis-utilization of funds.
P a g e | 40
That only the required number of manpower is recruited based on efficiency, skill and competency.
That there are healthy and cordial labour relations.
Last, but not the least, there is effective systems and controls at all levels of operations.
The following assistances and incentives will be very helpful in preventing the industrial sickness What steps should a company and all concerned with it Government, management and bank should take to revive a sick undertaking. A comprehensive study of the undertaking problems and preparing a composite plan of action must be the starting point of the exercise. Piecemeal and adhoc solutions are rarely adequate. What is needed is a detailed assessment of the comp~ny's existing situation and future prospects covering corporate strategy, Investment, markets, organisation, productivity, labour relations, profitability and finance. An undertaking is ostensibly sick because it is short of working capital and systems have not kept pace with its growth, therefore receiving funds alone will not help. Fortunately, revival is possible in a majority of cases, if timely action is taken and revival programme is implemented with sincerity and commitment . The old Jute mills and textile mills became sick because they were not modernized, technology were not upgraded. Due to rising costs, the operations of these units became unviable. Eventually, the units became sick. Some of the blue chip companies of today are sick units of yesteryear. Take the case of Goldline. now better known as LG. At one point of time everyone wrote off the company and but thanks to revival efforts of new management LG not only recovered from sickness but grew in a spectacular way. At one stage, Apollo Tyre, Tata Tea HMV etc. were among the sick units. But the Management did not lose heart. They revived them with a clear vision and suitable st(ategies. Unfortunately managements of several undertaking think wrongly that once they get funds, the undertaking can be revived. However, as mentioned in the beginning, providing funds, without attending to the underlying causes of sickness could be throwing money into a bottomless pit. From . the long list of possible causes of sickness it will be apparent that thesingle most important cause of sickness is ineffective management. Well managed undertaking can even overcome and deal effectively with difficulties which are due to external factors such as poor demand for the industry's products. Therefore what a sick undertaking needs more than anything else or its revival is a good and stable management. In particular, the undertaking should ensure that it has the full time chief executive. Also the other key posts such as Finance Director and Heads of other functions or division should be properly manned. There is unfortunately inadequate mobility of Managers in our country. Therefore where there are inadequacies in managerial
P a g e | 41
talent attracting good people from outsid~ to a sick undertaking is difficult. However, this is a problem which has to be faced. Some people may be attracted by the challenge which the sick units provide. Management is one area where a sick undertaking should not try to economise. The Board of Directors of Indian Public undertakings are amongst the most ineffective in this area. This is in many cases due to fact that they have part time ex-office Directors nominated by the State or Central Govt. They devote more time te their regular duties and a very little time, if at all, on policy matters of the undertakings. The need for an effective Board is particularly strong when the undertaking is in poor health . An other important consideration which arises is how does Government maintain take control over management of undertaking which has been financed largely by it to which several concessions in the form of interest reduction, conversion of debt into equity etc. As mentioned above, direct involvement by the Government in the manage- . ment of undertaking is not desirable mainly because they do not have capabilities in industrial management. Some financial institutions have worked towards building up a pool of senior Managers on their payroll who could be assigned to sick undertaking for limited periods of say I to 3 years. This is easy to achieve. Probably the best way to ensure control is through control over equity share holding, constitution of the board and leaving .the actual management to carefully chosen professional managers who are both competent and independent. A sick undertaking like a sick patient needs quick action to restore its health. Every day of delayed action means loss of contribution, increase in cash losses, interest, loss of credibility with suppliers and customers and lowering of staff morale. Once a detailed and comprehensive plan of action has been prepared and viability of the unit established, early action by all concerned is imperative. In practice one finds numerous delays which can be attributed to principal shareholders, Banks, Management, Government and labour. The delays in obtaining funds from Banks and Financial institutions need particular mention because it is funds that the undertaking needs more than anything else, at least in the short term. However, the management (including the Board) of undertaking are perhaps even more to blame because they have often not prepared a comprehensive plan of action. Also the boards of directors and Government are found to pay scant attention ·to the manning of top management posts. The banks being business institutions, therefore do not know how precisely they are going to revive the undertaking and improve its ability to repay loans and keep up with interest payments.
When an undertaking becomes sick, several agencies are involved in the revival exercise, Central or State Govt. as the case may be, Board of Directors, Managements, Banks, Financial institutions and labour unions. To get them all to act fast in the interests of the undertaking is not an easy task but it is nevertheless essential to prevent the situation from deteriorating. Skilful financial management during sickness is important and there may be need for reconstruction of capital. The comprehensive study discussed earlier should culminate in short term and long term cash projections and once they are reviewed and
P a g e | 42
accepted, actual performance would need to be carefully monitored. A Financial reorganisation may involve some sacrifices by the creditors and shareholders of the undertaking which can be in several forms:
Reduction of the par value of shares.
Reduction in rates of interest.
Postponement of maturity of debt
Conversion of debt into equity.
Change in the nature of claim or obligation such as from secured to unsecured.
Concession by the Government in the form of reduction or waiving of indirect taxes, electricity dues etc.
While sickness among companies in private and public sector has become wide spread, regretfully it is stated that enough research has not been done in developing schemes of financial reconstruction in the Indian environment. Needless to add that the academic and professional institutes could play useful role in this regard. A great deal more is required to be done to revive sick undertaking than is being done today, in particular one could be more systematic about it and act faster. However, in an extreme case, if viability can not be clearly established, a sick undertaking should be allowed to die peacefully
9. DEALING WITH INDUSTRIAL SICKNESS:
During the past few years, sickness in industries has become a very thought provoking and obvious offshoot of the modern jet age industrial society. It is, however, not a very recent phenomenon and certainly not peculiar only to India. It has become all pervading, touching all countries. But its recent growth and magnitude, recently, is so rapid that it has assumed unmanageable proportions in India in general and in Manipur in particular. It is a continuous process and painful reality of rapid industrialization which starts right from the very beginning of industrialization. The question, now, is how to safeguard properly and utilize effectively the sunken capital of the public and the private institutions in sick units.88
P a g e | 43
Management Convergence It is nothing but a choice between opportunity cost for nursing sick units and closure of a large number of sick units thereby resulting into social lost of the economy and a dampening effect on the new ventures in Manipur. One of the important reasons why the process of restructuring is prolonged and industrial sickness is allowed to continue is because closure of establishments entails retrenchment of workers. In an economy where output is growing along with employment the process of restructuring is less painful. However, in the event of a slow down in growth of industrial output and contraction of job opportunities, restructuring of the workforce imposes severe hardships on labour. This is true in the present Indian context. The basic problem of evolving an adequate safety net for workers undergoing transition due to economic restructuring is the funding of such a scheme. If the workers have to be separated, the cost of separation should be balanced against the cost of retaining the workers without much addition to production. Any revised proposal for the voluntary retirement scheme or introduction of a separation scheme should be viewed in the light of the absence of a social security net for workers, specially when they voluntarily opt out of employment or are statutorily retrenched. One of the useful ways of dealing with the problem of industrial sickness is to provide the pre-requisites for growth of production and productivity. Industrial sickness is itself a fallout of policy restrictions on companies in various matters including that of restructuring its labour force. Labour in excess of requirements results in reduced productivity. Wage increases are given to permanent labour whose wages do not reflect their productivity and whose number cannot be reduced. With legal restrictions on adjusting manpower and given rigidity of wages, employers are forced into labour saving and capital intensive technology. There is a viewpoint that the mismatch between wage and productivity in the organised sector is one of the important reasons for industrial sickness, lack of competitive edge, loss of business, slowdown in exports and adoption of labour saving devices resulting in "jobless growth". Therefore, adequate measures should be taken to increase production and productivity so that there would not only be an expansion of employment opportunities but the real wages would also grow in a sustained manner along with industrial growth. The unions and the management should share their experience regarding workers' participation in management, investment in HRD, adoption of new management practices as a means of avoidance of wastage and leakage of resources and optimal harnessing of scarce resources. The need of the hour is to evolve new methods of restructuring without tears, efforts to take workers into confidence about the restructuring plans and their results, features of innovative incentive schemes which have helped the worker to identify himself/herself with the establishment and share its goals and visions. These efforts will surely lead to increase production and productivity which is the final solution to industrial sickness.
P a g e | 44
Trends in Industrial Sickness during 1980-1991
Year .. (1)
SSI (2)
1980
22325
389
22714
292.80
1232.70
1525.50
(98.29)
(1.71)
(100)
(19.19)
(80.80)
(100)
22360
422
22782
321.82
1453.29
1775.11
(98.15)
(1.85)
(100)
(18.13)
(81.87)
(100)
26973
439
27412
393.67
1728.40
2122.07
(98.40)
(1.60)
(100)
(18.55)
(81.45)
(100)
64388
463
64851
626.52
1913.12
539.62
(99.29)
(0.71)
(100)
(24.67)
(75.33)
(100)
81647
513
82160
788.30
2112.44
2900.74
(99.38)
(0.62)
(100)
(27.18)
(72.82)
(100)
97890
597
98487
954.65
2655.39
3610.04
(99.39)
(0.61)
(100)
(26.44)
(73.56)
(100)
128687
689
129376
1184.22
3238.64
4422.86
(99.47)
(0.53)
(100)
(26.77)
(73.23)
(100)
158226
1057
159283
1542.25
2680.44
4222.69
(99.34)
(0.66)
(100)
(36.52)
(63.48)
(100)
217436
1172
218608
1979.85
3025.88
5005.73
(99.46)
(0.54)
(100)
(39.55)
(60.45)
(100)
186441
1419
187860
2243.31
4257.83
6501.14
(99.24)
(0.76)
(100)
(34.51)
(65.49)
(100)
1981
1982
1983
1984
1985
1986
1987
1988
1989
Number of Units Non-SSI Total (3) (4)
(Amount in Rs. crores) Outstanding Bank Credit SSI Non-SSI Total (5) (6) (7)
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1990
1991
225324
1467
226791
2610.87
4734.27
7345.14
(99.35)
(0.65)
(100)
(35.55)
(64.45)
(100)
221472
146
22293
2792.04
5105.57
7897.61
(99.34)
(0.66)
(100)
(35.35)
(64.65)
(100)
Source: Reserve Bank of India, Report on Currency and Finance, various issues. Note: (1) Figures for the years 1980 to 1988 refer to the position at the end of June of the corresponding years. (2) Figures for the years 1989 and 1990 refer to the position at the end of September of the corresponding year. (3) Figures for the year 1991 refer to the position at the end of March 1991. (4) SSI stands for Small Scale Industries.
10. SUGGESSTIONS:
At the very outset, it has to be said that a strong determination is needed for dealing with the disease of industrial sickness. Otherwise, the same disease is definitely bound to spread to the whole industrial sector. In a state like Manipur where resources are very scarce, every effort should be made for its maximum utilization and the question of resources being kept idle and unproductive should not be tolerated. Otherwise, the ever increasing incidence of industrial sickness may threaten the whole socio- economic setup of the state in particular and the country in general. The following suggestions are made to prevent and avoid industrial sickness in Manipur.
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CHAPTER II
SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985
SYNOPSYS 1. INTRODUCTION 2. OBJECTIVES OF THE ACT 3. STATEMENT OF OBJECTS AND REASONS 4. APPLICABILITY 5. SICK INDUSTRIAL UNIT 6. POTENTIALLY SICK UNIT 7. SALIENT FEATURES OF THE ACT 8. GENISIS OF SICA, 1985 9. CRITERIA TO FALL UNDER THE PERVIEW OF SICA 10. IMPORTANT PROVISIONS OF SICA 11. PROCEDURE OF THE BOARD AND THE APPELLATE AUTHORITY 12. DRAWBACKS OF SICA a) POOR ENFORCEMENT MECHANISM b) MISUSE OF PROTECTION AGAINST RECOVERY PROCEEDINGS c) LACK OF EXTRA TERRITORIAL JURISDICTION PARADIGM OF NON OBSTANTE CLAUSE IN SICA 13. DOUBLE WINDOW SYSTEM: 14. OMKAR GOSWAMI COMMITEE REPORT 15. JUSTICE ERADI COMMITTEE REPORT ON INSOLVENCY 16. IMPORTANCE OF SICA IN INDUSTRIAL SICKNESS 17. SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) REPEAL ACT,2003 18. CASE STUDY (7) 19. CONCLUSION
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1.INTRODUCTION
The problem of Industrial sickness is nothing peculiar to our country or any developing Country. It is also present in the advanced Countries but there it is considered prudent to shut down the units if they are sick. But in developing Countries like India, one can not afford to do so as it will lead to substantial national block capital to go waste and create unemployment of those already employed when additional employment is a crying need of the hour. Even not so fit or unfit industries may have to be rendered a helping hand raise and stand on their own to avoid wastage or total loss of funds and other resources already invested therein. Therefore looking after all these repercussions the Legislature has been instrumental in enacting laws. In the wake of sickness in the country‘s industrial climate prevailing in the eighties, the Government of India set up in 1 981, a Committee of Experts under the Chairmanship of Shri T.Tiwari to examine the legal and other difficulties faced by banks and financial institution in rehabilitation of sick industries and recommend suitable remedies including changes required in existing laws therefore. Based on the recommendations of the Committee, the Government of India enacted a special legislation namely, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) commonly known as the SICA (hereinafter referred as SICA). The Act came into force with effect from May 15,1987
SICA was further amended in 1991 to bring government companies under its purview and again in 1993 certain changes were brought out in the act for the determination of industrial sickness. Hence, in short, we can say that the main objective of SICA is to determine sickness, expedite the revival of potentially viable units and effect closure of unviable units.
2. OBJECTIVES OF THE ACT
The main objective of SICA is to determine sickness and expedite the revival of potentially viable units or closure of unviable units (unit here in refers to a Sick Industrial Company). It was expected that by revival, idle investments in sick units will become productive and by closure, the
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locked up investments in unviable units would get released for productive use elsewhere. The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called the Act) was enacted with a view to securing the timely detection of sick and potential sick companies owning industrial undertakings, the speedy determination by a body of experts of the preventive, ameliorative, remedial and other measure which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. To evaluate the techno-economic viability of sick industrial companies with a view to either 1. to rehabilitate them, if the public interest so demanded and their rehabilitation was possible, or to close them down, if continuing them would be impossible. To stop continued drain of public and private resources for the overall economy of the 2. country. To protect employment as far as possible.
3.
In the case of Testeels Limited & Arvindbhai N. Talti vs. Radhaben Ranchhodlal Charitable Trust & Testeels Limited , it was held that SICA had been enacted to safeguard the economy o the country and protect the viable sick units.
The measures are mainly: a) legal b) financial restructuring c) managerial. The objectives of this Act (SICA) as incorporated in its preamble, emphasises thefollowing points:
The SICA had been enacted in the public interest to deal with the problems of industrial sickness with regard to the crucial sectors where public money is lockedup.
The proper management by change in or take over of the management of the company;
The amalgamation of the sick industrial company.
The sale or lease of a part or whole of the sick industrial company;
Such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above.
The supreme court has very explicitly explained the objective of this legislation in the case of Navnit R. Kamani (1989) stating that the legislation had been enated with the end in view to:
Afford maximum protection of employment
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Optimize the use of the funds
Salvaging the production assets
Realising the amounts due to the banks and
To replace the existing time consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts.
3. STATEMENT OF OBJECTS AND REASONS
The ill-effect of sickness in industrial companies, such as loss of production , loss of employment, loss of revenue to the central and state govt. And locking up of investible funds of bnks and the financial institutions are of serious concern to the govt. And society at large. The concern of the govt is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognised that in order to fully utilize the productive industrial assets, afford maximum protection of employment and optimize the use of funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the such potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realize the amounts due to the banks and financial institutions, to the extent possible rom the non viable sick industrial companies through liquidation of those companies. It has been the experience that the existing industrial arrangements and procedures for rvival and rehabilitation of potentially viable sick industrial companies are both inadequate and time consuming. A multiplicity of laws and agencies makes the adoption of a co ordinate approach for dealing with sick industrial companies difficult. A need has, therefore been felt to anact, in public interest, a legislation to provide for timely detection of sickness in industrial companies and for expeditions determination by a body o experts of the preventive, ameliorative, remedial and other measures that would need to be adopted with respect to such companiesand for enforcement of the measures considered appropriate with utmost practicable dispatch. Industrial companies (special provisions)act, had been enacted to safeguard the economy of the nation and to protect viable sick units. It is aimed at reviving and rehabilitating sick industries.
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4.APPLICABILITY
SICA applies to companies both in public and private sectors owning industrial undertakings:(a) pertaining to industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, (IDR Act) except the industries relating to ships and other vessels drawn by power and; (b) Not being "small scale industrial undertakings or ancillary industrial undertakings" as defined in Section 3(j) of the IDR Act. (c) The criteria to determine sickness in an industrial company are (i) the accumulated losses o the company to be equal to or more than its net worth i.e. its paid up capital plus its free reserves (ii) the company should have completed five years after incorporation under the Companies Act, 1956 (iii) it should have 50 or more workers on any day of the 12 months precedin g the end of the financial year with reference to which sickness is claimed. (iv) it should have a factory license. Central Government had amended Companies Act through the Companies (second amendment) Act 2002 inserting part VI A comprising of sections 424A to 424L dealing with revival and rehabilitation of Sick Industrial Companies. Subsequently, Sick Industrial Companies (special provisions) Repeal Act, 2003 was enacted to repeal Sick Industrial Companies (special provisions) Act, 1985. Main object of Second Amendment Act, 2002 was the constitution of the National Company Appellate Tribunal. However, the constitutionality of the tribunal challenged in various courts and recently in the case of Union of India v. R. Gandhi 1has held that the issues with regard to the constitution of the Tribunal and the areas of their jurisdiction need to be given fresh look and the matter deserves to be heard by constitution Bench. The matter has been decided by the Supreme Court upholding the validity of the NCLT.2 The main issue is not whether judicial functions can be transferred from courts to Tribunals, The issue is whether judicial functions can be transferred to Tribunals manned by persons who are not suitable or qualified or competent to discharge such judicial powers or whose independence is suspect. Supreme court has answered this issue in partly positive and partly negative Supreme Court has uphold the decision of High Court that the creation of National Company Law Tribunal and National Company Law Appellate Tribunal and vesting in them, the powers and jurisdiction exercised by the High Court in regard to company law matters, are not unconstitutional.. Supreme Court has also said that Parts 1B and 1C of the Act as presently structured are unconstitutional for the reasons stated in the preceding para. However, Parts IB and IC of the Act may be made operational by making suitable amendments, as indicated above, in addition to what the Union Government has already agreed in pursuance of the impugned order of the High Court.3 As long as the tribunal is not constituted, the Board for the Industrial and financial Reconstruction as well as Appellate Authority for Industrial and financial reconstruction continues to function in dealing with Sick Industrial Companies SICA, 1985. Act was also amended through this Act
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inserting two provisos in Section 15 which restrain certain companies from making reference to BIFR and in certain cases empower creditors to move against a company whose reference to BIFR and in certain cases empowers creditors to move against company whose reference is already registered with BIFR. The institution of BIFR has hardly satisfied the call for revival and rehabilitation of sick industrial undertakings and SICA has proved to be a complete failure. The lenders i.e. the banks and financial institutions, find SICA to be the biggest obstacle on their road map to recovery of dues. The existing legal framework of corporate insolvency faces several follies, which may be rectified once the proposed amendments are notified in the Official Gazette.
5.SICK INDUSTRIAL UNIT
Sick industrial unit is defined as a unit or a company (having been in existence for not less than five years) which is found at the end of any financial year to have incurred accumulated losses equal to or exceeding its entire net worth. Accordingly, criteria to determine sickness in an industrial company are :–
the accumulated losses of the company to be equal to or more than its net worth; i.e., its paid-up capital plus its free reserves
the company should have completed five years after incorporation under the Companies Act, 195
it should have 50 or more workers on any day of the 12 months preceding the end of the financial year with reference to which sickness is claimed.
it should have a factory licence.
The net worth is calculated as sum total of paid-up capital and free reserves of a company less the provisions and expenses, as may be prescribed.
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6.POTENTIALLY SICK UNIT
An industrial unit is also regarded as potentially sick or weak unit if at the end of any financial year, it has accumulated losses equal to or exceeding 50 per cent of its average net worth in the immediately preceding four financial years and has failed to repay debts to its creditor(s) in three consecutive quarters on demand made in writing for such repayment.
7.SALIENT FEATURES OF THE ACT
Application of the legislation to the industries specified in the First Schedule to the Industries(Development and regulation) Act, 1951, with the initial exception of the scheduled industry relating to ships and other vessels drawn by power, which may however be brought within the ambit of the legislation in due course. Identification of sickness in industrial company, registered for not less than seven years, on the basis of the symptomatic indices of cash losses for two consecutive financial years and accumulated loses equalling or exceeding the net worth of the company as at the end of the second financial year. The onus of reporting sickness and impending sickness at the stage of erosion of 50%, or more o the net worth of an industrial company is being laid to the board of directors of such company; where the central Government or the Resserve Bank is satisfied that an industrial company has become sick,it may make a reference to the Board; likewise if any state government ,scheduled bank or public financial institution having an interest in an industrial company is satisfied that the industrial company has become sick, it may also make a reference to the Board. Establishment of board consisting of experts in various relevant fields with powers to enquire into and determine the incidence of sickness in industrial companies and devise suitable remedial measures through appropriate schemes or other proposals and for proper implementation thereof; Constitution of an Appelate Authority consisting of persons who are or have been Supreme Court Judges, Senior High Court judges and secretariesn to the govtof india , etc. For hearing appeals against the orders of the board.
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8. GENISIS OF SICA, 1985
Industrial sickness had started right from the pre-Independence days. Government had earlier tr counter the sickness with some ad-hoc measures. Nationalisation of Banks and certain other me provided some temporary relief. RBI monitored the industrial sickness. A study group, came known as Tandon Committee was appointed by RBI in 1975. In 1976, H.N. Ray committe appointed. In 1981, Tiwari Committee was appointed to suggest a comprehensive special legis designed to deal with the problem of sickness laying down its basic objectives and parameters, re necessary for revival of sick Units. The committee submitted its report to the Govt. in September 1983 and suggested the following:
Need for a special legislation
Need for setting up of exclusive quasi-judicial body.
Thus the SICA came into existence in 1985 and BIFR started functioning from 1987.
9. CRITERIA TO FALL UNDER THE PERVIEW OF SICA
A company should be engaged in any scheduled industry (i.e any industry specified in First Schedule to Industries (Development and Regulation) Act, 1951.
Scheduled industries include metallurgical industries, telecommunication, transportation, chemicals, textiles but not financial services and software technology.
Criteria of ‗sickness‘ – Such company should have at the end of any financial year accumulated losses equal to or exceeding its entire net worth.
Government companies having State or Central Government share holdings of 51% or more are kept outside the purview of the Act. Also small scale industrial units and Ancillary units are kept outside the purview of the Act.
The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA henceforth) came
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into force in 1987. The law applies to both public and private companies which have been registered for at least five years, employ at least 50 workers and do not belong to the small scale or ancillary sector. Any such company is declared sick if its accumulated losses exceed its net worth position.
10. IMPORTANT PROVISIONS OF SICA
Under the provisions of section 23 of SICA, potential sickness is reached when at the end of a given financial year of a company, 50% or more of the company‘s peak net worth during the immediately preceding four financial years gets eroded. It is mandatory for the Board of Directors of the sick company to file reference under Section 15 of SICA on erosion of entire net worth of the company. Once a reference is filed, the Board for Industrial and Financial Reconstruction (BIFR / Board) is empowered to make enquiry to examine the sickness status of the company. The Board is empowered, if it so desires, to appoint one or more persons as a special director(s). Upon inquiry once the BIFR comes to the conclusion that the referrer is a sick Industrial company, the Board has to take a view as to whether it is practicable for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time on its own or, if it is, not so or it is of the opinion that it is expedient in public interest to adopt all or any of the measures provided in section 18 of the SICA, it can appoint an operating agency to formulate a scheme for revival of the company (reference, section 17, sub-sections (2) and (3)). If the BIFR passes an order under Section 17(3), then an operating agency is required to prepare a scheme ordinarily within a period of 90 days. Such a scheme can provide for measures which are necessarily broad and wide as contained in clauses (a) to (f) of sub-section (1) or section 18. In addition, the scheme prepared by the operating agency can also provide for various measures as delineated in clauses (a) to (m) of sub-section (2) of Section 18. Once such a scheme is prepared by an operating agency it is required to be examined by the BIFR. The BIFR thereafter is required to send the scheme (which at that point of time is only a draft scheme) with modifications if it so chooses, to the sick industrial company, and the operating agency. In the event, amalgamation is proposed in the scheme as a measure of revival, then such a draft scheme is also sent to any other company which is concerned with the amalgamation. In order to invite suggestion and objections the BIPR is required to get such a draft scheme in brief, published in daily newspapers as considered necessary by the BIFR it (section 18 (3)(u)). The BIFR has been conferred the power of reviewing a sanctioned scheme under sub-section (5)
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of section 18. However, once a scheme gets sanctioned then it is presumed that all requirements o the scheme relating to reconstruction or agreement or any other measures have been complied with. A certified copy of the sanctioned scheme issued by the officer of the BIFR can be admitted as evidence in all legal proceedings. Once the scheme becomes operable or any of its provisions become operative, it binds the sick industrial company, the transferee company, or as the case may be ,such other company, as also the shareholders, creditors, guarantors, or employees of the said companies. The power of removing difficulties vis-à-vis a sanctioned is conferred on the BIFR u/s 18(9) provided such an order or direction is not inconsistent with the provisions of the sanctioned scheme. U/s 18(10) the BIFR is empowered to direct a specified Operating Agency to implement the sanctioned scheme in consonance with the terms and conditions contained therein and in relation to such a sick industrial company. U/s (12) of Section 18 the BIFR has been given the power to periodically manage the implementation of the sanctioned scheme. It may be pointed out that insofar as certain concerned entities such as the Central Government, the State Government, the Banks or even Public Financial Institutions or State Level Institutions or any institutions or authority, SICA provides for obtaining their consent to the draft scheme where the Scheme provides for financial assistance by way of loans and advances, guarantees or relief and concessions or calls upon them to make sacrifices in relation to financial assistance already granted by such entitles [sections 19(1) and (2)]. Once the process under sub-section (2) o section 19 is over, the scheme becomes binding on all concerned. If for any reason the BIFR, after making an inquiry under section 16 and after considering all relevant facts and circumstances, forms an opinion than it is not possible for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations, the BIFR can recommend its winding up to the concerned High Court, though this recommendation can be made only after hearing all concerned. In order to provide a protective umbrella to a sick industrial company section 22, of SICA provides for bar against institution, and if already instituted suspension, of legal proceedings of the kind referred to in the said section except with the consent of the BIFR or the AAIFR as the case may be. Section 22A — empowers the BIFR to issue necessary direction to the sick industrial company to desist from disposing of its assets during preparation or consideration of the Scheme under section 18 and during commencement of the proceedings for winding up before the concerned High Court.. Any party aggrieved by an order of the BIFR may file an appeal u/s 25 before the Appellate Authority of Industrial & Financial Reconstruction (AAIFR). Section 32 of SICA provides that the provisions of the scheme formed under the SICA, i.e. the sanctioned scheme, shall override all other laws except the Foreign Exchange Regulations Act, 1973 and the Urban Land (Ceiling & Regulations) Act, 1976.
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In view of the aforesaid provisions there can hardly be any doubt that once a scheme is formulated after a reference is made through the process of Sections 17 & 18 of the SICA, the said scheme would have the force of law notwithstanding anything inconsistent therewith contained in any other law We may also note that the mere fact that the net worth has become positive does not provide an automatic exit route from the proceedings before the BIFR. It is open to the BIFR to continue to monitor the implementation of the unimplemented part of the sanctioned scheme till it is satisfied that operations of the sick industrial company have long term sustainability.
Constitution of two quasi-judicial bodies – BIFR and AAIFR and their Benches. It provided for the constitution of two quasi-judicial bodies, that is, Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR). BIFR was set up as an apex board to tackle industrial sickness and was entrusted with the work of taking appropriate measures for revival and rehabilitation of potentially sick undertakings and for liquidation of non-viable companies. While, AAIFR was constituted for hearing the appeals against the orders of the BIFR. BIFR would make an inquiry as it may deem fit for determining whether any industrial company had become sick, under the following conditions:If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. Such reference was to be made within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company had become sick. For filing the reference, the Board of Directors must have sufficient reasons to form the opinion that the company had become sick; or On receiving such information (reference) with respect to a sick company or upon its own knowledge as to the financial condition of a company. Such a reference to the board may be made by:- (i) The Central Government; (ii) The Reserve Bank of India; (iii) State Governments; (iv) Public financial institutions; (v) State level institutions; or (vi) Scheduled banks. However, such a reference shall not be made in respect of any industrial company by :- (i) the Government of any State, unless all or any of the industrial undertakings (belonging to such a company) were situated in that State; (ii) a public financial institution or a State level institution or a scheduled bank, unless it had, by reason of any financial assistance or obligation rendered by it or undertaken by it, interest in such a company. The Board may order any operating agency to enquire into the matter and complete the inquiry as expeditiously as possible. If the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company, it may appoint one or more persons as special director(s) of the company for safeguarding the financial and other interests of the company. The appointment of a special
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director shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company. Any special director so appointed shall :- (i) hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board; (ii) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto; (iii) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement; (iv) not be liable to be prosecuted under any law for anything, done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company. If after making an inquiry, the Board is satisfied that the company has become sick, it shall, after considering all the relevant facts and circumstances of the case, may take either of the following decisions:If the Board decides that it is practicable, it shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. If the Board decides that it is not practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare a scheme providing for such measures in relation to that company. The measures may include:The financial reconstruction of the sick industrial company; The proper management of the sick industrial company by change in or take over of the management of the company; The amalgamation of the sick industrial company with any other company (transferee company), or any other company with the sick industrial company (transferee company); The sale or lease of a part or whole of the sick industrial company; Such other preventive, ameliorative and remedial measures as may be appropriate; Such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above. If the Board 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 as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. The High Court shall, on the basis of the opinion of the Board, order winding-up of the sick industrial company in accordance with the provisions of the Companies
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Act, 1956. Where in respect of an industrial company, an inquiry is pending, or any scheme referred is under preparation or consideration or a sanctioned scheme is under implementation, then no proceedings for the winding-up of the industrial company or for execution, distress or the like against any o the properties of the industrial company shall be made. Also, 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 further, except with the consent of the Board or, as the case may be, the Appellate Authority. Also with respect to the above conditions, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances o property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any o the rights, privileges, obligations and liabilities accruing or arising there under before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board. However, such declaration shall not be made for a period exceeding two years, which may be extended by one year at a time so that the total period shall not exceed seven years in the aggregate. Under the Act, whosoever violates its provisions or any scheme or any order of the Board or of the Appellate Authority, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine. No court shall take cognizance of any offence mentioned except on a complaint in writing of the secretary or any such other officer of the Board or the Appellate Authority or any such officer of an operating agency as may be authorised in this behal by the Board or the Appellate Authority.
11. PROCEDURE OF THE BOARD AND THE APPELLATE AUTHORITY
Filing of references u/s 15 and criteria of sickness.
Provision of enquiry u/s 16.
Appointment of Special Directors and OAs u/s 16(4) and 17(3).
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Preparation of sanctioned scheme under section 17(2), 17(3) & 18(4).
Provision for monitoring of schemes u/s 18(12)
Rehabilitation by giving financial assistance u/s 19.
Winding up of sick industrial companies u/s 20.
Protection to safeguard the interests of the sick companies u/s 22(1), 22(2), 22(3).
Provisions for dealing with potential sickness u/s 23, 23(a), 23(b).
Provision in case of misfeasance u/s 24.
Provision for seeking information and giving information – Central Govt., RBI,FIs State institutions and sick companies and in case of amalgamation other companies.
Power to seek assistance of MMs & DMs u/s 29.
SICA has overriding provisions u/s 32 over other laws except the provisions of FERA, 1973 and the ULCRA,1976.
Penalty u/s 33 for violation of the Act
12.DRAWBACKS OF SICA
Following are the flaws in the present framework regarding sick industrial companies.
a) POOR ENFORCEMENT MECHANISM
The mechanism for its implementation is so poor that violations take place fearlessly leaving no fear for law. The misuse of the said forum in making an entry by manipulating must be curbed by
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strict penal consequences for such misuse, which should be demonstrably used to ensure that no entity attempts to misuse these provisions. However, this aspect and solution to this problem has to be found out in the proposed legislation.
b) MISUSE OF PROTECTION AGAINST RECOVERY PROCEEDINGS
Under SICA, an automatic stay operates against all kind of recovery and distress proceedings against all creditors once the reference filed by the company is registered. This is the principal drawback of the existing legislation as this has led to BIFR becoming a haven for defaulting companies. Erring debtors have misused SICA to seek protection and moratorium from recovery proceedings. The companies are able to enter easily into the reference, sometimes by manipulating their accounts to reflect net worth erosion and are then able to attract immunity against the recovery action by the creditors and this benefit is then attempted to be perpetuated. Registration of reference is dependent upon the erosion of net worth and this can be achieved by accounting manipulations. The provisions for suspension of legal proceedings are misused and perpetuated.6 This problem arises due to the fact that unscrupulous promoters enter into the process o rehabilitation by manipulating sickness; take undue benefits arising out of delay in decision making of BIFR. If the reference is rejected, a fresh reference is filed with respect to accounts for the next year and the cycle goes on endlessly. There is no fear of reprisal or punitive action against the companies indulging in this malpractice.
c) LACK OF EXTRA TERRITORIAL JURISDICTION PARADIGM OF NON OBSTANTE CLAUSE IN SICA
Insolvency laws do not have any extra-territorial jurisdiction, nor do they recognize the urisdiction of foreign courts in respect of branches of foreign banks operating in India. Therefore, if a foreign company is taken into liquidation outside India, its Indian business will be treated as a separate matter and will not be automatically affected unless an application is filed before an insolvency Court for winding up of its branches in India. The recommendations of the Eradi Committee have been incorporated into the Companies (Amendment) Act, 2002 and the Sick Industrial Companies (Special Provisions) Repeal Act, 2002 to mend these defects in the existing laws and the end result being tribunalisation of justice. The Companies (Amendment) Act, 2002 amended Article 323B of the Constitution of India and provisions of Part VII of the Companies Act, 1956 for setting up of a National Company Law
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Tribunal (NCLT) and its Appellate Tribunal. The Act repealed SICA and abolished Company Law Board.8 Though tribunalisation of justice is now recognized trends, But India‘s experience with Tribunals have nothing cheer. They have largely unsuccessful to serve the purpose with which they are set up. NCLT would be burdened with workload of enormous magnitude and in the process would be likely to lose focus on revival and rehabilitation of sick entities. Lastly, the misuse of the said forum in making an entry by manipulating/feigning sickness must be curbed by strict penal consequences for such misuse, which should be demonstrably used to ensure that no entity attempts to misuse these provisions. However, this aspect and solution to this problem has to be found out in the proposed legislation.
At present the Government is considering the adoption of UNCITRAL Model Law on CrossBorder Insolvency to meet the demands of globalizations of economy and to deal with international insolvency. This will radically change the orientation of Indian law and make it suitable for dealing with the challenges arising from globalizations and increasing integration o Indian economy with the world economy.9 "The increasing incidence of cross-border insolvencies reflects the continuing global expansion o trade and investment. However, national insolvency laws have by and large not kept pace with the trend, and they are often ill equipped to deal with cases of a cross-border nature. This frequently results in inadequate and inharmonious legal approaches, which hamper the rescue of financially troubled businesses, are not conducive to fair and efficient administration of cross-border insolvencies, impede the protection of the assets of the insolvent debtor against dissipation, and hinder maximizations of the value of those assets."10 While drafting the substantive and procedural rules of bankruptcy, international standards for both national and cross-border insolvency should be taken into consideration which, based on Indian situation, should be suitably incorporated.
13. PARADIGM OF NON OBSTANTE CLAUSE IN SICA
Overriding effect of the Sick Industrial Companies (Special Provisions) Act, 1985 as follows :The Supreme Court in Tata Motors Ltd. v. Pharmaceutical Products of India Ltd.11 considered the question as to whether the Company Court can sanction a Scheme of Arrangement in relation to Pharmaceutical Products of India Ltd. (PPIL) under Sections 391-394 of the Companies Act, 1956, where proceedings were pending before the appellate authority for Industrial and Financial Reconstruction (AAIFR) in relation to PPIL. PPIL had huge outstanding payable to Tata Motors and in view of its inability to pay the dues, it made a reference before BIFR. BIFR after
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considering various schemes of revival of PPIL came to the conclusion that the Company should be wound up. An appeal was preferred to AAIFR which pending consideration of the appeal stayed the order of BIFR. During the pendency of proceedings before AAIFR, PPIL also filed a Scheme of Arrangement between some of its creditors and PPIL before the Company Court. This Scheme was approved b y the Company Court. The Supreme Court in an appeal filed by Tata Motors inter alia, against the sanctioning of the Scheme, followed an earlier judgment of the Supreme Court in NGEF Ltd. v. Chandra Developers (P) Ltd. wherein it was held that the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) is a special statute and a complete code in itself. SICA also has provisions which override all other laws except the little legislation mentioned in the Act itself. The jurisdiction of the Company Court would arise only when BIFR or AAIFR, recommends winding up of the Company after arriving at the conclusion that Company cannot be revived. It was also held in Chandra Developers that no concurrent jurisdiction can be exercised by the Company Court and BIFR/AAIFR as this can lead to chaos. The Supreme Court in Tata Motors case therefore held that since the approval of schemes prepared by the operating Agency for revival and rehabilitation of the sick industrial company is within the domain of BIFR, the Company Court cannot sanction schemes during the pendency o proceedings before AAIFR/BIFR. In Morgan Securities and Credit (P) Ltd. v. Modi Rubber Ltd .13 the Supreme Court considered the issue as to whether the Arbitration and Conciliation Act, 1996 would prevail or SICA. Section 5 of the Arbitration and Conciliation Act, 1996, has a non obstante provision by which judicial authorities could not interfere in a matter which is the subject-matter of an arbitration agreement. In this case, a company against which an arbitral award was passed made a reference to BIFR. One of the issues which arose in this case was whether BIFR could have suspended the operation of the award under Section 22(3) of SICA in view of the non obstante provision in the Arbitration and Conciliation Act, 1996. After examining the scheme of the two enactments the Supreme Court held that BIFR had the power to suspend an arbitral award. In Jay Engg. Works Ltd. v. Industry Facilitation Council a similar judgment was passed in regard to an award passed under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 which also had a non obstante provision. With the exception o the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976, which are specifically excluded in Section 32 of the Act, SICA therefore overrides all other legislations. Even legislations such as the Arbitration and Conciliation Act, 1996 and the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 which are later enactments cannot escape the reach of SICA. SICA however has become a tool which companies use to escape and stall payment of liabilities. In view of the misuse of SICA and to plug loopholes which were present in SICA Parliament enacted way back in 2003 the Sick Industrial Companies (Special Provisions) Repeal Act, 2003. This law has however not been notified till date and SICA continues to operate.
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14.DOUBLE WINDOW SYSTEM
One of the major defects during the tenure of SICA was the lengthy procedure that has to be adopted at the instances of winding up. The BIFR, not being a winding up authority under SICA and only being a recommendatory body, when directs for the winding up of the non-viable sick companies, then the entire cumbersome procedure as laid down takes place under the supervision of High Court and the entire procedure ending up in more than a decade in most of the cases.
15.OMKAR GOSWAMI COMMITEE REPORT
It seems the problem of industrial sickness is a far fetching one. This Committee believes that the barriers to industrial and corporate restructuring serve no economic goal. Barriers to restructuring help inefficient capitalists maintain their stranglehold over the assets of a company, and encourage them to renege on their obligations to banks, financial institutions, the government, and the workers.15 It suggested certain problems of SICA. They can be outlined as follows: the definition as per SICA are backward looking and based on the historical book value of a firm‘s assets, not its future earning potential, not its current realizable market value. the BIFR process is very time consuming because of the fact that it needs consensus at all stages. it is essential for BIFR to use the winding up provisions of section 20(4) of SICA more frequently – not only to expedite the sale of economically unviable firms, but also as a threat to force the pace of decision making and consensus among various parties. A sick company‘s own reference to BIFR should be volun tary, not mandatory. Making the reference voluntary would reduce the number of cases that get registered with BIFR and, hence, lessen the administrative burden.
getting SICA outside FERA will encourage foreign investors to takeover potentially viable sick companies and, if nothing else, raise the market price and bid value of the poorly utilized industrial assets The RBI should closely examine the Revised Irregular System (RIS) and compare it with its own health code classification.
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16.JUSTICE ERADI COMMITTEE REPORT ON INSOLVENCY
It was long felt that the enacted of the SICA was a failure. So what the Government did was, it appointed Justice V Balakrishana Eradi to suggest remedial measures in this regard. In the year 1999, the Government of India set up a High Level Committee headed by Justice V.B. Balakrishna Eradi, a superannuated Judge of Supreme Court of India for remodeling the existing laws relating to insolvency and winding up of companies and bringing them in time with the international practices in this field. The Committee has recommended that the provisions of Part VIA of the Companies Act, 1956, be amended to include the provisions for setting up of a National Tribunal which will have,-
The jurisdiction and power presently exercised by Company Law Board under the Companies Act, 1956;
The power to consider rehabilitation and revival of companies – a mandate presently entrusted to BIFR/AAFIR under SICA ;
The jurisdiction and power relating to winding up of companies presently vested in the High Courts. In view of above recommendations Article 323B16of the Constitution should be amended to set up National Tribunal. SICA should be repealed and the Companies Act, 1956 be amended accordingly.
The Committee completed its work and submitted its report to the Central Government in the year 2000. In August 2001, the Companies (Amendment) Bill, 2001 and the Sick Industrial Companies (Special Provisions) Repeal Bill, 2001 were introduced in the Parliament of India. The object behind the introduction the bill is to avoid the multiplicity of litigation before various court/quasiudicial bodies and the reduction of entire process which at present takes a long time.
The Bills, if passed in their present form will bring the curtains down on the Sick Industrial Companies (Special Provisions) Act, 1985 and will restructure the Companies Act, 1956 in a big way leading to the new regime of tackling corporate rescue and insolvency procedures in India with a view to creating confidence in the minds of investors, creditors, labour and shareholders.
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17. IMPORTANCE OF SICA IN INDUSTRIAL SICKNESS
SICA was considered to be a major step for detecting sickness at early stages and to suggest remedial measures for revival of potentially viable sick units. For purposes of the Act a company is considered to be sick if it meets the following criteria: 1. It has been registered for not less than 7 years; 2. At the end of any financial year its accumulated losses equal to or exceed its entire net worth; and 3. It has suffered a cash loss in such financial year and the immediately preceding financial year.
This definition did not initially cover government companies, shipping companies and small scale industrial units and ancillary units. Government companies are since brought under the purview of the Act consequent to the policy changes during the postJuly 1991 period. The Act was to be applied to companies registered under the Companies Act, 1956 owning medium and large undertakings pertaining to Schedule-I industries under the IDRA (with exception to shipping) which have either become sick or potentially sick. The provisions of the Act were sought to be implemented through a three-tier system consisting of: (1) BIFR; (2) Appellate Authority for Industrial and Financial Reconstruction (AAIFR); and (3) an Operating Agency.
In accordance with the provisions of SICA, BIFR was set up in 1987. Since then all industrial companies whose peak net worth in the immediately preceding five financial years has been eroded by 50 per cent are required to report themselves to BIFR. The AAIFR was also set up for hearing appeals against the orders of BIFR. Any of the public financial institutions and banks as specified in the Act can be appointed as operating agency by BIFR to make enquiry and formulate a scheme for revival/rehabilitation of sick companies.
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18.SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) REPEAL ACT,2003
This Act repeals the working of Sick Industries Company (special provision) Act, 1985. Indian Government was unsatisfied with the working of BIFR after so many committee recommended for abolishing SICA, this dream got materialized in 2003 but still the NCLT working is not been notified. By this Act the BIFR and AAIFR stands dissolved.
Sick Industrial Companies (Special Provisions) Act,1985 (SICA) was repealed and replaced by Sick Industrial Companies (Special Provisions) Repeal Act,2003. The new Act diluted some o 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 o 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
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19. CASE STUDY
CASE STUDY – 1 2000-(099)-COMPCAS -0153 -BOM MADALSA INTERNATIONAL LTD. AND OTHERS v. CENTRAL BANK OF INDIA. Appeal No. 426 of 1997 in Chamber Summons No. 428 of 1997 in Suit No. 278 of 1995, decided on December 11/12, 1997.
IN THE BOMBAY HIGH COURT S. H. Doctor and Ms. J. M. Sidhwa instructed by Mehta and Girdharilal for the appellants. Pravin Diwan instructed by Kanga and Co. For the respondents.
JUDGMENT The judgement of the court was delivered by V. P. TIPNIS J. - The Central Bank of India filed a suit being Suit No. 278 of 1995 against the (1) Madalsa International Ltd., a company incorporated under the Companies Act, 1956, (2) Deepak Bhandari, and (3) Hotel Emerald Pvt. Ltd., a company incorporated under the Companies Act, 1956, for recovery of a large amount of more than Rs. 5 crores. Ultimately the parties reached a settlement and a decree on admission was passed on April 16, 1996, for a reduced amount of Rs. 1,34,94,692. The decree also provided that the decree shall not be executed and shall be marked as satisfied on the defendants jointly and severally paying the decretal amount as mentioned under clause (2) of the said decree on admission. It provided for payment. of a sum of Rs. 75 lakhs within two months from the date of execution of the terms and the balance was to be paid in nine monthly instalments each for a minimum amount of Rs. 50 lakhs, the first of which shall be paid on or before June 30, 1996, and each subsequent instalment on or before the last day of each succeeding month so that the entire balance decretal amount shall be paid on or before March 31, 1997. Under the very consent decree Hotel Emerald Private Limited, defendant No. 3, created a mortgage in favour of the plaintiffs to secure the dues under the decree. It was contemplated that before the mortgage is created the plaintiff's advocates will have to be satisfied as to defendant No. 3's marketable title to the said property and the property being free from encumbrances. Defendant No. 3, Hotel Emerald Private Limited, gave an undertaking to this court to create the mortgage as agreed. The decree also mentions regarding several undertakings by
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defendants Nos. 1 to 3 for creating the mortgages in respect of the property mentioned therein and also make out a marketable title to the properties so agreed to be mortgaged. In the event of default it was provided that the plaintiff shall be at liberty to forthwith execute the decree and claim the entire decretal amount. The terms, inter alia, also contemplated sale of properties described in exhibits A and B by sale in execution in the event of defendants Nos. 1 to 3 committing any default in payment of any instalment as provided in clause (2) of the decree or in case of breach of any other terms and conditions of the decree. Clause 8 which is relevant is as under: "In the event of the defendants committing any default in the payment of the instalments as specified in clause 2 above and/or breach of any other terms hereof, the Court Receiver, High Court Bombay shall forthwith stand appointed as receiver in respect of the stocks of goods and book debts described in exhibits A-4, A-5, A-7, D-7 and D-8 to the plaint and the properties described in annexures A and B hereto without any further orders from this Hon'ble Court with full power to take possession of the said securities, forcibly if necessary and to sell the same in execution by public auction or private treaty and to hand over the net sale proceeds and/or realisation thereof to the plaintiffs after deducting his cost, charges and expenses." After the decree was passed, absolutely no payment was made and as such the terms of the decree were breached by the defendants and the plaintiff moved the receiver to take steps as were contemplated under clause (8) of the decree, i.e., to take forcible possession of the properties of which he was appointed receiver. . Thereafter, the defendants took out Chamber Summons No. 428 of 1997 praying that the execution of the aforesaid decree be stayed against all the defendants and in particular against defendants Nos. 2 and 3.
Before the learned judge it was contended that defendant No. 1 has filed a reference to the Board for Industrial and Financial Reconstruction (for short "the BIFR") on March 19, 1997, and since defendants Nos. 2 and 3 are guarantors, they are also entitled to protection under section 22 (2) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short "the SICA 1985"), and the decree cannot be executed against their estate without obtaining permission of the Board for Industrial and Financial Reconstruction. The plaintiffs have contended that under the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, the guarantors cannot plead that the proceedings against them have to be suspended. Submissions were made before the learned judge and authorities were cited on the interpretation of section 22 and as to whether the guarantors are also protected under the provisions of the said section. The second submission on behalf of the plaintiffs was that mere filing of the reference under the Sick Industrial Companies (Special Provisions) Act, 1985, does not amount to an inquiry and as such no impediment is created
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by the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, as contended by the defendants. The learned judge elaborately considered the scheme of the Sick Industrial Companies (Special Provisions) Act, 1985, referring in detail to the various sections of the said Act as also decisions of the Andhra Pradesh High Court in Sponge Iron India Ltd. v. Neelima Steels Ltd. [1990] 68 Comp Cas 201; [1991] Bank J 204 (AP), the Calcutta High Court in Bengal Lamps Ltd. v. Furmanite Nicco Ltd. [1991] 72 Comp Cas 146 and the Allahabad High Court in Industrial Finance Corporation of India v. Maharashtra Steels Ltd., AIR 1988 All 170; [1990] 67 Comp Cas 412 and observed that the learned judge was in agreement with the view of the Calcutta High Court and was unable to subscribe to the view of the Andhra Pradesh High Court. The learned judge also referred to the observations of another learned single judge of this court and ultimately came to the conclusion that no inquiry could be said to be pending under section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985, and, therefore, section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, cannot be said to be attracted in the facts and circumstances of the case. In view of the said finding the learned judge felt it unnecessary to go into the question whether the expression "suit" occurring in section 22 which has been added by amendment in the year 1993, includes execution proceedings or not. It is on this ground the learned judge by his judgment and order dated April 11, 1997, dismissed the chamber summons. Aggrieved by this order the original defendants have preferred this appeal. We have heard, Mr. Doctor, learned counsel for the appellants and Mr. Diwan, learned counsel for the respondents, the original plaintiffs. It was an agreed position before us that in view of the Division Bench decision of this court dated August 8, 1997, in Real Value Appliances Ltd. v.Vardhaman Spinning and General Mills Ltd. [1997] VILJ 10; [1998] 93 Comp Cas 6; [1998] 1 Bom CR 232; [1998] 1 BC 456, in the facts and circumstances as obtainable on the date of the order of the learned judge the order impugned herein cannot be faulted. However, Mr. Doctor, learned counsel appearing for the appellants contended that although the reference filed by appellant No. 1 was rejected by the Board for Industrial and Financial Reconstruction the appeal has been filed on September 15, 1997, before the appellate forum under section 25 of the Sick Industrial Companies (Special Provisions) Act, 1985 have become operative. Therefore in this appeal on the basis of the aforesaid developments, the question which is required to be considered is as to whether under the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, the chamber summons for stay of execution is required to be allowed.
Mr. Doctor, learned counsel for the appellants, read out the provisions of section 22 and contended that the word "suit" mentioned in the amended portion of the section must include execution proceedings as well. He further submitted that the suit or proceedings are suspended not only as against the industrial company but also such proceedings cannot be
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continued without the consent of the Board even as against the guarantors. In this behalf he emphasised the following words in the amended portion of the section, i.e., "or of any guarantee in respect of any loans or advance granted to the industrial company". In support of his submission that the word "suit" in the section must include execution, Mr. Doctor relied upon the following extracts on pages 2336 and 2358 from Venkataramaiya's Law Lexicon, 1982, second edition. "Suit. The word 'suit' has no doubt not been defined anywhere and is a word of very wide import. The dictionary meanings of the word are as comprehensive as to take any request of any person, in particular, to a court of law or Tribunal for redress. In law, it means, vide Mukherjee, Law Lexicon at page 529. 'Suit' in its common parlance is a term of wide amplitude. Broadly' a 'suit' is a proceeding in a court of justice for the enforcement of a right denoting a legal proceeding of a civil kind. It is a proceeding in a court according to the forms of law to enforce the remedy to which a party deems itself entitled. Lord Coke defines a suit to be 'actio nihil aliud est quam jus prosequend in judico qunod licui debetur' meaning an action is nothing else that the right of pursuing in a court of justice, that which is due to one. 'Blackstone simply says that a 'suit' is a legal demand of one's rights. In its generic sense, a 'suit' is the pursuit or prosecution of some claim. The term 'suit' in its comprehensive sense may be treated as applying to any original proceedings in a court of justice by which a party pursues the remedy which the law grants him. The modes of proceedings may be various depending upon the different stages in the litigation, that is, proceedings in the original court, court of appeal, proceedings in the nature of review or revision and execution proceedings. The legal significance of the word 'suit' is very broad, and the term has also a much narrower meaning when it is examined in The procedural sense ―. "No definition is given of the term 'suit' either in the Act or the Civil Procedure Code. The term 'suit' has sometimes been interpreted as not including an appeal but at the same time it has also been at places interpreted to include an appeal which is regarded as a continuation of the suit. The meaning to be given to the term 'suit' should depend on the context in which the term is used in the Civil Procedure Code. Special procedure has been provided for appeals, and the term 'suit' appearing in the procedure prescribed for original courts is, therefore, taken as not including an appeal. But this does not however, mean that the Legislature has always used the term 'suit' in the same context. At places it has been used in its wider sense as including an appeal also. ― Mr. Doctor next relied upon Wharton's Law Lexicon 14th edition and especially the following extract appearing at page 387 thereof: "Execution. - The last stage of a suit whereby possession is obtained or anything recovered by a judgment. It is styled final process, and is regulated by R.C.C. 1883, Order XLII, r 17,which allows immediate execution in ordinary cases.‖
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Mr. Doctor next relied upon the decision of the apex court reported in Dokku Bhushayya v. Katragadda Ramakrishnayya, AIR 1962 SC 1886, and paragraphs 4, 8, 9, 20 and 22 which are as under: "Order 32, rule 7 of the present Code corresponds to section 462 of the Code of 1882. It has been settled since the Code of 1882 was in force that the provision under consideration applies to proceedings in execution though it only mentions agreement or compromise with reference to the suit. As long ago as 1901, jenkins C.J. said in Virupakshappa v. Shidappa, 26 ILR Born 109, 114, 'I will first deal with the question whether section 462 applies to a compromise of execution proceedings. On the words of the section I think it does; applications in execution are proceedings in the suit so that a compromise of such a proceeding would be a compromise with reference to the suit. This view has been followed ever since. Beyond this, I find no justification for limiting the operation of the rule. I observe that jenkins C.J. in what I have earlier read from his judgment, said that the rule 'applies to a compromise of execution proceedings'. Therefore, it seems to me that according to the learned Chief justice it applies to all compromises of execution proceedings, excepting of course compromises concerning the conduct of them and this whether the compromise directly affects the rights or liabilities under the decree or not. I think the principle of the rule was correctly stated by Heaton J. when dealing with section 462 of the Code of 1882 he observed in Gurmallapa v. Mallapa, AIR 1920 Bom 37; ILR 44 Bom 574. "That section, I think necessarily implies that during the continuance of proceedings in court the dispute between the minor and another party which the court has to decide could not be compromised except by the guardian ad litem of the minor and by him only with the leave of the court'. I think that any compromise of a proceeding which concerns the dispute involved in it would require the sanction of the court. I should also point out that sub-rule (5) of rule 3 of Order 32 provides that a person appointed guardian in the suit for minor shall unless his appointment is terminated continue as such throughout all the proceedings arising out of the suit including the proceedings in execution of a decree. . Quite obviously the word 'suit' in this observation would include a proceeding in execution. The next limitation is that the protection is only during the pendency of the suit. When does a suit come to an end ? It has been held that for the purpose of the said rule an execution proceeding is a continuation of a suit. We agree with these observations. The result is that Order 32, rule 7 of the Code will apply only to an agreement or compromise entered into by a guardian of a party to the suit, who is a minor, with another party thereof during the pendency of a suit and the execution proceedings."
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Mr. Doctor next relied upon the decision of the apex court reported in Batisidhar Sankarlal v. Mohd. Ibrahim [1970] 3 SCC 900; [1971] 41 Comp Cas 21; AIR 1971 SC 1292; [1971] 2 SCR 476, and to the following observations in paragraph 7 thereof : "The contention raised on behalf of Bansidhar loses all significance for an execution, application is only a continuation of the suit and the control of the High Court enures during The execution proceedings also.‖ Reliance was next placed by Mr. Doctor on the decision of the Madras High Court in Muthulahhammal v. Narappa Reddiar, AIR 1933 Mad 456, wherein it was held that Order 32, rule 7, Schedule I to the Civil Procedure Code applies to execution proceedings, on the basis that the proceedings in execution are proceedings in a suit and that compromise in such proceedings is compromise with reference to the suit. . The next decision cited by Mr. Doctor was the decision of the Delhi High Court in Parhash Playing Cards Manufacturing Co. v. Delhi Financial Corporation, AIR 1980 Delhi 48, 52, wherein in paragraph 5 a reference was made to Mukherjee's Law Lexicon page 529 on ―suit‖ and thereafter it was abserved as under: "However, it is seen that the expression derives colour from its setting and has been interpreted in different ways in different legislative contexts. In Bhai Kirpa Singh v. Rasalldar Ajaipal Singh, AIR 1928 Lahore 627, a Pull Bench of the Lahore High Court pointed out that the words 'suit, proceedings' and words of a similar connotation have different meanings in different statutes and it is not possible to lay down a general rule of interpretation which would be applicable to all cases. In each particular case the question has to be examined in reference to the context and that meaning is to be preferred which will best fit in with it.‖
Reliance was next placed on the decision of the Allahabad High Court in Achaibar Singh v. Ram Murat, AIR 1973 All 261, wherein the question was what is the ambit of the term "suit" in section 6 of the Specific Relief Act and whether it would include an objection under section 47 of the Code of Civil Procedure filed against the execution of the decree passed in a suit and it was held that the term "suit" under section 6 of the Specific Relief Act would include an objection under section 47 of the Code of Civil Procedure filed against the execution of decree passed in such a suit and in view of the bar created by the provisions of sub-section (3) of section 6 of the said Act, no appeal would lie from an order passed on such an objection filed under section 47 of the Code of Civil Procedure. Mr. Doctor also relied upon the decision of the Lahore High Court in Bhai Kirpa Singh v. Rasalldar Ajaipal Singh, AIR 1928 Lahore 627 [FBI. In the said case the Full Bench of the
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Lahore High Court was concerned with the provisions of the Sikh Gurudwaras Act (Punjab Act 8 of 1925). In the aforesaid judgment an occasion arose as to what is the meaning of the word "suit" and "proceeding". The learned judges observed that it is possible to cite an equally large number of cases in which a narrower meaning has been attached to the word "suit" as denoting the stage of the litigation before the court of the first instance, beginning with the filing of the plaint and ending with the decree or final order passed by such court. Finally after considering several authorities on the issue, the learned judges observed as : "An examination of these and other cases leads to the conclusion that suit', 'proceeding' and words of similar connotation have different meanings in different statutes and that it is not possible to lay down a general rule of interpretation which would be applicable to all cases. In each particular case the question has to be examined in reference to the context and that meaning is to be preferred which will best fit in with it . Mr. Doctor submitted that taking into consideration the object of the Act and the fact that section 22 was amended in the year 1993, and it was provided that no suit for 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 further except with the consent of the Board or as the case may be, the Appellate Authority, the word "suit" must be given wider meaning so as to include also execution as such interpretation would advance the remedy and the object to be achieved by the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. In this behalf Mr. Doctor relied upon the decision of the apex court in Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957 SC 907, 910, and especially to the following observations : "However, in applying these observations to the provisions of any statute, it must always be borne in mind that the first and primary rule of construction is that the intention of the Legislature must be found in the words used by the Legislature itself. If the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such hypothetical construction is more consistent with the alleged object and policy of the Act . The words used in the material provisions of the statute must be interpreted in their plain grammatical meaning and it is only when such words are capable of two constructions that the question of giving effect to the policy or object of the Act can legitimately arise. When the material words are capable of two constructions, one of which is likely to defeat or impair the policy of the Act whilst the other construction is likely to assist the achievement of the said policy then the courts would prefer to adopt the latter construction." Mr. Doctor also relied upon the decision of the apex court reported in Union of India v. Filip Tiago De Gama of Vedem Vasco De Gama, AIR 1990 SC 981; [1990] Mah. LJ 724 and especially the observations in paragraph 16 thereof which are as under
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: "16. The paramount object in statutory interpretation is to discover what the Legislature intended. This intention is primarily to be ascertained from the text of the enactment in question. That does not mean the text is to be construed merely as a piece of prose, without reference to its nature or purpose. A statute is neither a literary text nor a divine revelation. 'Words are certainly not crystals, transparent and unchanged' as Mr.justice Holmes has wisely and properly warned. Towne v. Fisher [1918] 245 US 418, 425. Learned Hand J. was equally emphatic when he said : 'Statutes should be construed not like theorems of Euclid, but with some imagination of the purposes which lie behind them' (Lenigh Valley Coal Co. V. Yensavage, 218 FR 547, 553 )‖
Mr. Doctor submitted that the object of the amendment of section 22 in the year 1993, was to protect not only the industrial company but also the directors thereof and guarantors in respect of any guarantee given as against any loans or advances granted to the industrial company. Mr.Doctor submitted that in most of the cases guarantors are normally directors or their close relations who are shareholders and if such directors or guarantors could be proceeded against then obviously the revival of the company would be in jeopardy. Mr. Doctor also relied upon the decision of the apex court reported in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803 [1993] 2 SCC 144 in support of his submission . Mr. Diwan, learned counsel appearing for the respondent plaintiff-bank contended that in view of the Division Bench decision of this court referred to above, learned counsel for the appellant has to concede that the impugned order on the basis of the facts obtainable on the date thereof cannot be faulted. Mr. Diwan also pointed out that by the decree itself the receiver stood appointed in July, 1996, and, if that be so, Mr. Diwan contended, so far as the receiver's actions contemplated under the decree are concerned, they cannot be affected by the pendency of the appeal under section 25 of the Sick Industrial Companies (Special Provisions) Act, 1985. In this behalf he relied upon the decision of the learned judge of this court in Industrial Development Bank of India v. Nira Pulp and Paper Mills Ltd. [1992] BJ 274 (Bom); [1994] 79 Comp Cas 811. Mr.Diwan also brought to our notice the older dated August 18, 1997, passed by the Board for Industrial and Financial Reconstruction on the reference made by Madalsa International Ltd., an industrial company under section 15 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985. The said order shows that the learned members of the Board for Industrial and Financial Reconstruction took into consideration various orders passed by this court. They also took into consideration consent terms of the order of the court especially regarding the receiver being empowered to take forcible possession as also copy of the plaint in the suit, relevant and material portion of the operative part of the order passed by the court on March 21, 1997, especially directing the court receiver to take forcible possession was reproduced and ultimately it was observed that after careful consideration of the facts and material on record and in the circumstances of the case in particular the proceedings taken before the High Court and the orders passed by the
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High Court, the Board considers that it would not legally be in order for them to entertain and proceed with the present reference which was directed to be closed and filed. However, it is an admitted position that the aforesaid order of the Board is being challenged in a pending appeal before the appellate forum under section 25 of the Sick Industrial Companies (Special Provisions) Act, 1985. Mr. Diwan also submitted that the word "suit" will have to be interpreted in the context in which it is used in a particular statute. He further submitted that the same word appearing in the same statute must be interpreted in the same manner and obviously different words appearing in the same section or same statute will have to be interpreted differently. In this behalf Mr. Diwan relied upon the decision reported in Doc v. Dyeball [1828] 8 B 969, wherein learned Chief justice Lord Tenterden observed as under : "The safest course in this case is to give effect to the particular words of the enacting clause. Where the Legislature in the same sentence uses different words, we must presume that they were used in order to express different ideas. The words are 'that the house or building shall be held and the land occupied'. Here the house was held for one whole year, and the pauper's mother gained a settlement in Little Bolton. The order of sessions must therefore be quashed." Next Mr. Diwan relied upon the decision reported in Gibson v. Skibs A/s Marina and Orkla Groube, A/B and Smith Coggins Ltd. [1966] 2 All ER 476, and particularly the observations At page 478 which are as under : "It will be observed that para (c) of the regulation uses the word 'inspected'; para (a) of the regulation uses the word 'examined'; and regulation 18 uses the phrase 'thorough examination' and defines that particular phrase. There is clearly a difference between a 'thorough examination' as contemplated by the regulations and an 'examination' as contemplated by the regulations. Is there also a difference between examination' and 'inspection' as contemplated by the regulations. Prima facie one would expect that when two different words, although practically synonymous in ordinary use, or employed in different parts of the same regulation dealing with the same kind of topic, they are intended to have Some different meaning.‖ Mr. Diwan also brought to our notice the decision of the apex court reported in CIT v. East West Import and Export (P.) Ltd. (now known as Asian Distributors Ltd.) [1989] 176 ITR 155; AIR 1989 SC 836, 838, and the observations in paragraph 7 thereof which are as under) "7. The Explanation has reference to the point of time at two places the first one has been stated as 'at the end of the previous year' and the second, which is in issue, is 'in the course of such previous year'. Counsel for the Revenue has emphasised upon the feature that in the same Explanation reference to time has been expressed differently and if the legislative intention was not to distinguish and while stating 'in the course of such previous year' it was intended to convey the idea of the last day of the previous year, there would have been no necessity of expressing the position differently. There is abundant authority to support the
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stand of counsel for the Revenue that when the situation has been differently expressed the Legislature must be taken to have intended to express a different intention." Thus the first question which arises in this case is whether the word "suit" used in section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, includes in its ambit execution or execution proceedings. In this behalf it is relevant to notice that prior to the amendment of section 22 it was provided that where in respect of an industrial company an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company, or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. Thus it is clear that the proceedings for winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof could not lie and if already taken up could not be proceeded with further except with the consent of the Board or the Appellate Authority. It is clear that this was with a view to giving a free hand to the Board for Industrial and Financial Reconstruction for considering whether a company can be made viable and with that purpose it was thought necessary that the properties of the industrial company should not be exposed to coercive action of the nature mentioned in the section. The unamended section did not prohibit or suspend any suit for recovery of money or enforcement of any security against the industrial company and/or guarantee in respect of any loans or advances granted to the industrial company. It is extremely relevant that the word "execution" is used in the unamended section while in the added portion by amendment the word "suit" is used. It is also further relevant that various authorities quoted above, clearly show that the interpretation of the word "suit" in any particular statute will have to be made in the context in which the same is used. In our opinion the intention and object of the amendment is not only that coercive action against the industrial company or proper-ties belonging to it should be suspended but also that the suit for any recovery of money or enforcement of any security against the industrial company should be suspended. The earlier part takes care of the coercive measures in execution, etc., while the later part obviously suspends the very initiation or if already initiated, prosecution of any suit of the description mentioned therein. Considered in this light we are of the clear opinion that the word "suit" in the amended portion of section 22 cannot include in its ambit execution or execution proceedings. On this interpretation in fact even if the appeal is pending so far as the execution proceedings are concerned, excepting the properties of the industrial company, there can-not be any bar or impediment in proceeding further with the same. The second submission is that by amendment not only the proceedings by way of suit for recovery of money or for enforcement of any security against the industrial company are
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suspended but proceedings against the guarantors are also suspended. We are not at all impressed by this submission. As is clear from the judgment of the apex court reported in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803; [1993] 2 SCC 144, the purpose and object of suspension of proceedings, etc., under section 22 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985, is to await the outcome of the reference made under the Board for Industrial and Financial Reconstruction for revival and rehabilitation of the sick industrial company. The Supreme Court in the aforesaid case referring to the words "or the like" which follow the words "execution" and "distress" held that it clearly intended to convey that the properties of the sick industrial company shall not be made the subject-matter of coercive action of similar quality and characteristic till the Board for Industrial and Financial Reconstruction finally disposes of the reference made under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985. It is observed that the Legislature has advisedly used an omnibus expression "the like" as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking. The apex court in the aforesaid case has considered the coercive action under section 29 of the State Financial Corporations Act, 1951, against the sick industrial company. Considering the object and purpose of the Sick Industrial Companies (Special Provisions) Act, 1985, and the scheme of the Act which is clearly for protecting the properties of the industrial company and for enabling the Board for Industrial and Financial Reconstruction to have a complete free hand for the revival if possible of the sick industrial company, the provisions of section 22 are enacted. Section 22 in a sense imposes serious restrictions on the rights of the third party against filing of suits of the nature mentioned thereunder or for taking coercive action of the nature mentioned therein against the industrial company. Apart from the fact that such restrictions will have to be read on strict interpretation they affect the valuable rights, even the rights finalised by the judgment and decrees of the competent courts we find absolutely no ground to read in these provisions that the proceedings against the guarantors or sureties of the company should also stand suspended. The guarantors could be absolute third parties or directors of an industrial company. However, in both cases it would be the guarantors, whether third parties or directors, who would be affected personally; and we see no reason to interpret the section in such a manner that apart from the properties of the industrial company, the Legislature intended to protect the personal interest of the guarantors as proceedings against guarantors and their personal properties would not affect the revival of the industrial company in any manner whatsoever. In the circumstances the words "of any guarantee in respect of any loans, or advance granted to the industrial company" in the context will have to be read as the guarantee given by the industrial company itself and none else. On the basis of the aforesaid we do not find any force in the second submission of Mr. Doctor as well. Defendant No. 3 has nothing to do with defendant No. 1-company. Mortgaged property at exhibit B belongs to defendant No. 3. In the result, we do not find any merit in this appeal and the appeal is dismissed-with costs. At this stage the learned counsel for the appellants prays for stay of this as well as the
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impugned order to enable the appellants to approach the apex court. However, in the facts and circumstances of the case we are not inclined to grant absolute stay as prayed for. We only direct that the receiver shall take formal possession of the properties mentioned in exhibit B to the decree and on or after January 23, 1998, shall also be at liberty to take actual physical possession even forcibly, if required, and shall take further steps as per the decree in respect thereof.
CASE STUDY -- 2
BENGAL IMMUNITY LTD. v. TATA PHARMA LTD. Company Petition No. 537 of 1997, decided on April 8, 1999. IN THE HIGH COURT OF CALCUTTA
S. N. Mookerji, R. Bachawat & S. K. Bajoria for the Petitioner. Md. Farhaduddin & Md. Shahid Imam for the Respondent . ORDER 1. This was an application for winding up of the company under the relevant provisions of the Companies Act, 1956, (hereinafter 'the Act'). It was alleged in the petition that in pursuance of a contract between the parties the petitioner had sold and delivered to the company diverse Quantities of goods which the company had received and accepted but did not pay the price in that respect, in spite of demands. The petitioner claimed the price of the goods, and damages on the basis of allegations that the respondent-company had wrongfully Terminated the contract.
1.2 The company did not reply to the statutory notice of demand. In its affidavit in opposition, the company denied the alleged claims of the petitioner. It was alleged on behalf of the company that sometime in 1995 the company had been registered with the Board for Industrial and Financial Reconstruction (hereinafter 'the BIFR'), and that a scheme for rehabilitation had been sanctioned. There was nothing to substantiate the allegations of the company. It was contended on behalf of the petitioner that its claim had not been included in
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the alleged scheme and that its claim arose after the scheme had been sanctioned. On the prayer made on behalf of the petitioner, liberty was given and the petitioner filed a supplementary affidavit enclosing the copy of the alleged scheme, three letters dated 10th August, 1998, 2nd September, 1998 and 16 December, 1998 were produced by the company, and it was confirmed that the sanctioned scheme was continuing to be in the process of implementation. 2. According to the petitioner, the embargo under section 22 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter 'the SIC') was not applicable to the present winding up proceedings as the transaction between the parties had taken place after the sanction of the scheme and the petitioner's claim was not included in the sanctioned scheme. On that ground, according to the counsel for the petitioner, this application for winding up could be taken up for hearing by the court and dispose of the matter accordingly. The debt of the petitioner was not before the BIFR, he argued earnestly, and that the intention of the legislators must have been to exclude such claims from the effect of section 22 (1) of the section 24 SICA. In support of his contentions, he cited and relied on the decisions in Dy. CTO v. Corromondal Pharmaceuticals Ltd. [1997] 25 CLA 10 (SC)/[1997] 10 SCC 649 and Sirmor Sudhburg Auto Ltd. v. Kuldip Singh Lamba [1997] 27 CLA 219/[1998] 91 Comp. Cas 727 (Delhi). Strong reliance was placed in particular on the decision in Corromondal Pharmaceuticals Ltd. case (supra) and the counsel for the petitioner argued that though the facts in that case related to the recovery of sales-tax, from the company by the Revenue authorities, the principle laid down by the Supreme Court in that case was applicable generally and was not restricted to claims by the Revenue only and the petitioner would, therefore, be entitled in law to continue with its present proceedings against the company. 3. It was submitted on behalf of the company that the principles of law which had been applied in deciding the case of Corromondal Pharmaceuticals Ltd. case (supra) were restricted to the facts of that case. He contended that the language of section 22 (1) was clear, and the petitioner was barred from instituting the present proceedings against the company, or continuing with it further. It was contended that the company was a sick industrial company within the meaning of the SICA and it could not be, nor it was, the intention of either the legislators or the courts, in their enunciation of the law, that the sick industrial company should be further burdened with financial liability as that would frustrate the very purpose of the framing of a scheme to rehabilitate and run the business smoothly. The decision which has been relied on by the counsel for the petitioner, it was argued on behalf of the company, did not support the case of the petitioner and the law was and continued to be that a claim as that of the petitioner must be stayed in accordance with the embargo contained in the provisions in section 22(1). 4. For the sake of convenience, I would here set out the provisions of section 22 (1) : "Suspension of legal proceedings, contracts, etc.- (1) Where in respect of an industrial
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company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority.‖ 4.1 The SICA was amended and the Amendment Act, 1993 came into force on 1st February, 1994. Sub-section (1) of section 22 was amended by section 12 (a) of the Amendment Act, and after amendment the words : "For the appointment of a receiver in respect thereof" appearing in the earlier section 22 (1) would be followed by the words : "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 loan or advance granted to the industrial company". There was no dispute that the company was enjoying the protection from its creditors afforded to 'sick' industrial companies by statute, and that there was a scheme which had been sanctioned by the BIFR, and that the scheme was in the process of implementation. The Supreme Court in its decision in Corromondal Pharmaceuticals Ltd. case (supra) had in no uncertain terms pronounced that; So we are of the view that .... it will be reasonable to hold that the bar of embargo envisaged in section 22 (1) can apply only to such of those dues reckoned or included in the sanctioned scheme. Such amounts like sales-tax, etc., which the sick industrial company is enabled to collect after the date of the sanctioned scheme, legitimately belonging to the Revenue cannot be and could not have been intended to be covered within section 22. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against the spirit of the statute in a business sense, should be avoided." [pp. 16-17 of 25 CLA] 4.3 The question sought to have been raised by the petitioning creditor was fully dealt with and decided by the Supreme Court in the above mentioned case. Their lordships had noted various High Court decisions in the matter. Their earlier decisions, and in particular the two decisions in Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1990] 3 CLA 236 (SC)/[1990] 2 SCC 440 and Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra Ltd. [1993] 10 CLA 181 (SC)/[1993] 2 SCC 144. Their lordships approved the following finding in Gram Panchayat case (supra). "In the light of the steps taken by the Board under section 16 and section 17 no proceedings for execution, distress or the like proceedings against any of the properties of the company
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shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under section 16 is ordered by the Board, the various proceedings set out under sub-section (1) of section 22 would be deemed to have been is suspended. [p 157 of 25 CLA] 4.4 And also the following finding in Maharashtra Tubes Ltd. case (supra) : 'Where an inquiry is pending under section 16/section 17 or an appeal is pending under section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in section 22 (1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company . The purpose and object of suspension of proceedings, etc., under section 22 (1) of the 1985 Act is to await the outcome of the reference made to the BIFR for the revival and rehabilitation of the sick industrial company. The words, "or the like" which follow the words 'execution' and 'distress' are clearly intended to convey that the properties of the sick industrial company shall not be made the subject-matter of coercive action of similar quality and characteristic till the BIFR finally disposes of the reference made under section 15 of the 1985 Act. The Legislature had advisedly used an omnibus expression 'the like' as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking 4.5 In short, what their lordships had held, as would appear to me, would be that proceedings to recover money claims would not attract the applicability of section 22 (1) where (a) the claimant was the Revenue, (b) the claim was in respect of tax which the company had in fact collected with the only object to pay to the Revenue, and (c) the claim had arisen after the sanctioning of a scheme where the claim was not reckoned or included. In the ultimate paragraph of their decision, their lordships had made it abundantly clear as to the precise circumstances when the embargo would not be applicable. I quote below that portion of the judgment which according to me was relevant for the purpose at hand : "The situation which has arisen in this case seems to be rather exceptional. The issue that has arisen in this appeal did not arise for consideration in the two cases decided by this court in Gram Panchayat (supra) and Maharashtra Tubes Ltd. (supra). It does not appear from the above two decisions of this court nor from the decisions of the various High Courts brought to our notice, that in any one of them, the liability of the sick company dealt with therein itself arose, for the first time after the date of sanctioned scheme. At any rate, in none of those cases, a situation arose whereby the sick industrial unit was enabled to collect tax due to the Revenue from the customer after the sanctioned scheme but the sick unit simply folded its hands and declined to pay it over to the Revenue, for which proceedings for recovery, to be taken. The two decisions of this, court as also the decisions of High Courts brought to our notice are, therefore, distinguishable. They will not apply to a situation as has
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arisen in this case. We are, therefore, of the opinion thatsection 22 (1) should be read down or understood as contended by the Revenue .... [p. 17 of 25 CLA ] 4.6 Their lordships were categorical that the principal enunciated in their decision was to be restricted to the 'rather exceptional' situation which had arisen in the case and "thatsection 22 (1) should be read down or understood as contended by the Revenue". Their lordships in those 'rather exceptional' situation concluded : "On a fair reading of the provisions contained in Chapter III of Act 1 of 1986 and in particular section 15 to section 22, we are of the opinion that the plea put forward by the Revenue is reasonable and fair in all the circumstances of the case." [p. 16 of 25 CLA]. And it was on the basis of the 'contention' of the Revenue that the Hon'ble Judges upheld the plea put forward by the Revenue thatsection 22 (1) should be read down or A understood as contended by the Revenue, and distinguished the two decisions as not applicable in the facts before them. In other words, it would appear, would it not, that in no other circumstances proceedings to recover a money claim, which would in effect increase the financial liability of the sick industrial company, would be allowed to be instituted or continued with, in spite of the embargo contained in section22(1). 5. In a decision in Sirmor Sudhburg Auto Ltd. case (supra), the Delhi High Court considered the applicability of section 22 (1) with regard to a suit for eviction, and held A that proceedings for eviction of a tenant, which was a sick company, was not liable to be stayed though the embargo would be attracted to proceedings for the recovery of arrears of rent, damages and mesne profits, as those proceedings would be in furtherance of recovery of money, which would cast further financial liability on the sick company . 5.1 This question was also considered in the Bench decision reported in Vibgyar Ink Chem (P.) Ltd. v. Safe Pack Polymers Ltd. [1998] 31 CLA 432/AIR 1999 AP 45 where their lordships considered that 'on the factual backdrop' it appeared, "that the BIFR was considering the scheme without there being any reference to the petitioner's claims". The Division Bench was satisfied, "that the question of attracting the provisions of section 22 (1) in the contextual facts does not and cannot arise". According to the Bench, "It is not the intention of the law court, in our view, to expand the scope of legislation and one ought not to read anything further than one reads in plain and simple manner". Earlier it had also observed, "as a matter of fact, the Act has been enacted to safeguard the economy of the country and protect variable sick units. Its object is to revitalise and rehabilitate sick industries ...". With the greatest of respect and in utmost humility bearing in mind that the law courts ought not to deliberate which would expand the scope of legislation, I would be of the view that a protection of the rights of a sick industrial company, as contained in the form of the embargo in section 22 (1) must be appreciated by the courts. Should there appear to be conflict in the interpretation of legislations, it was today a settled principle of law that a harmonious interpretation must be afforded. If the restriction was to be made not applicable
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to all money claims, because it had not been reckoned or included in the sanctioned scheme, then I would very humbly opine that the endeavour of the BIFR to rehabilitate and revitalise the sick industrial company would be put in peril and it would be contrary to the intent of the legislators "to safeguard the economy of the country and protect viable sick units". In the light of the decision of the Supreme Court in the case of Corromondal Pharmaceutical Ltd. (supra), unless it was in the interest of the exchequer of a larger national interest of public importance, the embargo contained in section 22 (1) would be attracted to claims for money which would further burden the already sick industrial company. In the alternative, the very purpose of the enactment to rehabilitate sick companies would be frustrated. The embargo would cease to have any effect whatsoever. It was the considered view of the Supreme Court, in allowing the claim of the Revenue, that merely because the claim was not included or reckoned in the scheme it could not be assumed that the money claim could be considered to be out of the scope of the embargo. As regard the Bench decision, I would very humbly quote the observations in the Bench decision of the Madras High Court in J. M. Malhotra v. UOI [1997] 26 CLA 230/[1997] 89 Comp Cas 600 that "there is no question of comparison of one company with another because proceedings against each company will have to be decided in accordance with the particular facts and circumstances of each case" . 6. In those circumstances, I hold unhesitatingly that the facts of the case before this court would indeed attract the embargo envisaged in section 22 (1). Here was a simple money claim against the company. If proceedings for such claims were adjudged not to attract the provisions contained in section 22 (1) the very purpose of the statute would be frustrated. The endeavour of the legislators to revive a sick industrial company would hardly be appreciated if the company was to be burdened with further financial liabilities. The provisions in the section in that event would be rendered quite superfluous, and it would be against the spirit of the statute'. Simply put, the Supreme Court, I would find, was not inclined to allow avoidance of payment of a mere money claim, but a claim for the payment of tax through a money claim, a claim by the Revenue of money admittedly collected by the company in order to pay to the Revenue. 'The tax so collected' their lordships had found, 'really belongs to the State'. No further adjudication was required in that respect, nor was there any dispute as to the factum or the quantum of the payment which the company was to make to the Revenue. It was on those 'rather exceptional' grounds only, I would with utmost respect find, that the Supreme Court had rejected the plea of legal bar sought to have been urged by the company. It concerned the larger interest, which included recovery of public money by the Revenue and an unreasonable refusal by the company to pay such money. The facts of the case before this court had nothing to do with payment of tax, nor was there any larger or public interest involved. There was nothing 'exceptional' in the present facts or circumstances which would or could warrant the embargo contained in section 22 (1) to be rendered as not applicable. On the contrary, if the embargo was not to apply in the present case, then in utmost humility, I would be of the view that, it would be in derogation of the findings of the Supreme Court in its decision in the case of Corromandal Pharmaceutical Ltd.(supra).
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6.1 Advocates for the parties had made submissions also on the merits of their respective cases. In view of my findings as above, I do not consider it necessary to adjudicate the merits of the case. I am inclined to be of the view that this application, on the basis of my above observations, does not lie. I make it clear that I have not adjudicated on the merits of the winding up application.
7. For those reasons, the contentions of the petitioner as regards the non-applicability of the embargo of section 22 (1) are not acceptable. The prayer of the petitioning creditor in this application was squarely barred by the restriction created by the statutory provisions contained in section 22 (1). This application is dismissed. A There shall be no order as to costs.
CASE STUDY -- 3
KEDIA DISTILLERIES LIMITED, INDORE v. CEAT FINANCIAL SERVICES LTD., BOMBAY. Company Appeal No. 3 of 1998, decided on July 17, 1998.
IN
THE
HIGH
COURT
OF
MADHYA
PRADESH
AT
INDORE
A. M. MATHUR, Senior Advocate, with V. P. SARAF, Advocate, for the appellant. ORDER B. A. KHAN, J. - Appellant has filed this appeal against the order, dated 26.6.1998 passed by Company Court in Company Petition No. 16 of 1996 admitting that petition and directing advertisement. Appellant's short case is that he had approached BIFR for declaring the company sick on 22.6.1998 and has filed an application in this regard before the Company Court praying for stay of proceedings under section 22 of Sick Industrial Companies (Special Provisions) Act; but the court still proceeded to admit the company petition by the impugned order. He has attached a copy of the application alongwith memo of appeal .
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2. A cursory look at the copy shows that it was filed on 26.6.1998 when the matter came up before the court. Therefore, it remained to be seen whether it was listed before it. 3. Record was summoned. Though it contained the application, but there was nothing to show that it was listed before the court.
4. Confronted with this situation, appellant's counsel, Shri Mathur, explained that this application was placed before the Company Court without listing as per some practice, but was not considered. He was asked to subscribe an affidavit indicating the circumstances in which this application was placed before the court; but he declined and harped on some practice in this court whereby documents and pleadings could be placed before the court bypassing the prescribed procedure in this regard . 5. It does not appear to us a case of non-consideration of appellant's application for stay of proceedings, because no such application was listed before the court on 26.6.1998 which deserved consideration by the court. The court was not obliged to examine or consider the application which did not form a part of its record. Such like application was liable to receive consideration only if it was placed before the court as per prescribed procedure. Needless to emphasise that it was first required to be registered and if found complete in all respects, to be listed in the cause list. It could not be brought on the court record otherwise and as such, court was not bound to consider it at all.
6. Resultantly we find no merit in this appeal which is dismissed on preliminary hearing. Appellant can take steps to have his application listed and seek its consideration.
CASE STUDY – 4
2000-(001)-CLJ -0025 -DEL CEMENT CORPORATION OF INDIA v. SMT. MANOHAR BHASIN. C.R. No. 21 of 1999, decided on September 9, 1999.
IN THE HIGH COURT OF DELHI
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S. K. TANEJA, Advocate, for the petitioner . RAJIV
NAYYAR
with
KAMAL
MEHTA,
Advocates,
for
the
respondent.
JUDGMENT DR. M. K. SHARMA, J. - The present revision petition is directed against the order, dated 4.12.1998 passed by the Additional District Judge, Delhi, dismissing the application filed by the petitioner/defendant under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the Act). The respondent/plaintiff filed the aforesaid suit being suit No. 31/96 seeking for a decree for recovery of possession and for recovery of damages and mesne profits amounting to Rs. 1,19,000. The said suit is pending before the Additional District Judge, Delhi. In the said suit an application came to be filed by the, petitioner/defendant contending, inter alia, that the defendant company has become sick and, accordingly, its case has been referred to the Board for Industrial and Financial Reconstruction (BIFR) under section 15 of the Act. It was further stated in the said application that the reference has since been registered by the BIFR and that pursuant thereto, the Board has declared the defendant to be a sick company and IFCI has been appointed as the operating agent[cy] . 2. The aforesaid application was contested by the respondent by contending inter alia that the provisions of section 22 of the Act are not applicable to the aforesaid suit as the said suit has been instituted seeking for decree of recovery of possession and for recovery of damages and mesne profits. The Additional District Judge took up the said application for consideration and after hearing the parties dismissed the application. Being aggrieved, the present petition has been preferred . 3. Mr. Taneja appearing for the petitioner submitted that as the recovery of damages/mesne profits claimed by the plaintiff from the defendants in this case relate to a period prior to the date on which the defendant was declared sick, and thus are liabilities to be included in the scheme and thus the same cannot be recovered in view of the provisions of section 22 of the Act. 41. Mr. Rajiv Nayyar appearing for the respondent, on the other hand, submitted that the provisions of section 22 of the Act are hot applicable and would not cover a proceeding where decree is sought for either for eviction of the tenant or for payment of damages and mesne profits or for both .
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5. In order to appreciate the contentions of the learned counsel appearing for the parties, it is necessary to extract the provisions of section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, which are extracted below : "22. Suspension of legal proceedings, contracts, etc. - (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the Industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like 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 further, except with the consent of the Board or, as the case may be, the Appellate Authority."
6. The aforesaid provision came to be interpreted by the Supreme Court in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals reported in (1997) 2 Comp LJ 164 (SC) : AIR 1997 SC 2027. Atleast two judgments of this court were referred to at the bar. They are National Textile Corporation v. Smt. Kamla Sharma reported in (1997) 3 Comp LJ 94 (Del) : (1997) 2 AD Del 281 and Sirmor Sudburg Auto Ltd. v. Kuldip Singh Lamba reported in (1998) 1 Comp LJ 30 (Del) : (1997) 67 DLT 870 . 7. In Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, Madras reported in (1992) 2 Comp LJ 121 (SC) : AIR 1992 SC 1439, it was held by the Supreme Court that though the language of section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started till after implementation of the scheme or disposal of an appeal, it would be reasonable to hold that the bar or embargo can apply to such of those dues reckoned or included in the sanctioned scheme. Although the Supreme Court decision was rendered in the light of unamended provisions of section 22 and the amended provisions relate not only to legal proceeding, but also to suit, in my considered opinion, the said amendment shall have no bearing and relevancy. It also does not in any manner bring about a change in the legal proposition laid down in Shree Chamundi Mopeds (1992) 2 Comp LJ 121 (SC), supra. It was held in the case of Deputy Commercial Tax Officer (1997) 2 Comp LJ 164 (SC), supra, that to be entitled to stay of the legal proceedings under section 22 a mere pendency of the enquiry would not suffice and to get benefit, one has to show that the dues have been reckoned or included in the sanctioned scheme. It was also held that section 22 (1) is also not attracted to the dues incurred after the date of sanctioned scheme. This court in Sirmor Sudburg Auto Ltd. (1998) 1 Comp LJ 30 (Del), supra, took notice of the aforesaid factors laid down by the Supreme
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Court. 8. In view of the aforesaid proposition of law laid down by the Supreme]Court, there could be no two opinions on the effect thereof. There is no scope to agitate that the suit seeking for eviction and recovery of possession should be stayed in view of the provisions of section 22 of the Act. Therefore, section 22 cannot stand as a hurdle in the way of a suit for possession. This, however, is not the end of the matter, for the present suit was also instituted for recovery of mesne profits and damages, which according to the counsel for the petitioner were dues relating to the period prior to the date when the petitioner was declared sick and, therefore, in view of the provisions of section 22 of the Act, continuation of the suit so far as it relates to the recovery of mesne profits and damages is required to be stayed. 9. No documentary evidence has been produced to show that any scheme has been sanctioned. Unless and until the dues in the nature of arrears of rent and damages and mesne profits which is in arrears form part of the scheme for rehabilitation, there could be no embargo or bar to realise such arrears of rent and mesne profits and damages, for the landlord cannot be deprived of the amount which is legitimately due to him and such amount cannot be withheld indefinitely and unreasonably. As is held in Corromandal Pharmaceuticals case (1997) 2 Comp LJ 164 (SC), supra, a reasonable construction should be given to the language of the provisions of the Act which is not unfair and also not unreasonable. The Additional District Judge has also considered the aforesaid aspect and has held that as the recovery of damages/mesne profits claimed by the plaintiff from the defendant in the present case are not included in the sanctioned scheme of the Board, the suit cannot be stayed even for the recovery of such damages/mesne profits. The said conclusions are in consonance with the ratio of the decision laid down by the Supreme Court. 10. I, therefore, do not find any error in the exercise of jurisdiction by the trial court. The petition has no merit and is dismissed accordingly.
CASE STUDY – 5
2000-(001)-CLJ -0023 -DEL NATIONAL RESEARCH DEVELOPMENT CORPORATION v. J. K. B. M. LIMITED. I.A. 4912/99 in A.A. No. 414/98, decided on October 6, 1999.
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IN THE HIGH COURT OF DELHI
I. S. BAKSHI, Advocate, for the petitioner . Smt. NIVEDITA SHARMA, Advocate, for the respondent . JUDGMENT MOHD. SHAMIM, J. - This is an application by the respondent for stay of the proceedings under section 151 of the CPC on the ground that the respondent company has been registered under the Board for Industrial and Financial Reconstruction vide registration No. 47/99, dated 11.2.1999. Hence, it has been prayed that the proceedings in the present suit be stayed. It is supported by an affidavit. The application has been opposed by the counsel for the plaintiff . 2. I have' heard the learned counsel for both the parties at sufficient length and have very carefully examined their rival contentions and have given my anxious thoughts thereto. 3. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, is in the following words : "Suspension of legal proceedings, contracts, etc. - (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, no withstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority . (2)
.........".
4. It is manifest from above that the proceedings are liable to be stayed only in those discerning few cases (a) where in respect of an industrial company and inquiry under section
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16 is pending; or (b) any scheme referred to under section 17 is under preparation or a sanctioned scheme is under implementation; or (c) where an appeal under section 25 relating to an industrial company is pending . 5. Admittedly, the respondent has so far simply moved an application before the Board for Industrial and Financial Reconstruction and the said application has been registered with them. So there is no inquiry as yet pending under section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985, nor is there any scheme referred to under section 17 under preparation. Similarly, there is no appeal pending under section 25 of the Sick Industrial Companies (Special Provisions) Act, 1 6. Hence, there is no question of the stay of the proceedings by this court. The application is thus premature . 7. There is another aspect of the matter. The petitioner herein has simply prayed through the present petition for an appointment of an arbitrator. The present proceedings are neither a proceeding for winding up of 'the industrial company nor is it a proceeding for execution, distress or the like against any of the properties of the industrial company, nor the present proceedings are for appointment of a receiver in respect thereof as envisaged under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Hence, the proceedings in the present case cannot be stayed. I am supported in my above view by the observations of the Supreme Court as Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, Madras reported in (1992) 2 Comp LJ 121 (SC) : AIR 1992 SC 1439. I do not see any force in the present application. Dismissed.
8. Learned counsel for the respondent prays for time to file a reply to the above petition. Let the reply be filed within six weeks from today. Rejoinder, if any, be filed within four weeks thereafter. 9. Adjourn and put up on 13 January, 2000.
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CASE STUDY – 6
B. S. I. LTD. AND ANOTHER v. GIFT HOLDINGS (P.) LTD. AND ANOTHER. Criminal Appeal No. 847 of 1999 with Criminal Appeal Nos. 505-506/99, 385-386/99, 388-389/99, 391-397/99, 398-400/99 and SLP (Crl.) No.3569/98, SLP (Crl.) No. 3788/99 & SLP (Crl.) Nos. 3789-3790/99, decided on February 15, 2000. IN THE SUPREME COURT OF INDIA
Appearances : Ganesh, M. N. Rao, U. N. Bachawat, M. L. Verma, T. L. V. Iyer, Shukla, A. K. Ganguli, D. A. Dive, P. Chidambaram, T. R. Andhyarujina, Ashok H. Desai & Dushyant A. Dave, senior advocates (Nikhil Nair, Mrs. Urmila Sirur, Thiru Chaugu, G. Shreedhar, Y. Raja Gopala Rao, Ranjit Kumar, Ms. Anu Mohla, Chander, Bhushan Prasad, Ms. Prabha Swami, Krishnamurthi Swami, Keshwani, Ms. Rakhi Ray, Ms. Vanita Bhargava, Tapesh K. Singh, Ms. Bina Gupta, Kumar, R. Nedumaran, P. Niroop, Padliy, Pavan Kumar, G. Prabhakar, Ms. T. Anamika, Mrs. Maruthi Rao, Ms. K. Radha, D. Mahesh Babu, Rana, Mrs. Bindra Rana, Vikrant Rana, Narasimha, P. Sridhar, K. N. Jha, V. G. Pragasam, Mrs. H. Wahi, Ms. Anu Sawhney, Rhanduja, Y. P. Dhingra, Baldev Krishna Satija, Sathe, Uma Nath Singh, Mrs. Kamakshi Mehwal, Prakash Jha, Ms. Vestatina Dias, Pranab Kumar Mullick, Jenis Francis, Francis, Jose, Ms. Asha Jain Madan, Ms. Madhu Dadlani, (K. K. Gupta) (NP), Goswami, Ms. Bina Gupta, Prashyant Naik, Ms. Rekha Ray, Sareen, Rajiv Dutta, Kapil Sharma, H. P. Sharma, Ms. Enakshi Kulshreshtha, Tambwekai, Nitin Tamswekar, Alok Sen Gupta, Ranjan Narain, Ms. Deepa Das, Ms. Lavanya, Ms. Vivek Zutshi, S. Sukumaran, Lalit, R. Sasiprabhu, A. P. Vinod, Manoj Prasad, Mohit Mathur, Ms. Astha Tyagi, S. Prasad, Rana, Rajesh Nair, Kailash Vasdev, R. Rahim, Joshi, Ms. Sweta Sharma, Ms. Bharati B, Pragasam, Sanjeev Sen, R. N. Karanjawala, Ms. Nandini Gore, Arunabh Choudhary, Uday Kumar, Ms. Manik Karanjawala, Rajesh Singh & Naris Beerani, with them) for the Appearing Parties . JUDGMENT THOMAS,
J
1. Some companies and their directors are now frantically struggling to get themselves extricated from the catch of prosecution proceedings pitted against them, consequent to non payment of amounts covered by cheques issued by such companies. All the companies involved in this batch of appeals have a common cause now in that those companies have,
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subsequent to the filing of complaints against them, approached the Board for Industrial and Financial Reconstruction ('BIFR' for short) and sought for declaration that those companies became sick as envisaged in the Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA' for short). They maintained the stand that when proceedings are pending before the BIFR, no prosecution can be maintained under law against those companies. But the plea so made by such companies did not find favour with the trial courts nor with the revisional courts nor even with the High Courts which the companies approached. All these appeals have been filed by special leave against the orders passed by the High Courts by which the aforesaid plea was discountenanced . 2. It is sufficient to set out the facts from one of these appeals in this batch. Answers given to the questions raised in that appeal would apply to all the connected appeals now being heard along with that appeal. Facts in Criminal Appeal No. 847 of 1999 are the following : Cheques issued by the appellant therein were dishonoured by the drawee bank on 27th December, 1996 on the ground of insufficiency of amount in the account concerned, and the payee thereof issued a notice on 2nd January, 1997, demanding payment of the amount covered by such cheques. As the drawer of the cheques failed to make the payment as per demand, within 15 days of receipt of the notice, a complaint was filed on 29th January, 1997 against the company and its directors for the offence under section 138 of the Negotiable Instruments Act ('NI Act' for short). The magistrate before whom the complaint was filed issued process against the accused who were arrayed therein . 3. Two petitions for winding up of the company were filed in June 1997, one at the instance of a creditor of the company and the other by the company itself. Thereafter the company moved the BIFR to declare it a sick industrial company. When proceedings were pending before the BIFR under section 16 of the SICA a declaration was made by the order passed by the BIFR as per section 22 (3) of the SICA. The above is the background in which the appellants contend that they are not liable to be prosecuted in view of the embargo contained in section 22 (1) of the SICA . 4. When the offence under section 138 of the NI Act has been committed by a company 'every person who, at the time of offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly". (videsection 141 of the NI Act).
5. In Anil Hada v. Indian Acrylic Ltd. [1999] 35 CLA 427/[2000] 1 SCC 1, it has been pointed out that three categories of persons can be discerned as brought within the purview of the penal liability, through the legal fiction envisaged in section 141 of the NI Act. They
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are (1) the company which committed the offence; (2) every person who was in charge of and responsible to the company for the conduct of the business of the company; (3) any other person who is a director or a manager or a secretary or an officer of the company with whose connivance or with whose neglect the company has committed the offence. 6. Learned counsel for the appellant submitted that when reconstruction efforts of a sick industrial company are pending under the provisions of the SICA all other legal proceedings including any prosecution proceedings would stand suspended by the operation of the embargo contained in section 22 (1) of the SICA. In order to persuade the court to place such an interpretation on the said sub-section, learned counsel invited our attention to certain other provisions of SICA also . 7. In the Statement of Objects and Reasons for introducing the Bill in the Parliament which later became Act No. 1 of 1986, it is stated, inter alia, that the ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Governments and locking up of investable funds of banks and financial institutions are of serious concern to the Government and the society at large. A need has, therefore, been felt to enact in public interest a legislation to provide for timely detection of sickness in industrial companies and for expeditious determination by a body of experts of the preventive, ameliorative, remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable despatch". A sick industrial company is a company which has "at the end of any financial year accumulated losses equal to or exceeding its entire net worth". [vide section3 (1) of the SICA]
8. Section 15 enables the Board of directors of a company which has become sick to make reference to the BIFR for determination of measures which shall be adopted with respect to the company. (The Central Government or the Reserve Bank or the State Government concerned may also make the reference to the BIFR for the same purpose if it has sufficient reason to believe that a company has become sick). Once a reference is made it is open to BIFR to conduct an inquiry for determining whether the company has become sick. If the BIFR is satisfied, on completion of the inquiry, that the company has become sick, it can adopt any of the measures envisaged insection 17 of the SICA. When an order is made under section 17 a scheme with respect to the company shall be prepared by "the operating agency" specified in such order. The above is the general scheme of the SICA. 9. It is in the above background that section 22 of the SICA has to be looked at. Sub-section (1) of section22 is extracted below : "(1) Where in respect of an industrial company, an inquiry under section 16 is pending or
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any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof 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 further, except with the consent of the Board or, as the case may be, the Appellate Authority." 10. Sub-section (2) is not of any relevance so far as the points raised in this batch of appeals are concerned. Sub-section (3) confers power on the BIFR to declare that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force shall be suspended and that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date shall remain suspended. Sub-section (4) says that when any such declaration is made under subsection (3) it shall have overriding effect and "any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court .... shall remain stayed". 11. As the arguments based on section 22 (1) of the SICA were endeavoured to be fortified with the help of section 22A of the SICA, the said provision is extracted below : "22A Direction not to dispose of assets. - The Board may, if it is of opinion that any direction is necessary in the interest of the sick A industrial company or creditors or shareholders or in the public interest, by order in writing, direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets (a) during the period of preparation or consideration of the scheme under section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court ' 12. We do not think it necessary to labour on the scope of section 22A of the SICA in the present batch of appeals as the BIFR did not pass any order against any company involved herein until the expiry of the period of 15 days from the receipt of notice contemplated in clause (c) of the proviso to section 138 of the NI Act. So none of the companies was interdicted by such order envisaged in section 22A during the above period of 15 days. Hence, we are unable to find any help from the said provision which could salvage the
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appellants from the prosecution proceedings against them.
13. Switching back to sub-section (1) of section 22 of the SICA, we may printout that its operation commences in respect of the companies involved in this batch of appeals only after the expiry of the period of 15 days envisaged in clause (c) of the proviso tosection 138 of the NI Act within which the companies did not pay the amount covered by the cheques. The ban imposed, as per section 22 (1) of the SICA, is against maintainability of the following legal actions : (1) Proceedings for the winding up of the company . (2) Proceedings for execution, distress or the like against any of the properties of the company. (3) Proceedings for the appointment of a receiver in respect of such properties . (4) Suits for recovery of money or for enforcement of any security against the company or guarantee in respect of any loan or advance granted to the company . 14. Some of the learned counsel pointed out that when a company is convicted under section 138 of the NI Act the court can only impose a fine as the sentence since a juristic person like the company cannot possibly be sent to prison. On its premise learned counsel contended that recovery of the fine covered by such sentence would be impractical on account of the ban envisaged in section 22 (1) of the SICA against proceedings for execution, distress or the like as against any of the properties of the company. As a corollary, it was submitted that prosecution against the company cannot be maintained since a court would not be able to effectively impose a sentence on a company after convicting it of the offence under section 138 of the NI Act . 15. The fallacy of the above contention is two-fold. First is that maintainability of a prosecution proceeding is not to be tested on the touchstone of any practical hurdle in enforcing the sentence which might be imposed on a company after conviction. Second is, there is no insurmountable hurdle for recovery of the fine covered by the sentence even from a sick industrial company because the ban contained in section 22 (1) is only conditional as could be discerned from the last limb thereof which reads thus : "Except with the consent of the Board or, as the case may be, the Appellate Authority". It means that with such consent the court would be in a position to resort to proceedings for distress against the properties of the sick industrial company. Hence, the aforesaid contention has no merit at all. 16. It was next contended that the ban against maintainability of a suit for the recovery of
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money would encompass prosecution proceedings also. To support the said contention reliance was sought to be made on the following meaning of the word 'suit' as given in Bouvier's Law Dictionary : "Suit is a generic term of comprehensive signification, and applies to any proceeding in a court of justice in which the plaintiff pursues, in such court, the remedy which the law affords him for the redress of any injury or the recovery of a right ..... In its most extended sense, the word suit includes not only a civil action, but also a criminal prosecution, as, indictment, information and a conviction by a magistrate." Learned counsel invited our attention to the maxim "contemporanea expositio est optima et fortissimo in lege" (contemporaneous exposition is the best and strongest in law) for the purpose of stretching the scope of the word 'Suit" to envelope criminal prosecution as well. 17. Our attention has also been invited to the observation of a two-Judge Bench of this court in Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd. [1992] 9 CLA 181 (SC)/[1993] 2 SCC 144. While considering the purpose and objects of suspension of proceedings mentioned in section 22 (1) of the SICA, therein it has been held that the expression "proceedings" in the sub-section must be widely construed. This is what The Bench has observed: : "The Legislature has advisedly used an omnibus expression "the like" as it could not have perceived of all possible coercive measures that may be taken against a sick undertaking.' The said contention is also devoid of merits. The word 'suit' envisaged in section 22 (1) cannot be stretched to criminal prosecutions. The suit mentioned therein is restricted to recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. As the suit is clearly delineated in the provision itself, the context would not admit of any other stretching process. 18. A criminal prosecution is neither for recovery of money nor for enforcement of any security, etc. Section 138 of the NI Act is a penal provision, the commission of which offence entails a conviction and sentence on proof of the guilt in a duly conducted criminal proceedings. Once the offence under section 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to the penal liability. What was considered in Maharashtra Tubes Ltd. (supra) is whether the remedy provided in section 29 or 31 of the State Finance Corporations Act, 1951 could be pursued notwithstanding the ban contained in section 22 of the SICA. Hence, the legal-principle adumbrated in the said decision is of no avail to the appellants.
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19. In the above context, it is pertinent to point out that section 138 of the NI Act was introduced in 1988 when SICA was already in vogue. Even when the amplitude of the word 'company' mentioned in section 141 of the NI Act was widened through the Explanation added to the section, Parliament did not think it necessary to exclude companies falling under section 22 of the SICA from the operation thereof. If Parliament intended to exempt sick companies from prosecution proceeding, necessary provision would have been included in section 141 of the NI Act. More significantly, when section 22 (1) of the SICA was amended in 1994 by inserting the words "and no suit for the recovery of money or for enforcement of any security against industrial company or of any guarantee in respect of any loans or advance granted to industrial company", Parliament did not specifically include prosecution proceedings within the ambit of the said ban . 20. The conclusion which we have to draw is that if commission of the offence under section 138 of the NI Act was completed before the commencement of proceedings under section 22 (1) of the SICA there is no hurdle in any of the provisions of the SICA against the maintainability and prosecution of a criminal complaint duly instituted under section 142 of the NI Act. The decisions rendered by the High Courts, which are assailed before us in this batch of appeals, are, therefore, not liable to be interfered with. Appeals are accordingly dismissed. Special leave petitions heard along with the above appeals are also hence dismissed.
CASE STUDY -- 7
IN THE HIGH COURT OF DELHI S. K. TANEJA, Advocate, for the petition er. RAJIV NAYYAR with KAMAL MEHTA, advocates, for the respondent JUDGMENT DR. M. K. SHARMA, J. - The present revision petition is directed against the order, dated 4.12.1998 passed by the Additional District Judge, Delhi, dismissing the application filed by the petitioner/defendant under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the Act). The respondent/plaintiff filed the aforesaid suit being suit No. 31/96 seeking for a decree for recovery of possession and for recovery of damages and mesne profits amounting to Rs. 1,19,000. The said suit is pending before the Additional District Judge, Delhi. In the said suit an application came to be filed by the, petitioner/defendant contending, inter
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alia, that the defendant company has become sick and, accordingly, its case has been referred to the Board for Industrial and Financial Reconstruction (BIFR) under section 15 of the Act. It was further stated in the said application that the reference has since been registered by the BIFR and that pursuant thereto, the Board has declared the defendant to be a sick company and IFCI has been appointed as the operating agent[cy] . 2. The aforesaid application was contested by the respondent by contending inter alia that the provisions of section 22 of the Act are not applicable to the aforesaid suit as the said suit has been instituted seeking for decree of recovery of possession and for recovery of damages and mesne profits. The Additional District Judge took up the said application for consideration and after hearing the parties dismissed the application. Being aggrieved, the present petition has been preferred. 3. Mr. Taneja appearing for the petitioner submitted that as the recovery of damages/mesne profits claimed by the plaintiff from the defendants in this case relate to a period prior to the date on which the defendant was declared sick, and thus are liabilities to be included in the scheme and thus the same cannot be recovered in view of the provisions of section 22 of the Act. 41. Mr. Rajiv Nayyar appearing for the respondent, on the other hand, submitted that the provisions of section 22 of the Act are hot applicable and would not cover a proceeding where decree is sought for either for eviction of the tenant or for payment of damages and mesne profits or for both . 5. In order to appreciate the contentions of the learned counsel appearing for the parties, it is necessary to extract the provisions of section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, which are extracted below : "22. Suspension of legal proceedings, contracts, etc. - (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the Industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like 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 further, except with the consent of the Board or, as the case may be, the Appellate Authority." 6. The aforesaid provision came to be interpreted by the Supreme Court in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals reported in (1997) 2 Comp LJ 164 (SC) : AIR 1997 SC 2027. Atleast two judgments of this court were referred to at the bar. They are National Textile
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Corporation v. Smt. Kamla Sharma reported in (1997) 3 Comp LJ 94 (Del) : (1997) 2 AD Del 281 and Sirmor Sudburg Auto Ltd. v. Kuldip Singh Lamba reported in (1998) 1 Comp LJ 30 (Del) : (1997) 67 DLT 870 . 7. In Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, Madras reported in (1992) 2 Comp LJ 121 (SC) : AIR 1992 SC 1439, it was held by the Supreme Court that though the language of section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started till after implementation of the scheme or disposal of an appeal, it would be reasonable to hold that the bar or embargo can apply to such of those dues reckoned or included in the sanctioned scheme. Although the Supreme Court decision was rendered in the light of unamended provisions of section 22 and the amended provisions relate not only to legal proceeding, but also to suit, in my considered opinion, the said amendment shall have no bearing and relevancy. It also does not in any manner bring about a change in the legal proposition laid down in Shree Chamundi Mopeds (1992) 2 Comp LJ 121 (SC), supra. It was held in the case of Deputy Commercial Tax Officer (1997) 2 Comp LJ 164 (SC), supra, that to be entitled to stay of the legal proceedings under section 22 a mere pendency of the enquiry would not suffice and to get benefit, one has to show that the dues have been reckoned or included in the sanctioned scheme. It was also held that section 22 (1) is also not attracted to the dues incurred after the date of sanctioned scheme. This court in Sirmor Sudburg Auto Ltd. (1998) 1 Comp LJ 30 (Del), supra, took notice of the aforesaid factors laid down by the Supreme Court. 8. In view of the aforesaid proposition of law laid down by the Supreme]Court, there could be no two opinions on the effect thereof. There is no scope to agitate that the suit seeking for eviction and recovery of possession should be stayed in view of the provisions of section 22 of the Act. Therefore, section 22 cannot stand as a hurdle in the way of a suit for possession. This, however, is not the end of the matter, for the present suit was also instituted for recovery of mesne profits and damages, which according to the counsel for the petitioner were dues relating to the period prior to the date when the petitioner was declared sick and, therefore, in view of the provisions of section 22 of the Act, continuation of the suit so far as it relates to the recovery of mesne profits and damages is required to be stayed . 9. No documentary evidence has been produced to show that any scheme has been sanctioned. Unless and until the dues in the nature of arrears of rent and damages and mesne profits which is in arrears form part of the scheme for rehabilitation, there could be no embargo or bar to realise such arrears of rent and mesne profits and damages, for the landlord cannot be deprived of the amount which is legitimately due to him and such amount cannot be withheld indefinitely and unreasonably. As is held in Corromandal Pharmaceuticals case (1997) 2 Comp LJ 164 (SC), supra, a reasonable construction should be given to the language of the provisions of the Act which is not unfair and also not unreasonable. The Additional District Judge has also considered the aforesaid aspect and has held that as the recovery of damages/mesne profits claimed by the plaintiff from the defendant in the present case are not included in the sanctioned scheme of the Board, the suit cannot be stayed even for the recovery of such damages/mesne profits. The said
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conclusions are in consonance with the ratio of the decision laid down by the Supreme Court. 10. I, therefore, do not find any error in the exercise of jurisdiction by the trial court. The petition has no merit and is dismissed accordingly.
20. CONCLUSION
The intrinsic Characteristics governing a model recognized restructuring process in any part of the planet are universal if not similar though they may be prearranged differently. Sick Industrial Companies Special Provisions Act, 1985 is planned, more or less, on the above principles. The issue which, thus, arises for deliberation and discussion is as to why SICA has been called as a fractured regime and why it has been a fiasco in rehabilitation o f sick companies. The best advice here would be, any good legislative framework for its triumph is dependent upon effective judicial process attached to efficient implementation apparatus. Not only we are required to bring about changes in implementation process but also we need to change our thought process towards rehabilitation of sick companies. The call for commercial approach towards sick companies is called for and it is the need of the hour in this era o globalization. Attempt towards rehabilitation is required rather than just helping the organization in becoming bankrupt. As it is always said something is better than nothing same applies here keeping sick companies and rehabilitating them will be a better option instead of closing down the organization. As the Companies Bill 2009 which changes the entire framework of laws relating to corporate has been pending to be passed, the idea of a new legislative framework in regard to sick companies is futile.
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CHAPTER III
BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUSTION (BIFR)
SYNOPSYS:
1) INTRODUCTION 2) OBJECTIVES OF THE ACT 3) BIFR AND AAIFR 4) ORGANISATIONAL STRUCTURE OF BIFR 5) PROCEDURE IN NUTSHELL 6) REPORTING TO BIFR 7) ENQUIRY BY BIFR INTO WORKING OF SICK INDUSTRIAL COMPANIES (SEC-16) 8) ROLE OF BIFR 9) SARFAESI ACT 10) PROCEDURE FOR LISTING OF REFERENCES AND MISCELLANEOUS APPLICATIONS IN BIFR 11) BIFR AND NCLT & NCLAT 12) EVOLUTION OF THE POLICY TOWARDS SICK COMPANIES AND ROLE OF BIFR IN THEIR REVIVAL 13) TIMING AND SEQUENCING UNDER SICA 14) REVIVAL PACKAGE 15) REGISTERED CASES 16) YEAR WISE PERFORMANCE OF BIFR 17) EXTENT OF SICKNESS IN JOINT & PRIVATE SECTOR COMPANIES REFERRED TO BIFR 18) STATE WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND CASES DISPOSED OFF BY BIFR 19) INDUSTRY WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND DECISION TAKEN BY BIFR 20) DRAWBACKS OF BIFR a) PROCEDURAL DELAYS b) LACK OF TIMELY COMMENCEMENT OF PROCEEDINGS 21) CASE STUDY (10) 22) CRITICISM
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23) BIFR A FIASCO
BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUSTION --BIFR
1.INTRODUCTION
Evolution of the Policy towards Sick Companies and Role of BIFR in their Revival The sizable magnitude and incidence of sickness has been a serious concern for the Government, the banks and the financial institutions in view of the responsibility taken up by the Government in industrialising the country in various forms particularly through the deployment of huge financial resources in industrial ventures -- both public and private. In the past various efforts were made by the Government in consultation with the Reserve Bank of India (RBI) to tackle the problem o sick units. The first such step was taken in 1971 to set up Industrial Reconstruction Corporation of India Ltd (IRCI) to provide reconstruction and rehabilitation assistance to sick and closed units. The financial institutions have also been engaged in providing assistance to sick units by setting up separate cells with technical and financial experts to deal with the problem of sickness. A high level Committee appointed by the Government in 1976 opined that the existing legislation may be suitably amended to merge sick units with healthy ones. In 1978 the RBI drew the attention of the banks in dealing with sick industrial units in thesmall scale sector. The "Statement on Policy of Sick Industries" announced by the Government in 1978 aimed at devising suitable means for dealing effectively with sick industrial units and also setting up a mechanism for monitoring and detecting sickness at an early stage. In 1980 state level inter-institutional committees were set up to tackle the problem of sickness. In order to have a coordinated approach at all-India level, the Government decided to refer the sick units receiving rehabilitation assistance from banks to the IRCI and the units receiving assistance from term lending institutions to the Industrial Development Bank of India. In 1981, the RBI appointed a Committee to examine the legal and other problems faced by the banks and financial institutions in rehabilitation of sick industrial units and to suggest remedial measures for effectively tackling the problem of sickness. The Committee headed by T. Tiwari opined that "The remedies as available in terms of various existing statutes for reviving and rehabilitation o sick industrial units are inadequate and dilatory". The Committee, therefore, stressed the need for comprehensive legislation designed to deal with the problems of sick industrial units. The Committee further recommended the setting up of a quasi-judicial body called Board for Industrial Revival under special legislation to deal expeditiously and exclusively with the matters The high level committee while making recommendations governing merger of sick units with healthy ones recommended that in order to avoid a heavy drain on the exchequer it was necessary
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to explore ways in which potentially viable sick industrial units can be revived through voluntary merger with sound units for which a specific scheme should be drawn up to supplement the existing provisions regarding merger and reconstruction under the Companies Act, 1956
2. OBJECTIVES OF THE ACT
A perusal of the statement of objects and reasons encapsulated in Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) clearly indicates that the intention of the Legislature is to overcome the ill-effects of industrial sickness such as loss of production, loss of employment, loss of revenue to Central and State Governments and the blockage of liquid funds of the banks and financial institutions given in the form of financial assistance, led to the enactment of SICA. Therefore, the legislature in its wisdom decided to enact a special law to deal with the industrial sickness. We may also note that the mere fact that the net worth has become positive does not provide an automatic exit route from the proceedings before the BIFR. It is open to the BIFR to continue to monitor the implementation of the unimplemented part of the sanctioned scheme till it is satisfied that operations of the sick industrial company have long term sustainability.
3. BIFR AND AAIFR
The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in January, 1987 and functional with effect from 15th May, 1987. The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) was constituted in April 1987. Government companies were brought under the purview of SICA in 1991 when extensive changes were made in the Act including, inter-alia, changes in the criteria for determining industrial sickness. ). BIFR was set up as an apex board to tackle industrial sickness and was entrusted with the work o taking appropriate measures for revival and rehabilitation of potentially sick undertakings and for liquidation of non-viable companies. While, AAIFR was constituted for hearing the appeals against the orders of the BIFR.
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4. ORGANISATIONAL STRUCTURE OF BIFR
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5. PROCEDURE IN NUTSHELL
BIFR would make an inquiry as it may deem fit for determining whether any industrial company had become sick, under the following conditions: – If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. Such reference was to be made within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company had become sick. For filing the reference, the Board of Directors must have sufficient reasons to form the opinion that the company had become sick; or On receiving such information (reference) with respect to a sick company or upon its own knowledge as to the financial condition of a company. Such a reference to the board may be made by: – (i) The Central Government; (ii) The Reserve Bank of India; (iii) State Governments; (iv) Public financial institutions; (v) State level institutions; or (vi) Scheduled banks. However, such a reference shall not be made in respect of any industrial company by – : (i) the Government of any State, unless all or any of the industrial undertakings (belonging to such a company) were situated in that State; (ii) a public financial institution or a State level institution or a scheduled bank, unless it had, by reason of any financial assistance or obligation rendered by it or undertaken by it, interest in such a company. The Board may order any Operating Agency to enquire into the matter and complete the inquiry as expeditiously as possible. If the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company, it may appoint one or more persons as Special Director(s) of the company for safeguarding the financial and other interests of the company. The appointment of a special director shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company. Any special director so appointed shall :– (i) hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board; (ii) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto; (iii) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement;
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(iv) not be liable to be prosecuted under any law for anything, done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company. If after making an inquiry, the Board is satisfied that the company has become sick, it shall, after considering all the relevant facts and circumstances of the case, may take either of the following decisions: – If the Board decides that it is practicable, it shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. – If the Board decides that it is not practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare a scheme providing for such measures in relation to that company. The measures may include: –
The financial reconstruction of the sick industrial company; The proper management of the sick industrial company by change in or take over of the management of the company; The amalgamation of the sick industrial company with any other company (transferee company), or any other company with the sick industrial company (transferee company); The sale or lease of a part or whole of the sick industrial company; Such other preventive, ameliorative and remedial measures as may be appropriate; Such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above. – If the Board 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 as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. The High Court shall, on the basis of the opinion of the Board, order winding-up of the sick industrial company in accordance with the provisions of the Companies Act, 1956.
Where in respect of an industrial company, an inquiry is pending, or any scheme referred is under preparation or consideration or a sanctioned scheme is under implementation, then no proceedings for the winding-up of the industrial company or for execution, distress or the like against any o the properties of the industrial company shall be made. Also, 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 further, except with the consent of the Board or, as the case may be, the Appellate Authority.
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Also with respect to the above conditions, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances o property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any o the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board.
However, such declaration shall not be made for a period exceeding two years, which may be extended by one year at a time so that the total period shall not exceed seven years in the aggregate. Under the Act, whosoever violates its provisions or any scheme or any order of the Board or of the Appellate Authority, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine. No court shall take cognizance of any offence mentioned except on a complaint in writing of the secretary or any such other officer of the Board or the Appellate Authority or any such officer of an operating agency as may be authorised in this behal by the Board or the Appellate Authority.
It is mandatory for the Board of Directors of the sick company to file reference under Section 15 of SICA on erosion of entire net worth of the company. Once a reference is filed, the Board for Industrial and Financial Reconstruction (BIFR / Board) is empowered to make enquiry to examine the sickness status of the company. The Board is empowered, if it so desires, to appoint one or more persons as a special director(s). Upon inquiry once the BIFR comes to the conclusion that the referrer is a sick Industrial company, the Board has to take a view as to whether it is practicable for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time on its own or, if it is, not so or it is of the opinion that it is expedient in public interest to adopt all or any of the measures provided in section 18 of the SICA, it can appoint an operating agency to formulate a scheme for revival of the company (reference, section 17, sub-sections (2) and (3)). If the BIFR passes an order under Section 17(3), then an operating agency is required to prepare a scheme ordinarily within a period of 90 days. Such a scheme can provide for measures which are necessarily broad and wide as contained in clauses (a) to (f) of sub-section (1) or section 18. In addition, the scheme prepared by the operating agency can also provide for various measures as delineated in clauses (a) to (m) of sub-section (2) of Section 18. Once such a scheme is prepared by an operating agency it is required to be examined by the BIFR. The BIFR thereafter is required to send the scheme (which at that point of time is only a draft scheme) with modifications if it so chooses, to the sick industrial company, and the operating agency. In the event, amalgamation is proposed in the scheme as a measure of revival, then such a draft scheme is also sent to any other company which is concerned with the amalgamation. In
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order to invite suggestion and objections the BIPR is required to get such a draft scheme in brief, published in daily newspapers as considered necessary by the BIFR it (section 18 (3)(u)). The BIFR has been conferred the power of reviewing a sanctioned scheme under sub-section (5) of section 18. However, once a scheme gets sanctioned then it is presumed that all requirements o the scheme relating to reconstruction or agreement or any other measures have been complied with. A certified copy of the sanctioned scheme issued by the officer of the BIFR can be admitted as evidence in all legal proceedings. Once the scheme becomes operable or any of its provisions become operative, it binds the sick industrial company, the transferee company, or as the case may be ,such other company, as also the shareholders, creditors, guarantors, or employees of the said companies. The power of removing difficulties vis-à-vis a sanctioned is conferred on the BIFR u/s 18(9) provided such an order or direction is not inconsistent with the provisions of the sanctioned scheme. U/s 18(10) the BIFR is empowered to direct a specified Operating Agency to implement the sanctioned scheme in consonance with the terms and conditions contained therein and in relation to such a sick industrial company. U/s (12) of Section 18 the BIFR has been given the power to periodically manage the implementation of the sanctioned scheme. discharge the functioning and duties imposed on the Board by or under the Act.) Before the evolution of SICA, the power to sanction the scheme of amalgamation was vested only with the high court. However, sec.18 of the SICA 1985 empowers the BIFR to sanction a scheme of amalgamation between sick industrial company and another company over and above the power of high court as per section 391-394 of companies Act, 1956. The amalgamation take place under SICA have a special place in law and are not bound by the rigor of companies Act, 1956, and Income Tax Act,1961. There is no need to comply with the provisions of sec.391-394 of companies Act,1956 for amalgamation sanctioned by BIFR. The scheme of amalgamation however must be approved by shareholders of healthy company after getting approval from BIFR. Sec.72A of the Income Tax Act has been enacted with a view to providing incentives to healthy companies to takeover and amalgamation with companies which would otherwise become burden on the economy. The accumulated losses and unabsorbed depreciation of the amalgamating company is deemed to loss or allowance for depreciation of the amalgamated company. So amalgamated company gets the advantage of unabsorbed depreciation and accumulated loss on the precondition of satisfactory revival of sick unit. A certificate from specialized authority to the effect that adequate steps have been taken for rehabilitation or revival of sick industrial undertaking has to be obtained to get these benefits. Thus the main attraction for the healthy company to takeover a sick company through a scheme of amalgamation is the tax benefits that may be available to it consequent to amalgamation. The approach usually followed is to quantify the possible tax benefits first and then get an order as part of rehabilitation package from BIFR. Once BIFR is convinced about the rehabilitation benefit it passes an appropriate order to see that benefits of tax concessions properly ensure to the transferee isolation Section 18 of SICA provides for various measures to be recommended by the operating agency in
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the scheme to be prepared by it for submission to the BIFR concerning the sick industrial unit. Before the amendment, in 1994 under SICA, only normal amalgamation (of sick company with healthy one) was possible and the Act did not provide for reverse merger of a profitable company with sick company. Now the amended Sec.18 of the Act contains provision for effecting both normal and reverse merger. It provides for the amalgamation of Sick industrial company with any other company Any other company with the sick industrial company.
It may be pointed out that insofar as certain concerned entities such as the Central Government, the State Government, the Banks or even Public Financial Institutions or State Level Institutions or any institutions or authority, SICA provides for obtaining their consent to the draft scheme where the Scheme provides for financial assistance by way of loans and advances, guarantees or relief and concessions or calls upon them to make sacrifices in relation to financial assistance already granted by such entitles [sections 19(1) and (2)]. Once the process under sub-section (2) o section 19 is over, the scheme becomes binding on all concerned. If for any reason the BIFR, after making an inquiry under section 16 and after considering all relevant facts and circumstances, forms an opinion than it is not possible for the sick industrial company to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations, the BIFR can recommend its winding up to the concerned High Court, though this recommendation can be made only after hearing all concerned. In order to provide a protective umbrella to a sick industrial company section 22, of SICA provides for bar against institution, and if already instituted suspension, of legal proceedings of the kind referred to in the said section except with the consent of the BIFR or the AAIFR as the case may be. Section 22 of SICA provides that legal proceedings against an industrial company – that is, a company that owns a factory wherein it carries on any of the industries specified in the schedule to the Industries (Development and Regulation) Act, 1951 – shall remain suspended if an inquiry to determine whether the industrial company is sick is pending before the Board for Industrial and Financial Reconstruction (BIFR), if a scheme for its rehabilitation is being prepared or is under consideration of BIFR, or if an appeal against BIFR‘s order is pending. Section 22A — empowers the BIFR to issue necessary direction to the sick industrial company to desist from disposing of its assets during preparation or consideration of the Scheme under section 18 and during commencement of the proceedings for winding up before the concerned High Court.. Any party aggrieved by an order of the BIFR may file an appeal u/s 25 before the Appellate Authority of Industrial & Financial Reconstruction (AAIFR). Section 32 of SICA provides that the provisions of the scheme formed under the SICA, i.e. the sanctioned scheme, shall override all other laws except the Foreign Exchange Regulations Act, 1973 and the Urban Land (Ceiling & Regulations) Act, 1976. In view of the aforesaid provisions there can hardly be any doubt that once a scheme is formulated after a reference is made through the process of Sections 17 & 18 of the SICA, the said scheme
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would have the force of law notwithstanding anything inconsistent therewith contained in any other law
Under the Act, whosoever violates its provisions or any scheme or any order of the Board or of the Appellate Authority, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine. No court shall take cognizance of any offence mentioned except on a complaint in writing of the secretary or any such other officer of the Board or the Appellate Authority or any such officer of an operating agency as may be authorised in this behal by the Board or the Appellate Authority. Sick Industrial Companies (Special Provisions) Act,1985 (SICA) was repealed and replaced by Sick Industrial Companies (Special Provisions) Repeal Act,2003. The new Act diluted some o 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 o 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
The companies (Amendment) Act, 2001 has repealed the sick Industrial Companies Act (SICA) 1985, in order to bring sick industrial companies within the purview of companies Act 1956 from the jurisdiction of SICA, 1985. The Act has introduced new provisions for the constitution of a tribunal known as the National Company Law Tribunal with regional benches which are empowered with the powers earlier vested with the Board for Industrial and Financial reconstruction (BIFR). (Note: Board for Industrial and Financial Reconstruction (BIFR) was established by central government under SICA, 1985 for detection of sick and potentially sick industrial units and speedy determination pf their remedial measures and to exercise the jurisdiction and powers and
In the wake of sickness in the country‘s industrial climate prevailing in the eighties, the Government of India set up in 1981, a Committee of Experts under the Chairmanship of Shri T.Tiwari to examine the matter and recommend suitable remedies therefore. Based on the recommendations of the Committee, the Government of India enacted a special legislation namely, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) commonly known as the SICA.
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The main objective of SICA is to determine sickness and expedite the revival of potentially viable units or closure of unviable units (unit here in refers to a Sick Industrial Company). It was expected that by revival, idle investments in sick units 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 Provisions) Act, 1985 (hereinafter called the Act) was enacted with a view to securing the timely detection of sick and potential sick companies owning industrial undertakings, the speedy determination by a body of experts of the preventive, ameliorative, remedial and other measure which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in January, 1987 and functional with effect from 15th May 1987. The Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) was constituted in April 1987. Government companies were brought under the purview of SICA in 1991 when extensive changes were made in the Act including, inter-alia, changes in the criteria for determining industrial sickness. SICA applies to companies both in public and private sectors owning industrial undertakings:(a) pertaining to industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, (IDR Act) except the industries relating to ships and other vessels drawn by power and; (b) not being "small scale industrial undertakings or ancillary industrial undertakings" as defined in Section 3(j) of the IDR Act. (c) The criteria to determine sickness in an industrial company are (i) the accumulated losses o the company to be equal to or more than its net worth i.e. its paid up capital plus its free reserves (ii) the company should have completed five years after incorporation under the Companies Act, 1956 (iii) it should have 50 or more workers on any day of the 12 months preceding the end of the financial year with reference to which sickness is claimed. (iv) it should have a factory license.
(a) Section 17 of SICA specifies that if after making an enquiry under section 16, the Board is satisfied that the company became sick it should examine whether it is practicable for the company to make its net worth positive within a reasonable time. What time is 'reasonable' will again depend on the facts and circumstances of the case. If the Board decides that it is so practicable, an order is passed under section 17(2) of the Act specifying the time for making the net worth positive, subject to such conditions or restrictions as may be mentioned in the order. (b) If the Board feels that it is not practicable for a company to make its net worth positive within Reference of Sick Companies to BIFR
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Of the 1175 cases referred to the BIFR till the end of December 1992, 215 were found to be not maintainable. A further 167 sick companies were allowed time to make their net worth positive (See Table - 2). Rehabilitation schemes were sanctioned in 257 cases and in 170 cases the Board recorded its decision to wind up the companies and forwarded its decision to the concerned High Courts. The balance 366 references were under various stages of processing by the BIFR as on December 31, 1992. Employment of large number of persons, involvement of heavy amount of public funds, the industry being a strategic one from defence point of view and being lone industrial unit o significance in backward area are the main criteria for deciding public interest. If the Board is satisfied that the revival of the company is in the public interest, an operating agency is appointed under section 17(3) of the Act, a rehabilitation scheme is prepared, and after one or more hearings where it is discussed with all concerned, a scheme is sanctioned under section 18(4) of the Act. (c) After consideration of all the relevant facts and circumstances if the Board is of the opinion that if the company should be wound up, it may record its opinion and forward it to the concerned High Court. It may also, under sub-section (2) or (3), the Board may also cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529-A and other provisions of the Companies Act, 1956. For further details see: BIFR,
There is, however, a possibility of overlapping in the reported number of references as references could be made under both sections 15(1) and 15(2) of the Act for the same industrial concern. For details on the references see: M.S. Narayanan, "Industrial Sickness: Review of BIFR's Role", Economic and Political Weekly, Vol. XXIX, No. 7, February 12, 1994, pp. 362-376. There was no uniform time period for references received and cases disposed off by the BIFR. In the case of chemicals and food processing industries references received up to December 31, 1992 were covered in the volumes of case studies. In respect of textiles, jute, electricals and electronics, paper, leather, rubber, cement and cement products, transportation and misc. industries were covered up to December 31, 1991 and in case of metallurgical up to December 1990.6
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6. REPORTING TO BIFR
The Board of Directors of a sick industrial company is required, by law, to report thesickness to the BIFR within 60 days of finalization of audited accounts, for the financialyear at the end o 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 financialinstituti on/bank that has lent loan to the company, the RBI, the Central/StateGovernments. 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 under advice toother participating banks in the consortium.
7. ENQUIRY BY BIFR COMPANIES (SEC-16)
INTO WORKING OF
SICK INDUSTRIAL
(1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company -
(a) upon receipt of a reference with respect to such company under section 15; or
(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.
(2) The Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matter as may be specified in the order.
(3) The Board or, as the case may be the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry.
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Explanation: For the purposes of this sub section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board.
(4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or, as the case may be, under sub-section (2), it may appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company or in the public interest.
(4A) The Board may issue such directions to a special director appointed under sub-section (4) as it may deem necessary or expedient for proper discharge of his duties.
(5) The appointment of a special director referred to in sub-section (4) shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 o 1956) or in any other law for the time being in force or in the memorandum and articles o association or any other instrument relating to the industrial company, and any provision regarding share qualification, age limit, number of directorships, removal from office of directors and such like conditions contained in any such law or instrument aforesaid, shall not apply to any director appointed by the Board.
(6) Any special director appointed under sub- section (4) shall -
(a) hold office during, the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board;
(b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto;
(c) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement;
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(d) not be liable to be prosecuted under any law for anything, done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company."
A plain reading of Section 16(1) of SICA would indicate that the prime duty of the BIFR in making an inquiry is for the purpose of determining whether an industrial company has become a sick industrial company or not. Of course, sub-section (1) of Section 16 has two parts. Clause (a) of Section 16(1) refers to a situation where the Board embarks upon an inquiry upon receipt of a reference under Section 15 of SICA. We may recall that the reference under Section 15 may be made either at the instance of the Board of Directors o the company which purports to be a sick industrial company or under Section 15(2) at the instance of the Central Government, Reserve Bank etc. where such institution has sufficient reasons to believe that an industrial company has become a sick industrial company. Clause (b) of Section 16(1) contemplates an inquiry in a situation where the BIFR undertakes such inquiry upon information received with respect to a company or upon its own knowledge as to the financial condition of such a company. In either eventuality, that is, either upon receipt of a reference or upon information, the BIFR has to make an inquiry for determining whether the industrial company in question has become a sick industrial company or not. Of course, the type and kind of inquiry that the BIFR has to make has been left to the BIFR, inasmuch as the expression used is :- "the Board may make such inquiry as it may deem fit".
By virtue of sub-section (2) of Section 16 of SICA, in cases where the BIFR deems it necessary or expedient so to do for the expeditious disposal of an inquiry under Section 16(1), the BIFR may require an operating agency to inquire into and make a report with respect to such matters as may be specified in the orders passed by the BIFR in this regard. At this juncture we would like to point out that the definition of "operating agency" given in Section 3(1)(i) is as follows:
"(i) "operating agency" means any public financial institution, State level institution, scheduled bank or any other person as may be specified by general or special order as its agency by the Board;"
In other words, the operating agency has to be appointed by the BIFR by a general or a special order as its agent for the purposes of making a report. We may also mention that by virtue of Section 16(3), it is apparent that all endeavours are to be made to complete the inquiry as expeditiously as possible and within a period of sixty days from the commencement of the inquiry. The explanation to Section 16(3) makes it clear that an inquiry is deemed to commence upon the receipt by the Board of a reference or upon its
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own knowledge reduced to writing by the Board.
In the present case since a reference has been made by the Board of Directors of the petitioner company under Section 15(1), the inquiry would be deemed to have commenced on the date on which the reference was received, that is, on 12.07.2005. Consequently, i we were to strictly comply with the provisions of Section 16(3) of SICA, the BIFR should have endeavoured to complete the inquiry within sixty days thereof, but unfortunately that did not happen and even the first date on which the petitioners reference was taken up by the Board was much later, on 22.03.2006. Anyhow, that is another aspect of the matter with which we are not concerned in this writ petition.
It is clear from the above resume with regard to the provisions of Section 16 of SICA that it is incumbent upon the BIFR to conduct an inquiry for the purpose of determining whether the industrial company has become a sick industrial company or not. Such inquiry has to be conducted upon receipt of a reference under Section 15 or upon information received by the BIFR. The inquiry has to be conducted by the BIFR itself, but as provided under Section 16(2), where it is necessary for expeditious disposal of an inquiry and where the BIFR deems it expedient to do so, the BIFR may appoint an operating agency and require it to inquire into and make a report with respect to the matters which may be specified in the order. In any event, whether the inquiry is conducted by the Board itself or through an operating agency, it is imperative that once a reference is received, such an inquiry has to be conducted for determining whether the industrial company has become a sick industrial company or not. It is not open to the BIFR to reject a reference without returning a finding as to whether the company in question has become a sick industrial company or not.
What has been stated by us is also borne out in Chapter IV of the Board of Industrial and Financial Reconstruction Regulations, 1987 (hereinafter referred to as the "said regulations"). The said Chapter IV deals with inquiries under Section 16. Regulation 21 specifically provides that upon a reference with respect to an industrial company under Section 15 or upon information received with respect to such company or upon its own knowledge as to the financial condition of the company, the BIFR may either itself make such inquiry, as it may deem fit, for determining whether the company in question has become a sick industrial company or if it deems it necessary or expedient so to do, for the expeditious disposal of the said inquiry, direct by an order, an operating agency, to be specified in the order, to inquire into and make a report in respect of such matters as may be specified in the said order. By virtue of Regulation 22 the BIFR may also direct the operating agency to make a further inquiry if deemed necessary.
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Regulation 24 is important. It reads as under: - "24. Where the Board after completion o its inquiry or after considering the report or, as the case may be, the further report of the operating agency, is satisfied that no case exists for coming to the conclusion that the industrial company has become a sick industrial company, it shall drop further proceedings in the reference."
It is clear that as per the said Regulation 24 also two situations are contemplated (1) completion of the inquiry by the Board itself or (2) after considering the report of the operating agency or further report of the operating agency, as the case may be. Regulation 24 makes it clear that upon either of the two eventualities, if the BIFR is satisfied that no case exists for coming to the conclusion that industrial company has become a sick industrial company, it shall drop further proceedings in the reference. This regulation also makes it clear that it is imperative for the BIFR to record its satisfaction with regard to the question as to whether the concerned company has become a sick industrial company or not. If the satisfaction recorded indicates that the company in question is not a sick industrial company then further proceedings in the reference are to be dropped. If, on the other hand, the BIFR comes to the conclusion and is satisfied that the company in question has become a sick industrial company, it would then, as mentioned above, have to determine as to whether the said company is one which has potential for revival and rehabilitation or one where revival is not a viable option. We have already pointed out the courses that would be followed in either eventuality.
The learned counsel for the respondents had referred to Regulation 40 in order to submit that it is open to the BIFR to take assistance of public financial institutions, banks, other institutions, consultants, experts, chartered accountants etc. in furtherance of its functions. They placed reliance on Regulation 40 for the proposition that the IA report submitted by M/s ANG and Associates would fall within such assistance as contemplated under this Regulation. Consequently, it was submitted that the Board committed no error in relying upon the IA report in so far as the petitioner company is concerned. Regulation 40 reads as under:
"Assistance to the Board. The Board may, at any time, take the assistance of public financial institutions, banks or other institutions, consultants, experts, chartered accountants, surveyors and such other technical and professional persons as it may consider necessary and ask them to submit report or furnish any information.
Provided that if the report or information so obtained or any part thereof is brought on record of any inquiry and is proposed to be relied upon by the Board for forming its opinion or view, the party or parties to the inquiry shall be given a reasonable opportunity of making his or their submissions with respect thereto."
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One thing that immediately strikes us is that the assistance that is spoken of in Regulation 40 is invited at the instance of the BIFR. The language is clear, inasmuch as it contemplates that the BIFR may ask any of the said institutions, consultants, chartered accountants etc. to submit a report or furnish information. The occasion for the BIFR to do so would arise only after it commences an inquiry. As we have noticed above, the inquiry commenced, in this case, on 12.07.2005, the date on which the reference received by the BIFR. Therefore, the assistance that is contemplated in Regulation 40 is one which would be sought after the commencement of the inquiry by the BIFR and not some pre-existing report.
Having surveyed the various statutory provisions as well as the applicable regulations, we are of the clear view that the BIFR, once it receives a reference from the Board o Directors of the company, is duty bound to determine as to whether the company has become a sick industrial company or not. In the present case, we find that he BIFR did not return any such finding either way. All that the BIFR did was to reject the reference on the plea that the petitioner company had not approached the BIFR with clean hands, inasmuch as there were serious allegations in the IA report submitted by M/s ANG and Associates. The BIFR also rejected the reference on the ground that no reply to the IA report had been submitted by the petitioner company despite repeated opportunities. We are of the view that this approach is not in consonance with the law. Irrespective of the alleged conduct o the petitioner company, once a reference is received by the BIFR it has to make an inquiry for determining whether the company in question has become a sick industrial company or not. In the present case, we find that no such inquiry, as contemplated under Section 16 o the SICA, was embarked upon by the BIFR. On the contrary, BIFR, in fact, did not give any finding in so far as the IA report in respect of the petitioner company is concerned
BIFR would make an inquiry as it may deem fit for determining whether any industrial company had become sick, under the following conditions:If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. Such reference was to be made within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company had become sick. For filing the reference, the Board of Directors must have sufficient reasons to form the opinion that the company had become sick; or
On receiving such information (reference) with respect to a sick company or upon its own
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knowledge as to the financial condition of a company. Such a reference to the board may be made by:- (i) The Central Government; (ii) The Reserve Bank of India; (iii) State Governments; (iv) Public financial institutions; (v) State level institutions; or (vi) Scheduled banks.
However, such a reference shall not be made in respect of any industrial company by :- (i) the Government of any State, unless all or any of the industrial undertakings (belonging to such a company) were situated in that State; (ii) a public financial institution or a State level institution or a scheduled bank, unless it had, by reason of any financial assistance or obligation rendered by it or undertaken by it, interest in such a company. The Board may order any operating agency to enquire into the matter and complete the inquiry as expeditiously as possible.
If the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company, it may appoint one or more persons as special director(s) of the company for safeguarding the financial and other interests of the company. The appointment of a special director shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company.
If after making an inquiry, the Board is satisfied that the company has become sick, it shall, after considering all the relevant facts and circumstances of the case, may take either of the following decisions:If the Board decides that it is practicable, it shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses.
If the Board decides that it is not practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare a scheme providing for such measures in relation to that company. The measures may include:
The financial reconstruction of the sick industrial company;
The proper management of the sick industrial company by change in or take over of the management of the company;
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The amalgamation of the sick industrial company with any other company (transferee company), or any other company with the sick industrial company (transferee company);
The sale or lease of a part or whole of the sick industrial company;
Such other preventive, ameliorative and remedial measures as may be appropriate;
Such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above.
If the Board 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 as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. The High Court shall, on the basis of the opinion of the Board, order winding-up of the sick industrial company in accordance with the provisions of the Companies Act, 1956.
When a case is referred to the BIFR, it is verified by the Registrar of the BIFR as towhether the facts of the case fall within the provisions of the Sick Industrial (Special provisions) Act, 1985. I so, the BIFR accepts the case and notifies a date for hearing thecase. For rehabilitating a sick unit, cooperation of various connected agencies is a must.This co-ordination is achieved by the BIFR. The BIFR invites the representatives of theinformant sick company, the representatives of concerned financial institutions andcommercial banks, representatives of the Central/State Governments, trade unionrepresentatives etc., to the hearing and inquiry is made under section 16 of the Act.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, SFC) or the lead public sector bank that has financed the company is nominated as the operating agency. Leadinstit ution is one that has major financial stake in the sick company. The enquiry is to becompleted within 60 days. On completion of the enquiry, the BIFR will declare whether the company is sick
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or not. Where in respect of an industrial company, an inquiry is pending, or any scheme referred is under preparation or consideration or a sanctioned scheme is under implementation, then no proceedings for the winding-up of the industrial company or for execution, distress or the like against any o the properties of the industrial company shall be made. Also, 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 further, except with the consent of the Board or, as the case may be, the Appellate Authority. Also with respect to the above conditions, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances o property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any o the rights, privileges, obligations and liabilities accruing or arising there under before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board. However, such declaration shall not be made for a period exceeding two years, which may be extended by one year at a time so that the total period shall not exceed seven years in the aggregate.
8. ROLE OF BIFR
BIFR deals with issues like revival and rehabilitation on sick companies, winding up of sick companies, institutional finance to sick companies, amalgamation of companies etc. BIFR is a quasi judicial body. The role of BIFR as envisaged in the SICA (Sick Industrial Companies Act) is: (a)Securing the timely detection of sick and potentially sick companies (b) Speedy determination by a group of experts of the various measures to be taken in respect of The sick company
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(c)Expeditious enforcement of such measures BIFR has a chairman and may have a maximum of 14 members, drawn from various fields including banking, labour, accountancy, economics etc. It functions like a court and has constituted four benches.
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 ofSick 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 o 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.
9. SARFAESI ACT
Parliament, through the Sarfaesi Act, has amended SICA and has inserted a provision whereby a "reference pending" before BIFR shall abate if secured creditors representing three-fourths in value of the amount outstanding against the financial assistance disbursed to the borrower have taken measures to recover their secured debt under section 13(4) of the Sarfaesi Act (as per the process described above). On a plain reading, it seems the amendment to SICA ensured that there remains no conflict between SICA and the Sarfaesi Act. However, the words "reference is pending", as used in the amendment to SICA, are being utilized by defaulting corporate borrowers to avoid enforcement o security by FIs. The borrowers argue that for FIs to be able to initiate action under the Sarfaesi Act, it is necessary that the reference filed by such borrowers should be pending before BIFR and that such reference does not remain pending once the borrower has been declared a sick industrial company by BIFR.
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10.PROCEDURE FOR LISTING OF MISCELLANEOUS APPLICATIONS IN BIFR
REFERENCES
AND
Following guidelines, as per approval of Board for Industrial and Financial Reconstruction (BIFR) are issued in regard to listing of references and applications in BIFR:1. Before the Board for Industrial and Financial Reconstruction (BIFR) the filings are primarily in two categories. The first is the filing of References reporting sickness of the Company and requesting for measures of rehabilitation. The second is miscellaneous filing including applications and request letters during the pendency of the Reference. 2. The References are to be listed within sixty days of their filing, so as to enable compliance with the mandatory requirement of service of the Reference to all the parties before it is taken up for hearing by the Bench. 3. Regarding the listing of Miscellaneous applications in pending References, the following procedure is proposed to be followed:
In addition to the monthly list published at the beginning of the month notifying the listing of the References, there would be a daily cause list notifying the listing of the applications. This will be notified on the website and displayed on the Notice Board. Orders and judgments will also be pronounced in open court. No separate notification will be given to the parties / authorized agents / advocates of the listing of the applications.
The list would be in three parts: a. Part I : - Pronouncement of orders and judgments b. Part II : - Miscellaneous Applications c. Part III : - References as per Advance List.
The list would be displayed on the Notice Board as well as on the website.
The NIC-BIFR Computer Centre would give necessary support in the computerization of the maintenance of data base as also of the website.
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Before filing the application, the applicant will be required to serve*, at least two days prior to filing, to all the parties appearing in the particular case by speed post/Registered AD. In case there is urgency and the applicant is seeking waiver of serving of two days‘ prior notice, he shall make an additional application to that effect which shall be considered by the Bench at the time o considering the main application.
The applications will be received along with proof of service of the advance copy, at the reception counter of BIFR and given a diary number.The application can be filed by an authorized agent or an advocate duly appointed by the applicant.
Filings would be permitted till 3.00 pm when all the filings for the day would be sent to the Bench Co-ordination Cell / Registrar of the BIFR
In the Bench Co-ordination Cell, one person would be authorized, to be dedicated, to only coordinating the receipt of applications. The Authorized Official would enter the details of the applications so received within one working day.
On receipt of application, there would be a preliminary scrutiny of the application by the Authorized Official in the Bench Co-ordination Cell who would then put up the application to the Registrar for examination of the comments/objections/defects pointed out by the Authorized Official. The Registrar would either approve the comments / objections / defects or suitably modify them. If there are any objections or requirements from the Registry, the same should be conveyed to the applicant within seven working days by the Registry/Authorized Officer. *
There would be a time limit of two weeks for removal of objections. If for any particular objection, the registry is not satisfied about the compliance and the applicant disputes the ruling of registry over removal of objections, the proceedings should be produced before the Board on a date requested for by the applicant so as to enable the applicant to satisfy the Board.
A list of the applications, mentioned in para 9 above, will be forwarded to the Bench officers, who alongwith their dates of receipt will forward to the Secretary for the purpose of listing.
A date of hearing would be scheduled on the sixth working day after the filing of the application. Where objections are removed the applications should be
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listed strictly on the basis of the date of filing.
On the date so fixed the parties appearing would be heard. In case the Bench feels that notice must go to the parties who are not appearing and their presence is required, then a fresh notice may be issued to all such parties notifying the next date. However, if the Bench feels that urgent orders need to be passed while such notice is served on parties who are not present, it may pass these adinterim orders pending the hearing of the parties.
All order / judgments would be passed after hearing the parties. The order / judgment may either be passed immediately on hearing the parties or the Order may be reserved and be pronounced later in open court after notification in Part-I of the list.
After the orders / judgments are ready for pronouncement, it would be shown for pronouncement in the list after two days to enable parties to be present for the pronouncement, if they so desire.
The name of the lawyers or parties would be indicated in each matter in the list.
4. These guidelines will come into force with effect from the date of issue. 5. These guidelines are forwarded to all concerned for information and necessary action. A copy of these Guidelines has been placed on BIFR
References to BIFR as on September 30, 2006 Sl. Status No .
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
A References registered (=1-2-3)
5,199
91
122
213
12 5,412
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5. DISPOSALS Dismissed (i) as non-maintainable
1,660
11
36
47
1,707
0
0
0
218
695
27
26
53
748
11
1
0
1
12
7. Declared on longer sick out of SI No. 6 462
9
14
23
485
8. Winding up recommended concerned high courts
29
40
69
1,303
127
(ii) as multiple registered
218
6. Rehabilitation schemes approved/sanctioned (i) by BIFR (ii) by AAIFR/SC
to
the 1,234
9. Dropped now
119
5
3
8
B Total (5+6+8+9)
3,937
73
105
178
4,115
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
1,262
18
17
35
1,297
C Pending
Total (C=A-B)
Source: BIFR, Department of Economic Affairs, Ministry of Finance
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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 o 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.
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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 o 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.
11. BIFR AND NCLT & NCLAT
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
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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 theCompanies (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.
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12. EVOLUTION OF THE POLICY TOWARDS SICK COMPANIES AND ROLE OF BIFR IN THEIR REVIVAL
The sizable magnitude and incidence of sickness has been a serious concern for the Government, the banks and the financial institutions in view of the responsibility taken up by the Government in industrialising the country in various forms particularly through the deployment of huge financial resources in industrial ventures -- both public and private. In the past various efforts were made by the Government in consultation with the Reserve Bank of India (RBI) to tackle the problem of sick units. The first such step was taken in 1971 to set up Industrial Reconstruction Corporation of India Ltd (IRCI) to provide reconstruction and rehabilitation assistance to sick and closed units. The financial institutions have also been engaged in providing assistance to sick units by setting up separate cells with technical and financial experts to deal with the problem of sickness. A high level Committee appointed by the Government in 1976 opined that the existing legislation may be suitably amended to merge sick units with healthy ones.
In 1978 the RBI drew the attention of the banks in dealing with sick industrial units in the small scale sector. The "Statement on Policy of Sick Industries" announced by the Government in 1978 aimed at devising suitable means for dealing effectively with sick industrial units and also setting up a mechanism for monitoring and detecting sickness at an early stage.
In 1980 state level inter-institutional committees were set up to tackle the problem o sickness. In order to have a coordinated approach at all-India level, the Government decided to refer the sick units receiving rehabilitation assistance from banks to the IRCI and the units receiving assistance from term lending institutions to the Industrial Development Bank of India. In 1981, the RBI appointed a Committee to examine the legal and other problems faced by the banks and financial institutions in rehabilitation of sick industrial units and to suggest remedial measures for effectively tackling the problem o sickness. The Committee headed by T. Tiwari opined that "(T)he remedies as available in terms of various existing statutes for reviving and rehabilitation of sick industrial units are inadequate and dilatory".
The Committee, therefore, stressed the need for comprehensive legislation designed to deal with the problems of sick industrial units. The Committee further recommended the
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setting up of a quasi-judicial body called Board for Industrial Revival under special legislation to deal expeditiously and exclusively with the matters.
The high level committee while making recommendations governing merger of sick units with healthy ones recommended that in order to avoid a heavy drain on the exchequer it was necessary to explore ways in which potentially viable sick industrial units can be revived through voluntary merger with sound units for which a specific scheme should be drawn up to supplement the existing provisions regarding merger and reconstruction under the Companies Act, 1956.
Financial Institutions in Rehabilitation of Sick Industrial Undertakings and Suggest Remedial Measures including changes in the Law, Bombay, 1984, (Chairman: T. Tiwari)
"Statement on Policy of Sick Industries, 1978", reproduced in Government of India, Ministry of Industries, Guidelines for Industries, Part-I, Policy and Procedures, 1982, Sec. II-17. Board of industrial and Financial Reconstruction (BIFR) was established by the CentralGovernment, under section 3 of the Sick Industrial Companies (Special provisions) Act,1985 and it became fully358 Project Management operational in May, 1987.
BIFRdealswith issues like revival and rehabilitation on sick companies, winding up of sick compa nies, institutional finance to sick companies, amalgamation of companies etc.BIFR is a quasi udicial body. The role of BIFR as envisaged in the SICA (Sick IndustrialCompanies Act) is: (a) Securing the timely detection of sick and potentially sick companies. (b) Speedy determination by a group of experts of the various measures to be taken inrespect o the sick company. (c) Expeditious enforcement of such measuresBIFR has a chairman and may have a maximum o 14 members, drawn from variousfields including banking, labour, accountancy, economics etc. It functions like a court andhas constituted four benches. The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in January, 1987 and functional with effect from 15th May 1987. The Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) was constituted in April 1987. Government companies were brought under the purview of SICA in 1991 when extensive changes were made in the Act including, inter-alia, changes in the criteria for determining industrial sickness.
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13. TIMING AND SEQUENCING UNDER SICA
When a company meets the sickness criteria, the law requires it to make reference to the Board for Industrial and Financial Reconstruction (BIFR for short) within 60 days.54 The BIFR exercises the jurisdiction and powers and discharges the functions and duties imposed under SICA. The BIFR has to determine within a period of another 60 days if the company in concern is indeed sick. If it does, it has to make an official declaration on the matter. It may appoint one or more special directors to safeguard the financial and other interests of the firm. If the presumption o sickness is verified, the BIFR has to decide whether or not it is in principle practicable to restore the company to economic viability via reconstruction. Where this is not the case, it might still be ―in the public interest‖ to prevent winding-up. Also, at this stage the BIFR has to decide whether or not the company is able to recover ―within reasonable time‖ (which translates into 7 -10 years) without external expertise and without financial assistance. If the answer is negative, the BIFR appoints so-called Operating Agencies (OAs for short) and charges them to work out a scheme o suitable measures.
.
14.REVIVAL PACKAGE
Once a company has been found sick, the BIFR may grant time to the sick company toenable it to make its net worth positive and bring the company out of sickness, withoutany external financial assistance. If it is found infeasible for company to make its networth positive with out any external financial assistance or if the BIFR decides that thecompany can not make its net worth positive Rehabilitation of Sick Units . within a reasonable time, the BIFR will direct the operating agency to prepare a suitable revival package for the restoration of the health of the company. The operating agency prepares a suitable revival package. 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 o 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
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by the BIFR. On submission of the revival package by the operating agency, the BIFR sends the revivalpackage in a draft form to all the interested parties (i.e., the sick industrial company, the banks/ financial institutions who have given financial assistance to the sick company, the operating agency , the transferee company (if there is a recommendation in the revival package for amalgamation) etc., eliciting their views/suggestions on the revival package. The BIFR will also publish particulars o the draft revival package in newspapers inviting suggestions/objections, if any, from the shareholders of the sick company, creditors and employees of the sick company, transferee company and any other interested party. On receipt of views/suggestions/objections on the draft revival scheme, the BIFR may, if deemed fit, afford an opportunity to the interested parties to be heard. After careful examination of all the aspects, the BIFR will sanction the revival scheme with or without any modifications.
The scheme, as sanctioned, will come into force from the specified date and all the concerned parties are required to abide by the provisions of the revival scheme. The BIFR may also order the operating agency to implement the sanctioned revival scheme.
When the revival package as finalized by the BIFR contains further financial assistance or reliefs, concessions, sacrifices etc. (for example, sanctioning of additional financial assistance for the purchase of certain balancing equipments, waiving of penal interest/compound interest charged, waiving of interest in part or full, waiver from sales tax etc.) the scheme will be circulated to the concerned agencies for their consent to be received within a period of 60 days. Once the various agencies involved in the revival scheme give their consent to the scheme, it will become binding on the consenting parties to implement the recommendations contained in the revival scheme.
However, when any of the involved agency does not give its consent to the scheme, the BIFR has no powers to force the agency to accord its consent. If in the opinion of the BIFR, the revival package can not be successful with out the consent from one or more of the agencies involved, the BIFR has no other option but to recommend for winding up of the company. In fact, the threat o actual winding up of the company is the only weapon in the hands of the BIFR to make the various agencies to extend suitable reliefs and concessions as may be deemed necessary by the BIFR. BIFR itself cannot initiate the winding up proceedings. It can only forward its opinion to the concerned High Court and the High Court will initiate the winding up proceedings.
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15. REGISTERED CASES
REGISTERED CASES OF YEAR 2009
(As on 31.12.2009)
S. NO.
CASE NO.
1.
1/2009
M/s B.R. Spintex Pvt. Ltd.
2.
2/2009
M/s Scanpoint Geomatics Ltd.
3.
3/2009
M/s Ralson Industries Ltd.
4.
4/2009
M/s Metlon India (P) Ltd.
5.
5/2009
M/s Eagle Metal Printers Pvt. Ltd.S
6.
6/2009
M/s Rana Mohendra Papers Ltd.
7.
7/2009
M/s R.R. Flour Mill Pvt. Ltd.
8.
8/2009
M/s Prudential Sugar Corporation Ltd.
9.
9/2009
M/s Tuticorin Alkali Chemicals & Fertilisers Ltd.
10.
501/2009
M/s HMT Bearings Ltd.
11.
10/2009
M/s Om Shanti Satins Ltd.
12.
11/2009
M/s Alumeco India Extrusion LTd.
13.
12/2009
M/s Gujarat Oleo-Chem Ltd.
NAME OF COMPANY
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14.
13/2009
M/s. Dalmia Dye-Chem Industries Ltd.
15.
14/2009
M/s. Rajat Pharmachem Ltd.
16.
15/2009
M/s Global Wool Alliance Pvt. Ltd.
17.
16/2009
M/s Revolution Clothings Pvt. Ltd.
18.
17/2009
M/s Indus Clothing Ltd.
19.
601/2009
M/s Traco Cable Company Ltd.
20.
18/2009
M/s Infragro Industries Ltd.
21.
19/2009
M/s Pioneer Flexo Pack Pvt. Ltd.
22.
20/2009
M/s Asian Health & Nutri Foods Ltd.
23.
21/2009
M/s Polylink Polymers (India) Ltd.
24.
22/2009
M/s Design Auto Systems Ltd.
25.
23/2009
M/s Serene Industries Ltd.
26.
24/2009
M/s Bakewell Agro Ltd.
27.
25/2009
M/s Shimansu Vyaparik Kendra Ltd.
28.
26/2009
M/s MP Telelinks Ltd.
29.
27/2009
M/s Gajra Beval gears Ltd.
30.
28/2009
M/s Dujodwala Resins & Terpenes Ltd.
31.
29/2009
M/s Raj Steels & Ferro Alloys Ltd.
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32.
30/2009
M/s Good Value Marketing Co. Ltd.
33.
31/2009
M/s Rainbow Denim Ltd.
34.
32/2009
M/s Indo Biotech Foods Ltd.
35.
33/2009
M/s Vysaali Pharmaceuticals Ltd.
36.
34/2009
M/s Elite International Pvt. Ltd.
37.
35/2009
M/s Kumlai Tea and Industries Ltd.
38.
36/2009
M/s Michigan Rubber (India) Ltd.
39.
37/2009
M/s Nova Petrochemicals Ltd.
40.
38/2009
M/s Tag Engineers Pvt. Ltd.
41.
39/2009
M/s Dnyanyogi Shri Shiv Kumar Swamiji Sugars Ltd.
42.
40/2009
M/s Unimax Granites Pvt. Ltd.
43.
41/2009
M/s Welfab Technologies Pvt. Ltd.
44.
42/2009
M/s Ganesh Benzoplast Ltd.
45.
43/2009
M/s Jai Bharat Synthetics LTd.
46.
44/2009
M/s Marine Cables & Wires Pvt. Ltd.
47.
45/2009
M/s Sello Royal (India) Ltd.
48.
46/2009
M/s Derby Textiles Ltd.
49.
47/2009
M/s Bripranil Industries Ltd.
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50.
48/2009
M/s Polar Pharma India Ltd.
51.
49/2009
M/s Cheema Paper Mills Ltd
52.
50/2009
M/s Mono Acriglass Industries Ltd.
53.
51/2009
M/s Shri Vardhman Solvex Ltd.
54.
52/2009
M/s Rado tyres Ltd.
55.
53/2009
M/s Om Shanti Satins Ltd.
56.
54/2009
M/s S&S Industries & Enterprises LTd.
57.
55/2009
M/s Ratna Cements (Yadwad) Ltd.
58.
56/2009
M/s SPJ Textiles Pvt. Ltd.
59.
57/2009
M/s Brown Multi-Wall Paper Bags LTd.
60.
58/2009
M/s Oxides & Specialties Ltd.
61.
59/2009
M/s Shalimar Agro Tech Pvt. Ltd.
62.
60/2009
M/s Platinum Metals & Trading Pvt. Ltd.
63.
61/2009
M/s Gem Spinners India Pvt. Ltd.
64.
62/2009
M/s Patiala Castings Pvt. Ltd.
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16. YEAR WISE PERFORMANCE OF BIFR as on 30-9-2010
Year
Cases Disposed of during the Year Total Cases under Cases Reviv Winding up CasesRegd ed Recommen Dismissed Revival . during ded the Year
1
2
3a
3b
3c
3d
1987
311
0
0
0
8
1988
298
0
1
12
29
1989
202
0
1
31
77
1990
151
1
3
42
45
1991
155
1
5
47
27
1992
177
3
7
30
43
1993
152
3
13
63
59
1994
193
2
38
77
48
1995
115
6
25
61
29
1996
97
6
92
83
25
1997
233
2
34
81
21
1998
370
5
21
49
36
1999
413
4
11
61
72
2000
429
8
37
142
156
2001
463
10
47
113
126
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2002
559
21
34
107
212
2003
430
8
42
99
190
2004
399
6
29
50
70
2005
180
17
71
19
180
2006
118
63
91
22
296
2007
78
66
81
19
205
2008
57
80
64
13
130
2009
64
192
82
19
125
2010
43
690
70
22
118
1199
899
1262
2327
TOTAL 5687
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17.EXTENT OF SICKNESS IN JOINT & PRIVATE SECTOR COMPANIES REFERRED TO BIFR
S. No.
Ratio of Accumulated losses to Net Worth (1)
Joint Sector
(2)
%
(3)
Private Sector
(4)
%
(5)
(6)
1.
1 – 2
24
2.
2-3
13
3.
3-4
11
76
87
4.
4 – 5
8
41
49
5.
5-6
10
6.
6 - 10
7
63
70
7.
10 - 15
4
27
31
8.
15 & above
1
Total
78
112
Total
47.44
37.18
15.38
98
30
22 469
%
(7)
136 44.78
31.34
23.88
111
40
23
45.16
32.18
22.67
547
Source: Same as in Table - 2. Further, relatively fewer number of joint sector sick companies were asked to wind up. The amount locked up in such companies was also far lower compared to the private sector companies (See Table - 5). 16. These are available in Government of India, Ministry of Finance, BIFR, Industrial Sickness: Case Studies, (various industry-wise volumes).
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18. STATE WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND CASES DISPOSED OFF BY BIFR up to December 31, 1992
S. Industry No.
Referred to BIFR
Disposed off by BIFR under Sections
(No. of cases) Reference References not Under MaintConsienable duration
18(4)
17(2)
20(1)
(2)
(3)
(4)
(5)
(6)
(7)
1. Maharashtra
210
50
25
22
46
67
2. Andhra Pradesh
140
31
29
15
16
49
3. West Bengal
132
25
17
31
21
38
4. Gujarat
112
24
20
23
21
24
5. Tamilnadu
104
26
20
13
20
25
6. Uttar Pradesh
90
16
2
14
19
39
7. Karnataka
81
19
12
11
16
23
8. Rajasthan
53
16
3
12
6
16
9. Madhya Pradesh
43
3
4
9
6
21
10. Haryana
40
12
5
2
11
10
11. Bihar
39
9
6
8
8
8
12. Kerala
35
8
9
2
6
10
13. Punjab
28
6
6
2
3
11
14. Orissa
24
5
4
1
4
10
15. Himachal Pradesh
22
2
4
4
5
7
16. Pondicherry
8
1
1
0
2
4
17. Delhi
4
1
0
1
1
1
(1)
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18. Assam
3
0
0
0
1
2
19. Jammu & Kashmir
2
0
0
0
1
1
20. Chandigarh
2
2
0
0
0
0
21. Goa, Daman, Diu
3
1
0
0
2
0
Total
1175
257
167
170
215
366
It was observed that about 28 per cent of the publicly floated JSEs have experienced serious financial difficulties following which they were either referred to the Board for Industrial and Financial Reconstruction (BIFR) for initiating rehabilitation process or went into liquidation.13 In the following we make an attempt to identify the M.R. Murthy, "A Study of Comparative Performance of Joint and Private Sector causes for sickness in the joint sector in the overall context of industrial sickness in the country.
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19. INDUSTRY WISE DISTRIBUTION OF SICK COMPANIES REFERRED TO AND DECISION TAKEN BY BIFR up to December 31, 1992 (No. of Cases)
S. No.
Industry
Referred to BIFR
Disposed off by BIFR under Sections 18(4)
(1)
17(2)
20(1)
Reference not Maintenable (6)
References Under Considuration
(2)
(3)
(4)
(5)
1. Metallurgical Industries
224
46
36
32
34
76
2. Textiles
194
47
22
37
29
59
3. Chemicals
148
33
18
19
30
48
4. Food Products
110
21
16
12
31
30
5. Mechanical Engineering
100
25
14
17
21
23
6. Paper
97
30
18
18
17
14
7. Electricals
69
16
13
6
15
19
8. Cement
45
7
3
5
4
26
9. Transport
34
5
6
5
6
12
10. Jute
30
10
2
5
4
9
11. Leather & leather products 16
5
5
3
2
1
12. Rubber
14
1
2
3
3
5
13. Miscellaneous Industries
94
11
12
8
19
44
1175
257
167
170
215
366
Total
(7)
Note: 18(4) : Rehabilitation schemes sanctioned. 17(2) : Time limit fixed for making the net worth positive. 20(1) : Orders were passed to wind up the company. Source: Based on BIFR, Industrial Sickness: Cases Studies, Various Volumes, Ministry of Finance, Government of India.
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From the state-wise distribution of the references received by the BIFR given in Table - 3 we find that the top six states accounted for more than two-thirds of the total number of sick companies. The highest number of references were received from Maharashtra (210) followed by Andhra Pradesh (140), West Bengal (132), Gujarat (112),Tamilnadu (104) and Uttar Pradesh (90). These states had roughly the same share in caseswhere revival schemes were sanctioned by the BIFR and those which were recommended to be wound up. It may be noted that these six states occupied the top positions in terms of number o units as also the outstanding bank credit locked up in non-SSI sick units at the end of March 1991.12 One also finds considerable similarity in the industry pattern of See: Reserve Bank of India, Report on Currency and Finance: 1991-92, Volume I, p. 69.sickness at the national level and that reflected in the BIFR references. Thus, a study ofBIFR references could be representative of the phenomenon of sickness outside the smallscale sector in the country.
20. DRAWBACKS OF BIFR
Following are the flaws in the present framework regarding sick industrial companies.
a) PROCEDURAL DELAYS
There are inherent defects both, procedural and legal in proceedings before BIFR. The BIFR takes nearly one year to determine whether a company is sick. Thereafter, it takes around one year to formulate revival strategy. Consideration of the same also takes substantial time since banks and financial institutions have their own hierarchy in decision making, leading to avoidable delays. The decisions by the banks are also neither transparent, nor subject to judicial review. By the time decisions are taken and communicated, the plan, which had been conceived, has lost its viability resulting in failure of revival schemes even after sanction.
b) LACK OF TIMELY COMMENCEMENT OF PROCEEDINGS
Under the existing law, a company can approach the BIFR for adopting steps for its revival, on erosion of its entire net worth. The erosion of entire net worth is too late a stage to attempt
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restructuring as by the time the net worth is eroded the company is too sick to be revived and has lost its resilience to restructure and revive itself.
21. CASE STUDY
CASE STUDY – 1
BEFORE THE APPELLATE AUTHORITY RECONSTRUCTION, NEW DELHI
FOR
INDUSTRIAL
&
FINANCIAL
RAKESH DWIVEDI, Senior Advocate, AJAY K. JAIN, Advocate, AMARJIT SINGH, Chie Financial Advisor, for the appellant . VIVEK SIBAL, Advocate, B. P. GUHA THAKUR, A/R, for Somany Pilkingtons Ltd. ORDER (Date of hearing : 13.8.1999.)
This is an appeal against BIFR's order, dated 3.5.99 in case No. 179/89 holding that M/s. Asiatic Oxygen Ltd. (AOL) was no longer a sick industrial company and was discharged from the purview of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, SICA) vide BIFR's order dated 28.2.97 as its networth had become positive, and that M/s. Somany Pilkingtons Ltd. (SPL) was free to seek appropriate legal remedy from the competent court and there was no bar to SPL filing suit or pursuing their cases in the competent courts. 2. The impugned order was passed on an application, dated 7.1.99 submitted by SPL to BIFR praying for permission under section 22(1) of SICA to continue with the proceedings in Suit No. 666/89 before the Hon'ble High Court at Calcutta (suit filed by SPL for the recovery of lease rentals and possession of 17,977 gas cylinders from AOL) and for restraining AOL/Promoter from disposing of AOL's assets and properties in violation of the terms of the scheme sanctioned by BIFR for the rehabilitation of AOL. The hearing was scheduled by BIFR on 3.5.1999 at 11.00 a.m. Notice of hearing was issued to AOL and M/s. Sibal and Eradi, Advocates and Solicitors. The notice of hearing mentioned the Case No. 79/89 (Correct No. is 179/89). It did not mention the
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purpose of hearing. The notice did not include any mention of SPL's application, dated 7.1.1999. A copy of SPL's application was not sent by BIFR to AOL. SPL also did not send a copy of its application, dated 7.1.1999 to AOL. The address of M/s. Sibal and Eradi, Advocates and Solicitors, did not show the name of the party whom they represented. There was no way of AOL knowing the purpose of the hearing scheduled on 3.5.1999. AOL wrote a letter, dated 27.4.1999 to BIFR, stating, inter alia, that BIFR had by order, dated 28.2.1997 closed the proceedings in AOL's case, that M/s. Sibal and Eradi, Advocates, had not represented any party during the hearing o AOL's case by BIFR at any point of time, that the reason for fixing the hearing was not mentioned in BIFR's notice, and that, therefore, the hearing was kept in abeyance until the matter was clarified. Nobody represented AOL at the hearing before BIFR on 3.5.99 when the impugned order was passed. As there was no proper notice of hearing to AOL, there was denial of natural ustice to AOL. We were, therefore, inclined to remand the matter to BIFR for fresh consideration after hearing AOL. However, as the subject matter of hearing before BIFR was SPL's prayer that section 22(1) of SICA for permission to it continue the proceedings in Suit No. 666/89 against AOL before Hon'ble Calcutta High Court, and as permission under section 22(1) of SICA can be sought direct from this Authority during the pendency of an appeal, and as the counsel for both AOL and SPL wanted the case to be heard and decided by this Authority on merits instead o being remanded to BIFR, we heard the appeal on merits . 3. AOL's reference under section 15(1) of SICA was registered as case No. 179/89 by BIFR. On 4.6.90, BIFR declared AOL to be a sick industrial company within the meaning of section 3(1)(o) of SICA and appointed ICICI as operating agency (OA) under section 17(3) of SICA. After several hearings, on 8.10.93, BIFR sanctioned a scheme for the rehabilitation of AOL under section 18(4) read with it section 19(3) of SICA. Substantial reliefs and sacrifices were extended by secured creditors to facilitate the rehabilitation of AOL. Taking note of AOL's annual report for the financial year ended on 31.3.96 and the fact that AOL's networth had turned positive as on 31.3.1996, BIFR passed an order, dated 28.2.97 holding that AOL ceased to be a sick industrial company within the meaning of section 3(1)(o) of SICA, that its case no longer required to be dealt with by BIFR, that the proceedings in the case were, therefore, closed, but the obligations/responsibilities, if any, yet to be fulfilled by AOL shall remain in force, and it would be bound to fulfil the same as per the various covenants of the scheme sanctioned for its rehabilitation. 4. SPL had filed a suit (Civil Suit No. 666/89) before Hon'ble Calcutta High Court against AOL for recovery of possession of 17,977 gas cylinders and recovery of lease rental dues amounting to Rs. 213.70 lakhs along with interest from 17.8.89 and interest on judgment. The trial court held that SPL could proceed with the suit for recovery of its property, but the proceedings for the recovery of money would stand stayed. In SPL's appeal 363/96 against the trial court's order, the Division Bench of the Hon'ble Calcutta High Court examined at length the scope of section 22(1) of SICA while taking note of BIFR's order, dated 28.2.1997 and, by order, dated 4.8.1998, upheld the trial court's order and dismissed the appeal. The Hon'ble Calcutta High Court held that the scheme sanctioned by BIFR on 8.10.1993 is still under implementation and, therefore, the statutory bar under section 22(1) of SICA continues to it be applicable. SPL's SLP (Civil) No.
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19181/98 before the Hon'ble Supreme Court of India against the order, dated 4.8.1998 of the Division Bench of Hon'ble Calcutta High Court in appeal No. 363/96 was dismissed by the Hon'ble Supreme Court on 16.12.98
5. The implication of BIFR's jurisdiction in a case, in which a sick industrial company's net worth has exceeded its accumulated losses, but the sanctioned scheme has not been fully implemented, were dealt with by this Authority in some detail in this Authority's order, dated 9.7.96 in appeal 77/96 (M/s. Swan Mills Ltd. Kamgar Kapada Udyog Sahkari Society Ltd. v. BIFR and others). So long as the scheme is under implementation, BIFR has to exercise its jurisdiction under various sub-sections [particularly, sub-sections (5), (9) and (12)] of section 18 of SICA, notwithstanding the fact that the net worth has exceeded the accumulated losses. It is seen from the cash flow statement of the sanctioned scheme, dated 8.10.93 for AOL that repayments of certain dues (payment of deferred interest to financial institutions/banks, sales tax arrears, funded interest, etc.) have been scheduled upto the year 2002-03. BIFR cannot refuse to exercise its jurisdiction to ensure that such terms of the sanctioned scheme are fulfilled and give appropriate directions in case of any difficulties and consider proposals, if any, for review and modification in the sanctioned scheme. Had the sanctioned scheme been fully or substantially implemented, it would have been competent for BIFR to declared AOL as being outside the purview of SICA by declaring the scheme as fully implemented or terminated. So long as the scheme continues to be under implementation, jurisdiction of BIFR can be invoked and, in that view of the matter, BIFR's order, dated 28.2.1997 cannot be interpreted to mean that BIFR can refuse to exercise its urisdiction, if any, applications are received for review/modification of the sanctioned scheme or the removal of any difficulties or for monitoring the implementation of the terms of the scheme. 6. The impugned order was passed by BIFR on the ground that by their order, dated 28.2.1997, AOL was discharged from the purview of SICA. This ground, on which the impugned order was passed, is not tenable in view of this Authority's order, dated 9.7.1996 in appeal 77/96, referred to above, and the Hon'ble Calcutta High Court's order, dated 4.8.1998 in appeal No. 363/96, referred to above. The impugned order that SPL was free to seek legal remedy and file or pursue its case against AOL in court is, therefore, not tenable . 7. We have now to consider whether SPL should be granted permission under section 22(1) o SICA for continuance of proceedings for the recovery of lease rentals in its suit 666/89 before Hon'ble Calcutta High Court.
8. The learned counsel for AOL contended : in order to tide over liquidity crisis during 1985-86, AOL resorted to sale and lease-back of cylinders and as on 31.3.90 AOL's total lease rental liability was Rs. 396 lakhs towards six lessors; lease rentals of one party were settled and paid prior to the sanction of the scheme and payment of lease rentals of Rs. 259 lakhs to 5 parties was provided in the sanctioned scheme; re-schedulement of payment of lease rentals of Rs. 259 lakhs was to be obtained from leasing companies as per the terms and conditions considered satisfactory by the banks/institutions (para 3 G(vi) of the sanctioned scheme); 4 parties had agreed to re-
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schedulement as proposed in the scheme, but one party, i.e., SPL had not agreed and this was pointed out to BIFR at the hearing on 8.10.93; the re-scheduled lease rental dues of Rs. 259 lakhs pertained to Bengal and Assam Company Ltd. (Rs. 15 lakhs), Oriental Leasing Co. Ltd. (Rs. 28 lakhs), Overseas Sanmar (Rs. 25 lakhs), Midwest Leasing Co. (Rs. 17 lakhs) and SPL (Rs. 174 lakhs); the re-scheduled lease rental dues of 4 parties have already been paid by AOL but SPL had not accepted the payment; AOL is willing to pay Rs. 174 lakhs to SPL along with interest from the dates on which these payments were due under the terms of the sanctioned scheme; AOL has been revived and SPL is now only trying to thwart the implementation of the sanctioned scheme by resorting to litigation; SPL was fully aware of the proceedings before BIFR but, after writing a letter, dated 16.1.91 to BIFR claiming lease rental of Rs. 3.5 crores, had never pursued the matter with BIFR and neither responded to the public notice inviting objections/suggestions to the draft scheme nor attended any hearing before BIFR to press its claim; the scheme is binding on all parties, including SPL, in view of section 32(1) and section 18(8) of SICA, and SPL is only entitled to receive Rs. 174 lakhs from AOL; AOL has disposed of some of its units as per the sanctioned scheme and is contemplating sale of some other units with the approval of the concerned banks/financial institutions, whereas SPL is only trying to thwart the profitable operations of AOL; SPL should accept the payment of Rs. 174 lakhs from AOL and the appeal be dismissed and the prayer of SPL for permission under section 22(1) of SICA be rejected. 9. The learned counsel for SPL contended : SPL filed suit 666/89 in Hon'ble Calcutta High Court for the recovery of cylinders and lease rental arrears of Rs. 213.70 lakhs from AOL and the dues have by now risen to about Rs. 9 crores; SPL was never informed that the scheme included payment of lease rentals of Rs. 174 lakhs to itself; the distribution of the lease rentals provided in the scheme has been given by AOL only at this stage when this appeal is being heard; the scheme does not provide for any sacrifice or write off on the part of SPL and, therefore, SPL has no obligation to make any sacrifice; AOL/promoter are not implementing the scheme properly, and they have sold AOL's unit at Ranipet as a going concern to Praxair India (P) Ltd. and have planned to sell all their remaining units also to Praxair India (P) Ltd. even though the sale of these units is not included in the sanctioned scheme; in this way, SPL apprehends that its security will be diluted; clause 3 G(vi) required AOL to obtain re-schedulement of lease rentals from the various leasing companies but no such re-schedulement was obtained by AOL from SPL; if SPL's dues were included in the scheme, AOL had an obligation to make payment to SPL but, despite having sold some of its industrial units, it has not made any payment to SPL; AOL/promoter are not implementing the scheme, but only claiming protection under section 22(1) of SICA by pleading that the scheme is under implementation; the appeal be dismissed or SPL be permitted to continue its suit 666/89 before Hon'ble Calcutta High Court for the recovery of its lease rental dues from AOL . 10. Our conclusions on the contentions of the learned counsel for AOL and SPL are given below : (a) The sanctioned scheme, dated 8.10.93 continues to be under implementation. Several provisions of the scheme will continue to be implemented upto the year 2002-2003 unless the implementation thereof is achieved earlier than due dates. Protection under section 22(1) of SICA
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continues to be available to AOL during the implementation of the scheme. BIFR has to exercise its jurisdiction under section 18 and various other provisions of SICA until the scheme is fully implemented or terminated on account of substantial implementation including discharge of the financial obligations under the scheme.
(b) SPL has a locus standi insofar as its own interests are concerned. It cannot assume the role of a monitor of the scheme . (c) AOL cannot modify the sanctioned scheme on is own. During the period of implementation o the scheme, if it sells or proposes to sell any industrial unit(s) in addition to the three industrial units which were sold in accordance with the terms of the sanctioned scheme, it has to approach BIFR for necessary modification and comply with BIFR's direction in this regard. (d) SPL is an unsecured creditor. It is not one of those persons whose consent is required under section 19(1) and (2) of SICA. The question of rights of unsecured creditors and repayment of their dues by the sick industrial companies for which rehabilitation schemes are sanctioned under section 18(4) of SICA has been dealt with by this Authority in several appeals. In the event of winding Up of a sick industrial company, the sale proceeds from the disposal of the assets o such company are distributed amongst secured creditors and workers in proportion to their dues; their dues are likely to be fully realised; unsecured creditors and shareholders are unlikely to get anything at all. In rehabilitation schemes for sick industrial companies under the provisions o SICA, financial institutions/banks and Central/State Governments often extend reliefs and sacrifices; unsecured creditors cannot expect to receive payment of their dues and interest. However, if a sick industrial company has large surplus assets, which are not required for its manufacturing activity and can, therefore, be sold, and the sale proceeds are expected to be not less than the financial obligations of such company, then payments can be provided to creditors without sacrifices by them. On the other hand, if a sick industrial company is revived through a rehabilitation scheme approved by BIFR, envisaging reliefs and sacrifices and financial accommodation by financial institutions/banks and Central/State Governments as well as induction of fresh funds by the promoters, then the unsecured creditors cannot expect to derive benefit from such post-scheme prosperity of the company to which they have not made any contribution. Therefore, the provision made for the payment of the dues of unsecured creditors in any scheme for a sick industrial company under section 18(4) of the Act has to be considered as a provision for full and final settlement of their pre-scheme dues. It is open to them to make their submissions before BIFR by responding to public notice of draft rehabilitation scheme so that their claims are given appropriate consideration by the operating agency and BIFR. Any other approach to the pre-scheme dues of unsecured creditors would, in our view, be inconsistent with section 2of SICA whereby a declaration is made that SICA is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution. 11. In the present case, nothing has been brought to our notice by SPL, nor is there anything in the
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record before us, to suggest that prior to the sanction of the scheme on 8.10.93 by BIFR, AOL had surplus assets, not required for its manufacturing activities, which could be sold and the sale proceeds therefrom could meet all the financial obligations of AOL towards its creditors, statutory authorities and workers. After writing a letter, dated 16.1.99 to BIFR, SPL did not appear before BIFR to make its submissions regarding its dues. It was open to SPL to pursue its case with the OA and BIFR, respond to the public notice of draft rehabilitation scheme and attend the hearing before BIFR after obtaining a copy of the draft scheme, and press its claims. Even after the sanction of the scheme by BIFR, SPL could have sought redressal of its grievance by preferring an appeal under section 25 of SICA. It is, therefore, obvious that SPL had, by its conduct, acquiesced in the scheme sanctioned by BIFR on 8.10.93. Clause 3 G(iv) of the scheme stipulates that reschedulement of lease rentals is to be obtained from the leasing companies according to the terms satisfactory to financial institutions/banks. It does not require consent of leasing companies. It only requires satisfaction of financial institutions/banks. It does not require consent of leasing companies. It only requires satisfaction of financial institutions/banks. As the scheme was sanctioned with the consent of financial institutions/banks, and as SPL did not resort to legal remedies against the sanctioned scheme, it cannot now challenge that scheme. Therefore, whatever provision is made in the sanctioned scheme for the payment of pre-scheme lease rentals due to SPL by AOL, that has to be treated as full and final settlement of the, pre-scheme lease rental dues. The terms of the sanctioned scheme have the overriding effect over other laws by virtue of section 32(1) of SICA and are binding on all shareholders, creditors, guarantors and employees by virtue of section 18(8) of SICA. It is not necessary to make any specific provision for sacrifice or write off on behalf of unsecured creditors, because no consent of unsecured creditors is required under section 19 of SICA. We have no reason to doubt that a provision for payment of Rs. 174 lakhs in instalments to SPL over the period 1992-1998 is included in the total provision of Rs. 259 lakhs payable to leasing companies during that period . 12. AOL's case is that SPL refused to accept the payment of Rs. 174 lakhs in instalments provided in the sanctioned scheme and withdraw its suit in Hon'ble Calcutta High Court. SPL's case is that AOL never made or offered any payment. Instead of going into this controversy, we consider it appropriate that AOL should now pay this amount of Rs. 174 lakhs to SPL along with simple interest at 12% per annum, in full and final settlement of the pre-scheme lease rental dues of SPL, upto the date of payment. In order to avoid further disputes about the quantum and due dates o instalments of Rs. 174 lakhs, we have worked these out as follows : Rs. 10.08 lakhs (31.3.92); Rs. 20.15 lakhs (31.3.93); Rs. 28.22 lakhs (31.3.94); Rs. 28.89 lakhs (31.3.95); Rs. 28.89 lakhs (31.3.96); Rs. 28.89 lakhs (31.3.97); Rs. 28.88 lakhs (31.3.98). These amounts are to be paid with 12% interest upto the date of payment by way of one lump sum payment. Both AOL and SPL to submit statements in suit 666/89 before Hon'ble Calcutta High Court for a consent decree as stated above. Permission is granted to SPL for the recovery of the amount calculated as above in full and final settlement of its pre-scheme lease rentals due from AOL. BIFR's order stands modified accordingly. The appeal stands disposed of.
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CASE STUDY – 2
2000-(001)-CLJ -0153 -AAIFR VORAS EXCLUSIVE TOOLS (P) LTD. v. BIFR AND OTHERS. Appeal No. 27/98 against BIFR's order, dated 2.12.97 in BIFR case No. 11/89, decided on April 29, 1998.
BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION, NEW DELHI ALOK DHIR, Advocate, A. K. VAISHAMPAYAN, BALAKRISHNAN,MANAGER FOR THE APPEALLATE.
Chartered
Accountant,
S.
MS. VARSHA BHARAT RAUT; DARIUS KHAMBATTA, Advocate; BHARAT RAUT, Chartered Accountant, MS. VIBHA DATTA MAKHIJA, Advocate, for the Caveator Ms. RAKHI RAY and Ms. BINA GUPTA, Advocates, for Ms. Pushpa P. Vora . ORDER (Date of hearing 13.8.1999)
This is an appeal against BIFR's order, dated 2.12.97 in Case No. 11/89 regarding M/s. Voras Exclusive Tools Private Limited (VETL) 2. By order, dated 16.8.89, BIFR declared VETL to be a sick industrial company within the meaning of section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, 'the Act'). On 9.7.90, BIFR took note of an agreed rehabilitation package submitted by VETL and concluded under section 17 (2) of the Act that it was practicable for VETL to make its networth positive within a reasonable time by implementing the said package under section 17 (2) of the Act. On 21.2.95 and 30.9.95, BIFR reviewed the progress and noted the VETL had departed from the rehabilitation plan submitted earlier under section 17 (2) of the Act, and that VETL's networth was still negative by Rs. 75 lakhs. BIFR concluded. [.....] (sic) failed and appointed Bank of India (BoI) as the operating agency (OA) under section 17(3) of the Act for preparing a proper rehabilitation scheme for VETL. BIFR simultaneously directed VETL to submit a comprehensive rehabilitation proposal based on one time settlement (OTS) of the dues of the financial institutions and banks to the OA, within one month. On 20.12.95, CMD of VETL informed BIFR that VETL's networth will become positive by the end of December, 1995, that ICICI's dues were already settled in February, 1992, that Hong Kong Bank's dues had also been settled, that IDBI (which had filed a suit in 1991 against VETL for recovery of a sum of a Rs. 23.84 lakhs) was not ready to discuss the matter, and that BIFR's intervention in finalisation of
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IDBI's dues would be welcome by VETL. BIFR directed VETL to submit their audited balance sheet for the year 1995-96 by the end of May, 1996, and directed the OA to give a detailed comments on VETL's balance sheet with particular emphasis of payment to unsecured creditors and the position of settlement of IDBI's dues. On 26.6.96, BIFR expressed its displeasure towards VETL for not submitting the audited accounts for the year 1995-96, and again directed VETL to submit the balance sheet for the year 1995-96 positively by 30.9.96. On 9.10.97, the counsel for VETL informed BIFR that the accounts for the year ending 31.3.96 could not be finalised because the annual general meeting (AGM) of VETL's shareholders could not take place on account of dispute between two groups of stake-holders of VETL, that as per audited accounts for 1995-96, VETL's accumulated losses were only Rs. 9.70 lakhs, and that provisional accounts for 1996-97 were also ready. The representative of BoI(OA) stated before BIFR that VETL's networth was positive and it was no longer sick, and as such, it should be out of BIFR. The counsel for VETL and the other group of shareholders agreed that the audited balance sheet for 1995-96 could be relied upon for determining the issue of sickness. BIFR again directed VETL to submit copies of the balance sheet as on 31.3.96, even if it was not finalised in the AGM of VETL. By a letter, dated 5.11.97 addressed to BIFR, VETL submitted a copy of the audited accounts of VETL for the year 1995-96 and the provisional accounts for the year 1996-97. In its letter, dated 5.11.97. VETL inter alia stated that the AGM for the year 1995-96 could not be held due to stay by the Company Law Board, and subsequently, by Hon'ble Delhi High Court, and that VETL had increased the share capital and achieved positive networth by the period ending 31.3.96. BIFR took note of the factual financial position submitted by VETL and passed the impugned order, that as on 31.3.96, the networth of VETL, consisting of paid-up capital plus free reserves, was Rs. 1,02,60,542 and exceeded the accumulated losses of Rs. 9,70,400. BIFR concluded that this case did not require to be monitored under the Act as VETL has turned around on its own and is no longer sick, and directed that further proceedings in this matter be closed, and that IDBI would be at liberty to pursue the legal remedies against VETL in respect of its dues. This order has been assailed in the presentappeal. 3. The learned counsel for VETL contended that the impugned order was passed without hearing the appellant, that therefore, there was total denial of natural justice to VETL, and consequently, the impugned order should be set aside and the case be remanded to BIFR for fresh consideration after hearing VETL. It is clear to us from the record of BIFR proceedings, the conclusions, whereof have been summarised in the preceding paragraph, that VETL was continuously heard at length by BIFR at all its earlier proceedings. The final order, dated 2.12.97 was passed by BIFR on the basis of the factual financial position, as evidenced by the audited balance sheet for the year 1995-96 submitted by VETL. Natural justice does not imply that oral hearing should be given on every occasion. Moreover, when the facts are not disputed and are specifically admitted, and there have been continuous oral hearings on earlier occasions and when an order is passed on the basis of admitted and undisputed facts, it cannot be said that the person who has submitted such facts has been denied natural justice. We, therefore, reject the contention of the learned counsel for the
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appellant. 4. The learned counsel for appellant further argued that the rehabilitation scheme under section 17(2) of the Act is still under implementation, and that the case of VETL could not be de-registered by BIFR until that scheme is implemented or an alternative scheme is prepared by the OA, sanctioned by BIFR and fully implemented. In support of his arguments, he relied upon this Authority's decisions in the cases of M/s. Nirlon Limited (NL), M/s. Swan Mills Ltd. (SML) and M/s. Graham Firth Steel Production (I) Ltd. (GFSPL). He argued that so long as a scheme is under implementation, the case of a sick industrial company before BIFR cannot be de-registered, that, in the case of VETL, OA had been appointed under section 17(3) of the Act, and that it was incumbent upon BoI (AO) to prepare a scheme under section 18(1) of the Act for sanction by BIFR under section 18(4) of the Act 5. Our observations and conclusions on the contentions of the learned counsel for the appellant, referred to in the preceding paragraph, are given below : (a) The agreed rehabilitation package submitted by VETL, which was considered by BIFR on 9.7.90, cannot be treated as a scheme sanctioned under section 18(4) of the Act. It was only a rehabilitation plan, arrived at by mutual agreement amongst VETL and secured creditors, to give time to VETL for making its networth exceed the accumulated losses, as envisaged in section 17(2) of the Act. As and when the networth exceeds the accumulated losses, the purpose of such plan under section 17(2) of the Act is fulfilled, and there is no need for any further proceedings under the Act. (b) In the cases of NL (this Authority's order, dated 29.8.97 in Appeal No. 145/97), SML (this Authority's order, dated 9.7.96 in Appeal No. 77/96 and order, dated 19.6.97 in Appeal No. 70/97) and GFSPL (this Authority's order, dated 20.3.98 in Appeal No. 211/97), this Authority has followed the common ratio that after a scheme is sanctioned under section 18(4) of the Act, BIFR's jurisdiction to deal with the case continues until the scheme is fully/substantially implemented. In such cases, BIFR has to exercise its powers and discharge its functions under various sub-sections of section 18 of the Act in order to secure proper implementation of the scheme : BIFR has to monitor the implementation of the scheme, give appropriate orders for removal of difficulties in the implementation of the scheme, and sanction modified or fresh schemes, if necessary. After the implementation of the scheme has commenced, but substantial parts of the scheme remain to be implemented, the case cannot be de-registered on the sole ground that the networth of the company has exceeded the accumulated losses, because such de-registration would prevent BIFR from exercising its powers and discharging its functions under sub-sections (5), (9), (10) and (12) of section 18 of the Act. . (c) In the present case, no scheme was sanctioned by BIFR under section 18(4) of the Act.
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Therefore, in the facts of the present case, the ratio followed by this Authority in the case of NL, SML and GFSPL is not attracted. (d) The essential prerequisites for the appointment of an OA under section 17(3) of the Act are : there should be a sick industrial company; it is not practicable for the sick industrial company to make its networth exceed the accumulated losses within a reasonable time; it is necessary or expedient to adopt all or any of the measures specified in section 18 of the Act in relation to such company. An order of BIFR appointing an OA under section 17(3) of the Act in respect of a sick industrial company, continues to survive if all these pre-requisites continue to exist. The order of appointment of an OA under section 17(3) of the Act cannot survive if one or more of those prerequisites disappear. In the present case, before a scheme could be prepared by BoI (OA) and sanctioned by BIFR under section 18(4) of the Act, the networth of VETL exceeded the accumulated losses by its own efforts and it ceased to be a sick industrial company within the meaning of section 3(1)(o) of the Act as on 31.3.96. Therefore, BIFR's order appointing BoI as OA under section 17(3) of the Act for preparing a scheme for VETL cannot survive. The contention of the learned counsel for VETL that BoI (OA) should have prepared a scheme for sanction by BIFR under section 18(4) of the Act, even though the networth of VETL had already exceeded its accumulated losses on 31.3.96, is not tenable
6. The learned counsel for VETL further contended that the audited accounts for the year 1995-96 are not the finalised audited accounts in the light of section 3(1)(da) of the Act because the said accounts have not yet been adopted by the AGM of VETL. He further argued that the accounts which have not been approved by the AGM of the company, cannot form the basis for BIFR's conclusion that the networth of VETL exceeded its accumulated losses on 31.3.96. In reply to a query from the Bench as to whether VETL challenges the audited accounts for the year 1995-96, the learned counsel for VETL replied in the negative. It is also relevant to refer to section 15 of the Act. A reference has to be made by the Board of directors of an industrial company, which has become a sick industrial company, within 60 days from the date of finalisation of the duly audited accounts for the financial year at the end of which the company has become a sick industrial company. However, proviso to section 15(1) of the Act stipulates that if the Board of directors has sufficient reasons even before such finalisation of the duly audited accounts of the company to form the opinion that the company has become a sick industrial company, the Board of directors shall, within 60 days after it has formed such opinion, make a reference to BIFR for the determination of the measures which shall be adopted with respect to the company. Therefore, a reference under section 15 of the Act can be made by a company to BIFR even before the duly audited accounts have been approved at the AGM of the company. Thus, the duly audited accounts, approved by the Board of directors of a company, can be relied upon for determining whether a company is a sick industrial company or not within the meaning of section 3(1)(o) of the Act, even though such accounts have not been approved at the AGM of the company. In the present case, the accounts of VETL for the financial year ending 31.3.96
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were duly audited and approved by Board of directors. The correctness of the accounts is not disputed by VETL. The contention of the learned counsel for VETL that these accounts could not form the basis for BIFR's conclusion that VETL's networth exceeded its accumulated losses on 31.3.96 is, therefore, not tenable . 7. The learned counsel for VETL further argued that IDBI has filed a suit for Rs. 23.84 lakhs against VETL, that it is shown as a contingent liability in the accounts of VETL, that BIFR should have considered the need for making a provision for such liability in the profit and loss account, that a provision for this liability in the profit and loss account would have resulted in a substantially altered financial position of VETL as on 31.3.96, and that BIFR's order passed without examination of this issue deserves to be set aside. In the facts of this case, this argument has no merit. It is seen from paragraph 5 of BIFR's proceedings, dated 9.10.97 that the learned counsel for VETL had stated before BIFR that IDBI's dues have been cleared by VETL and as such, their claim was denied. The management of a company has to make a provision, in respect of a contingent liability, to the extent to which the management perceives the devolution of such liability on the company. In the present case, IDBI's dues have been denied by VETL. Therefore, provision for the liability (if any) will have to be made in the profit and loss account for the financial year during which such liability actually devolves upon VETL as a result of the court's judgment. Moreover, the audited accounts of VETL for the year 1995-96 show that the networth of VETL exceeded the accumulated losses by Rs. 92,90,142 on 31.3.96. Therefore, even if VETL admitted its liability to IDBI, that would not have resulted in accumulated losses being equal to or more than the networth as on 31.3.96. Again, if on a subsequent date, the accumulated losses are equal to or exceed the networth on account of any contingent liability becoming an actual enforceable liability, that does not prevent VETL from approaching BIFR with a fresh reference under section 15(1) of the Act. Current proceedings under the Act cannot be sustained on the basis that a company may become a sick industrial company in future. 8. The learned counsel for VETL further submitted that even though the dues of ICICI and Hong Kong Bank have been settled, and the dues of IDBI are disputed, VETL's account with BoI, which was regular, has become irregular and this fact should have been considered by BIFR. In our view, this contention has no force whatsoever because, for the purpose of determining whether a company is sick within the meaning of section 3(1)(o) of the Act or not, it is not material whether such company's accounts with any bank or financial institution are regular or not. The real test is whether the accumulated losses are equal to or more than the networth or not. In the present case, it is not disputed that the networth of VETL exceeded the accumulated losses on 31.3.96 . 9. The counsel for VETL further argued that VETL had never approached BIFR for being de-registered. In our view, this argument is without any force. If on the basis of facts, BIFR comes to the conclusion, before a scheme is sanctioned under section 18(4) of the Act, that the networth of a company, which was declared to be a sick industrial company in a reference under section 15 of the Act, has exceeded its accumulated losses at the end of any
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financial year after the registration of the reference under section 15 of the Act, BIFR has to de-register the case and drop all proceedings under the Act. Any contrary view would result in an untenable situation of industrial companies, which are not sick industrial companies, within the meaning of section 3(1)(o), enjoying protection under section 22(1) of the Act on the ground that a scheme is under preparation, which could never have been the purpose of this legislation enacted in public interest. 10. We do not find any reason for interference in the impugned order. The appeal is dismissed.
CASE STUDY — 3
ATASH INDUSTRIES INDIA LIMITED v. BIFR AND OTHERS. Appeal No. 178 of 1999 (Appeal against BIFR's order, dated 10.8.99 in Case No. 69/98), decided on December 24, 1999.
BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION, NEW DELDI
KAPIL SHARMA and C. L. SAREEN, Advocates, with N. N. MATHUR, for the appellant. V. U. ERADI, Advocate, with PAWAN SHARMA, Goyal M. G. Cases Ltd., for the respondents(Caveator). ORDER This is an appeal against BIFR's order, dated 10.8.1999 in Case No. 69 of 1998 dismissing the appellant company's reference under section 15(1) of the SICK INDUSTRIAL( SPECIAL PROVISIONS ) ACT 1985 2. The order was issued by BIFR under their letter dated 19.8.1999. This appeal was filed on 17.11.1999. The appellant's case is that it did not receive the copy of the order by post, that it applied for certified copy on 26.10.1999 and got it on 27.10.1999. The counsel for the
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appellant company was present before BIFR at the hearing on 10.8.1999. It is seen from the list of addresses that a copy of the impugned order was addressed to the appellant at the same address which is given by the appellant in the cause title of the memorandum of this appeal. In any case, the appellant knew that there is BIFR's order, dated 10.8.99 because the appellant was present through counsel on that day. The application for a copy was made 76 days after the date of hearing before BIFR. Even if we count the period from the date of the issue of the order, i.e., 19.8.99, the application for certified copy was made to BIFR after 67 days. Even after getting the certified copy on 27.10.99, the appellant took another 20 days to file the appeal. The appeal is time barred. 3. Even on merit, this appeal cannot be entertained. The reference was made by the appellant company on the basis of its accounts for 18 months ended on 30.9.97. It is seen from Form 'A' in which the reference was made by the appellant company, that its net worth, as defined in section 3(1)(g)(a) of SICA, was Rs. 94.80 crore as on 30.9.97 (Rs. 96.49 crore as on 31.3.96). As on 31.3.96, the appellant company a no accumulated losses. Accumulated losses of Rs. 109.63 crore have been shown as on 30.9.97 against the sale proceeds of Rs. 69.34 crore during that year (items 6 and 28 of Form 'A'). When the reference was heard by BIFR on 4.5.98, the secured creditors had raised serious objections to the appellant company's accounts, showing total erosion of its net worth during the year 1996-97. BIFR appointed IDBI as the operating agency under section 16(2) of SICA. For one reason or the other, even though IDBI appointed chartered accountant for the purposes of audit, the audit could not be completed and IDBI (OA) could not consequently submit its report under section 16(2) to BIFR. In the impugned order, BIFR has dealt at length with the noncooperative attitude of the appellant company in the matter of conduct of audit by the auditors appointed by the IDBI (OA). The learned counsel has shown a lot of correspondence to urge that the appellant company was always willing to cooperate; but the delay took place on the part of the IDBI (OA) and the auditors, but we are not convinced. It is seen from the appellant company's own letter, dated 9.4.99 to IDBI (OA) that they still sought 4 to 6 weeks time for submitting the information required for the audit. That period expired by the information was not submitted. Even today, the learned counsel for the appellant company and the Vice-President (Finance) of the company who is also present, are unable to give us any explanation for the losses of Rs. 109.63 crore booked in the accounts for the year 30.9.97. Therefore, the information given in Form 'A' by the appellant company to the BIFR cannot be relied upon for the purpose of determining whether the appellant company had become a sick industrial company as on 30.9.97 . 4. The appeal is dismissed.
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CASE STUDY -- 4
KHATAU MAKANJI SPINNING AND WEAVING MILLS LTD. AND ANOTHER v. BIFR AND OTHERS. Appeal Nos. 146/99 and 149/99 (Against BIFR's Order, 8.10.1999 and 12.8.1999 in BIFR Case No. 135/99, respectively), decided on December 27, 1999.
BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL, & FINANCIAL RECONSTRUCTION, NEW DELHI ALOK DHIR, Advocate, with Ms. PANNA KHATAU, for the appellants . G. G. K. MURTHY, Asst. General Manager, State Bank of India; Ms. GAYATRI SINGH and MS. APARNA BHAT, Advocates, for Girni Kamgar Sangharsh Samiti; B. P. ASAWALE, Chairman, and M. K. SATYANAND, Secretary, for Kamgar Ekta Samithi; P. N. SEWAMI, I.I., ESIC; NITIL KAMBLE, Asst. Vice President, ICICI; MS. NISHA BAGCHI, MS. NIHARIKA BAHL, Advocates, R. N. MUSALE, Treasurer, and G. J. MOHITE, V.P., for Rashtriya Mill Mazdoor Sangh . ORDER M/s. Khatau Makanji Spinning & Weaving Mills Ltd. (hereinafter referred to as 'the company') is a sick industrial company within the meaning of section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). On 27 March, 1995, BIFR sanctioned a scheme for the rehabilitation of the company. The scheme envisaged modernisation of equipment, rationalisation of labour, one-time settlement of the dues of banks/FIs/debenture-holders, payment of statutory liabilities and pressing creditors. The scheme provided for sale of freehold surplus land of the company at Borivali. Consequently, the company entered into an agreement, dated 4 November, 1995, with (RCPL) for sale of development rights for FSI of 10 lakh Rs. 80 crore out of which an advance of Rs. 10 crore was received by the company from RCPL. The exemption given by the State Government of Maharashtra in favour of the company for its industrial use of surplus land in Borivali under the provisions of the Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) expired on 14 June, 1995. The agreement between the company and RCPL Provided that the company would obtain renewal of the exemption under ULCRA at its cost, whereas other approvals for development, transfer, etc., would be obtained by RCPL. The renewal of exemption under ULCRA could be obtained by the company only by April 1997. In the meantime, the real estate prices continued to decline. The company called upon RCPL to pay the balance amount of Rs. 70 crore and complete the sale transaction and also threatened to forfeit the amount of Rs. 10 crore paid as advance by RCPL. In turn, RCPL made counter claims
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against the company for refund of Rs. 10 crore alongwith interest and gave notice that it would institute a suit in court for refund of the amount of Rs. 10 crore and would claim interest thereon. The company consulted their solicitors, Mansukhlal Hiralal & Co. (MHC), who advised that it is possible that the company may succeed in establishing a breach of the terms of the agreement on the part of RCPL and forfeit the earnest money, but a suit by RCPL may last for more than 20 years and normally, no developer/purchaser would come to buy the property and/or development rights unless the title is absolutely clear and would not like the suit pending in the court although technically, the company's title would be perfect, that as a consequence, the company's revival would be delayed for several years and would almost be impossible, and that, therefore, the earnest money of Rs. 10 crore be refunded if RCPL agree and the property be disposed of at the present market value at the earliest to expedite the revival of the company. ICICI got the development rights revalued and the valuers, Majumdar & Associates, valued the property/development rights at Rs.37 crore plus or minus 5%. A new party, Fateh Navnirman (I) Ltd. (FNL) offered to purchase the development rights at Rs. 37 crore provided the amount of Rs. 10 crore was refunded to RCPL or in the alternative, FNL offered to pay Rs. 27 crore to the company, and also settle the matter directly with the company's Board/Assets Sale-Cum-Management Committee (ASMC) as well as at a joint meeting convened by ICICI. At the company's Board/ASMC meeting held on 7.9.98, Shri R. C. Jain, one of the three special directors appointed by BIFR, observed that under the old agreement between the company and RCPL, the difference of Rs. 43 crore between the agreed price and the price likely to be fetched now was recoverable by legal means from RCPL, and that this was the opinion obtained from solicitors MHC. The promoter of the company pointed out that no new builder would show any interest if a legal battle continued with RCPL, that the land prices in Mumbai had further fallen and were ruling at about Rs. 250 per sq.ft. in the vicinity of the company's land, that FNL might back out if the matter was delayed, and that a tripartite agreement may be signed amongst the company and FNL and RCPL as otherwise RCPL might demand interest on the earnest money of Rs. 10 crore which would amount to about Rs. 8 crore. BIFR had asked SBI & ICICI to nominate their representatives on the company's ASMC and ICICI had appointed Mr. Justice M. L. Dudhat (retired judge of the High Court), who examined this matter at great length and gave his conclusive opinion (the last paragraph of his opinion) which is reproduced below : "According to me, in view of this peculiar situation, it is desirable to enter into TPA with RCPL company and FNL by asking him to deposit the consideration amount of Rs. 37 crores. If all the parties to the TPA agree that in the settlement scheme published by BIFR to insert a clause to the effect that if anybody is interested in purchase of said Borivali property for more than Rs. 37 crores and deposit 50% (Rs. 20 crores) within 2 weeks from the advertisement of publication of scheme and pay balance amount towards purchase within 15 days thereof. Then only in that event his offer will be accepted. It may also be mentioned that in the publication, if the purchaser pays 50% within the stipulated time, but fails to repay the balance payment, his deposit is liable to be forfeited. If no new developer responds to the new scheme as per the conditions, then the aforesaid TPA entered into shall be
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deemed to be concluded." A modified draft rehabilitation scheme (DRS) has been prepared by ICICI (OA). The scheme envisages sale of development rights. The DRS has not yet been circulated/published as the question of modality for the sale of development rights is still being agitated. This matter was considered by BIFR at length at the hearing on 12.8.1999. In response to a query from the Bench of BIFR, Shri Alok Dhir, counsel for the company, had stated before BIFR that the promoters were confident that if the amount of Rs. 10 crore was refunded to RCPL without interest the issue between RCPL and the company would get resolved. He had also submitted that the company would like strict transparency and had no objection to the sale of land by open advertisement. The representative of ICICI submitted before BIFR that ICICI endorsed the views expressed by Mr. Justice Dudhat and had approved the sale at Rs. 37 crore to FNL by private negotiation, foreseeing a situation of continued litigation and the likely delay if tender route was adopted. The representatives of IIBI, IFCI and SBI endorsed the views of ICICI on the issue of sale of land. The counsel for the company also proposed acceptance of the offer of FNL being in line with the valuation undertaken by Mazumdar & Associates. After hearing all the parties, BIFR concluded that sale through private negotiation at Rs. 37 crore as valued by Mazumdar & Associates lacked transparency. BIFR, therefore, directed : the company should refund Rs. 10 crore to RCPL in full and final settlement of RCPL's claim; monitoring agency would then issue advertisements for the sale of land free from all encumbrances; and Assets Sale Committee consisting of the representatives of the company, ICICI, SBI, Government of Maharashtra and BIFR would examine the bids and make recommendations for accepting agreements for the sale of land free from all encumbrances; and Assets Sale Committee consisting of the representatives of the company, ICICI, SBI, Government of Maharashtra and BIFR would examine the bids and make recommendations for accepting the most favourable offer; if the company and the FIs/banks want to accept the FNL's offer as the best offer under the circumstances and in the larger interest of the company and the secured creditors then they should place full facts including the opinions of the solicitors and views expressed by Shri R. C. Jain before their Boards of directors and obtain their approval confirming that the negotiated deal was transparent and free from doubts and the offered price of Rs. 37 crore was fair and reasonable (vide paragraph 19 of the impugned order, dated 12.8.1999). The company submitted miscellaneous application to BIFR on 24.9.1999 requesting for rectification of error in the order, dated 12.8.1999. The company pleaded that it had never agreed to refund the amount of Rs. 10 crore to RCPL, that the company had only expressed its confidence that if the amount is refunded to RCPL, the issue between the company and the RCPL would be settled, and that the company be permitted to issue an advertisement for the sale of land/development rights, inviting offers on as and where-is-basis or alternatively, offers involving settlement of dispute with RCPL. By order, dated 8.10.1999, the BIFR rejected the company's application and reiterated their orders contained in paragraph 19 of the earlier order dated 12.8.99. 3. Appeal No. 146/99 is directed against BIFR's order, dated 12.8.99. Appeal 149/99 is
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directed against BIFR's order, dated 8.10.99. 4. In paragraph 2 of our order, dated 9.11.99, we had directed that the amount of Rs. 10 crore advanced by RCPL shall be kept in an interest bearing deposit with SBI until these appeals are disposed of. Consequently, the company wrote a letter, dated 7.12.99 to SBI to transfer the amount from cash credit account to 'the interest bearing deposit account' for a period of three months. However, by a subsequent letter, dated 13.12.99, the company asked the SBI to retain the amount till further clarifications were sought from this Authority. At the hearing on 17.12.99, the learned counsel for the company requested us to recall our direction contained in paragraph 2 of our order, dated 9.11.99, praying that compliance with this direction would result in further increase in the liability of the company, because the said amount was held in the company's cash credit account with the SBI so that the company did not have to pay the interest thereon. The representative of SBI submitted a letter, dated 16.12.99 stating that in Writ Petition No. 2507/99 in the Hon'ble High Court of Bombay, the petitioner - Girni Kamgar Sangharsh Samiti (GKSS) has raised the issue of interest accrued on the amount of Rs. 10 crore held with SBI on 'no-lien basis', and that the SBI has submitted necessary clarification through their counsel that the amount held in cash credit account does not carry any interest as it was credited in the cash credit account as pier original mandate of the company vide their letter, dated 22.3.95 and by doing so, the company were not charged with interest on cash credit account for Rs. 10 crore all along, and thus saved substantial amount of interest on the borrowal accounts. 5. It is noted from paragraph 4 of Hon'ble Bombay High Court's order, dated 28.10.99 in WP No. 2507/99 that the learned counsel for SBI had stated before the High Court that an amount of Rs. 10 crore is lying with the bank along with the interest and the said amount would not be disbursed without the leave of that court and without the directions of BIFR & AAIFR. In view of this, we do not see any need to recall or modify our direction contained in paragraph 2 of our order, dated 9.11.99. 6. The learned counsel for Rashtriya Mill Mazdoor Sangh (RMSS) argued : RMMS is the approved union under the BIFR Act, 1946, for the cotton textile industry in the local area of Greater, Mumbai; RMMS has represented the workers of the cotton textile majority of the workers belong to RMMS; in any case, the scope of intervention by GKSS should be limited by this Authority by an order so that it does not create any precedent and hurdle in the rehabilitation of the company and the fate of nearly 5,000 workers. The learned counsel for GKSS argued that GKSS was represented before BIFR, that Bombay High Court by order, dated 28.10.99 in WP No. 2507/99 has directed BIFR and AAIFR to give an opportunity of hearing to GKSS in all matters regarding rehabilitation scheme for the company, and that, therefore, GKSS has a right to be heard by BIFR and AAIFR . 7. At the hearing on 9.11.99, we had added GKSS as respondent No. 16 in this appeal because GKSS was present before and heard by BIFR on 12.8.99 in Case No. 135/99 pertaining to the company. In any case, GKSS is entitled to represent those workers who are
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its members insofar as hearings before BIFR and AAIFR are concerned. The registered and recognised union (RMMS) in this case, has a right to represent the workers insofar as any settlement between management and the workers is concerned. In any case, this appeal was being finally heard, and, therefore, the question of giving any direction in regard to the scope of GKSS's intervention did not arise, particularly, because the Hon'ble Bombay High Court have, by their order' dated 28.10.99 in WP No. 2507/99, directed BIFR and this Authority to give an opportunity of hearing to GKSS in all the matters regarding the rehabilitation scheme for the company and this Authority complies with the orders of the High Court. 8. In regard to the modality for the sale of land, the counsel and representatives of different parties reiterated the stand taken by them at the hearing before BIFR on 12.8.99. Their submissions are summarised below (a) Ms. Gayatri Singh, counsel for GKSS, suggested that the amount of Rs. 10 crore should be refunded to RCPL in full and final settlement of its claim against the company and the land/development rights should be sold by advertising as free from all encumbrances. (b) Shri Alok Dhir, counsel for the company, suggested : the company should not refund the amount of Rs. 10 crore to RCPL; there is neither an assurance that a bid of Rs. 37 crore or higher would be available if an advertisement is made for sale free from all encumbrances, nor an assurance that RCPL will not demand interest if the amount of Rs. 10 crore is refunded to them; the company has no contractual obligation to refund this amount; litigation with RCPL will be time-consuming and will thwart the efforts for the rehabilitation of the company; a tripartite agreement should be entered into by the company, FNL and RCPL, binding FNL to its offer of Rs. 37 crore as well as the final settlement with RCPL with the condition that if a higher bid is received, then the tripartite agreement would be void; an advertisement should also be issued inviting bids with an upset price of Rs. 37 crore and giving the details of the agreement between company and the RCPL and the advance of Rs. 10 crore given by RCPL, stipulating that the bidder would have to settle RCPL's claim against the company; if one or more bids higher than Rs. 37 crore are received, the highest bid should be accepted; otherwise, the tripartite agreement would be confirmed; in the meantime, the DRS should be circulated and published, envisaging an estimated receipt of Rs. 37 crore from the sale of land/development rights. (c) The counsel/representatives for RMMS/financial institutions/banks supported the stand taken by the company. (d) Ms. Gayatri Singh observed that if the bids are invited, mentioning the dispute between the RCPL and the company, prospective bidders may be disinclined to come up with higher offers. Shri Alok Dhir observed that the fact of agreement between RCPL and the company and the consequent dispute would have to be mentioned in the advertisement; otherwise, the company may be involved in prolonged litigation and the sale of land/development rights may not materialise.
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(e) In response to a question from the Bench as to whether there is some assurance from any prospective bidders that a bid of not less than Rs.37 crore would be forthcoming if the advertisement for sale is made free from encumbrances after settling the dispute with RCPL, there was no positive response from Ms. Gayatri Singh . 9. The sale of land/development rights has to be arranged in a manner which is transparent and ensures maximum proceeds for the company. Our analysis and conclusions are given below : (a) Paragraph 19 of the agreement, dated 4.11.95 between the company and RCPL provides that if RCPL fails to pay the balance amount (i.e., Rs.70 crore) within 7 days as stipulated in the agreement, the company shall be entitled to terminate the agreement and to forfeit the earnest money of Rs. 10 crore after giving a notice to RCPL in writing in that behalf, provided that if RCPL pays the balance amount with interest within 7 days from the date of receipt of the said notice, the agreement shall not be terminated and the earnest money of Rs. 10 crore shall not be forfeited. Paragraph 22 of the said agreement further provides that if RCPL fails to pay the balance amount within 7 days as stipulated therein, the company shall be entitled to terminate the agreement and to forfeit the earnest money of Rs. 10 crore and shall also be entitled to grant the development rights to any other person(s) either by private treaty or by inviting offers from the public or in any such manner as the company deems fit and proper, and in such event, notwithstanding any other remedy the company may have, the company shall be entitled to recover from RCPL the deficiency in price, if occasioned by such resale and the costs thereof, which shall be made good by RCPL to the company with interest on the amount of deficiency and the costs thereof @ 18% p.a. compounded quarterly from the date of the default till payment . (b) Neither MHC (solicitors of the company) nor Justice Dudhat (ICICI's nominee on ASMC) has expressed any doubt about the company's title to land under reference. In fact, both of them have only expressed apprehension about the delay in litigation if RCPL files a suit for the recovery of the amount of Rs. 10 crore (with or without interest). Even if a suit is filed by RCPL, it will only be a money suit. The money dispute between RCPL and the company cannot be and must not be treated as land dispute. The company's title to land is undisputed. The land/development rights can, therefore, be sold free from encumbrances irrespective of the outcome of the suit/civil dispute between RCPL and the company. If a suit is filed by RCPL, the company must filed its counter claim. Even if a suit is not filed by the RCPL, the company must forfeit the earnest money of Rs. 10 crore and claim damages from RCPL, by filing
(c) Section 2 of SICA declares that SICA is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution. Section 32(1) of SICA stipulates that the provisions of SICA and of any rules
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and schemes made thereunder have overriding effect over all other laws except the laws relating to Foreign Exchange Regulation and Urban Land Ceiling & Regulation. Section 18(8) makes the provisions of scheme sanctioned under SICA binding on shareholders, creditors, guarantors and employees of the company. Even if the assets of a sick industrial company are encumbered, such assets can be sold free from encumbrances if so provided under a scheme sanctioned for such company under the provisions of SICA, and the encumbrances can be settled in monetary terms without any effect on the process of disposal of such assets free from encumbrances. This process is not subject to interference by civil courts. Section 26 of SICA specifically provides that no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or BIFR is empowered by, or under, SICA 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 SICA. In view of these provisions of SICA, the company's land/development rights in the present case can be sold free from encumbrances without any doubts or apprehensions about the likely consequences of the notice given by RCPL to the company for refunding the earnest money of Rs. 10 crore with interest . (d) According to the company, FNL has offered a sum of Rs. 37 crore if the amount of Rs. 10 crore is refunded to RCPL or a sum of Rs. 27 crore if the said sum of Rs. 10 crore is not refunded to RCPL. Considering the rights of the company under its agreement, dated 4.11.95 with RCPL, there is no need for the company to enter into any understanding with RCPL directly or by way of tripartite agreement amongst the company, FNL and RCPL. It is open to the company to enter into an agreement with FNL, with the clear under-standing that the company has forfeited the amount of Rs. 10 crore given as earnest money by RCPL, entertaining FNL's offer of Rs. 27 crore for development rights of 10 lakh sq. ft. provided FNL deposits the said amount or any reasonable amount that ASMC may consider appropriate with the further understanding that the company will advertise the land/development rights for sale free from encumbrances, and if a higher offer is received, then the agreement with FNL will be null and void and the amount deposited by it will be refunded without interest . (e) The company must advertise the sale of land/development rights free from encumbrances. The existing ASMC must draw tender documents carefully, 9 clarifying, inter alia, that RCPL had, by an agreement, dated 4.11.95 with the company, agreed to purchase development rights for 10 lakhs sq. ft. FSI for a consideration of Rs. 80 crore and deposited earnest money of Rs. 10 crore, that RCPL failed to fulfil its obligation to pay the balance amount as stipulated under the agreement, that the company has forfeited the earnest money of Rs. 10 crore, that RCPL rescinded the agreement and has given a legal notice for the fund of Rs. 10 crore, that the company proposes to proceed against RCPL for the recovery of damages as provided under the agreement, that the company's title to the land is clear and perfect and possess on of the land company 1 is will be given free from encumbrances to the bidder whose bid for purchase of development rights is accepted, that such bidder will not be liable for the consequences of any civil dispute between RCPL and
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the company and that the gains/losses resulting from such dispute will be to the account of the company . (f) The modified DRS must be circulated and published in brief in newspapers as required under section 18(3)(a) of SICA, assuming the sale proceeds of Rs. 37 crore from the sale of land/development rights, and the steps for sale be initiated simultaneously as stated above. 10. In conclusion, the company must forfeit the earnest money of Rs. 10 crore by taking recourse to the terms of its agreement with RCPL and sell the land/development rights (10 lakh sq. ft. FSI) free from encumbrances as stated above, and take further appropriate steps to recover the loss (if any) from RCPL. BIFR's directions in paragraph 19 of the order, dated 12.8.99 and BIFR's order, dated 8.10.99 are set aside. The appeals are disposed of.
CASE STUDY -- 5
KHUSHBIR SINGH AND ANOTHER (RE PRONTO STEERINGS LTD.) v. BIFR AND OTHERS. Appeal No. 66/99 against BIFR's order, dated 31.3.99 in BIFR Case No. 175/88 (4/97), decided on August 12, 1999.
BEFORE THE APPELLATE AUTHORITY RECONSTRUCTION, NEW DELHI
FOR
INDUSTRIAL
&
FINANCIAL
VIVEK SIBAL, Advocate, for the appellant A. B. PANDAY, Advocate, M. L. WALI, Manager, Pronto Steerings Ltd.; S. K. CHADHA, Dy. Manager, Department of Industries, H.P./HPSIDC/HPFC; V. K. GUPTA, V. K. KAUSHIK, R. S. GULATI, Senior Managers, PNB; AMRIK SINGH, II ESIC, Ro Delhi. ORDER (Date of hearing : 12.8.1999.) This is an appeal against BIFR's order, dated 31.3.99 in case No. 175/88 (new case No. 4/97) approving the modified rehabilitation scheme for M/s. Pronto Steerings Ltd. (PSL), a sick industrial company. The appellants, shareholders of PSL, are aggrieved by clause 8(iv) of the modified-rehabilitation scheme for PSL. By that clause, the capital of PSL has been restructured by writing down the same by 75%. They are aggrieved because their shareholding of 13,450
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shares (collectively) has been reduced to 25% of the face value. 2. The learned counsel contends : the appellants came to know about the provision for the restructuring of capital by PSL by writing it down by 75% only when a notice, dated 12.5.99 was issued by PSL for an extraordinary general meeting of the members of PSL to be held on 12.7.99 for giving effect to clause 8(iv) of the modified rehabilitation scheme; when the brief particulars of the draft rehabilitation scheme were published in newspapers on 13.8.97, the said public notice did not include the fact that the proposed rehabilitation scheme for PSL included a provision for restructuring the capital of PSL by writing it down by 75%. He, therefore, contends that the appellants, members of PSL, did not have any reason for apprehending that their interest would be adversely affected by the proposed rehabilitation scheme and had no opportunity for objecting to this provision in the proposed rehabilitation scheme. He further contends that the scheme sanctioned by BIFR and the BIFR's order do not give any justification for the reduction in the face value of the existing share capital. He adds that as a result of the sanctioned modified rehabilitation scheme, the promoters would acquire more than 90% of the share capital after restructuring and thereby the small shareholders will lose certain rights which otherwise would have been available to them under the company law. He, therefore, prays for setting aside clause 8(iv) of the rehabilitation scheme for PSL 3. It is an admitted fact that public notice of the draft rehabilitation scheme was, dated 13.8.97. That notice included a clause that copy of the scheme was available for inspection in the library of BIFR during working hours on any working day. The appellants could have gone to the library of BIFR to check the particulars of the proposed rehabilitation scheme and found out as to whether their interests were going to be adversely affected in any way. Moreover, the scheme was sanctioned by BIFR on 5.3.98. The order impugned in this appeal is, dated 31.3.99 which only modified certain clauses in the scheme. The scheme sanctioned by BIFR on 5.3.98 included the aforesaid clause 8(iv). That clause has not been modified subsequently. During this entire period, the appellants do not appear to have taken any care to find out the particulars of the sanctioned scheme and also whether they were in any way going to be adversely affected in any way. The appeal against clause 8(iv) of the scheme is too much delayed. 4. In the case of a sick industrial company as defined in section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'the Act'), the real value of the shares is zero unless shown to the contrary. Section 18(2)(f) specifically provides for the reduction of the interests or rights of the shareholders in the sick industrial company to such an extent as BIFR considers necessary in the interests of restructuring, revival or rehabilitation of the sick industrial company. In the scheme sanctioned for PSL, the secured creditors have accepted a sacrifice of Rs. 10.42 crores. When the State financial institutions and the bank have accepted such a large sacrifice in order to facilitate the rehabilitation of PSL, the shareholders cannot have a grievance about reduction in their interest. In fact, in the event of winding up of PSL, even the secured creditors would not have got payment of their full dues. The entire proceeds would have been distributed proportionately amongst the secured creditors and workers. The unsecured creditors and the shareholders would not have received any payment. Therefore, even
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the reduced interest of the shareholders under the rehabilitation scheme should be seen as a concession and not as a punishment to the shareholders 5. Since section 18(2)(g) of the Act specifically provides that in the case of restructuring of the capital of the sick industrial company in a rehabilitation scheme, if the interest of shareholders is reduced, shareholders may ask for payment in cash in full and final settlement of their interest in their shareholding. If, therefore, the appellants wish to receive payment at Rs. 2.50 per share for their entire shareholding or part of it, the promoters will have to buy their shares at Rs. 2.50 per share. Having said that, we do not see any reason for interference in the impugned order. With the above observation, the appeal is dismissed.
CASE STUDY -- 6
Raheja Universal Limited vs NRC Limited and others [SUPREME COURT OF INDIA, 07 Feb 2012] (A) Corporate - Banking & Finance - Sick Industrial Companies (Special Provisions) Act, 1985, ss. 17(3), 22(3) - Scope and ambit of s. 22 - Respondent company was declared as sick unit by Board for Industrial and Financial Restructuring (BIFR) - Respondent sought to dispose o surplus land for bringing additional funds required for financial restructuring - Respondent entered into a Memorandum of Understanding (MoU) and several agreements for sale with appellant company for selling its land - Since appellant failed to disburse third installment of sale consideration, respondent could not even clear dues of employees, who had taken benefit of early retirement scheme - Respondent applied to BIFR - BIFR fixed cut-off date for financial revival by an order u/s. 17(3) of the Act, however, directed to obtain prior approval before sale of land Parties appealed to Appellate Authority for Industrial and Financial Reconstruction (AAIFR) AAIFR held that scheme could be approved but subject to pre-payment of entire remaining consideration, as per its directions, for setting off labour dues - AAIFR, therefore, permitted land, though an asset of the company, to be sold - Parties including labour union challenged AAIFR order before HC - HC held that BIFR order was within the scope of s. 22(3) of the Act and AAIFR order permitting sale of land in furtherance to agreement between parties was not sustainable as it was part of revival scheme and sale had been permitted subject to final orders of BIFR - Hence, instant appeal - What is the scope and ambit of s. 22 of the Act - Held, intent of introducing s. 22 was to empower BIFR to issue any direction to sick industrial company, its creditors and shareholders, in interest of company or even in public interest, directing company not to dispose o any assets, except with consent of BIFR - S. 22 of the Act was reservoir of statutory powers empowering BIFR to determine a scheme, right from its presentation till its complete
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implementation in accordance with law, free of interjections and interference from other judicial processes - Further, s. 22(3) of the Act contemplated that any remedy for enforcement of a right which would be available to a third party and any such proceedings before any court or tribunal should remain stayed or be continued subject to such declaration - S. 22A of the Act dealt with restrictions and prohibitory orders which BIFR could pass, all for purposes of preparation o scheme and proper implementation and effective management of revival of sick industrial company - Ss. 22 and 22A were required to be read along with provisions of s. 26 of the Act that ousted jurisdiction of civil courts and vested exclusive jurisdiction for specified purposes with BIFR - Appeal dismissed. (B) Corporate - Banking & Finance - Land & Property - Sick Industrial Companies (Special Provisions) Act, 1985, ss. 22(3) - Transfer of Property Act, 1882 - Overriding effect o 1985 Act - Whether the provisions of 1985 Act would prevail over the provisions of 1882 Act Held, 1882 Act was a general law, controlling and operating in a very wide field - 1882 Act did not have application to a particular situation or class of persons, however, 1985 Act was a special legislation providing for imperative functioning of specialized bodies like BIFR and AAIFR and was intended to apply to a very specific situation, i.e., where a company was a sick industrial company - 1985 Act had no application even to other different kinds of companies within purview of Companies Act, 1956, except sick industrial companies - Legislature had undoubtedly given an overriding effect to provisions of 1985 Act and even restricted jurisdiction of civil courts, as was demonstrated from the language of ss. 26 and 32 of the 1985 Act - Thus, provisions of 1985 Act would prevail over provisions of the 1882 Act - Appeal dismissed. (C) Corporate - Banking & Finance - Land & Property - Sick Industrial Companies (Special Provisions) Act, 1985, ss. 17(3), 22(3) - Transfer of Property Act, 1882, s. 53A - Sale o assets of sick industry - Right of purchaser - Determination - Whether agreement to sell by respondent in relation to an immovable property transferred or created any right or title in immovable property itself in favor of appellant purchaser - Held, MoU and agreements for sale o land belonging to company between appellant and respondent were signed prior to presentation o scheme before BIFR - However, second supplementary agreement for sale was executed not only subsequent to presentation of scheme before BIFR but even after BIFR had passed an order u/s. 17(3) of the 1985 Act - Further, sale proceeds received under agreements were utilized for revival of respondent company to a large extent - Once asset of the company and/or its sale proceeds had been integral part of formation and finalization of revival scheme, such transaction should not be stated to be beyond ambit and scope of s. 22(3) of the 1985 Act - Further, provisions of s. 53A o 1882 Act recognized a right of a transferee, however, even that provision did not create title o transferee in property in question but gave him a very limited right, that too, subject to satisfaction of conditions stated in s. 53A of the 1882 Act - Hence, agreements in the instant cases did not transfer or create any right or title in property in question in favor of appellant purchaser - Appeal dismissed. (D) Corporate - Banking & Finance - Sick Industrial Companies (Special Provisions) Act, 1985, ss. 17, 18, 22(3) - Direction by BIFR - Jurisdiction - Whether in facts and circumstances o case, BIFR had jurisdiction to issue a direction or make a declaration in relation to agreement in
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question in exercise of powers vested in it u/s. 22(3) of the Act - Held, order of BIFR was passed clearly at the stage of consideration of revival scheme which was approved by consortium o banks for debt restructuring (CDR Group) as well as secured creditors - Scheme for revival o company on long term basis was primarily dependent upon sale proceeds of land in question on the one hand and utility of remaining land for revival of company on the other - Land was paramount asset of company for its revival and successful implementation of scheme in accordance with law - Asset was duly taken into consideration in formulation of the scheme as contemplated u/ss. 17 and 18 of the Act and appropriate directions, prohibitory orders of BIFR were issued within the ambit and scope of ss. 22(1), 22(3) and 22A of the Act - Appeal dismissed. (E) Corporate - Banking & Finance - Sick Industrial Companies (Special Provisions) Act, 1985, ss. 22(3) - Sale of assets of sick industry - Direction by BIFR - Jurisdiction - Whether HC or BIFR had exceeded its jurisdiction while passing impugned orders - Held, AAIFR had disturbed BIFR order and held that contract between parties could not be suspended u/s. 22(3) and it was not in interest of respondent - However, AAIFR order was set aside and BIFR order of was restored by HC - No jurisdictional or other error was there in HC order in restoring BIFR order - Land being primary asset of respondent, could not be permitted to be dissolved by sale or otherwise without consent and approval of BIFR - BIFR was authority proprio vigore and required to oversee entire affairs of a sick industrial company and to ensure that the same were within framework of scheme formulated and approved by Board for revival of company in accordance with provisions of the 1985 Act - On facts as well, neither BIFR nor HC had exceeded its urisdiction in passing impugned orders - It was not that respondent had been divested of its right by BIFR but only suspended final transfer of property in its favour in accordance with provisions of Act and limitations imposed therein - However, once scheme was implemented or period specified under provisions of ss. 22(3) and 22(4) expired, declaration would cease to exist and appellant would be entitled to enforce its rights in accordance with law as if no such declaration or restriction ever existed - Hence, impugned HC was maintained and directed parties to proceed the matter before BIFR in accordance with law - Appeal dismissed.
CASE STUDY – 7
INDIAN SHAVING PRODUCS LIMITED VS. BIFR AND ANOTHER(SC)
Supreme Court Decision dt.03-01-1996 218 ITR 140(SC) JUDGMENT The judgment of the court was delivered by
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S. P. BHARUCHA J.----This appeal by special leave impugns an order of the Appellate Authority for Industrial and Financial Reconstruction. The impugned order upheld the order of the Board for Industrial and Financial Reconstruction, established under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called "the said Act"), by which the benefit of the provisions o section 72A of the Income-tax Act, 1961, was not extended to the appellant upon the amalgamation of Sharp Edge Limited with it. Notice upon this appeal was issued to the Central Board of Direct Taxes and it was duly served. It has not entered appearance. Section 72A of the Income-tax Act, 1961, states "that where there has been an amalgamation of a company owning an industrial undertaking with another company and the Central Government, on the recommendation of the specified authority, is satisfied that the following conditions are fulfilled, namely :---(a) the amalgamating company was not, immediately before such amalgamation, financially viable by reason of its liabilities, losses and other relevant factors ; (b) the amalgamation was in the public interest ; and (c) such other conditions as the Central Government may, by notification in the Official Gazette, specify, to ensure that the benefit under this section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company, then, the Central Government may make a declaration to that effect and, thereupon, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and the other provisions of this Act relating to set-off and carry forward of loss and allowance for depreciation shall apply accordingly. . . ." "Specified authority" has been defined for the purposes of section 72A to mean such authority as the Central Government might, by notification in the Official Gazette, specify. The said Act was enacted to make, in the public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which were needed to be taken with respect to such companies and the expeditious enforcement thereof. Section 4 constitutes the Board for Industrial and Financial Reconstruction (BIFR) and section 5 constitutes the Appellate Authority. Chapter III deals with references, inquiries and schemes. The provisions of section 15(1) state that where an industrial company has become a sick industrial company, its board of directors shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the BIFR for determination of the measures which should be adopted with respect to the company. A "sick industrial company" was defined by section 3(1)(o) to mean an industrial company which had at the end of any financial year accumulated losses equal to or exceeding its entire net worth and had
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also suffered cash losses in such financial year and the financial year immediately preceding such financial year. This definition was substituted in 1994 so that it now 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. Section 16 requires the BIFR to make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company, inter alia, upon receipt of a reference with respect to such company under section 15. The BIFR may, for the disposal of such inquiry, require an operating agency to enquire into and make a report with respect to such matters as the BIFR may specify. The inquiry is required to be completed within sixty days from its commencement and an inquiry is deemed to have commenced upon receipt by the BIFR of a reference. Section 17 so far as is relevant reads thus : "17. Powers of Board to make suitable order on the completion of inquiry.---(1) If after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. (2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board, shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. (3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company. " Section 18 states that where an order has been made under section 17(3) in relation to any sick industrial company, the operating agency specified in the order shall prepare a scheme with respect to such company providing for the measures set out therein. The following measure is referred to in clause (c)(i), namely, "the amalgamation of the sick industrial company with any other company". The scheme prepared by the operating agency is required to be examined by the BIFR and its copies sent with such modifications, if any, as may have been made by the BIFR to the sick industrial company, the operating agency and to the other company concerned in the proposed amalgamation and, after consideration of objections, the BIFR is required to sanction the scheme, which would come into force on such date as it might specify. Section 32(2) reads : "Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the provisions of section 72A of the Income-tax Act, 1961 (43 o 1961), shall, subject to the modifications that the power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the
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amalgamation of a company owning an industrial undertaking with another company." Sharp Edge Ltd., was incorporated in 1956 to manufacture carbon steel blades. Its controlling interest was held by different companies at different times. From August, 1986, onwards the shareholding was taken over by the appellant. Subsequent to 1983, Sharp Edge was not doing well. As on March 31, 1989, its accumulated loss amounted to Rs. 298 lakhs against its paid-up capital of Rs. 212 lakhs. A reference was made to the BIFR under section 15 of the said Act, Sharp Edge having become a sick industrial company. On July 9, 1991, the amalgamation o Sharp Edge with the appellant-company was discussed by the BIFR. After considering all the submissions made to it, the BIFR noted that it was not possible for Sharp Edge to make its net worth positive on its own and it was in the public interest to take such measures as might be feasible for its rehabilitation. Accordingly, in exercise of the powers under section 17(3) of the said Act, ICICI was appointed as the operating agency with the task of examining the viability o Sharp Edge and for preparing a scheme to rehabilitate it. On November 13, 1991, the BIFR observed that Sharp Edge's performance had significantly improved during the last two years mainly because of the management and financial support from the appellant and its net worth had become positive. The appellant was also doing quite well and had the necessary financial strength to rehabilitate its closely held subsidiary (Sharp Edge) without further financial reliefs and concessions. The BIFR then said : "In view of the consensus among the concerned parties for the long-term benefits to the sick company flowing from its merger with the parent company, the Bench acceded to the request of the company to allow the amalgamation of the two companies but without granting any benefits under section 72A of the Income-tax Act." The operating agency was, accordingly, directed to submit a revised draft rehabilitation-cum-merger scheme. On April 2, 1992, the appellant wrote to the BIFR and submitted that it should reconsider the request for the benefit of the provisions of section 72A of the Income-tax Act favourably, for the reasons stated by it. On April 23, 1992, the BIFR considered the material on record and observed that no objection was received to the notified rehabilitation scheme and that the required consents and approvals of all the concerned parties to the said scheme had been obtained. It said : "The company's request for grant of benefit under section 72A of the Income-tax Act was not considered justified by the Bench as it was a closely held company. Its liabilities were mainly in respect of its parent company, namely, Indian Shaving Products Ltd. (ISPL), it had been showing a cash profit for the last three years and its net worth had since become positive, as also ISPL was a strong base company. The BIFR sanctioned the scheme, to come into force with immediate effect. Under the terms of the scheme, the amalgamation took effect on April 1, 1991." Against the order of the BIFR declining to grant the benefit of section 72A of the Income-tax Act to the amalgamation, the appellant preferred an appeal. The appellate authority noted that the BIFR had given five reasons for declining the benefit under section 72A, namely, (1) that Sharp Edge was a closely held company; (2) its liabilities were mainly in respect of the appellant (3) Sharp Edge had been showing a cash profit for the last three years (4) its net worth had since become positive ; and (5) the appellant was a strong base company. In relation to these reasons, the appellate authority said: " None of these factors can be considered totally irrelevant or extraneous except possibly the fact
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that both these companies are closely held companies and also the fact that all the liabilities of the sick industrial company are in respect of its parent company, namely, the amalgamating company, the ISPL. It may also be stated that, as on the date of amalgamation, that is, on April 1, 1991, the sick industrial company's net worth had not yet become positive. " The appellate authority concluded its order thus: " Financial viability or non-viability is determined by the three factors of profitability, liquidity and solvency. It has been shown above that the sick company had generated cash profits in the preceding two years prior to the date of amalgamation, i.e., prior to April 1, 1991, and thus was in a stage of incipient sickness and potentially financially viable. This was thus the basis for the acceptance and sanction of the rehabilitation scheme. 27. Public interest has to be judged from a different standpoint. It has to be examined whether, i this income-tax benefit were not to be granted, the rehabilitation-cum-merger scheme would succeed or fail and if, in the event of the latter, the economic and social costs to the community would be such as to warrant the grant of the benefit. On the facts of the case, with both the companies having generated cash profits immediately preceding amalgamation, it can be safely said that the rehabilitation scheme would certainly go through, even without the grant of this benefit and that such a grant, if made, would be at the cost of the public exchequer and be thus altogether unwarranted and undeserved. It was not the intention of the Legislature while conferring this discretionary power on the BIFR/AAIFR, that it should be used so as to grant unintended benefits to profit-making companies. Such an exercise of discretion would be unreasonable and would call for judicial interference. This is not the case here. The BIFR has wisely and properly exercised this discretion in not granting this benefit, as part of the rehabilitation exercise. Its order, in this regard, does not, therefore, call for any interference and has to be affirmed, which we accordingly do. 28. The appeal, for all the above reasons, does not have any merit and is, therefore, dismissed as such. " Section 72A of the Income-tax Act was considered by this court in CIT v. Mahindra and Mahindra Ltd. [1983] 144 ITR 225. This case arose prior to the coming into force of the said Act, that is to say, it was a case when sanction under section 72A was required to be given by the Central Government upon the recommendation of the specified authority thereunder. Learned counsel for the appellant relied upon the following passage in the judgment (at page 239) : " Before undertaking a scrutiny of these reasons for ultimately deciding whether the impugned conclusion of the specified authority an the Central Government is liable to be interfered with or not it will be useful to indicate briefly the object with which this new provision of section 72A was introduced in the Act as it will throw light on what was the mischief or situation that was intended to be remedied by its introduction as also the true concept of financial non-viability. From the Budget speech of the Finance Minister, the Notes on Clauses of the Finance (No. 2) Bill of 1977 and the Memorandum explaining the provisions of the said Bill, it will appear clear that sickness among industrial undertakings was regarded as a matter of grave national concern inasmuch as closure of any sizable manufacturing unit in any industry entailed social costs in
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terms of loss of production and unemployment as also waste of valuable capital assets, and experience had shown that taking over of such sick units by Government was not always a satisfactory or economical solution ; it was felt that a more effective method would be to facilitate amalgamation of sick industrial units with sound ones by providing incentives and removing impediments in the way of such amalgamation which would not merely relieve the Government o uneconomical burden of taking over and running sick units but save the Government from social costs in terms of loss of production and unemployment. With such objective in view, in order to facilitate the merger of sick industrial units with sound ones and as and by way of offering an incentive in that behalf, section 72A was introduced in the Act, whereunder, by a deeming fiction, the accumulated loss or unabsorbed depreciation of the amalgamating company is treated to be a loss or, as the case may be, allowance for depreciation of the amalgamated company in the previous year in which the amalgamation was effected; but the amalgamated company, although a successor-in-interest, would be entitled to carry forward and set-off the accumulated loss and unabsorbed depreciation of the amalgamating company only where the amalgamating company was not, immediately before such amalgamation, financially viable and the amalgamation was in public interest. The expression 'financial non-viability' has not been defined in the Act, but the Finance Minister's speech, the Notes on Clauses of the Bill and the Memorandum explaining the provisions thereof make it clear that the financial non-viability of an undertaking has been equated with the 'sickness' of such undertaking and obviously in the context of its revival by a sound undertaking the sickness must be of a temporary character and not any basic or permanent sickness. An undertaking which is basically or potentially non-viable will ordinarily be incapable of revival and would face a closure; in other words, the financial non-viability spoken of by the section must refer to sickness brought about by temporary adverse financial circumstances that disables the unit to stand and work on its own. This is also made clear by the provision contained in clause (a) of sub-section (1) which states that the financial non-viability of the amalgamating company has to be judged by reference to 'its liabilities, losses and other relevant facts'." Under section 72 of the Income-tax Act, to give to the amalgamated company the benefit of the loss or, as the case may be, allowance for depreciation of the amalgamating company for the previous year in which the amalgamation was effected for the purposes of the Income-tax Act, the Central Government must, upon the recommendation of the specified authority, be satisfied that the amalgamating company was not, immediately before the amalgamation, financially viable by reason of its liabilities, losses and other relevant factors, and that the amalgamation was in the public interest. By reason of section 32(2) of the said Act, where there has been under any scheme thereunder an amalgamation of a sick industrial company with another company, the provisions o section 72A of the Income-tax Act shall apply in relation to such amalgamation, subject to this modification that the power of the Central Government is to be exercised by the BIFR without the necessity of a recommendation by the specified authority mentioned in section 72A of the Incometax Act. This is because, for the purposes of according sanction to a scheme of amalgamation of a sick industrial undertaking with any other company under section 18 of the said Act, the BIFR has to be satisfied that the amalgamating company is not financially viable, which is the effect o section 3(1)(o) of the said Act, and that the amalgamation is necessary or expedient in the public interest, which is the effect of sections 17 and 18 of the said Act read together. Sanction of a scheme of amalgamation under section 18 of the said Act necessarily implies that the requirements
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of section 72A of the Income-tax Act have been met and the BIFR must exercise the power conferred upon it by section 32(2) of the said Act and make the declaration contemplated by section 72A of the Income-tax Act. The conditions for sanctioning a scheme under section 18 of the said Act being the same as those required for a declaration under section 72A of the Income-tax Act, the BIFR could not have sanctioned the scheme of amalgamation of Sharp Edge with the appellant but declined to make the declaration under section 72A of the Income-tax Act with regard to that amalgamation. The appeal is allowed. The order under appeal as also the order of the BIFR declining to make a declaration under section 72A of the Income-tax Act in respect of the amalgamation of Sharp Edge Ltd. with the apppellant set aside and the BIFR is directed to make such directed. No order as to costs
CASE STUDY -- 8
MONTARI INDUSTRIES LTD. v. BIFR AND OTHERS. Appeal No. 98 of 1999 (Appeal against BIFR's Order, dated 17.6.99 in Case No. 35/97), decided on December 22, 1999.
BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION, NEW DELHI AJAY K. JAIN, Advocate, with PRAVEEN GUPTA AND TARUN SUD, V. P. Finance, for the appellant. SUMANT BATRA, Advocate, DR. ARYA KUMAR, G.M., A. B. SAHA, A.G.M., for IIBI; INDERPAL S. KALRA, Dy. General Manager, IDBI; VIVEK KASTWAR, A.M. Legal, Gujarat Lease Financing Ltd.; J. M. SHARMA, Manager, PNB; ASHOK KUMAR, A.G.M., UTI; T. R. JAYASANKARAN, Manager, Indian Bank . ORDER This is an appeal against BIFR's order, dated 17.6.99 in case No. 35/97 regarding M/s Montari Industries Ltd. (MIL), a sick industrial company within the meaning of section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
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2. The appellant is aggrieved by BIFR's directions contained in paragraph 20(a),(c) and (e) of the impugned order. 3. Under an agreement, dated 1.12.94, IDBI lent a sum of Rs. 15 crore to MIL, repayable in 12 months within two instalments. By way of security, MIL pledged the following shares with IDBI : 17,10,090 shares of Bausch & Lomb Ltd. (BLL) belonging to MIL and its subsidiaries; 10,64,725 shares of BLL belonging to the promoters and their associates; 35,298 shares of M/s Ranbaxy Industries Ltd. belonging to promoters; 7,47,652 shares of MIL belonging to promoters and their associates. MIL defaulted in repayment of loan to IDBI. After protracted negotiations between IDBI and MIL, by a letter, dated 22.1.99, IDBI informed MIL, about its acceptance of OTS subject to the said amount being paid by 31.3.99. The OTS terms envisaged substantial relief in interest payable on the loan of Rs. 15 crore. IDBI, as the operating agency appointed by BIFR under section 17(3) of SICA, was also preparing a draft rehabilitation scheme (DRS) based on OTS of the dues of financial institutions/banks. By a letter, dated 12.2.99, IDBI approached BIFR for permission for the sale of shares pledged by MIL with OTS amounts. Permission was sought because by earlier order, dated 1.8.97, whereby BIFR declared MIL to be a sick industrial company, MIL had been restrained from alienating its assets under section 22A of SICA. By order, dated 5.3.99, BIFR permitted MIL to sell the shares as recommended by IDBI under their letter, dated 12.2.99 with the direction that the proceeds from the sale will be deposited with IDBI in separate account which will be utilised or spent as directed by BIFR after considering the requests from concerned parties on merit. IDBI addressed another letter, dated 9.3.99 to BIFR, requesting for amendment to their order, dated 5.3.99 and requesting that IDBI be allowed to appropriate the sale proceeds from the shares. BIFR passed a subsequent order, dated 30.3.99 after considering IDBI's application, permitting IDBI to retain lien on the sale proceeds of the shares subject to the provisions that may be made in the sanctioned scheme as to the final disposal of the sale proceeds. Thereafter, MIL obtained advance from Kotak Mahindra Capital Co., to be repaid from the sale proceeds of the shares arranged to be sold through Kotak Securities, and made payment of Rs. 2,201.48 lakhs to IDBI in full and final settlement of their OTS amount. In all, 17,10,090 shares of BLL (owned by MIL and its subsidiaries) and 10,64,725 shares of BLL (owned by promoters and their associates) were sold for a total consideration of Rs. 27.78 crore (rounded off). Apart from the payment to IDBI, MIL also paid an amount of Rs. 394.50 lakhs to ICICI in full and final settlement of their OTS amount, Rs. 173 lakhs to some pressing creditors against legal cases and utilised the balance Rs. 8.67 lakhs for its own working capital purposes. 4 The DRS submitted by IDBI to BIFR was circulated by BIFR under their order, dated 1.4.99, inviting objections and suggestions as well as consent from the concerned persons under section 19(2) of SICA. The scheme envisaged a cost of of Rs. 36.85 crore to be financed by : Rs. 26.36 crore as sale proceeds of BLL shares owned by MIL and its subsidiaries and the promoters and their associates and pledged with IDBI : Rs.95 lakhs already paid to IDBI; Rs. 9.34 crore as internal accruals; Rs. 20 lakhs as additional interest-
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free fund to be brought in by the promoters. An amount of Rs. 31.11 crore was to be utilised in the first year of the scheme. This, inter alia, included payment to Rs. 28.29 crore (inclusive of Rs. 95 lakhs already paid to IDBI) as the OTS amount to IDBI/ICICI/IIBI/PSIDC, an amount of Rs. 2.00 crore as OTS payment to foreign banks and the balance Rs. 82 lakhs towards capital expenditure and working capital. As an amount of Rs. 95 lakhs had already been paid to the IDBI, the OTS amount required to be paid to the financial institutions in the first year was Rs. 27.34 crore. As against that, an amount of Rs. 25.96 crore was paid to IDBI and ICICI towards full payment of their OTS amounts. Therefore, the real grievance arises on the part of the IIBI and PSIDC who were to get the payment of the OTS amount in the very first year of the scheme. 5. At the last hearing of this appeal on 1.12.99, the learned counsel for Mudra Ispat Ltd. had raised an objection stating that IDBI and ICICI had been given a preferential treatment and that neither BIFR nor OA had any power to divert payment to one person except under the sanctioned scheme. 6. We do not find any merit in the contention of Mudra Ispat Ltd. for two reasons : Mudra Ispat Ltd. is an unsecured creditor and a provision for payments to unsecured creditor has already been made in the DRS, and as this unsecured creditor is represented before BIFR and can make submissions before BIFR as and when the scheme is considered, Mudra Ispat Ltd. has no locus standi for making an objection regarding payments to ICICI and IDBI because the DRS envisaged payment from the sale proceeds from the disposal of shares to the F/s 7. Mr. Sumant Batra, counsel for IIBI, states that on 1.8.97 BIFR had directed MIL not to alienate its assets, that this direction is meant to facilitate the rehabilitation of the sick industrial company by preventing dilution of assets and to ensure that sale proceeds from the disposal of assets are distributed amongst the creditors in a reasonable manner under the scheme sanctioned by BIFR 8. In the present case, we do not accept this contention of Mr. Batra, because BIFR's direction under section 22A of SICA is one of the general conditions or guidelines laid down by BIFR at the time of appointment of an operating agency under section 17(3) of SICA.Section 17(4)( b) of SICA authorises BIFR to modify its orders under section 17(3) of SICA on submissions being made by the OA. By their order, dated 30.3.99, permitting IDBI to hold lien on the sale proceeds from the disposal of shares pledged with IDBI, BIFR had modified its earlier order, its modification being valid by virtue of section 17(4)( b) of SICA, and therefore, neither the sale of the shares pledged with IDBI, nor the order permitting IDBI to retain its lien can be challenged belatedly 9. BIFR's order, dated 30.3.99 very clearly states that IDBI is permitted to retain she lien on the sale proceeds of the shares subject to the provisions that may be made in the sanctioned scheme as to the final disposal of the sale proceeds. This order superseded BIFR's earlier
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order, dated 5.3.99 whereby the sale proceeds were ordered to be kept in a separate account with IDBI. Once the lien of the IDBI is accepted, the sale proceeds in excess of the satisfaction of the IDBI's lien could only be available for disposal in accordance with the provisions to be made in the sanctioned scheme. It is seen from the facts of this case that the sale proceeds from the disposal of BLL shares owned by MIL and its subsidiaries were only Rs. 17 crore (round off); the remaining sale proceeds were realised from the disposal of BLL shares belonging to the promoters and their associates. Moreover, the DRS itself envisaged the utilisation of sale proceeds from the disposal of these shares for the purpose of OTS payments to the financial institutions. As no balance would have been available after the satisfaction of the IDBI's lien insofar as the sale proceeds of the shares belonging to MIL and its subsidiaries are concerned, it cannot be said that there was any violation of the proposed terms of the DRS or BIFR's order, dated 30.3.99. IDBI's lien could not have been removed or reduced without IDBI's consent because reduction in IDBI's lien on the sale proceeds would amount to financial assistance as defined under section 19(1) of SICA, and this could not have been done without IDBI's consent. Moreover, while the proceedings in relation to sick industrial company are in progress before BIFR, efforts for the reduction of the liabilities of the sick industrial company have to be encouraged and whenever possible, efforts have to be made to arrest the increase in the liabilities. Again, in this case, IIBI and PSIDC are secured by charge on fixed assets and did not have any lien on BLL shares pledged with IDBI, whereas IDBI had no charge on the fixed assets of MIL. From that point of view, the OTS payments to IDBI and ICICI cannot be considered illegal or unreasonable. 10. However, IIBI and PSIDC have a reasonable grievance, because they expected to share the sale proceeds from the sale of shares. We have, therefore, looked at the possibility of finding out a solution to the claims of the IIBI and PSIDC. PSIDC is not present today and was not present on 1.12.1999 when the appeal was part heard. Therefore, the PSIDC would be free to make its submissions before BIFR as and when DRS is considered. As regards IIBI, Shri A. K. Jain, learned counsel for MIL, and Mr. Sumant Batra, learned counsel of IIBI, on instructions from their respective clients, have agreed before us that MIL will pledge all the unencumbered MIL shares (stated to be about 6 to 7 lakhs) belonging to promoters and associates with IIBI and make payment of the agreed OTS amount with interest to IIBI in accordance with the terms Of MIL's letter, dated 25.11.99, a copy of which has been placed before us today (OTS amount is to be paid with interest @ 19.5% p.a. which has been agreed to between IL and IIBI), with the stipulation that if the entire OTS amount alongwith interest is not paid by 31.3.2000, IIBI will be free to recall the sacrifices made by it and institute/ continue legal proceedings against MIL/guarantors for the recovery of its entire dues and execute the decree that it may obtain. We order accordingly. 11. IIBI (OA) will modify the DRS, after deleting IDBI and ICICI whose dues have already been settled and paid, and submit a modified DRS to BIFR within a month, With copies to the concerned parties. In the write up of the modified DRS, the above arrangement between MIL and IIBI will be incorporated. The arrangement made for the payment of the dues of IIBI as stated in the proceeding paragraph will not be subject to any modification by the
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provisions of the scheme that may be sanctioned by BIFR 12. The appeal is allowed. BIFR's directions in paragraph 20(a) and (e) of the impugned order are set aside. Reference to the deposit in a no lien account in paragraph 20(c) of the impugned order is set aside. BIFR shall consider the modified DRS to be submitted by IDBI after hearing the concerned parties and proceed further according to law.
CASE STUDY – 9
PENGUIN TEXTILES LTD. AND ANOTHER v. BIFR AND OTHERS. Appeal No. 145 of 1999 (Appeal against BIFR's order, dated 16.8.99 in Case No. 5/96 (IV)), decided on December 21, 1999.
BEFORE THE APPELLATE AUTHORITY RECONSTRUCTION, NEW DELHI ALOK DHIR, Advocate, for the appellants.
FOR
INDUSTRIAL
&
FINANCIAL
B. V. RAMANA REDDY, Inspector, Customs and Central Excise; N. M. POPLI, Advocate, for Noma-Enterprise; V. U. ERADI, with L. N. TAPARIA and K. K. R. DAS, authorised representatives, for M/s. Ghanshyam Sarda; V. U. ERADI, Advocate, for Vijayalakhmi Cotton Co. and others, secured creditors . ORDER This is an appeal against BIFR's order, dated 16.8.1999, contained in BIFR's fax message, dated 16.8.1999 to the Indian Bank, Operating Agency (OA), with copy to the CMD of Penguine Textiles Limited (PTL), the first appellant, and Shri Ghanshyam Sarda, respondent No. 5, directing the O.A. to examine both the proposals received from the existing promoters as well as from the prospective co-promoters (respondent No. 5 - Shri Ghanshyam Das Sarda) and also exploring the feasibility of change in management . 2. Shri V. U. Eradi, counsel, appearing for respondent Nos. 5 and 6, stated that he has been personally impleaded as respondent No. 6 instead of impleading the concerned party `Jailakshmi' Cotton Textiles and others (16 creditors)'. He voiced his grievance against his impleadment personally as respondent No. 6. Shri Alok Dhir, counsel for appellants, expressed regrets and prayed for correcting the list of parties by substituting' Jailakshmi Cotton Textiles and others (16 creditors) as respondent No. 6. Correction of the name of the 6th respondent is ordered accordingly.
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3. Mr. N. M. Popli, learned counsel for Noma Enterprises (NE), respondent No. 4 submitted that by order, dated 27.1.1999 in appeal 65/98 this Authority had ordered PTL to pay a sum of Rs. 100 to NE through the counsel as cost, but the said amount had not been paid. Shri Alok Dhir, counsel for PTL, made a payment of Rs. 100 to Shri N. M. Popli and the payment was received by Shri N. M. Popli on 17.12.99. 4. Shri N. M. Popli, counsel for NE, further submitted by order, dated 8.9.1998 in MA 38/98 in appeal No. 65/98, this Authority had restricted the scope of hearing NE to its interest with respect to Rs. 16.16 lakhs paid by it to PTL, the respective rights and obligations of NE and PTL being subject to the final outcome of the proceedings in the civil court and had further directed that NE would cease to be a party as soon as the bank guarantee is furnished by PTL in accordance with the order, dated 15.4.1998 of the Division Bench of Andhra Pradesh High Court in LPA 83/98; the counsel for appellants committed a fraud on BIFR by stating before BIFR on 1.4.1999 that PTL had since given the bank guarantee to NE which, therefore, had no locus standi any more; in fact, no bank guarantee has been given to NE by PTL. Shri Alok Dhir, counsel for the appellants, argued that statements are made by the counsel only on the basis of the instructions from clients, that the point raised by Shri N. M. Popli is not at issue in this appeal, and that Shri N. M. Popli is free to agitate the matter before BIFR. On this issue, the following facts have emerged from the record before us : (a) The Board of directors of PTL passed a resolution on 27.1.1999 authorising Shri Ghanshyam Sarda (respondent No. 5 in the present appeal) to submit a revival scheme for PTL as co-promoter to the bank/financial institution/BIFR/AAIFR subject to the company providing a bank guarantee for Rs. 16.16 lakhs as ordered by the Hon'ble High Court of Andhra Pradesh in LPA 83.98. The BoD of PTL further authorised Shri Ghanshyam Sarda to submit clarification/modification/particulars and do all the acts in connection with the revival of the company. A further resolution was passed by the BoD of PTI. on 7.2.1999, authorising Shri Ghanshyam Sarda to submit revival scheme for PTL as co-promoter and also submit clarifications/modifications/particulars and do all acts in connection with the revival of the company. By a letter, dated 5.7.1999, PTL informed the Indian Bank (OA) that the scheme formulated by the proposed co-promoter Shri Ghanshyam Sarda was not acceptable and that BoD of PTL had on 11.6.1999 decided not to take Shri Ghanshyam Sarda as co-promoter and requested the OA not to entertain him in any manner whatsoever as he has no locus standi any more. (b) In para 6 of BIFR's order, dated 1.4.1999, it is recorded "Regarding the issue of NE according to the orders of High Court, they were entitled to be present, if a bank guarantee for their dues of Rs. 16 lakhs was not furnished. Since the company had since given the bank guarantee to them, they had no locus standi any more. Hence, they have not attended the hearing."
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(c) NE is respondent No. 4 in the present appeal. The appellants would not have impleaded NE as a respondent, if the bank guarantee had been provided to NE. 5. As this matter is going back to BIFR, it is open to NE to raise the point at the next hearing before BIFR and also clarify the reason for not attending the hearing on 1.4.1999. 6. Shri Alok Dhir challenged the impugned order on two grounds : BIFR passed the impugned order after considering Indian Bank (OA's) report, dated 3.8.1999, without giving an opportunity of hearing to the appellants; therefore, there was a violation of regulation 40 of BIFR Regulations, 1987; the appellants had introduced Shri Ghanshyam Sarda as prospective co-promoter by way of resolutions of the BoD of PTL (resolutions dated 27.1.1999 and 7.2.1999 referred to above), but subsequently, on 11.6.1999, the BoD of PTL had decided not to take Shri Ghanshyam Sarda as a co-promoter and had informed the Indian Bank (OA) accordingly by a letter, dated 5.7.1999 and, consequently, Shri Ghanshyam Sarda has no locus standi and, therefore, the proposal of Shri Ghanshyam Sarda cannot be entertained by BIFR; as the proposal of the existing promoters is yet to be considered by OA, BIFR's direction to the OA to consider the feasibility of change in management must also be set aside. 7. Shri V. U. Eradi, counsel for respondents 5 and 6 contended : Shri Ghanshyam Sarda (respondent No. 5) came in as a co-promoter by virtue of a memorandum of understanding, dated 31.1.1999 between the directors of PTL (in pursuance of the resolution, dated 27.1.1999 passed by the BoD of PTL) and 'Shri Ghanshyam Sarda and three others'; the BoD of PTL further confirmed the induction of Shri Ghanshyam Sarda and his associates as co-promoters for the revival of PTL by subsequent resolution, dated 7.2.1999; respondent No. 5 and associates had made some payments in pursuance of the memorandum of understanding, dated 31.1.1999. He further submitted that in case the matter is remanded to BIFR in view of regulation 40 of BIFR Regulations, 1987, then BIFR should be directed for an early hearing because respondent No. 5 has made payments under MoU, dated 31.1.1999 and respondent No. 6 (16 creditors) are unable to recover their money from PTL due to the statutory bar under section 22(1) of SICA. 8. Considering the requirement of regulation 40 of BIFR Regulations, 1987, BIFR trust have given an opportunity to all the concerned parties before taking a view on the report, dated 3.8.1999 submitted by the Indian Bank (OA). Moreover, the impugned order speaks of simultaneously considering the proposal of the prospective co-promotor and also exploring the feasibility of change in management in place of joint venture or induction of co-promoter. By order, dated 20.10.1997 in Writ Petition No. 6469/97, the Hon'ble Andhra Pradesh High Court had directed that the OA should examine/promoters and submit a report to BIFR which should ps for change in management, consider OA's report and accordance with law. BIFR should have proceeded in court's direction. Now, the appropriate course for BIFR is OA's report on the proposal given by PTL/promoters and proceed further in accordance with law. If the proposal of PTL/promoters is found acceptable, a draft scheme should be prepared accordingly, and processed further in accordance with law. On the other hand, if the proposal of PTL/promoters is should be issued for inviting proposals for the revival of BIFR's directions to Indian Bank
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(OA) to examine the co-promoter and also explore the feasibility of change in management are set aside. If the OA has not already submitted its report to BIFR on the latest proposal of PTL/promoters, it should do so within two weeks from the date of receipt of this order, with copy to appellants and other secured creditors. The matter is remanded to BIFR for taking appropriate decision on OA's report on the proposal submitted by PTL/promoters and proceed further according to law.
CASE STUDY -- 10
KANORIA JUTE AND INDUSTRIES LTD. SANGRAMI SHRAMIK UNION v. AAIFR [2010] 156 COMP CAS 131(CAL) Sanjib Banerjee J [Decided on 2-7-2009]
BIFR directed by High Court to reconsider revival of company and to give all parties reasonable opportunities – Whether invitation to outsiders to submit scheme for revival of company is irregular – Held, No. Powers of BIFR – BIFR requiring company and operating agency to assess locus standi of union to represent workers – Whether correct – Held, No.
22. CRITICISM
The Delhi High Court in a recent decision, in Dwarikadhish Spinners Ltd. v. UCO Bank & Ors., has examined the scope and nature of inquiry under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. In the case at hand, the question raised before the Hon'ble court was whether a unilateral inquiry could be conducted by any creditor, not being an operating agency under the act, and whether such inquiry / report can be relied upon by the BIFR without independent application of mind. The Court held as under; We find that as per the statement of objects and reasons of SICA, it has been designed to take care of not only those sick industrial companies which are potentially viable and can be revived and rehabilitated but also of the non- viable sick industrial companies. The potentially viable sick industrial companies are sought to be revived and rehabilitated under SICA whereas the nonviable sick industrial companies are to be dealt with under Section 20 of SICA in order to salvage
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the productive assets and realize the amounts due to the banks and financial institutions through liquidation of such companies. Before either eventuality is undertaken, the BIFR has been given the duty under the Act to determine whether an industrial company has become a sick industrial company or not. The expression sick industrial company is defined in Section 3(1)(o) as under: "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." It is apparent from the above definition that an industrial company, which has, at the end of any financial year, accumulated losses equal to or exceeding the entire net worth of the company would be termed as a sick industrial company. When an industrial company becomes sick, a duty is cast upon the Board of Directors of that company under Section 15(1) to, within sixty days from the date of finalization of the duly audited accounts of the company for the financial year as at the end of which the company has become sick industrial company, make a reference to BIFR for determination of the measures which are to be adopted in respect of the said company. We find that by virtue of Section 15(2), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, without prejudice to the requirement of the Board of Directors of an industrial company which has become sick to make a reference to the BIFR within Section 15(1), can also make a reference in respect of a company in respect of which there are sufficient reasons to believe that it has become a sick industrial company. Thus, it is clear that a reference to BIFR can be made either by the Board of Directors of the company itself or by the Central Government, RBI etc. under Section 15(2).
23. BIFR A FIASCO
Now even the Labour Ministry has criticized the working of BIFR and SICA in a study prepared for the 36th Indian Labour Conference. However, in fairness to BIFR it may be pointed out that it is only a recommendatory body which lacks teeth to enforce rehabilitation schemes. It does not have a free hand to decide on the cases quickly. The legal system is complicated and several references are required to be made before it can proceed with the case. Inordinate delays in disposing of cases only aggravate sickness. Another problem with BIFR is that because of the legal and other constraints, most of the time it had been attempting to restructure or rehabilitate companies that are beyond redemption
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CHAPTER – IV COMPANIES (SECOND AMENDMENT )ACT 2002
SYNOPSYS: 1. 2. 3. 4. 5. 6.
INTRODUCTION OBJECTIVES OF THE ACT NATIONAL COMPANY LAW TRIBUNAL NEED OF ESTABLISHMENT OF TRIBUNAL POWERS TRANSFERRED TO NATIONAL COMPANY LAW TRIBUNAL CONSTITUTION AND FUNCTIONS OF THE TRIBUNAL a. CONSTITUTION OF NCLT b. QUALIFICATION FOR JUDICIAL MEMBER OF NCLT c. QUALIFICATION FOR TECHNICAL MEMBER OF NCLT d. COMMENT 7. POWERS AND FUNCTIONS 8. NATIONAL COMPANY LAW APPELLATE TRIBUNAL 9. CONSTITUTION OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL a. QUALIFICATION AND AGE OF PRESIDENT/ MEMBERS ( S-10FR) 10. JURISDICTION POWERS AND FUNCTIONING 11. APPEAL FROM ORDER OF TRIBUNAL 12. PROCEDURE AND POWERS OF TRIBUNALS AND APPELLATE TRIBUNAL 13. THE CHALLANGES TO NCLT AND NCLAT 14. CASE STUDY a. CONCLUSION OF MADRAS HIGH COURT b. APPEAL TO THE SUPREME COURT c. JUDGEMENT OF SUPREME COURT d. COMMENT ON JUDGEMENT e. MY OPINION ON TRIBUNAL f. MY APPREHENSION 15. DIFFERENCE BETWEEN TRIBUNAL AND COURT 16. MATTERS TO BE DEALT BY NCLT 17. BENEFITS FOR CONSTITUTING NCLT 18. WAY FORWARD 19. SEC-424A REFERENCE TO NCLT 20. 424B. INQUIRY INTO WORKING OF SICK INDUSTRIAL COMPANIES 21. 424C. POWERS OF TRIBUNAL TO MAKE SUITABLE ORDER ON COMPLETION OF INQUIRY 22. CIRCUMSTANCES UNDER WHICH COMPANY WILL WOUND UP BY TRIBUNAL 23. SOME DISTINCTIVE FEATURES OF WINDING UP PRECEDURE UNDER NCLT AND BY HIGH COURT 24. SICA VS COMPANIES SECOND AMENDMENT ACT 2002 25. A CRITIQUE 26. CONCLUSION
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COMPANIES (SECONDAMENDMENT)ACT 2002AMENDMENT)ACT 2002
1. INTRODUCTION
The Act was passed by Parliament in December 2002. It is an Act to consolidate and amend the law relating to companies and certain other associations and is to take the place of Sick Industrial Companies (Special Provisions) Act, 1985, (SICA). An Act further to amend the Companies Act, 1956.
2. OBJECTIVES OF THE ACT
Abolition of present Company Law Board (CLB)
Matters pending with CLB will be transferred to National Company Law Tribunal (NCLT)
Orders already passed by CLB are valid and can be enforced through Court
Jurisdiction of civil court barred where jurisdiction is available to NCLT
Constitutional Powers of High Court remain unaffected
3. NATIONAL COMPANY LAW TRIBUNAL
The Central Government has been positively responding to the changing needs of the corporate world by effecting required changes in Corporate Laws so that they are worthy of meeting the needs of the society from time to time. In the corporate structure of our country, Judicial Forums play a very important role in the life of a company. Companies are required to cater to the growing needs of the society so as to discharge their responsibilities as corporate citizens for creating value
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and enhancing wealth for all their stakeholders which not only include the equity shareholders and debenture holders but also include the fixed deposit holders, Banks, Term Lending Institutions, vendors, consume rs and public at large. Ever since the Companies Bill, 1997 was placed before the Parliament, the Central Government has brought significant changes in the Companies Act, 1956 (Act). In fact the Companies Bill, 1997 was designed to re-write the Act but the same could not be passed due to different factors. However, the important Amendments were passed by the Parliament on need based basis from time to time and finally the 1997 Bill is proposed to be withdrawn from the Rajya Sabha after the Companies (Amendment) Bill, 2003 is passed by the Parliament. One of the most important amendment brought by the Companies (Second Amendment) Act, 2002 was insertion of new Parts IB and IC in the Principal Act relating to National Company Law Tribunal and Appellate Tribunal. These Tribunals will be the appropriate Judicial Forums of the future. There was a growing need for empowering the Company Law Board and reducing the burden of High Courts by constituting a high-power Tribunal, which could take up all matters relating to Company Law and other Corporate Laws at one Forum. Keeping this in view, the 2002 Amendment inserted new Parts IB & IC in the Principal Act for formation of National Company Law Tribunal (NCLT or Tribunal) and National Company Law Appellate Tribunal (Appellate Tribunal) respectively. Necessary Section - Section 10FA was also inserted to provide for dissolution of the present Company Law Board.
4. NEED OF ESTABLISHMENT OF TRIBUNAL
Accordingly, on and from the commencement of the Companies (Second Amendment) Act, 2002 the Board of Company Law Administration constituted under sub-section (1) of Section 10E shall stand dissolved and all matters or proceedings or cases pending before the Company Law Board on or before the constitution of the Tribunal u/s. 10FB, shall, on such constitution, stand transferred to the National Company Law Tribunal and the said Tribunal shall dispose of such cases in accordance with the provisions of this Act.
By a Notification No. 344(E) dated 31.03.2003, the Central Government had brought into force Sections 2 and 6 of the Companies (Second Amendment) Act, 2002 with effect from 1.04.2003. Section 2 of the Second Amendment Act relates to definitions, while Section 6 relates
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to insertion of new Parts IB & IC relating to National Company Law Tribunal and the Appellate Tribunal. Immediately thereafter the Central Government came out with a Press Note on 4.04.2003, clarifying that the above Notification of 31st March, 2003 was issued only to enable the Government to initiate necessary steps to establish the NCLT and make it operational. It was further clarified that the subject Notification bringing into effect Section 6 of the Second Amendment Act will only set in motion all preliminary steps required for establishment of NCLT and that upon establishment of the same, a separate Notification regarding constitution of NCLT will be issued by the Government. Till such time jurisdiction of the present Company Law Board will continue to remain unchanged.
Appeals from NCLT will go to National Company Law Appellate Tribunal and from the decisions of the Appellate Tribunal to the Supreme Court of India. Earlier, the decisions of the Company Law Board were challenged before the Hon‘ble High Court and then in Supreme Court. This will help in getting uniform decision on a particular subject by the Appellate Tribunal instead of getting different decisions on the same matter by different High Courts.
The powers of the present Company Law Board included inter-alia in the Company Law Board Regulations, 1991 which have been transferred to National Company Law Tribunal/ Central Government are shown in the following table:
The Act was provides for the constitution of a National Company Law Tribunal (NCLT). The functions that are presently being handled by the Company Law Board (CLB) (dispute resolution and compliance with certain provisions of the Companies Act 1956); BIFR (revival and rehabilitation off sick companies) and High Court (winding up of companies )will now be handled by NCLT. Thus , NCLT will now be the single forum for companies replacing the existing three forums. BIFR will be wound up.
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5.
POWERS
TRANSFERRED
TO
NATIONAL
TRIBUNAL AND THE WORDS ―THE TRIBUNAL‖
COMPANY LAW SUBSTITUTED FOR
―HIGH COURT‖OR ―COURT
Sl. No.
Section
Powers transferred/ Words substituted from
1
2(33)
High Court
Subject to NCLT
Definition of ‗Prescribed‘.
2
55A
Company Law Board
NCLT
Company Law Board
NCLT
Powers of Securities and Exchange Board of India.
3
58AA Small Depositors
4
75(1)(c)(ii)
Court
NCLT
Return of Allotment – Issue of shares at a discount.
5
79(3) proviso Power to issues shares at a discount – sick industrial companies.
Central Government
NCLT
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6
80A(2)
Any Court
Any Court orNCLT
Court
NCLT
Court
NCLT
Bar on power to vary or modify.
7
100
Reduction of share capital.
8
101 Application for confirming reduction of share capital.
*
9
Other than those transferred from Company Law Board shown in Table A, given above.
102
Court
NCLT
Court
NCLT
Court
NCLT
Order confirming reduction of share capital.
10
103 Registration of order of reduction.
11
104 Liability of members in respect of reduced shares.
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12
107 Rights of dissentient
Court
NCLT
Company Law Board
NCLT
Central Government
NCLT
Company Law Board
NCLT
shareholders.
13
111A Rectification of register on Transfer
14
117B(4) proviso Filing of petition by the debenture trustee – sick industrial companies.
15
117C
Debenture redemption reserve.
16
167(2) proviso
Central Government
NCLT
Power to call annual general meeting – sick industrial companies.
17
168
Central Government
NCLT
Penalty for default in complying with section 166 or 167
18
203 Power to restrain fraudulent
Court
Court or NCLT
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persons from managing companies.
19
237(b)
Company Law Board
Central Govenment or NCLT
Investigation of affairs of the company in cases other than those referred in Section 235.
20
241(2)(dd)
Company Law Board
NCLT
Inspectors‘ report.
21
243
Court
NCLT
Company Law Board
NCLT
Application for winding up of a company.
22
247 Investigation of ownership of company.
23
251
Company Law Board
NCLT
Company Law Board
NCLT
Saving for legal advisers and bankers.
24
269 Appointment of managing or whole-time director or manager.
P a g e | 192
25
318(3)(d)
Court
NCLT
Compensation for loss of office – winding up.
26
Part VI
Company Law Board
NCLT
Removal of managerial personnel. Chapter IVA (388B – 388E)
27
391
Court
NCLT
High Court
NCLT
Court
NCLT
Court
NCLT
Power to compromise or make arrangements with creditors and members.
28
392 Power of Tribunal to enforce compromise and arrangement.
29
394 Facilitating reconstruction and amalgamation of companies.
30
394A Notice to be given to Central Government – by Tribunal under Sections 391 and 394.
P a g e | 193
31
395
Court
NCLT
Company Law Board
NCLT
Company Law Board
NCLT
Court
NCLT
New provisions inserted
NCLT
Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority.
32
396 Amalgamation of companies in national interest.
33
410 Appointment of Advisory Committee.
34
424 Application of Sections 421 to 423 to receivers and managers.
35
Part VIA Revival and rehabilitation of sick
(424A – 424L) by
industrial companies.
Companies (Second Amendment) Act, 2002
36
425(1)(a) Winding up of company by Tribunal.
Court
NCLT
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37
426
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Liability as contributories.
38
427 Obligations of Directors and Managers whose liability is unlimited.
39
433 Circumstances of winding up.
40
434 Company when deemed unable to pay its debts.
41
439 Applications for winding up.
42
439A Statement of affairs to be
New Provision
NCLT
filed on winding up of a company.
43
440 Right to present winding up petition where company is being wound up voluntarily.
Court
NCLT
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44
441
Court
NCLT
Court
NCLT
Court
NCLT
High Court
NCLT
Commencement of winding up by Tribunal.
45
443 Power of Tribunal on hearing petition.
46
446 Suits stayed on winding up order.
47
448 Appointment of Official Liquidator.
Scope extended to professionals also.
48
450
Court
NCLT
Appointment and powers of provisional liquidator.
49
451(1)
Court
NCLT
Liquidator to perform such duties as the Tribunal may impose.
50
453 Receiver not to be appointed of assets with liquidator.
Court
NCLT
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51
454
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
High Court
NCLT
Statement of affairs to be made to Official Liquidator.
52
455 Report by Official Liquidator.
53
456 Custody of company‘s property.
54
457 Powers of liquidator.
55
458 Discretion of liquidator.
56
458A Exclusion of certain time in computing periods of limitation.
57
459 Provision for legal assistance to liquidator. Scope extended to professionals also.
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58
460
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Exercise and control of liquidator‘s
powers.
59
461 Books to be kept by liquidator.
60
462 Audit of liquidator‘s accounts.
61
463 Control of Central Government over liquidators.
62
464 Appointment and composition of committee of inspection.
63
465 Constitution and proceedings of committee of inspection.
64
466
Power of Tribunal to stay winding up.
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65
467
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Settlement of list of contributories and application of assets.
66
468 Delivery of property to liquidator.
67
469 Payment of debts due by contributory and extent of set-off.
68
470 Power of Tribunal to make calls.
69
471 Payment into bank of moneys due to company.
70
472 Moneys and securities paid into bank to be subject to order of Tribunal.
71
473 Order on contributory to be conclusive evidence.
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72
474
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Power to exclude creditors not proving in time.
73
475 Adjustment of rights of contributories.
74
476 Power to order costs.
75
477 Power to summon persons suspected of having property of company.
76
478 Power to order public examination of promoters, directors, etc.
77
479 Power to arrest absconding contributory.
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78
480
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Saving of existing powers of Tribunal.
79
481 Dissolution of company.
80
490 Power of company to appoint and fix remuneration of liquidators.
81
492 Power to fill vacancy in office of liquidator.
82
494(5)
Court
NCLT
Power of liquidator to accept shares, etc., as consideration for sale of property of company.
83
497
Court
NCLT
Court
NCLT
Final meeting and dissolution.
84
502 Appointment of liquidator.
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85
503
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Appointment of committee of inspection.
86
504 Fixing of liquidators‘ remuneration.
87
506 Power to fill vacancy in office of liquidator.
88
507 Application of section 494 to a creditors voluntary winding up.
89
509 Final meeting and dissolution.
90
511A
Court
NCLT
Application of section 454 to voluntary winding up.
91
512 Powers and duties of liquidator in voluntary winding up.
Court
NCLT
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92
515
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Power of Tribunal to appoint and remove liquidator in voluntary winding up.
93
517 Arrangement when binding on company and creditor.
94
518 Power to apply to Tribunal to have question determined or powers exercised.
95
519 Application of liquidator to Tribunal for public examination of promoters, directors, etc.
96
531 Fraudulent preference.
97
531A Avoidance of voluntary transfer.
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98
533
Court
NCLT
Court
NCLT
Court
NCLT
Liabilities and rights of certain fraudulently preferred persons.
99
534 Effect of floating charge.
100
535 Disclaimer of onerous property in case of a company which is being wound-up.
101
536(2)
Court
NCLT
Avoidance of transfers, etc., after commencement of winding up.
102
537
High Court
NCLT
Court
NCLT
Court
NCLT
Avoidance of certain attachments, executions, etc., in winding up by Tribunal.
103
538 Offences by officers of companies in liquidation.
104
540
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Penalty for frauds by officers.
105
542
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Liability for fraudulent conduct of business.
106
543 Power of Tribunal to assess damages against delinquent directors, etc.
107
544 Liability under sections 542 and 543 to extend to partners or directors in firm or company.
108
545 Prosecution of delinquent officers and members of the company.
109
546 Liquidator to exercise certain powers subject to sanction.
110
547(1)
Court
NCLT
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Notification that a company is in liquidation.
111
549
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Inspection of books and papers by creditors and contributories.
112
550(2) Disposal of books and papers of company.
113
551(2) Information as to pending liquidations.
114
553
Voluntary liquidator to make payments into Scheduled Bank.
115
555 Unpaid dividends and undistributed assets to be paid into the Companies Liquidation Accout.
116
556 Enforcement of duty of liquidator
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to make returns, etc.
117
557
Court
NCLT
Meetings to ascertain wishes of creditors or contributories.
118
558
Courts
Courts or NCLT
Tribunal or person before whom affidavit may be sworn.
119
559
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Court
NCLT
Power of Tribunal to declare dissolution of company void.
120
560 Power of Registrar to strike defunct company off its register.
121
581 Suits stayed on winding up order.
122
582 Meaning of unregistered company.
123
583
Winding up of unregistered companies.
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124
587
Court
NCLT
Suits, etc., stayed on winding up order
125
588
Court
NCLT
Directions as to property in certain cases.
126
589
Court
NCLT
Company Law Board
NCLT
Provisions of Part cumulative.
127
610(2) Inspection, production and evidence of documents kept by Registrar.
128
626
Court
Court or NCLT
Court
Court or NCLT
Court
Court or NCLT
Application of fines.
129
627 Production and inspection of books where offence suspected.
130
632 Power to require limited company to give security for costs.
131
635(4) Enforcement of orders of one Court by other Courts.
Court
Court or NCLT
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132
635B
Company Law Board
NCLT
Company Law Board
NCLT
Protection of employees during investigation, etc.
133
637A
Delegation by Central Government of its powers and functions under Act.
134
640A
Company Law Board
NCLT
Validation of registration of firms as members of charitable and other companies.
135
647A
New provision
NCLT
Saving of pending proceedings for winding up.
136
Schedule XI
Company Law Board
NCLT
Forms in which sections 539 to 544 of Act are to apply to cases where an application is made under section 397 or 398.
137
651A
Reference of winding up of companies in other laws.
Company Law Board
NCLT and Court
P a g e | 209
Power transferred to National Company Law Appellate Tribunal Sl. No.
Section
Powers transferred/ Words substituted Subject from
1 635B Court Protection of employees during investigation, etc.
to Appellate Tribunal
6. CONSTITUTION AND FUNCTIONS OF THE TRIBUNAL
a) CONSTITUTION OF NCLT
The Central Government shall constitute NCLT on the basis of recommendations of The Selection Committee, which will be consisting of the Chief Justice of India or his nominee as Chairman o the Committee and Secretaries of the Ministry of Finance and Company Affairs, Labour Law & Justice as members of the Committee. The qualification prescribed in the Act for appointment as President of the Tribunal is that he should be a person who has been or is qualified to be, a Judge of a High Court. The President will be able to serve upto the age of 67 years while the members will be able to serve only upto the age of 65 years. The President and every other Member of the Tribunal shall hold office as such for a term of 3 years but shall be eligible for re-appointment.
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b) QUALIFICATION FOR JUDICIAL MEMBER OF NCLT
has held judicial office for atleast 15 years in an Indian territory, or
has 10 years experience of practising as an Advocate of The High Court or one who has held partly the judicial office and partly practised in High Court, then taking together both should be 15 years experience or
15 years service with the Central/ State Government on Group ‗A‘ pos t [including atleast 3 years of service as a member of The Indian Company Law Service (Legal Branch) in a senior administrative grade ,
has held for atleast fifteen years a Group ‗A‘ post or an equivalent post under the Central Government [including atleast 3 years of service as a member of the Indian Legal Service in grade I of that service]
c) QUALIFICATION FOR TECHNICAL MEMBER OF NCLT
has held for atleast 15 years Group ‗A‘ post or an equivalent post under the Central/ State Government [including 3 years service as a member of The Company Law Service (Accounts Branch) in a senior administrative grade], or
is or has been a Joint Secretary to the Government of India which under the Central Staffing Scheme or held any other post under the Central/ State Government carrying a scale of pay which is not less than that of a Joint Secretary to the Government of India, for atleast 5 years and has adequate knowledge and experience in dealing with the problems relating to the Company Law, or
is or has been for atleast 15 years in practice as a Chartered Accountant/ Cost Accountant / Company Secretary under the relevant Act i.e. CA, ICWA and CS Act, or
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is a person of ability, integrity and standing having special knowledge of and professional experience of not less than 20 years in science, technology, economics, banking, industry, law, matters relating to industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing, or any other matter with the special knowledge or professional experience, which would be in the opinion of the Central Government useful to the Tribunal, or
is or has been a Presiding Officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947, or
is a person having a special knowledge of and experience of not less than 15 years in the matters relating to labour.
d) COMMENT
The qualification requirement for the Judicial Member focuses on their judicial capacity or as an Advocate of the High Court. One of the criteria namely 15 years of service with the Central/ State Government on Group A post (with atleast 3 years of service as a member of The Indian Company Law Service) does not appear to be appropriate. Putting at par such an experience with that of 15 years in a judicial capacity or 10 years as a practising High Court Advocate does not appear to be reasonable. Similarly, the eligibility criteria for a Technical Member includes within its realm in a residual category Central/ State Government Official with a specified number of years o experience which justify inclusion of everybody and anybody in addition to the professional who deserves more to be a Technical Member. The tenure of the President and of the Members of the Tribunal is 3 years, subject to reappointment, or removal, before the completion of the term. The retiring age of the President and members of the Tribunal is 67 years and 65 years respectively. By reading together, this should imply that those who have retired would only inspire for a position in the Tribunal. Any other person though otherwise, highly qualified, could not tie his career with a position that has a limited tenure of 3 years. The President and any Judicial/Technical Member may resign from his Office by notice addressed to the Central Government and on submission o such resignation, the Central Government may allow the Applicant to do so, or he has to wait for a period of 3 months from the date of such notice, or the date of appointment of the successor, whichever is earlier. In case of any vacancy in the office of the NCLT‘s President it will be filled up by the senior most Member of the Tribunal. The Central Government may in consultation, not with the approval, of the Chief Justice of India may remove the President or any member of the Tribunal but no such removal will be done without giving a reasonable opportunity of being heard.
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One peculiar criteria for not removing the President Member of the Tribunal is that, although one has been convicted of an offence by the Courts of Law but the Central Government finds that such offence does not involve moral turpitude. The Tribunal will be functioning through its various Benches all over the country comprising of 2 Members Bench of a Single Member Bench as may be warranted and deemed fit by the President of the Tribunal. Such a set up will enable constituting Benches on geographical or any other appropriate criteria which would expedite the disposal of the cases and at the same time make available the mechanism at the door step of the Companies reducing the cost and efforts involved. The Tribunal will rectify any mistake, within a period of 2 years, from the date of passing of the order and may review its own orders.
7. POWERS AND FUNCTIONS
The powers of the Tribunal will be exercised by Benches constituted by the President o the Tribunal, out of which one shall be a Judicial Member and another shall be a Technical Member. The Bench may also work under a single Member in respect of such class of cases or such matters pertaining to such class of cases, as the President of the Tribunal may, by general or special order specify. The Tribunal shall constitute of a President and such number of Judicial and Technical Members not exceeding 62. For the disposal of any case relating to rehabilitation, restructuring or winding up of the companies, the President will constitute one or more Special Benches consisting of 3 or more Members each of whom shall necessarily be a Judicial Member, a Technical Member and a Member appointed under Clause (g) or clause (h) of Section 10FD(3). After the Special Bench passes an order in respect of a company to be wound up, the winding up proceedings of such company may be conducted by a Bench consisting of a single Member. If the Members of a Bench differ in opinion on any point or points, it shall be decided according to the majority, if there is a majority, but if the Members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Tribunal for hearing on such point or points by one or more of the other Members of the Tribunal and such point or points shall be decided according to the opinion of the majority of Members o the Tribunal who have heard the case, including those who first heard it. The Central Government will decide upon the number of Benches to be constituted but in
P a g e | 213
addition to this there shall be a Principal Bench at New Delhi presided over by the President of the Tribunal, which will inter-alia have powers of transfer of proceedings from one Bench to the other after recording the reasons for doing so in writing. The Tribunal shall have power to review its own orders (Section 10FN).
Powers To Be Exercised By National Company Law Tribunal
Section Number
Description
58A(9)
Ordering repayment of public deposits and payment of interest
58AA(1) and (3)
Intimation to Tribunal in case of default in repayment of deposits from small depositors. Tribunal will pass appropriate orders
79(3)
Issue of shares at discount by sick industrial company under revival (in other cases, sanction will be by Central Government)
80A(1)
Redemption of irredeemable preference shares issued prior to 15-6-1988
100 to 104
Approval of reduction of share capital
107
Variation of rights of shareholders, if dissenting shareholders object
111
Refusal of registration of transfer and rectification of Register, in case of a private company
111A
Refusal of registration of transfer and Rectification of Register, in case of a Public Company
117B(4)
Petition by Debenture Trustee to impose restrictions on company on incurring further liabilities, in case of sick industrial company under revival. In other cases, application will be made to Central Government.
117C(4)
Directing company to redeem debentures on maturity and pay principal and interest
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167
Power to call Annual General Meeting, if default is made in holding AGM, in case of sick company under revival. In other cases, the power will be exercised by Central Government
186(1)
Power to order general meeting to be called (other than Annual General Meeting)
203
Power to companies
restrain
fraudulent
persons
from
managing
235(2)
Declaring that affairs of the company ought to be investigated. Then, Central Government must appoint inspectors to investigate
237
Central Government may order inspection if Tribunal is of the opinion that circumstances suggest that inspection is necessary
243
Petition by Central Government to Tribunal for winding up or application for oppression/mismanagement, after inspection is carried out
247(1A)
Ordering appointment ownership of company
of
inspectors
for
investigating
250
Imposing restrictions on issue/transfer of shares if company is under investigation
269(7)
Decision whether appointment of managing or whole-time director is in contravention of statutory provisions contained in Schedule XIII
304(2)(b)
Compelling inspection of Register of Directors to persons entitled, if company refuses [Powers concurrently with Central Government]
307(9)
Compelling inspection of Register of Directors‘ Shareholding to persons entitled, if company refuses [Powers concurrently with Central Government]
388B to 388E
391 and 392
394, 394A
Recommending Removal of Managerial Person from office
Power to approve compromise or arrangement and its enforcement Reconstruction and amalgamation of companies
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395
Compelling acquisition of shares of shareholders dissenting from scheme or contract approved by over 90% shareholders
396(3A)
Appeal against order of compensation, if Central Government orders compulsory amalgamation of companies in national interest
397
Application for relief in case of oppression
398
Application for relief in case of mismanagement
408
Ordering appointment of directors by Central Government in case of oppression and mismanagement
409
Ordering prevention of change in Board of company
424
Appointment of receivers/managers in pursuance of an instrument
424A to 424L
Revival and Rehabilitation of a sick company
425 to 560
Winding up of companies
582 to 589
Winding up of unregistered companies
610(2)
Compelling production of documents kept by Registrar (ROC)
614
Enforcement of duty of company to make return to ROC
632
Power to require limited company to give security for costs of legal proceedings
637A
Power to impose conditions and levy fees while according approval, etc., under the Act
-
Winding up of Insurance Companies transferred to Tribunal under Insurance Act.
Note - Prior to the Companies (Second Amendment) Act, 2002, powers in respect o reduction of capital, amalgamation/reconstruction and winding up were with High Court; powers in respect of revival and rehabilitation of sick industrial company were with BIFR under SICA and other powers were with Company Law Board [CLB]. These powers are now transferred to National Company Law Tribunal (NCLT).
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8. NATIONAL COMPANY LAW APPELLATE TRIBUNAL
The Central Government shall by a Notification in the Official Gazette, constitute an Appellate Tribunal which will be called as The National Company Law Appellate Tribunal (NCLAT). Appeal against order of tribunal (NCLT) will be with National Company Law Appellate Tribunal(NCLAT).Appeal has to be filled within 45 days from the date on which a copy of the said order or decision is received by the appellant. On receipt of an appeal, the Appellate Tribunal shall, after giving parties to the appeal, an opportunity of being heard, pass such order thereon as it thinks fit, confirming modifying or setting aside the order appealed against. Appeal should be heard expeditiously and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt o the same.
9. CONSTITUTION OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL
a) QUALIFICATION AND AGE OF PRESIDENT/MAMBERS ( S-10FR)
The Appellate Tribunal shall consist of a Chairperson and not more than 2 Members. The Chairperson shall be a person who has been a Judge of the Supreme Court or the Chief Justice of a High Court. He shall be a person of ability, integrity and standing having special knowledge o and professional experience of not less than 25 years in a specialised subject science, technology, economics, banking, industry, law, matters relating to labour, industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing, or any other matter, the special knowledge of, or professional experience which would in the opinion of the Central Government be useful to the Appellate Tribunal. The Chairperson and every other Member shall hold office for a term of 3 years from the date of their appointment but shall be eligible for re-appointment for another term of 3 years. The Chairperson will be eligible to serve upto the age of 70 years while a Member will be able to serve upto the age of 67 years. Interestingly, no specific qualification has been prescribed to become a Member of the Appellate
P a g e | 217
Tribunal as in case of a Judicial as well as Technical Member of the NCLT although a Member o the NCLAT will be superior to the member of NCLT to review the orders passed by NCLT. The procedure for resignation/ removal and filling up of a casual vacancy are more or less the same as in the case of the President/ Members of the NCLT.
10. JURISDICTION POWERS AND FUNCTIONING
The Appellate Tribunal shall have the same jurisdiction, powers and authority in respect o contempt of itself as the High Court has and may exercise, for this purpose under the provisions o the Contempt of Courts Act, 1971, shall have the effect subject to modifications that (a) the reference therein to a High Court shall be construed as including a reference to the Appellate Tribunal (b) the reference to Advocate General in Section 15 of the said Act shall be construed as a reference to such Law Officers as the Central Government may specify in this behalf. The provisions of the Limitation Act, 1963 shall, as far as may be, apply to an appeal made to the Appellate Tribunal.
11. APPEAL FROM ORDER OF TRIBUNAL
Any person aggrieved by an order or decision of the Tribunal may prefer an appeal to the Appellate Tribunal. No a ppeal shall lie to the Appellate Tribunal from an order or decision made by the Tribunal with the consent of parties. Every appeal under sub- section (1) shall be filed within a period of forty- five days from the date on which a copy of the order or decision made by the Tribunal is received by the appellant and it shall be in such form and accompanied by such fee as ay be prescribed: Provided that the
P a g e | 218
Appellate Tribunal may entertain an appeal after the expiry of the said period of forty- five days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from not filing the appeal in time. On receipt of an appeal preferred under sub- section (1), the Appellate Tribunal shall, after giving parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appe led against. The Appellate Tribunal shall send a copy of every order made by it to the Tribunal and parties to the appeal. The appeal filed before the Appellate Tribunal under sub- section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of the receipt of the appea.
Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the Supreme Court of India within 60 days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such decision or order. The Chairperson, Members, Officers and other employees of the Appellate Tribunal and the President, Members, Officers and other employees of the Tribunal shall be deemed to be public servants within the meaning of Section 21 of the Indian Penal Code. The Tribunal as well as the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a Civil Court under the procedure of Code of Civil Procedure, 1908 while trying a suit. All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be udicial proceedings within the meaning of Sections 193 and 228 and for the purposes of Section 196 of the Indian Penal Code and the Tribunal and the Appellate Tribunal shall be deemed to be a Civil Court for the purposes of Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.
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12. PROCEDURE AND POWERS OF TRIBUNALS AND APPELLATE TRIBUNAL
(1) The Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908 ), but shall be guided by the principles of natural j stice and, subject to the other provisions of this Act and of any rules made by the Central Government, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908 ) while trying a suit in respect of the following matters, namely:(a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872 ), requisitioning any public record or document or copy of such record or document from any office; (e) issuing commissions for the examination of witnesses or documents; (f) reviewing its decisions; (g) dismissing a representation for default or deciding it ex parte; (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and any other matter which may be prescribed by the Central Government. (3) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send i case of its inability to execute such order, to the court within the local limits of whose jurisdiction,(a) in the case of an order against a company, the registered office of the company is situate; or (b) in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain. (4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial
P a g e | 220
proceedings within the meaning of sections 193 and 228, and for the purposes of section 196, o the Indian Penal Code (45 of 1860 ) and the Tribunal and the A pellate Tribunal shall be deemed to be a civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974 ).
13. CHALLANGES TO NCLT:
The proposed framework could not be implemented due to a legal challenges
•
Issues at challenge relate to the changes in jurisdiction and powers of the High Courts with regard to Company matters
•
Special Leave Petition before the Supreme Court
• •
Refer to Constitution Bench Matter heard, reserved for order
14. CASE STUDY
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS BAR ASSOCIATION [CIVIL APPEAL NO.3067 OF 2004] & MADRAS BAR ASSOCIATION V. UNION OF INDIA [CIVIL APPEAL NO.3717 OF 2005] K G Balakrishnan, CJI, R V Raveeveran, D K Jain, P Sathasivam & J M Panchal, JJ [Decided on 11-05-2010]
The five-judge Bench of the Supreme Court of India comprising Justice KG Balakrishnan, Justice RV Raveendran, Justice DK Jain, Justice P Sathasivam and Justice JM Panchal has delivered its udgment on the legality of the constitution of National Company Law Tribunal and National Company Law Appellate Tribunal under the Companies Act, 1956 through Companies (Second Amendment) Act, 2002.
P a g e | 221
With the intention of establishing a Separate Tribunal to deal with all issues or disputes under the Companies Act, 1956, a Special Tribunal and Appellate Tribunal called National Company Law Tribunal and National Company Law Appellate Tribunal were sought to be established through the Companies (Second Amendment) Act, 2002. As per the said amendment, as soon as the Tribunal and the Appellate Tribunal is constituted, almost all powers exercised by the High Court under the Companies Act, 1956 sought to be transferred to the NCLT and NCLAT except the udicial review powers exercised under Article 226 and 227 of Constitution of India. Madras Bar Association, represented by Shri R.Gandhi, has challenged the Companies (Second Amendment) Act, 2002 and especially the constitution of National Company Law Tribunal and National Company Appellate Tribunal before the Madras High Court initially.
a) THE CONCLUSION OF MADRAS HIGH COURT
Justice Jayasimha Babu of Madras High Court has delivered a considered and landmark judgment on the issue of legality of constitution of National Company Law Tribunal and National Company Law Appellate Tribunal. The background of the constitution of Tribunals in India as referred in the Judgment is as follows: ―The Tribunals which are largely a twentieth century phenomenon existed in this country even before the Constitution was framed. The oldest and best known Tribunal is the Income-tax Appellate Tribunal which had been functioning from the year 1941. Industrial Tribunals had also been established prior to 1950. Articles 136 and 227 of the Constitution refer to Tribunals, and make their orders subject to judicial review by the High Court, and with leave, to the Appellate urisdiction of the Supreme Court. Numerous Tribunals have been created subsequent to 1950 by Parliamentary as well as State legislation. Their exact number however is not easily ascertainable. The Law Commission of India in its 162nd Report submitted in 1998 reviewed the working of the major tribunals in the country – the Income-tax Appellate Tribunal, Customs, Central Excise and Gold (Control) Appellate Tribunal and the Administrative Tribunals, and suggested certain changes to improve their functioning.
The object of constituting Tribunals is to provide a simpler, speedier and more accessible justice than ordinary courts are able to provide, as stated in Wade on Administrative Law. Yet another object of constituting Tribunals is to create specialist Tribunals which would include specialists in the filed, to adjudicate more efficiently and speedily the matters requiring adjudication in that field, and thus command the confidence of all concerned in the quality and reliability of the result of such adjudication.‖
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The Operative portion of the Judgment of the Madras High Court is as follows: ―In the light of foregoing discussions it is declared that until the provisions in Parts 1B and 1C o the Companies Act introduced by the Companies (Amendment) Act, 2002, which have been found to be defective in as much as they are in breach of the basic constitutional scheme of separation o powers and independence of the judicial function, are duly amended, by removing the defects that have been pointed out, it would be unconstitutional to constitute a Tribunal and Appellate Tribunal exercise the jurisdiction now exercised by the High Courts or the Company Law Board. The petitioners have also challenged the validity of certain provisions of the Companies (Amendment) Act, 2002, whereby certain powers currently exercised by the Company Law Board, some of which were earlier exercised by the court, were transferred to the Central Government. Most of those powers are only tangentially judicial and are primarily administrative. There is no illegality in such transfer.‖
The judgment of the Madras High Court was a very detailed, considered and reasoned judgment. The apprehension of the petitioners who challenged the Companies (Second Amendment) Act, 2002 and the conclusion of the Court on the issue are, summed up in one para of the judgment as follows: — ―The constitution of the National Company Law Tribunal and the Appellate Tribunal in the manner now provided, when considered along with the provisions concerning the Competition Commission under the Competition Act, 2002, seems to indicate a pattern of an aggressive executive seeking to take over gradually the judicial power traditionally exercised by the courts under safeguards which ensure the competence, independence and impartiality of the judges, and replacing them by persons who have neither a judicial background nor specialized knowledge of the subject for which the Tribunal is created, and by persons now serving the executive who will continue to retain their lien and loyalty to the executive branch, and be amenable to the influence of executive superiors and their political masters.‖
The Judgment of the Madras High Court was a very detailed, considered and reasoned judgment. The Apprehension of the Petitioners who challenged the Companies (Second Amendment) Act, 2002 and the conclusion of the Court on the issue is summed up in one para of the Judgment as follows: ―The constitution of the National Company Law Tribunal and the Appellate Tribunal in the manner now provided, when considered along with the provisions concerning the Competition Commission under the Competition Act 2002, seems to indicate a pattern of an aggressive executive seeking to take over gradually the judicial power traditionally exercised by the courts under safeguards which ensure the competence, independence and impartiality of the judges, and replacing them by persons who have neither a judicial background nor specialized knowledge o the subject for which the Tribunal is created, and by persons now serving the executive who will continue to retain their lien and loyalty to the executive branch, and be amenable to the influence of executive superiors and their political masters.‖
The doyens of the Madras Bar Association Shri Aravind P.Datar, Senior Advocate and Shri V.T.Gopalan, the then Additional Solicitor-General has rendered exceptional assistance to the
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Court in the matter before Madras High Court and the same is acknowledged by the Madras High Court in its judgment as follows: ―We place on record our appreciation to Mr.Arvind Datar, learned senior counsel of petitioner, whose research and cogent presentation has helped to clarify and bring out the significance of the issues involved, and to Mr.V.T.Gopalan, learned Additional Solicitor-General who, with his usual fairness presented the case for the respondent with great vigour, and also placed before the court all the relevant materials.‖
b) APPEAL TO SUPREME COURT
The Judgment of the Madras High Court on the issue of constitution of National Company Law Tribunal and National Company Law Appellate Tribunal was appealed before the Supreme Court and the Supreme Court has now delivered a land-mark judgment on the issue and the judgment has further strengthened the conclusion of Madras High Court and the apprehensions expressed. The Madras High Court has never questioned the legislative competency in establishing National Company Law Tribunal, but, expressed its concern over the independence of the mechanism and its effectiveness. It‘s really laudable.
c) JUDGEMENT OF SUPREME COURT
In the landmark judgment, in Union of I ndia v. R.Gandhi/Madras Bar Association [2010] 100 SCL 142 the Supreme Court upheld the legality of the Companies (Second Amendment) Act, 2002, which provides for the establishment of the NCLT and NCLAT to deal exclusively with the company cases. While delivering the judgment, the Apex Court has upheld the Tribunal being constituted but they have questioned aspects on appointment of its members. For this purpose, they have stated guidelines on the appointment of members, and their terms and conditions o appointment. It was also clarified that the Tribunal is an alternate judicial forum and requires least interference of the executive in the functioning of the Tribunal.
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While delivering the judgment, the Apex Court however, slammed the practice of filling up the post of judicial members in Tribunals with bureaucrats saying that adjudication of these matters needed judicial bent of mind. The Supreme Court has also said that bureaucrats could at best be made as technical members of the Tribunals and all appointments to the post of presiding officers have to be made in consultation with a Committee headed by the Chief Justice of India or his nominee and comprising a judge of the Supreme Court or the High Court, Secretaries in the Ministry of Company Affairs and Law and Justice. It was also mentioned that since the matters from the High Courts too would be transferred to NCLT and NCLAT, the presiding officers have to be of the rank of the High Court‘s Judges or persons meeting the qualification prescribed for the High Court Judges. The various guidelines prescribed in the judgment are as follows: — (i) Only Judges and advocates can be considered for appointment as judicial members. Furthermore, only the High Court‘s Judges, or Judges who have served in the rank of a District Judge for at least five years, or a lawyer who has practised for ten years, can be considered for appointment as a judicial member.
(ii) Persons who have held a Group A or equivalent post under Central or State Governments with experience in the services such as the Indian Company Law Service (Legal Branch) and Indian Legal Service (Grade-1) cannot be considered for appointment as judicial members. Their expertise in these services can at best mean that they can be considered for appointment as technical members. In sum, a judicial member is like a High Court Judge.
(iii) Only officers holding the ranks of Secretary/Additional Secretary can be considered for appointment as Technical members. A ‗Technical member‘ presupposes experience in the specific field to which the Tribunal relates. A member of Indian Company Law Service who has worked with accounts branch of that service, or officers in other departments who might have incidentally dealt with some aspect of Company Law, cannot be considered as ‗expert‘ and cannot be considered as being qualified for appointment as Technical member.
(iv) The selection committee must be headed by the Chief Justice of India or his nominee, who shall also have the casting vote. Besides, there is to be a senior Judge of the High Court or the Supreme Court. The other two members can be the secretaries of some Government department (such as finance & company affairs, and law & justice).
(v) The term of office must be seven years, or at the very least, five years. This is because the presently proposed three-year term was too short to result in development of additional expertise, and because the ‗ said term of three years with the retirement age of 65 years is perceived as having been tailor-made for persons who have retired or shortly to retire and encourages these Tribunals to be treated as post-retirement havens. If these Tribunals are to function effectively and efficiently they should be able to attract younger members who will have a reasonable period of service…‘ Members cannot retain a lien over their parent cadre
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for a period of more than one year from joining the Tribunal. Members can be removed/ suspended prior to ending of their term only with the concurrence of the Chief Justice o India.
(vi) Two-member benches must have a Judicial Member. Whenever any larger bench or any special bench is constituted, the number of Technical members cannot exceed the Judicial Members.
This would provide for disposal of company cases in a expeditious manner and would reduce the backlog of the cases pending. In view of the above, all company related matters pending with the CLB and the Board for BIFR will also be transferred to the NCLT and the NCLAT. The Apex Court has also said that barring the judicial review power under the articles 226 and 227 of the Constitution of India, almost all jurisdictions exercised by the High Courts in regard to the company matters would now be transferred to and exercised by the proposed Tribunal and the Appellate Tribunal.
d) COMMENT ON JUDGEMENT
Now, the entire Companies Act, 1956 sought to be reorganized with some inclusions and deletions through Companies Bill, 2009. I don‘t know as to how the Government has proceeded with the Companies Bill when an important issue on the Constitution of National Company Law Tribunal and National Company Law Appellate Tribunal was pending before the Apex Court. Now, the concerned ministry has to take note of the judgment of the Apex Court and should make needed changes to the proposed bill and then, the Companies Bill can be introduced in the Parliament and it needs to be passed. It will take some time, but, the entire issue can be quicken as the needed infrastructure for the establishment of National Company Law Tribunal and National Company Law Appellate Tribunal was already in place as I believe.
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e) MY OPINION ON TRIBUNAL
Many feel that there is lot of difference between a Tribunal and the Court, but, I disagree with the notion. The Tribunal is also a Court intended to resolve the disputes, but, it is constituted under a special enactment and may follow different procedure as enshrined in the enactment. A constitution Bench of the Supreme Court in the case of Associated Cement Companies Ltd. V. P.N.Sharma, AIR 1965SC1595, speaking through our great justice Gajendragadkar, C.J., while holding that the appellate authority under the Punjab Welfare Officers Recruitment and Conditions of Service Rules, 1952, is a Tribunal, observed: ―…Special matter and questions are entrusted to them for their decision and in that sense, they share with the courts one common characteristic; both the courts and the Tribunals are ‘constituted by the State and are inve sted with judicial as distinguished from purely administrative or executive functions…’ They are both adjudicated bodies and they deal with and finally determine disputes between parties which are entrusted to the jurisdiction….As in the case o courts, so in the case of Tribunals, it is the State’s inherent judicial power which has been transferred and by virtue of the said power, it is the State’s inherent judicial function which hey discharge. Judicial functions and judicial powers are one of the essential attributes of a sovereign State, and on considerations of policy, the state transfers its judicial functions and powers mainly to the courts established by the Constitution; but that does not affect the competence of the State, by appropriate measures, to transfer a part of its judicial powers and functions to Tribunals by entrusting to them the task of adjudicated upon special matters and disputes between parties. It is really not possible or even expedient to attempt to describe exhaustively the features which are common to the Tribunals and the courts, and features which are distinct and separate. The basis and the fundamental feature which is common to both the courts and the Tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign state.”
The observations of Justice Gajedragadkar were also referred in the Judgment of Madras High Court. Thus, there is no much difference logically between the Court and the Tribunal and both are meant to resolve the disputes.
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f) MY APPREHENSION
I have the privilege of observing the proceedings of High Court in Company matters and also the proceedings of Company Law Board. At present, the High Court discharges very complicated functions under Companies Act, 1956 like entertaining winding-up petitions and entertaining applications seeking sanction of the Court for a scheme of amalgamation etc. The Company Law Board also discharges complicated responsibilities under section 397/398 of the Companies Act, 1956 and other provisions. There are many limitations and we know the functioning of the office of the Official Liquidator at present and we also aware of the proposed move to get the services of Advocates and Experts as liquidators. It‘s a serious issue to deal with and requires serious consideration by the Government and also Courts. In my personal opinion, the High Court was able to discharge its functions under Companies Act, 1956 very well and the proceedings of Company Court were effective to a great extent. Instant orders were passed if the situation demands and most of the orders passed by the High Court while exercising Company Jurisdiction were obeyed and implemented by the parties concerned. But, when it comes to the proceedings of the Company Law Board, many express their dissatisfaction that they are being unnecessarily troubled and many feel that they are not able to get justice though they could establish a clear case before the Board. It is also frequently seen as to the respect given to the orders of the Company Law Board. Again, the powers of the Company Law Board were limited by the express language used in the Act and also due to the ruling on its own competence and jurisdiction. These issues are taken note of by the Legislature and sought to be addressed in the proposed Companies Bill, 2009. We have seen tremendous corporate growth in the recent past and with the technological revolution and its adoption in governance like MCA scheme, the incorporation and management of Companies have become so easy though there are complications in the Course. We need to provide an effective and speedy redressel to the Corporate and they can not be waiting for months and years for a redressel. Handling a Company dispute is a complicated thing and requires lot of care, concentration and specialization. It is to be seen as to how the proposed National Company Law Tribunal and the National Company Law Appellate Tribunal functions in future. Note: I have only given a brief of the issue and I am aware of the fact that a lot can be said on the issue.
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15. DIFFERENCE BETWEEN TRIBUNAL AND COURT:
In this connection, it is to be noted that there is no difference between a Tribunal and a Court. The Tribunal is no inferior to a Court and it has got the same rights and powers of a Court. A Tribunal is constituted under a special enactment. The procedure may be different in case of Tribunal when compared to the Court. The procedures to be followed in the case of Tribunal are enshrined in the enactment itself whereas the Court will follow the procedures prescribed under the Civil Procedure Code. Thus, there is no much difference logically between the Court and the Tribunal and both are meant to resolve the disputes.
16. MATTERS TO BE DEALT BY NCLT
In the case of disputes relating to company matters, it has been divided between the High Court and the Company Law Board. The disputes relating to reduction of capital, merger, amalgamation and winding up of companies are with the High Court and the power of rectification of register, complaints relating to refusal to transfer/ transmission of securities, rectification of register o members, matters relating to oppression and mismanagement and other non-adversarial issues are handled by CLB. Now, all these matters would be dealt with by NCLT. Further, the provisions that deal with compromises and arrangements (usually, these would be mergers and demergers) require High Court‘s approvals. If the companies under merger are located in different States, different High Courts will be involved, leading to delays in clearances. Now, with the constitutional validity by the Supreme Court, the NCLT would regulate merger and demerger schemes and since it is a single body, hopefully, the processes will be simpler. One must accept that the present High Court process has worked reasonably well but having said that, the span of jurisdiction of the High Courts is vast and it becomes difficult for them to do full ustice to the several conflicting priorities before them. Further, all the company matters which are registered under the BIFR and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) which are pending for revival/ rehabilitation would also get transferred to NCLT and
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NCLAT. Thus, the specialized body such as NCLT to deal with company law issues will provide focus and direction (and hopefully, expertise and speed) in the disposal of company matters.
17. BENEFITS FOR CONSTITUTING NCLT
Business decisions require speedy determination and the long-drawn legal battles in the court o law stifle business impetus. With the constitution of NCLT and NCLAT, multiplicity of litigation before various Courts or quasi-judicial bodies or forums regarding revival or rehabilitation o companies, Petitions relating to merger or amalgamation or winding up will be avoided as all these matters will be heard and decided by a single alternate forum viz., NCLT. Further, all the parties to the dispute will be bound by the Tribunal‘s orders and in case of non -availability of a workable proposal for revival or rehabilitation etc., the Tribunal can decide the matter on merits. For this purpose, the Tribunal may introduce its own rules and regulations or any Scheme which would be acceptable to the parties. There will be various Benches which will be constituted under NCLT and NCLAT which will reduce the entire process which is presently taking several years. For instance in the case of winding up petitions, it may take even 3 to 4 years to conclude. Further, with these Tribunals in place, stripping of assets of sick companies will be avoided. As in the case of Court, here also, individual affidavits will be filed before the NCLT and NCLAT, which will have powers of contempt of Court. This will enable the deponents who will file affidavits to take the cases in a serious manner and, thus, it contains in-built mechanism for seriousness. In the case of rehabilitation of sick companies, with the help of the Tribunal, the assets of the said companies would be protected. Further, there will be a fund known as rehabilitation and revival fund which will be used to make payment to the workmen of the company which has been declared sick or the companies which are under liquidation process. Hence with the implementation of NCLT and NCLAT, we do hope that not only the corporate would stand to benefit but everyone including workers, creditors, stakeholders and in turn the economy as a whole would be benefited. It is also mentioned here that presently in the proceedings of CLB, many feel or express dissatisfaction with regard to the workings. Sometimes, corporate feel that they are not in a position to effectively pursue their cases to get speedy justice. There is also an apprehension that the orders given by the CLB are being taken very lightly and not given effect to in letter and spirit. Very often, the jurisdiction and the competence of CLB are also questioned. Thus, these anomalies would not be there once the NCLT is in place and we can expect speedy disposal of cases which are presently being handled by CLB.
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18. WAY FORWARD
As most of the professionals are aware that the entire Companies Act, 1956 is sought to be revamped with inclusions and deletions through the Companies Bill, 2009, it was not properly understood as to how the Government proceeded with the Companies Bill when an important legal issue, viz., legality of the constitution of NCLT was lingering on for years before the Apex Court. Now, since the Apex Courthas settled that issue, the Ministry of Corporate Affairs has to take note of the detailed judgment of the Supreme Court and the conditions attached to it and the necessary and the needed changes should be proposed in the Bill and then the Companies Bill should be introduced in the Parliament. But the fact is that it will take sometime to effectively constitute the NCLT and we hope that the entire process would be expedited by the Government as the much needed infrastructure for the establishment of NCLT is already in place as it has been contemplated for many years now.
19. SEC-424A REFERENCE TO NCLT
The central govt or the RBI or the state govt or a public finance institution or a state level institution or a scheduled bank can also make a reference in respect of a company which has become a sick company to the tribunal for determination of the measures which may be adopted with respect to such company. If the tribunal is satisfied that a company has become sick industrial company after considering all the relevant facts and circumstances, it may allow the company to make its networth exceed the accumulated losses within a reasonable time or make repayment of its debt. If the tribunal decides that it is not practicable for a company to make its networth exceed the accumulated losses or make the repayment of its debts within such reasonable time, it may direct an operating agency to prepare a scheme providing for such measures in relation to such company. If the tribunal is o the opinion that the sick industrial company is not likely to become viable, it may record its findings and order winding up of the company. The winding up of the company shall , as far sa may be, conclude within one year from the date of order of winding up. Under SICA,BIFR could only ‗recommend‘ winding up while now the Tribunal can directly ―order‖ winding up.
(1) Where an industrial company, has become a sick industrial company, the Board of directors o such company shall make a reference to the Tribunal, and prepare a scheme of its revival and
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rehabilitation and submit the same o 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 company: Provided that nothing contained in this sub- section shall apply to a Government company: Provided further that a Government company may, with the prior approval of the Central Government or a State Government, as the case may be, make a reference to the Tribunal in accordance with the provisions of this sub- section and thereafter all the pro isions o this Act shall apply to such Government company. (2) The application under sub- section (1) shall be accompanied by a certificate from an auditor from a panel of auditors prepared by the Tribunal indicating(a) the reasons of the net worth of such company being fifty per cent. or less than fifty per cent.; or (b) the default in repayment of its debt making such company a sick industrial company, as the case may be. (3) Without prejudice to the provisions of sub- section (1), the Central Government or the Reserve Bank of India or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reasons to elieve that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect o such company to the Tribunal for determination of the measures which may be adopted with respect to such company: Provided that a reference shall not be made under this sub- section in respect of any industrial company by(a) the Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State; (b) a public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to such company, an interest in such company. (4) A reference under sub- section (1) or sub- section (3) shall be made to the Tribunal within a period of one hundred and eighty days from the date on which the Board of directors of the company or the Central Government or the Reserve Bank of India or a State Government or a public financial institution or a State level institution or a scheduled bank, as the case may be, come to know, of the relevant facts giving rise to causes of such reference or within sixty days o final adoption of accounts, which ver is earlier. (5) The Tribunal may, on receipt of a reference under sub- section (1), pass an order as to whether a company in respect of which a reference has been made has become a sick industrial company and such order shall be final.
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20.424B. INQUIRY INTO WORKING OF SICK INDUSTRIAL COMPANIES
(1) The Tribunal may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company(a) upon receipt of a reference with respect to such company under section 424A; or (b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. (2) The Tribunal may, if it deems necessary or expedient so to do for the expeditious disposal o an inquiry under sub- section (1), require by order any operating agency to enquire into the scheme for revival and make a report with respect to such matter as may be specified in the order. (3) The operating agency shall complete its inquiry as expeditiously as possible and submit its report to the Tribunal within twenty- one days from the date of such order: Provided that the Tribunal may extend the said period to forty days for reasons to be recorded in writing for such extension. (4) The Tribunal shall conclude its inquiry as expeditiously as possible and pass final orders in the proceedings within sixty days from the commencement of the inquiry: Provided that the Tribunal may extend the said period to ninety days for reasons to be recorded in writing for such extension. Explanation.- For the purposes of this sub- section, an inquiry shall be deemed to have commenced upon the receipt by the Tribunal of any reference or information or upon its own knowledge reduced to writing by the Tribunal. (5) Where the Tribunal deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub- section (1) or, as the case may be, under sub- section (2), it may appoint one or management and control of the affairs of any other company to be a special director or special directors on the board of such industrial company on such terms and conditions as may be prescribed for safeguarding its financial and other i more persons who possess knowledge, experience and expertise in terests or in the public interest. (6) The special director or special directors appointed under sub- section (5) shall submit a report to the Tribunal within sixty days from the date of appointment of such director or directors, about the state of affairs of the company in respect of whic reference has been made under sub- section (1) and such special director or directors shall have all the powers of a director of a company under this Act, necessary for discharge of his or their duties. (7) The Tribunal may issue such directions to a special director appointed under sub- section (5) as
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it may deem necessary or expedient for proper discharge of his duties. (8) The appointment of a special director referred to in sub- section (5) shall be valid and effective notwithstanding anything to the contrary contained in any other provisions of this Act or in any other law for the time being in force or in the memoran um and articles of association or any other instrument relating to the industrial company, and any provision regarding share qualification, age limit, number of directorships, removal from office of directors and such like conditions contained in any suc law or instrument aforesaid, shall not apply to any special director or directors appointed by the Tribunal. (9) Any special director appointed under sub- section (5), shall(a) hold office during the pleasure of the Tribunal and may be removed or substituted by any person by order of the Tribunal; (b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto; (c) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement; (d) not be liable to be prosecuted under any law for anything done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company.
21. 424C. POWERS OF TRIBUNAL TO MAKE SUITABLE ORDER ON COMPLETION OF INQUIRY
(1) If after making an inquiry under section 424B, the Tribunal is satisfied that a company has become a sick industrial company, the Tribunal shall, after considering all the rele ant facts and circumstances of the case, decide, as soon as may be, by an order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses or make the repayment of its debts referred to in clause (b) of sub- ection (2) of section 424A within a reasonable time. (2) If the Tribunal decides under sub- section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses or pay its debt referred to in that sub- section within a reasonable time, the Tribunal shall, by or er in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses or make repayment of the debts.
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(3) If the Tribunal decides under sub- section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses or make the repayment of its debts referred to in clause (b) of sub- section (2) of section 424A within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 424D in relation to the said company it may, as soon as may be, by order in writing, direct any operating agen y specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company. (4) The Tribunal may,(a) if any of the restrictions or conditions specified in an order made under sub- section (2) are not complied with by the company concerned, or if the company fails to revive in pursuance of the said order, review such order on a reference in that behal from any agency referred to in subsection (3) of section 424A or on its own motion and pass a fresh order in respect of such company under sub- section (3); (b) if the operating agency specified in an order made under sub- section (3) makes a submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.
22. CIRCUMSTANCES UNDER WHICH COMPANY WILL WOUND UP BY TRIBUNAL
A company may be wound up by the Tribunal in the following cases: 1. if the Company has, by special resolution, resolved that the Company be wound up by the Tribunal; 2. if default is made in delivering the Statutory Report to the Registrar or in holding the Statutory Meeting; 3. if the Company does not commence its business within a year from its incorporation, or suspends its business for a whole year; 4. if the number of members is reduced, in the case of a Public Company, below seven, and in the case of a Private Company, below two; 5. if the Company is unable to pay its debts. Presently, a creditor can file a Winding Up petition i the Company is indebted in a sum exceeding Rs.500. This limit has been increased to Rs.1 lakh. 6. if the Tribunal is of the opinion that it is just and equitable that the Company should be wound up;
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7. if the Company has made a default in filing with the Registrar its Balance Sheet and Profit and Loss Account or Annual Return for any five consecutive financial years; 8. if the Company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or mortality; 9. if the Tribunal is of the opinion that the Company should be wound up under the circumstances specified in section 424G The Tribunal shall make an order for winding up of a Company under clause (h) on an application made by the Central Government or a State Government. Clauses 7, 8 and 9 have been added by the Companies (Second Amendment) Act, 2002.
23. SOME DISTINCTIVE FEATURES OF WINDING UP PRECEDURE UNDER NCLT AND BY HIGH COURT
1. A new Section 647A has been inserted which provides that all proceedings pending before the commencement of the Companies (Second Amendment) Act 2002, before any District Court or High Court, under this Act or the Insurance Act, 1938 or any other law other than the Banking Regulation Act, 1949 shall be transferred to the Tribunal from the date to be notified by the Central Government in the Official Gazette and the Tribunal may proceed with the matter either de novo or from the stage it was so transferred. Proviso to this Section provides that where the winding up of a company has commenced subject to thesupervision of the District Court or the High Court, before the commencement of the Companies (Second Amendment) Act, 2002, such winding up shall continue to be under the supervision of the District Court or the High Court and the Company shall be wound up in the same manner and in the same incidents as if the Companies (Second Amendment) Act, 2002, had not been passed. 2. Section 439A(2) ordains that the Statement of Affairs is required to be filed by the Company at the beginning itself, when opposing any winding up petition. The said statement is very elaborate and if any creditor files any frivolous petition the Company has to incur a lot of time, money and energy. 3. So far only the Government employees can be appointed as the Official Liquidator. Now professionals like CA, CS & ICWA or a body corporate of professionals can also be appointed. 4. Views of the creditors and workmen will be taken into consideration before appointing the Official Liquidator. 5. Practicing CA, CS & ICWA can appear before the Tribunal on behalf of the creditor,
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contributory or Official Liquidator. New rules regarding winding up are yet to be framed by the Central Government. Till then the existing rules framed by the Supreme Court will apply, subject to one exception, as to reference to the High Court will be construed as a reference to the NCLT. In sum and substance the effectiveness of the NCLT & NCLAT would depend in the first place upon the intention of those in the Government who would be entrusted with the constitution of the Bench and appointment of its Members
24. SICA VS COMPANIES SECOND AMENDMENT ACT 2002
Comparison Between Sick Industrial Companies (Special provisions) Act And Provisions In Companies Act
Provisions in respect of revival and rehabilitation of sick industrial company are now merged in Companies Act vide Companies (Second Amendment) Act, 2002. Powers of BIFR [Board o Industrial and Financial Reconstruction] shall be exercised by NCLT (National Company Law Tribunal) and appeal against order of NCLT will be before National Company Law Appellate Tribunal [NCLAT] instead of Appellate Authority for Industrial and Financial Reconstruction [AAIFR].
There are some major deviations from provisions of SICA and provisions as are now incorporated in Companies Act. Major changes are as follows :—
Section 22(1) of SICA provided for suspension of legal proceedings when enquiry was pending or scheme was under preparation or implementation or where appeal with AAIFR was pending. This section provided protection to sick industrial company against suit for recovery of money, execution against property of company or winding up proceedings. This protection has not been provided under Companies Act. Hence, recovery proceedings and suits against sick company can continue even if the matter is pending with NCLT for revival and rehabilitation of sick industrial company. However, winding up proceedings may be kept pending as these are with the same Tribunal.
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SICA provisions were overriding provisions. The provisions of SICA prevailed over all other laws, except FEMA and Urban Land Ceiling Act, as per section 32(1) of SICA. In absence of such overriding powers, NCLT may be handicapped while passing orders for rehabilitation of a sick industrial company.
Definition of ‗industrial company‘ as incorporated in Companies Act is faulty. Instead of section 3(d) of IDRA, section 3(aa) has been mentioned in the definition. Thus, by strict interpretation, only ancillary undertakings as defined under IDRA will be covered under new provisions o Companies Act. This does not seem to be and indeed cannot be the intention.
Burden of preparing scheme for revival of sick company is cast on the company itself. The company has to submit a scheme while making reference to Tribunal (NCLT). The application should be submitted along with certificate by auditor from approved panel. A cess will be payable by all companies which will be used towards ‗Rehabilitation and Revival Fund‘ to be used for sick industrial companies. The fund will be at disposal of Tribunal. Government companies are out of the provisions for making reference. They need to make reference only if Central/State Government gives specific approval.
SICA provided for a moratorium period of five years for a newly setup Company and as such no reference was required to be made to BIFR in the first five years of the registration of the Company. This moratorium has been withdrawn by the Amendment Act and now the Company may become sick even in the sec ond or the third year of its registration itself.
Section 22(1) of SICA provided for suspension of alL legal proceedings when a Company filed its case in BIFR and the enquiry was pending or the scheme was under preparation or implementation with the BIFR or an appeal was pending with the AAIFR and as such the Sick Industrial Company was protected against any suit for recovery of money, execution against property of the Company or Winding Up proceedings but this provision of SICA was greatly misused by many of the Companies.
This protection has not been provided in The Companies (Second Amendment) Act, 2002 and therefore, pending the proceedings for Revival and\ Rehabilitation of a Sick Industrial Company before the NCLT the Creditors of the Sick Industrial Company may file a suit for recovery o debts. This provision will create hardship to Companies genuinely interested in revival, because, before the scheme is approved by the NCLT and grant is received if a creditor files a suit against the Company and takes away the property/ assets of the Company, what is left to be revived.
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However, Winding Up proceedings by any Creditor have been kept pending as the jurisdiction over the same is of that of the NCLT.
As per Section 32(1) of SICA the provisions of SICA prevailed over all other laws except FEMA and Urban Land Ceiling Act. In the absence of such overriding powers even if the scheme o revival is approved by the NCLT formalities and procedures as required under the Companies Act and other laws will be required to be completed.
The definition of an Industrial Company seems to be faulty because by strict interpretation it covers only an ancillary undertaking, which indeed cannot be the correct intention of the lawmakers. The Definition of a Sick Industrial Company has been tightened. A Company having accumulated losses in any financial year equal to 50% or more of its average net worth during four years immediately preceding such financial year and which has failed to pay its creditors for 3 consecutive quarters will be a Sick Industrial Company. The Net worth has now been defined to mean the sum total of the paid up capital and free reserves, after deducting the provisions or expenses as may be prescribed. Previously, The Companies Act did not define the net worth and as per Section 3(1)(ga) of SICA which defined the net worth the words ‗after deducting provisions and expenses as may be prescribed, were not there, and as such, companies were not deducting preliminary expenses or development expenses while calculating its net worth.
Now the burden of preparing the scheme for revival of a sick company is on the Company itself, which was earlier on the BIFR. The Application for reference to the NCLT by a company should be accompanied with a Certificate by the Auditor from the approved panel as to the reasons for erosion in the net worth o the Company or default in repayment of debt by the company.
Previously no cess was payable. Now all companies have to pay cess @ 0.005% to 0.1% of its gross receipts or turnover to the Central Government towards the rehabilitation and revival fund to be used for rehabilitation and revival of sick companies. This may be termed as ―robbing Paul to pay Peter‖.
The quantum of dues unpaid has been increased from Rs.500 to Rs.1 Lakh in the case of a winding up.
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25. COMPARISION BETWEEN PROVISIONS OF SICA AND PROVISIONS AS INCORPORATED IN COMPANIES ACT GIVEN IN FOLLOWING TABLE
Section no of Section no of SICA Companies Act
Remarks
Declaration that the SICA is to give effect to policy towards securing principles specified in Articles 39(b) and 39(c) of Constitution. This was made to avoid possible challenge to constitutional validity of SICA. There is no similar declaration under new provisions. However, chances of success in challenge to constitutional validity of provisions seem very remote.
2
3(1)(a) to (c) and (g)
Definitions relating to formation of BIFR and AAIFR and hence not relevant now
3(1)(d)
3(1)(i)
Definition definition
3(1)(da)
-
Definition of ‗date of finalisation of duly audited accounts‘ omitted, as the words are incorporated in the relevant section itself. Moreover, making a reference has been practically de-linked from finalisation of accounts.
3(1)(e)
2(19AA)
Definition of Industrial Company - No change
3(1)(f)
2(19AB)
Definition of ‗Industrial Undertaking‘ as incorporated in Companies Act is faulty. As per strict interpretation, only Ancillary Undertakings are covered. This appears to be a drafting mistake.
of
‗Company‘
-
Practically
same
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3(1)(ga)
2(29A)
Definition of ‗Net Worth‘ in SICA retained but the words ‗after deducting provisions or expenses as may be prescribed‘ have been added. This is because companies were not deducting preliminary expenses or development expenses while calculating ‗Net Worth‘ and these were shown as ‗Assets‘. Similarly, provisions which were required were often not made while finalizing accounts. Now this loophole has been (hopefully) plugged.
3(1)(h)
-
Definition of ‗Notification‘ relevant
3(1)(i)
2(31AA)
Definition of ‗Operating Agency‘ widened to include ‗any group of experts consisting of persons having special knowledge of business or industry in which the sick industrial company is engaged‘.
3(1)(l) to (n)
-
Definitions of Reserve Bank, Scheduled Bank and Scheduled Industry Omitted - Omissions not significant, as definitions are covered elsewhere
3(1)(o)
2(46AA)
Definition of ‗sick industrial company‘ considerably modified. - (1) Requirement of 5 years existence is not required, which was required earlier (2) Accumulated losses exceeding 50% of average net worth during last four years is sufficient to classify a company as sick (3) Alternative criteria of ‗failing to repay its debts within any three consecutive quarters to creditor/s‘ has been added. (4) Any one of the criteria, i.e., either (2) or (3) above is sufficient to classify an industrial company as sick.
3(1)(p)
2(46AB)
Definition of ‗State Level Institution‘ All SFCs and SIDCs covered. Practically, no change as omission of providing ‗any other institution as State level institution‘ does not anyway alter the position.
4 to 14
-
Constitution of BIFR and Appellate Authority Now not relevant as NCLT and NCLAT will be the prescribed authorit y
- Omitted as not
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15(1)
424A(1) and424A(4)
Reference to NCLT shall be accompanied by scheme for revival and rehabilitation by the company itself. Application to be accompanied by certificate from auditor giving reasons why it has become sick. Reference to be made within 180 days after Board came to know that it is sick or within 60 days after final adoption of accounts, whichever is earlier. Thus, adoption or even preparation of accounts is not the basic criteria. Reference is required to be made even if Financial Institutions/Banks have taken over assets under Securitisation and Reconstruction of Financial Assets & Enforcement & Security Act, 2002. Government Companies need not make any reference unless approved by Central/State Government.
-
424A(2)
Certificate from auditor in panel giving reasons why company has become sick. This is a new provision.
15(2)
424A(3)
Provision that Central/State Government, Public Financial Institution or Scheduled Bank can also make reference continues - No change
-
424A(5)
Board to decide whether the company has become sick, even before making enquiry. This is similar to admission of petition. Reference may be rejected at that stage itself. Earlier, under section 16(1) of SICA, such order could be passed only after making enquiry.
16(1)
424B(1)
Tribunal to make Enquiry if the company is sick. Tribunal has to pass specific order under section 424A(5) that the company has become sick. [Such specific order was not required earlier].
16(2)
424B(2)
Tribunal can ask Operating Agency to enquire into scheme of revival submitted by company and make a report. [Earlier, the company was not required to submit any scheme and hence Operating Agency only had to submit report on matters as may be specified by BIFR].
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16(3)
424B(4)
Earlier, provision was that Board (BIFR) shall endeavour to pass final orders within 60 days from commencement of enquiry. Now, the provision is that operating agency, shall submit its report within 21 days, extendable upto 40 days by Tribunal [see section 424B(3)]. The Tribunal shall conclude enquiry within 60 days from commencement of enquiry, extendable upto 90 days by Tribunal for reasons to be recorded.
16(4)
424B(5)
Appointment of special directors by Tribunal - No change in provision
-
424B(6)
Special director to submit report to Tribunal within 60 days. He will have powers of director of company - This is a new provision
16(4A)
424B(7)
Tribunal can issue directions to special director No change
16(5)
424B(8)
Validity of appointment of Special Director notwithstanding anything to contrary in other provisions - No change
16(6)
424B(9)
Special director not to retire by rotation, not to be liable for prosecution etc. - No change
17(1) 17(4)
to 424C(1) 424C(4)
to Powers of Tribunal to make suitable orders on completion of enquiry. Tribunal can give time to company to revive itself. Alternatively, if Tribunal decides that preparation of scheme of revival is necessary, it may order operating agency to prepare a scheme. The order can be reviewed by Tribunal. No change, except that the words ‗make repayment of loan‘ have been inserted, in view of change in definition of ‗sick industrial company‘.
18(1)
424D(1)
Operating Agency should prepare scheme for revival/rehabilitation normally within 60 days, extendable to 90 days. No change except that earlier 90 days were provided to prepare a scheme. It is specifically provided that regard shall be had to guidelines of RBI while preparing scheme.
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18(2)
424D(2)
What revival scheme can provide - Almost verbatim reproduction of clauses (a) to (m) as contained in SICA - No change
18(3)
424D(3)
The draft scheme as approved by Tribunal to be circulated. Following changes are made - (a) Brief particulars of draft scheme may be published. [Earlier word used was ‗shall‘ and hence publication of advertisement was compulsory]. (b) Draft scheme should be kept at registered office. [presumably for inspection - though these words are not used].
18(4)
424D(4)
Scheme may be sanctioned within 60 days from the date of advertisement/circulation, extendable to 90 days. Earlier there was no time limit and the word was ‗shall‘ instead of ‗may‘, which could be interpreted to mean that the scheme must be sanctioned by BIFR.
18(5)
424D(5)
Tribunal can review the sanctioned scheme - no change, except that it is specifically mentioned that operating agency, while preparing fresh scheme, shall have regard to guidelines framed by RBI in this behalf. [Similar provision are made in section 424D(1) under which the original scheme is prepared].
18(6)
424D(6)
Fresh scheme also to be circulated/advertised and then sanctioned - same provision - No change
18(6A)
424D(7)
Property/liability transfer as specified in scheme becomes effective on the date when scheme becomes effective - No change [SICA had overriding powers over other laws. There are no similar provisions in Companies Act. Hence, validity of this provision seems doubtful]
18(7)
424D(8)
Sanction of scheme by Tribunal is conclusive evidence - No change
-
424D(9)
Copy of sanctioned scheme to be filed with Registrar - New provision
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18(8)
424D(10)
Scheme binding on company and others - No change
-
424D(11)
Creditors can also prepare scheme and submit to Tribunal, if 75% of creditors agree - New provision
-
424D(12)
Provisions in respect of preparation and sanction of scheme will apply to scheme prepared by creditors also - New provision
424D(13)
Scheme sanctioned will be binding on creditors and all concerned - New provision - but there seems to be duplication, as similar provision is already there in section 424D(10).
18(9)
424D(14)
Tribunal can pass orders to remove difficulties in implementing scheme - No change
18(10)
424D(15)
Tribunal can direct an operating implement the scheme - No change
18(11)
424D(16)
Tribunal can distribute sale proceeds as per provisions of section 529A - No change
18(12)
424D(17)
Tribunal can monitor the implementation of the sanctioned scheme - No change
19(1)
424E(1)
Rehabilitation by giving financial assistance and sacrifices by various agencies - No change
19(2)
424E(2)
Scheme for rehabilitation by financial assistance/sacrifices to be circulated and their consent/rejection to be given within 60 days extendable by further 60 days - No change
19(3)
424E(3)
Scheme if sanctioned is binding on all - No change
19(3A)
424E(4)
Lead FI and Bank will be responsible to disburse Financial Assistance on behalf of other FIs/Banks No change
agency
to
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19(3B)
424E(5)
Lead FI and Bank will disburse Financial Assistance on behalf of other FIs/Banks - No change
19(4)
424E(6)
Tribunal may order winding up or adopt other measures, if consent to distribute financial assistance or making sacrifices is not given by any person - No change
19A
424F
Bank/FI/Government/company can apply to Tribunal any time during enquiry, agreeing for arrangement to continue operations or suggesting scheme for assistance or making sacrifices - No change
20(1)
424G(1)
Tribunal can order winding up, if it is of the opinion that sick company is not likely to revive. Earlier, BIFR could only record its opinion and forward it to High Court. Now, the Tribunal can itself order winding up.
20(2)
-
Provision in SICA was that High Court shall order winding up on receipt of recommendation from BIFR. Now this provision has become redundant.
20(3)
424G(2)
Tribunal can appoint any officer of Operating Agency as Liquidator. Earlier, under SICA, this power was with High Court.
20(4)
424G(3)
Tribunal can sell assets of the sick company and distribute proceeds in accordance with provisions of section 529A. This power was with BIFR under SICA
-
424G(4)
Winding up should be completed within one year from order of winding up - This is a new provision.
21
424H
Preparation of inventory, list of creditors and valuation, accounts - No change
22
-
Section 22 of SICA provided complete immunity from legal suits, recovery proceedings and winding up petitions, during the enquiry and implementation of scheme. There is no parallel provision in new law.
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22A
424-I
Tribunal can direct company not to dispose of assets without prior approval - No change
23 & 23A
-
SICA made provisions for ‗potentially sick industrial company‘. Now there is no such provision.
23B
424J
Tribunal can call for periodic information from company as to steps being taken by it for revival - No change
24
424K
Misfeasance proceedings against directors, manager or employees - No change
25
-
SICA provided appeal to AAIFR against order of BIFR. Now, appeal will be to NCLAT.
26
10GB
Jurisdiction of Civil Court is barred - No change.
27
10FO
Delegation of powers by Tribunal to its member, officer, employee or person appointed to manage industrial company - No change.
28
-
Board (BIFR) was required to furnish information and return to State/Central Government, and to collect from and furnish information to various authorities. Now, there is no such provision.
29
10FP
Power to seek assistance from Chief Metropolitan Magistrate or District Magistrate to take possession of property - No change
30
10FZ, 635A
Protection of action taken in good faith - No change
31
-
Saving of proceedings which were pending before High Court when SICA was passed. Now there is no such provision.
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32
-
Overriding provisions to SICA over all laws except FERA and Urban Law Ceiling Act. Now, there is no such overriding provision. Thus, provisions of various laws will have to be complied with to make the sanctioned scheme effective.
33
424L
Penalty of imprisonment upto 3 years or fine upto Rs. 10 lakhs, for violation of orders of Tribunal, making false statement or giving false evidence or attempt to tamper records of reference or appeal. Only following changes have been made - (a) Words ‗tampering records of reference or appeal‘ are specifically added (b) Limit of fine upto Rs. 10 lakhs is specified.
34
-
Offences by companies - No parallel provision now
35
-
Power to remove difficulties for first three years was given to Central Government under SICA. Now, there is no such provision.
36
642
Power to make rules to Central Government - No change
The above analysis indicates that the new Act has made an attempt to remove the bottlenecks and curb the practice of turning an operationally fit company into a sick unit. The Government deserves a pat for creating an effective legal framework, wherein, the banks\ financial institutions will now not hesitate to provide capital assistance to industrial undertakings. However, the absence of well-developed secondary markets in India raises considerable doubt regarding the effective enforcement of recovery proceedings. The lack of institutional framework for sale o assets of the sick unit delays the process, thereby diminishing the realization value of the asset. Moreover, no thought seems to have been given to curb the past practice of the sick units getting their assets bought back by kith and kin violating arms-length transaction. The need of the time is ―turn arounders‖, specialised firms that exclusively work for the revival & rehabilitation of sick\ potentially sick units. This does not, however, undermine Government‘s responsibility to institute proper administrative measures to dissuade deliberate efforts from delaying the regulatory mechanism
In the new atmosphere of liberization and openness that has emerged during the last decade,(after the adoption of the New Economic Policy in 1991),there is a clear preference in favour o
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liquidation of sick industrial companies rather than rehabilitation. Accordingly, laws are being modified to make this easier. In line with this effort , the definition of a sick industrial company has been changed and provision has been made for setting up of a National Company Law Tribunal in place of BIFR. Some important changes in the new Act are as follow: 1. The definition of sick industrial company has been changed. Now if a company has accumulated losses exceeding 50% of its net worth during last four years or its fails to repay its debts to the creditors within a period of 9 months of the demand made by the latter ,it will be classified as sick. Either of these criteria is sufficient to classify a company as sick.
2.,Under section 424A(1) of the amendment Act, when an industrial company falls sick, the Board of Directors of the company is required to make reference to NCLT and submit a scheme of revival reference to NCLT and submit a scheme o revival and rehabilitation. Either, under Section 15(1) of SICA, the company was required to submit a scheme for revival. was the responsibility of bank/financial institution to nurse the ‗sick baby‘. 3. After receiving reference under section 424(1),the Tribunal may pass an order as to whether whether a company in respect of which a reference has been made has become a sick industrial company and such an order will be final. The tribunal can accept or reject the reference at that stage itself, on prime facie basis. Such order can passed without making enquiry. Earlier, under Section 16(1) of SICA, such order could be passed only after making enquiry. 4. Under SICA, BIFR could only recommended the winding up of the company whereas NCLT can directly ‗order‘ winding up. Moreover, NCLT will be the single forum for company replacing the existing three forums(presently dispute resolution and compliance with certain provisions o the Companies Act, 1956,is looked after by Company Law Board , revival and rehabilitation o sick companies by BIFR and winding up of the companies by High Courts) 5. The entire focus of NCLT is expected to be on speeding up the process of liquidation of sick company rather than rehabilitation. Under SICA , the process of winding up of a sick industrial company could extend over years together as the powers of winding up were with the High Court, assisted by Official Liquidator. There were delays in finalizing the winding up. Now the work o winding up is transferred to NCLT. Sec- 424G(1) states that the winding up of a company shall, as far as possible , be concluded within one year for the date of winding up order.
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26. A CRITIQUE
Objectives are well founded –
To provide an orderly exit mechanism for failed enterprises, ending unproductive uses o business
Assets and transferring them to more efficient market participants.
Seeks to provide effective mechanism along with SARFAESI
However, falls short of expediting and simplifying insolvency procedures
Need to introduce moratorium / stand still provisions for seeking alternate solutions
Companies only - comprehensive bankruptcy/insolvency code required
Fails to provide framework for cross-border insolvencies
Need for an effective out-of-court restructuring mechanism
Although enacted, yet to be implemented.
27. CONCLUSION
With the ever increasing corporate growth in the recent past in India coupled with various technological and rapid economic growth, the need of the hour is to have a good, proper and efficient mechanism to tackle the disputes, restructuring, mergers, amalgamations, revival, rehabilitation of companies and various other issues which a corporate would face and also to expeditiously dispose of the same. Handling a company dispute is a complicated matter and
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requires lot of attention, caution, specilization and we require experts to handle these cases. So far, the functions are handled by the CLB, BIFR and the High Courts, which to a greater extent performed their part in a well-defined manner with slight minor exceptions. There are no shortcomings in the present system of the High Courts which discharge its functions like entertaining winding up petitions, seeking sanction of the High Court for compromises, arrangements, mergers, demergers and for sanctioning scheme of amalgamations, etc. It may not be out of place to mention that the CLB has also been discharging its complicated responsibilities under the provisions of prevention of oppression and mismanagement and application for relief in case of mismanagement under section 397/398 of the Companies Act, 1956 and various other provisions. The Government needs to provide speedy and effective remedy to the corporate since corporate cannot wait for long to get their disputes/schemes sanctioned. After the implementation of the NCLT, it is to be seen how the new proposed Tribunals, viz., NCLT and NCLAT, would discharge their functions in future.
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CHAPTER V
REVIVAL SCHEME AND REHABILITATION OF SICK INDUSTRIAL UNITS, FINANCIAL ASSISTANCE TO IT AND RESTRUCTURING OF INDUSTRIAL SECTOR
SYNOPSYS: 1. PREPARATION AND SANCTION OF SCHEME FOR REVIVAL (SEC--424 D) 2. FORWARDING OF REHABILITATION SCHEME BY TRIBUNAL 3. PUBLICATION OF SCHEME BY TRIBUNAL 4. MODIFICATION IN THE DRAFT SCHEME 5. SANCTION AND FILING UP OF SANCTIONED SCHEME 6. PROCEDURE FOR SANCTION OF THE SCHEME 7. CASE STUDY(3) 8. WINDING UP OF SICK INDUSTRIAL COMPANY (SEC-424G) 9. REHABILITATION BY GIVING FINANCIAL ASSISTANCE (SEC 424 E) 10. PENALTY FOR CERTAIN OFFENCES (SEC-424L) 11. COMMENCEMENT OF WINDING UP BY TRIBUNAL (SEC-441) 12. LEVY AND COLLECTION OF CESS ON TURNOVER OR GROSS RECEIPTS OF COMPANIES (SEC 441A) 13. CREDITING PROCEEDS OF CESS TO CONSOLIDATED FUND OF INDIA (441B). 14. REHABILITATION AND REVIVAL FUND (441C). 15. APPLICATION OF FUND (441D). 16. POWER TO CALL FOR INFORMATION (441E). 17. PENALTY FOR NON PAYMENT OF CESS (441F). 18. REFUND OF FUND IN CERTAIN CASES (441G). 19. REVIVAL OF SICK UNITS 20. COMPANIES BILL, 2009 21. RECOMMENDATIONS OF THE JJ IRANI COMMITTEE ON COMPANY LAW (2005) 22. REHABILITATION PROGRAMME 23. SIRP 24. INDUSTRIAL SICKNESS IN SSIs 25. SICKNESS IN LARGE & MEDIUM SECTORS 26. RBI RELEASES REPORT OF WORKING GROUP ON REHABILITATION OF SICK SMEs(SMALL AND MEDIUM ENTERPRISES) 27. LENDING (FINANCING SCHEMES OF SIDBI) A. DIRECT FINANCIAL ASSISTANCE FOR THE DEVELOPMENT OF INDUSTRIAL INFRASTRUCTURE FOR SSIs.
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B. a) b) c)
INDIRECT FINANCE BY SIDBI REFINANCE ASSISTANCE SCHEME FOR REDISCOUNTING OF BILLS OTHER SUPPORT THROUGH VARIOUS INSTITUTIONS
28. SECTOR APPRAISAL 29. BANK CREDIT TO SMALL SCALE SECTOR 30. ASSISTANCE BY SIDBI TO SSI'S 31. SSIs AND FIVE YEAR PLANS 32. NEED OF REVIVAL OF REHABILITATION PROGRAMME 33. RESTRUCTURING INDUSTRIAL SECTOR 34. SOME SUCCESSFUL CASES OF REVIVAL A. CPSUs i. IISCO BURNPUR WORKS ii. BENGAL CHEMICALS &PHARMACEUTICALS iii. BENGAL IMMUNITY LTD. B. JV Company i. JESSOP & COMPANY C. Private i. CALCUTTA CHEMICALS ii. EMC iii. CENTURY EXTRUSIONS iv. GRAMAPHONE COMPANY OF INDIA LTD. (NOW SAREGAMA) v. INDIA FOILS LTD vi. BENGAL SALTS COMPANY 35. IS REHABILITATION THE ANSWER?
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1. PREPARATION AND SANCTION OF SCHEME FOR REVIVAL (SEC--424 D)
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 networth positive without any external financial assistance, or if the BIFR decides that the company can not 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.
Financial Reconstruction of the sick industrial company;
The proper management of the sick industrial company by change in, or takeover of,the management of the sick industrial company;
Amalgamation with another company or vice-versa;
Sale or lease of a part or whole of any industrial undertaking of such industrial company;
Rationalization of managerial personnel ,supervisory staff and workmen in accordance with law;
Any other preventive ameliorative or remedial measures as may be appropriate;
Repayment of debt.
Incidental or consequential or supplemental measures as may be necessary or expedient in connection with or for the purpose of the measures specified in clauses (a) to (g).
The Tribunal may extend the period of 60 day to 90 days for reasons to be recorded in writing for such extension [sec 424D (1)].
The scheme referred to in sub-section (1) may provide for any one or more of the following,
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namely: —
(a) the constitution, name and registered office, the capital, assets, powers, rights, interests, authorities and privileges, duties and obligations of the sick industrial company or, as the case may be, of the transferee company;
(b) the transfer to the transferee company of the business, properties, assets and liabilities of the sick industrial company on such terms and conditions as may be specified in the scheme;
(c) any change in the Board of directors, or the appointment of a new Board of directors, of the sick industrial company and authority by whom, the manner in which and the other terms and conditions on which, such change or appointment shall made and in the case of appointment of a new Board of directors or of any director, the period for which such appointment shall be made;
(d) the alteration of the memorandum or articles of association of the sick industrial company or, as the case may be, of the transferee company for the purpose of altering the capital structure thereof, or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation;
(e) the continuation by or against the sick industrial company or, as the case may be, the transferee company of any action or other legal proceeding pending against the sick industrial company immediately before the date of the order made under sub-section (3) of section 424C;
(f) the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Tribunal considers necessary in the interests of the reconstruction, revival or rehabilitation or repayment of debt of such the sick industrial company or for the maintenance of the business of such industrial company;
(g) the allotment to the shareholders of the sick industrial company, of shares in such company or, as the case may be, in the transferee company and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder, the payment of cash to those shareholders in full satisfaction of their claims —
(i) in respect of their interest in shares in the sick industrial company before its reconstruction or
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amalgamation; or
(ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced;
(h) any other terms and conditions for the reconstruction or amalgamation of the sick industrial company;
(i) sale of the industrial undertaking of the sick industrial company free from all encumbrances and all liabilities of the company or other such encumbrances and liabilities as may be specified, to any person, including a co-operative society formed by the employees of such undertaking and fixing of reserve price for such sale;
(j) lease of the industrial undertaking of the sick industrial company to any person, including a cooperative society formed by the employees of such undertaking;
(k) method of sale of assets of the industrial undertaking of the sick industrial company such as by public auction or by inviting tenders or in any other manner as may be specified and for the manner of publicity therefor;
(l) issue of the shares in the sick industrial company at the face value or at the intrinsic value which may be at discount value or such other value as may be specified to any industrial company or any person including the executives and employees of such sick industrial company;
(m) such incidental, consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation or other measures mentioned in the scheme are fully and effectively carried out.
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2. FORWARDING OF REHABILITATION SCHEME BY TRIBUNAL
The tribunal shall examine the scheme prepared by the operating agency and send a draftcopy o the scheme with modifications, if any, made by it to the sick industrial companyand the operating agency in case of amalgamation, also to any other company concerned.
3. PUBLICATION OF SCHEME BY TRIBUNAL
The BIFR shall publish or cause to be published particulars of draft scheme so prepared in periodicals and news papers for inviting suggestions and objections within a stipulated period from the following categories of person.:---shareholders--creditors-- Employees of sick industrial company, or also from Transferee Company in case of amalgamation.The complete draft scheme shall be kept at the place where registered office of thecompany is situated or at the places as mentioned in the advertisement.
4. MODIFICATION IN THE DRAFT SCHEME
The tribunal may make such modifications, if any, in the draft scheme as it mayconsider necessary in the light of the suggestions and objections received from thesick industrial company and the operating agency and also from Transferee Companyand any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies.
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5. SANCTION AND FILING UP OF SANCTIONED SCHEME
The board after receipt of suggestions/objections shall consider the same in case of Amalgamations‘ BIFR shall proceed ahead once the company has placed the schemeBefore general meeting of shareholders and they have approved the same with or withoutany modifications. They shall after these formalities, by an order in writing, sanctionthe scheme.A copy of sanctioned scheme shall be filed with the registrar within the prescribed time by the company in respect of which scheme relates
6. PROCEDURE FOR SANCTION OF THE SCHEME
(a) The scheme prepared by the operating agency shall be examined by the Tribunal and a copy o the scheme with modification, if any, made by the Tribunal shall be sent, in draft, to the sick industrial company and the operating agency and in the case of amalgamation, also to any other company concerned, and the Tribunal may publish or cause to be published the draft scheme in brief in such daily newspapers as the Tribunal may consider necessary, for suggestions and objections, if any, within such period as the Tribunal may specify.
(b) The complete draft scheme shall be kept at the place where registered office of the company is situated or at such places as mentioned in the advertisement.
(c) The Tribunal may make such modifications, if any, in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the sick industrial company and the operating agency and also from the transferee company and any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies:
Provided that where the scheme relates to amalgamation, the said scheme shall be laid before the company other than the sick industrial company in the general meeting for the approval of the scheme by its shareholders and no such scheme shall be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the shareholders of the transferee company.
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(4) The scheme may thereafter be sanctioned, within sixty days by the Tribunal (hereinafter referred to as the sanctioned scheme) and shall come into force on such date as the Tribunal may specify in this behalf:
Provided that the Tribunal may extend the said period of sixty days to ninety days for reasons to be recorded in writing for such extension:
Provided further that different dates may be specified for different provisions of the scheme.
(5) The Tribunal may, on the recommendations of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines including the guidelines framed by the Reserve Bank of India in this behalf in order to prepare a fresh scheme providing for such measures as the operating agency may consider necessary.
(6) When a fresh scheme is prepared under sub-section (5), the provisions of sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under subsection (1).
(7) Where a sanctioned scheme provides for the transfer of any property or liability of the sick industrial company in favour of any other company or person or where such scheme provides for the transfer of any property or liability of any other company or person in favour of the sick industrial company, then, by virtue of, and to the extent provided in, the scheme, on and from the date of coming into operation of the sanctioned scheme or any provision thereof, the property shall be transferred to, and vest in, and the liability shall become the liability of, such other company or person or, as the case may be, the sick industrial company.
(8) The sanction accorded by the Tribunal under sub-section (4) shall be conclusive evidence that all the requirements of this scheme relating to the reconstruction or amalgamation, or any other measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the Tribunal to be a true copy thereof, shall, in all legal proceedings (whether in appeal or otherwise), be admitted as evidence.
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(9) A copy of the sanctioned scheme referred to in sub-section (8) shall be filed with the Registrar within the prescribed time by the company in respect of which such scheme relates.
(10) On and from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on the shareholders, creditors and guarantors and employees of the said companies.
(11) The creditors of a sick industrial company may also prepare a scheme for revival or rehabilitation of such sick industrial company and submit the same to the Tribunal for its sanction:
Provided that no scheme shall be submitted by the creditors to the Tribunal unless such scheme has been approved by at least three-fourth in value of creditors of the sick industrial company.
(12) All the provisions relating to the preparation of scheme by the operating agency and sanction of such scheme by the Tribunal shall, as far as may be, apply to the scheme referred to in subsection (11).
(13) The scheme referred to in sub-section (11) if sanctioned by the Tribunal shall be binding on all the creditors and on other concerned.
(14) If any difficulty arises in giving effect to the provisions of the sanctioned scheme, the Tribunal may, on the recommendation of the operating agency or otherwise, by order, do anything, not inconsistent with such provisions, which appears to it to be necessary or expedient for the purpose of removing the difficulty.
(15) The Tribunal may, if it deems necessary or expedient so to do, by order in writing, direct any operating agency specified in the order to implement a sanctioned scheme with such terms and conditions and in relation to the sick industrial company as may be specified in the order.
(16) Where the whole of the undertaking of the sick industrial company is sold under a sanctioned scheme, the Tribunal may distribute the sale proceeds to the parties entitled thereto in accordance with the provisions of section 529A and other provisions of this Act.
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(17) The Tribunal may monitor periodically the implementation of the sanctioned scheme.
7. CASE STUDY
CASE STUDY – 1
DAMODAR VALLEY CAS 137 (DEL) Madan
CORPORATION v. AAIFR [2010] 156 COMP B. Lokur & Pathak A. K. JJ [Decided on 7-7-2009]
Sick Industrial Companies (Special Provisions) Act, 1985 – Section 19(2) – Draft rehabilitation scheme – Consent not given within period of sixty days from date of circulation of scheme – Written request for extension of time also not given Whether deemed consent to be inferred Held, Yes. – –
CASE STUDY-- 2
SHREE KARTHIK PAPERS LTD. v. SEBI [2010] 155 COMP CAS 201(MAD)]
Sivagnanam T. S. J [Decided on 25-2-2010]
Sick Industrial Companies (Special Provisions) Act, 1985 – Section 18 – Scheme o rehabilitation-BIFR issuing direction under rehabilitation scheme to stock exchanges and exempting company from various statutory provisions and SEBI guidelines for reducing equity capital and listing of reduced shares – Whether such directions are valid- Held, No.
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CASE STUDY -- 3
OMAN INTERNATIONAL BANK S. A. O. G. v. AAIFR [2010]
157 COMP CAS 149(DEL) Sanjay Kishan Kaul & Valmiki J. Mehta JJ [Decided on 5- 5-2010] Sick Industrial Companies (Special Provisions) Act, 1985 – Sections 18, 19, and 22 – Scheme for rehabilitation Financial concession by secured creditors – Objection by minority creditor to scheme – Whether minority creditors can frustrate revival and rehabilitation of sick industrial company Held, No.
8. WINDING UP OF SICK INDUSTRIAL COMPANY (SEC-424G)
(1) Where the Tribunal, after making inquiry under section 424B and after consideration of all the relevant facts and circumstances and after giving an opportunity 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 as a result thereof is not likely to become viable i of being heard to all concerned parties, is o the opinion that the future and that it is just and equitable that the company should be wound up, it may record its findings and order winding up of the company.
(2) For the purpose of winding up of the sick industrial company, the Tribunal may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of such industrial company and the officer so appointed shall for the purpose of the winding up of such sick industrial company, be deemed to be, and have all the powers of, the official liquidator under this Act.
(3) Notwithstanding anything contained in sub- section (2), the Tribunal may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and pass orders for distribution in accordance with the provisions of section 529A, a d other provisions of this Act.
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(4) Without prejudice to the other provisions contained in this Act, the winding up of a company shall, as far as may be, conclude within one year from the date of the order made under subsection (1).
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 o 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.
9. REHABILITATION BY GIVING FINANCIAL ASSISTANCE (SEC 424 E)
(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to the sick industrial company, the scheme may guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government, b provide for financial assistance by way of loans, advan es or nk, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) Every scheme referred to in sub- section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not xceeding sixty days, as may be allowed by the Tribunal, and if no consent is received within such period or further period, it shall be deemed that consent has been given. (3) Where in respect of any scheme the consent referred to in sub- section (2) is given by every person required by the scheme to provide financial assistance, the Tribunal may, as soon as may be, sanction the scheme and on and from the date of such sanct on the scheme shall be binding on all concerned. (4) On the sanction of the scheme under sub- section (3), the financial institutions and the banks required to provide financial assistance, shall designate by mutual agreement a financial institution
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and a bank from amongst themselves which shall be resp nsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned. (5) The financial institution and the bank designated under sub- section (4) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard. (6) Where in respect of any scheme consent under sub- section (2) is not given by any person required by the scheme to provide financial assistance, the Tribunal may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.
On submission of the revival package by the operating agency, the BIFR sends the revival package in a draft form to all the interested parties (i.e., the sick industrial company, the banks/ financial institutions who have given financial assistance to the sick company, the operating agency, the transferee company (if there is a recommendation in the revival package for amalgamation) etc., eliciting their views/suggestions on the revival package. The BIFR will also publish particulars of the draft revival package in newspapers inviting suggestions/objections, i any, from the shareholders of the sick company, creditors and employees of the sick company, transferee company and any other interested party. On receipt of views/suggestions/objections on the draft revival scheme, the BIFR may, if deemed fit; afford an opportunity to the interested parties to be heard. After careful examination of all the aspects, the BIFR will sanction the revival scheme with or without any modifications.
10. PENALTY FOR CERTAIN OFFENCES (SEC-424L)
(1) Whoever violates the provisions of this Part or any scheme, or any order, of the Tribunal or the Appellate Tribunal or makes a false statement or gives false evidence to the Tribunal or the Appellate Tribunal, and ttempts to tamper the records of reference or appeal filed under this Act, he shall be punishable with simple imprisonment for a term which may extend to three years or shall be liable to fine not exceeding ten lakh rupees.
(2) No court shall take cognizance of any offence under sub- section (1) except on a complaint in writing of an officer of the Tribunal or the Appellate Tribunal or any officer of the Central
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Government authorised by it or any officer of an operating agen y as may be authorised in this behalf by the Tribunal or the Appellate Tribunal, as the case may be.'.
11. COMMENCEMENT OF WINDING UP BY TRIBUNAL (SEC-441 )
(1) Where, before the presentation of a petition for the winding up of a company by the Tribunal, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be de med to have commenced at the time of the passing of the resolution, and unless the Tribunal, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (2) In any other case, the winding up of a company by the Tribunal shall be deemed to commence at the time of the presentation of the petition for the winding up.‖
12. LEVY AND COLLECTION OF CESS ON TURNOVER OR GROSS RECEIPTS OF COMPANIES (SEC 441A)
(1) There shall be levied and collected, for the purposes of rehabilitation or revival or protection o assets of the sick industrial company, a levy by way of cess at such rat not less than 0. 005 per cent. and not more than 0. 1 per cent. on the value of annual turnover of every company or its annual gross receipt, whichever is more as the Central Government may, from time to time, specify by notification in the Official Gazet e. (2) Every company shall pay to the Central Government the cess referred to in sub- section (1) within three months from the close of every financial year. (3) Every company shall furnish, in such form as may be prescribed, to the Central Government and the Tribunal the details of its turnover and gross receipts with payment of cess under subsection (1). (4) The Central Government may, by rules made in this behalf, specify the manner in which the cess shall be paid under sub- section (2).
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13. CREDITING PROCEEDS OF CESS TO CONSOLIDATED FUND OF INDIA (441B)
The proceeds of the cess levied and collected under section 441A shall first be credited to the Consolidated Fund of India and the Central Government may, if Parliament by appropriation made by law in this behalf so provides, pay to the Tribunal, from time to time, out of such proceeds (after deducting the cost of collection), such sums of money as it may think fit for being utilised for the purposes of the Fund.
14. REHABILITATION AND REVIVAL FUND (441C).
(1) There shall be formed for the purposes of rehabilitation or revival or protection of assets of a sick industrial company, a Fund to be called the Rehabilitation and Revival Fund. (2) There shall be credited to the Fund(a) all amounts paid under section 441B; (b) any amount given as grants by the Central Government for the purposes of this Fund; (c) any amount given to the Fund from any other source; (d) any income from investment of the amount in the Fund; (e) Amount refunded by the company under section 441G.
15. APPLICATION OF FUND (441D)
The Fund shall be applied by the Tribunal for the purpose of(a) making interim payment of workmen' s dues pending the revival or rehabilitation of the sick
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industrial company; or (b) payment of workmen' s dues due to the workmen, referred to in sub- section (3) of section 529, of the sick industrial company; or (c) protection of assets of sick industrial company; or (d) revival or rehabilitation of sick industrial company; which in the opinion of the Tribunal are necessary or expedient for the said purposes.
16. POWER TO CALL FOR INFORMATION (441E)
The Central Government or Tribunal may require any company to furnish for the purposes o rehabilitation or revival or protection of assets of sick industrial companies, such statistical and other information in such orm and within such period as may be prescribed.
17. PENALTY FOR NON PAYMENT OF CESS (441F)
(1) If any cess payable by a company under section 441A is not paid in accordance with the provisions of that section, it shall be deemed to be in arrears and the same shall be recovered by the Tribunal in such mann r as may be prescribed. (2) The Tribunal may, after such inquiry as it deems fit, impose on the company, which is in arrears under sub- section (1), a penalty not exceeding ten times the amount in arrears: Provided that before imposing such penalty, such company shall be given a reasonable opportunity of being heard, and if, after such hearing, the Tribunal is satisfied that the default was for any good and sufficient reason, no penalty shall be imposed un er this sub- section.
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18. REFUND OF FUND IN CERTAIN CASES (441G)
(1) Where the fund has been applied by the Tribunal for any of the purposes specified in clauses (a) to (d) of section 441D, such amount of fund shall be recovered from the company after its revival or rehabilitatio or out of sale proceeds of its assets after discharging the statutory liabilities and payment of dues to creditors. (2) The amount referred to in sub- section (1) shall be recovered in the manner as the Tribunal may direct.‖
19. REVIVAL OF SICK UNITS
the State Government attaches equal • While emphasizing new investment in Rajasthan, importance to the revival of sick units. There are a large number of sick units which if revived can lead to utilisation of the assets and capacity already created. Along with the revival of sick units the State Government is equally concerned with the prevention of sickness in industry. Series of measures are being taken to rehabilitate the sick units and also to prevent sickness. • The State Government is planning to set ‐ up a separate authority on the pattern of BIFR for dealing with the matters pertaining to revival and rehabilitation of sick units, which do not fall within the purview of the BIFR. • The State level financial institutions will devote greater attention to prevent sickness. RIICO and RFC have decided to charge 2% lower interest rate from units making regular payments. • The State level financial institutions will adopt change of management,One Time Settlement (OTS) etc.
other
appropriate measures
like
• The new Sales Tax Incentive Schemes would provide a more liberal incentive to the sick units. Also sick units which are being revived with fresh investment through change of management would qualify for incentive equivalent to new units. Provided such units have not availed of similar incentive in the past. • No land and building tax would be charged from a sick unit during the period of case a revival scheme is drawn by BIFR or financing institutions.
sickness
in
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• Exemption from Octroi to sick units which are taken up for revival under the approved rehabilitation plan would be available as agreed in the rehabilitation package. • RSEB would charge 1/3 of the minimum charges charges whichever is higher for revival of the sick unit.
or
the
actual
consumption
• In case of sale of surplus land by units set up on their own lands (i.e. where no concession in land has been granted by the State Government, converted for industrial purpose after paying the conversion charges, acquired under the Land Acquisition Act by fully paying the cost of acquisition and likewise) may be allowed, the sale proceeds from such sale would be allowed to betreated as the promoter‘s contribution instead of interest free loan from the State Government in cases where the re habilitation/revival scheme is drawn by the BIFR/financing institutions. • The State Level Inter Institutional Committee focus greater attention on units not covered and Financial Reconstruction.
(SLIIC) has been reconstituted to by the Board for Industrial
20. COMPANIES BILL, 2009
Certain changes were proposed to be made for the rehabilitation and revival of the sick units as from the proposed Companies Amendment Act, 1956.The criteria of sickness was changed to include ‗inability to pay debts‘ due to secured creditors representing 50% or more of the outstanding debt. Further the scope of the filing for the determination of sickness which was restricted to the Board now included the creditor or the company. Even powers were granted to the creditors to decide on the issue of winding up or the revival of the company by passing a special majority among the creditors. Moreover, the greater powers have been conferred on the creditors to supervise a rescue plan and restrict the powers of management in the rehabilitation of a sick company.
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21. RECOMMENDATIONS COMPANY LAW (2005)
OF
THE
JJ
IRANI
COMMITTEE
ON
JJ Irani Committee wanted to omit the term ‗sick industrial company‘ and replace it with ‗insolvent company‘ and thereby erase the sickness test on the basis of erosion of networth with that of the liquidity test. Moreover, it recommended that CA/CS/CWA/law professionals should play an active role in the insolvency process so that there would be expertise persons dealing with the specialized, commercial and technical characteristics of insolvency law. It also recommended the establishment of the National Company Law Tribunal on a speedy basis. Further, it enunciated that the rehabilitation by cess to be replaced by the ‗Insolvency Fund‖ with optional contribution by companies. It also allowed the debtors to approach the Tribunal with the rehabilitation scheme. Power was also given to the creditors to oppose the scheme of rehabilitation.
22. REHABILITATION PROGRAMME
a)Change management b)Development of a suitable management information system c)A settlement with the creditors for payment of their dues in a phased manner,taking into account the expected cash generation as per viability study d) Determination of the sources of additional funds needed to refinance. e) Modernization of plant and equipment or expansion of an existing programme or even diversification of the products being manufactured. f) Concession or relief‘s or assistance to be allowed by the state level corporation,financial institutions and central government.
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23. SIRP
The government is simplifying the previously announced terms and conditions for industries to acquire facilities that the government pledged to sick industries under its Sick Industries Rehabilitation Programme (SIRP).
"A technical team of the Sick Industry Rehabilitation Main Committee has already commenced works to reviewing the existing set of conditions," Rana Bahadur Shrestha, spokesperson for the Ministry of Finance told The Kathmandu Post.
He added that the team would work out new changes and forward the recommendations to the main committee for approval soon, he said.
The review in terms of sick industry rehabilitation is being done after the private sector pressured the government for incorporating their additional and new demands. Among others, the private sector has urged the government to allow the sick industries rescheduling their loans, pledging more concessions on interest rates and cash assistance for the operation. Shrestha said that the technical team would decide on the demands of the private sector in its next meeting. Currently, the team is discussing the demands at length. Dr Yuba Raj Khatiwada, member of National Planning Commission is the coordinator of the team. So far, the government has already amended the conditions once at the request of the private sector. Of major changes endorsed so far, the government has agreed to identify the sick units on the basis of past two year‘s performances for hotels. Initially, it was done on the basis of their capacity. As per the decision of the main committee, the technical team has categorised the industries into two groups including cottage and small industries, and medium and large industries. While the cottage and small industries would be provided one third of the required capital as soft loans, medium and large industrial units each would be provided a maximum of Rs 30 million loan said Shreahtha.
Also, the technical team had recommended for pledging a total of Rs 750 million to hotels and civil aviation sector of which each unit was proposed to be given a maximum of Rs 50 million, he added.
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Despite changes, Chandi Raj Dhakal, first vice president of the Federation of Nepalese Chambers of Commerce and Industry said that the existing conditions for the rehabilitation of sick industries were not adequate in the present gloomy business environment. "It fails to provide services as per the need of the affected industries. ― he said.
Rajesh Kaji Shrestha, President of Nepal Chamber of Commerce, also said that the sick industries require more support on the operation front. "Operating cash is the most important part for the company to sustain itself and government should pledge them operating capital rather than soft loans,‖ he said.
The central bank, on the government instructions, has set aside a sum of Rs 1.5 billion for refinancing sick industries under the SIRP. It has also reduced the refinancing interest rate to 2 percent from 3.
Moreover, the commercial banks and other financial institutions have slashed one percent interest rate for the SIR loans from 6.5 percent. However, none of the industries have acquired the soft loans so far.
24. INDUSTRIAL SICKNESS IN SSIs
For the revival of willing and viable SSI units, the State Government proposes to form a State Level Apex Body with Secretary of Industries/ Industrial Development Commissioner as its head to cosider such revival efforts..
The State level Apex Body for rehabilitation of sick industry would be vested with adequate powers, so that it can effectively implement the management and financial restructuring. The resolution of such Apex body shall be binding upon all the concerned departments.
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The sick SSI units would be identified by such Apex body w.e.f. such date as per the guidelines issued by RBI. Appropriate packages of relief and concessions for such units would be approved for their rehabilitation. The units declared sick by such body and opting for rehabilitating shall be eligible for relief and concessions by banks and financial institutions, as per the guidelines of the RBI within a specified time frame.
Such units shall be eligible for the incentives, available to new units under this policy, provided the unit has not availed incentives as a sick unit under any earlier industrial policy.
Sick units shall be allowed full rebate on delayed payment surcharge during the period of sickness, if it is included in the dues of Electricity Board.
In case of disconnection of electricity, the sick unit shall be exempted from AMG charge and other contractual guarantee charges for the period of disconnection.
The balance amount of electricity dues of such sick unit after deduction of the aforesaid amount shall be paid by the unit in such installments as may be determined by such Apex body on case to case basis without any delayed payment surcharge. However, if such unit fails to pay any installment in time, for such delay in payment, it shall be liable to pay delayed payment surcharge for such duration at the rate fixed for such delayed payment surcharge.
The Apex Body shall periodically monitor the progress of the revival package and it shall have the competence/ authority to take such actions as it may deem fit against the defaulting party including the unit and/ or other department.
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The State Level Apex Body would comprise of such persons/ organisations as may be notified by the State Government from time to time and published in official gazette, in which Finance Department/ Commercial Tax Department shall be necessarily represented.
25. SICKNESS IN LARGE & MEDIUM SECTORS
A committee with Industrial Development Commissioner/ Industry Secretary as its head will be constituted by the State Government to evolve suitable measures for revival of viable sick industrial units including State Public Sector Undertaking in large and medium sector.
The committee shall make an assessment of sick/ closed State Public Sector Undertakings and for revival of technically and economically viable such undertakings, take appropriate measures which may include manpower rationalisation/ disinvestment/ financial restructuring etc.
The Committee will recommend concessions and facilities including those in this policy statement, if considered necessary for revival of the such sick units. These recommendations would be placed before the Government through state Level Empowered Committee (SLEC), which would be constituted under the Chairmanship of Chief Secretary, for final decision.
Concessions and facilities identified under the scheme of rehabilitation prepared by the BIFR or by State Level Inter Institutional Committee of RBI (SLIIC) would be placed before the committee headed by the Industrial Development
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Commissioner (IDC)/ Industry Secretary for consideration and recommendation to Government through state Level Empowered Committee (SLEC) for approval.
Rehabilitation measures for sick/ closed but potentially viable industrial units may inter-alia include financial support/ relief and concessions or sacrifices from various Government Department/ Organisations and or additional facilities including allocation of power from SEB/ DVC and any other agency/ Statutory body/ local authority.
Such closed and sick industrial units which have earlier already availed various facilities due to its sickness would not ordinarily again get facilities unless the State Government may decide to extend such facilities in public interest on case basis.
The Government shall frame an Exit Policy so as to enable such units which do not find it possible to continue and intend to dispose off their assets and clear the bank dues
26. RBI RELEASES REPORT REHABILITATION OF SICK ENTERPRISES)
OF WORKING GROUP ON SMEs(SMALL AND MEDIUM
A Working Group was constituted under the chairmanship of Dr. K. C. Chakrabarty, Chairman and Managing Director, Punjab National Bank to suggest measures for improving credit flow to the SME sector as well as measures for early implementation of rehabilitation/nursing of sick SME units by examining feasibility of bringing in additional capital through alternative routes, such as, equity participation, venture financing, etc. The Working Group held wide ranging discussions with the stakeholders, namely, industry associations, banks and Government agencies. The Working Group submitted its report on April 17, 2008.
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The Working Group has given various recommendations/measures/actions, which need to be taken by banks, NABARD, SIDBI, RBI and State Government for enhancing credit flow to the SME sector as well as for early implementation of rehabilitation/nursing of sick SME units. Highlights:
As an incentive for proper restructuring package at the time of rehabilitation, necessary support for business restructuring, modernisation, expansion, diversification and technological upgradation as may be felt necessary by the lenders may also be encouraged. Support schemes like Credit Linked Capital Subsidy Scheme in case of units in other (than rural) areas, KVIC Margin Money Scheme (for units in rural areas) may be extended for rehabilitation packages also.
The State Governments should introduce a Single Window concept for providing relief and concessions to sick Micro and Small Enterprises (MSEs).
In order to incentivise the banks to take rehabilitation measures, the repayment of any additional exposure taken as part of the rehabilitation package should be given priority on the cash flows as well as security as compared to other debt.
The interest of at least six months after commercial production can be included as a part of the project cost. Sufficient moratorium say, two years for repayment of the principal should also be given so as to prevent cases of incipient sickness at the commencement of production and help units to establish themselves in the market at the beginning. . Medium Enterprises should be taken out of the purview of BIFR and the banks given the responsibility of their rehabilitation, more so because only a fraction of the medium enterprises are covered under Sick Industries Companies (Special Provisions) Act, 1985 (SICA) and their rehabilitation done under the supervision of BIFR . Raising the limit of Rs 20 lakh to Rs 50 lakh for Lok Adalats, measures to strengthen the DRT/legal machinery, dedicated Bench for SMEs to expedite the process of recovery, Asset Reconstruction Companies especially for Micro Small and Medium Enterprise (MSME) loans are some other suggestions of the Working Group. RBI has clarified that units becoming sick on account of willful mis-management, willful default should not be considered for rehabilitation.
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27. LENDING (FINANCING SCHEMES OF SIDBI)
A) DIRECT FINANCIAL ASSISTANCE FOR THE DEVELOPMENT OF INDUSTRIAL INFRASTRUCTURE FOR SSIs
a) Venture capital / development scheme b) Equipment Finance Scheme c) Integrated Infrastructural Development scheme d) Project Finance Scheme e) Scheme related to Marketing of SSI's Product f) ISO 9000 Scheme g) Micro credit financing scheme h) Short term & long term loan schemes i) Direct Discounting of bil j) TDMF Schemes k) Factoring scheme l) Pre & Post shipment financial assistance scheme m) Export bill financing scheme & so on
B) INDIRECT FINANCE BY SIDBI
I.
REFINANCE ASSISTANCE
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a) Composite loan scheme for cottage, Village & tiny Industries b) Scheme for women entrepreneurs Mahila Udyam Nidhi c) SEMFEX Scheme d) Single window scheme e) RTDM Scheme f) RISO-9000 Scheme g) NEFS cheme h) RSR Scheme i) Scheme for SRTOs j) Scheme for ST/SC & Physically Challenged k) Other General Schemes
II) SCHEME FOR REDISCOUNTINGOF BILLS
a) For equipments b) For Inland supply bills
III) OTHER SUPPORT THROUGH VARIOUS INSTITUTION
a) SFC's, SIDC, SSIDC, Bank to Intermediacies b) To leasing / hire purchase companies. c) To factoring companies d) To special corporate entities and institutions which are engaged in the business of development of SSIs
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In conclusion we can say that the SIDBI, by the mode of refinancing, discounting and rediscounting as well as financial assistance through indirect functions regarding lending to primary institutions, through its direct assistance to small units and through its various developmental and supporting services, encouraging small scale sector in Rural India. SIDBI obviously engaged in the business of reforming SSIs with its different Rural Industrialization Programs (RIP) with the following aims: * Expansion of small scale sector and increase its share in industrial output. * Development of rural areas where more than 70% of the population resides. * Increase the efficiency of SSIs.
28. SECTOR APPRAISAL
In general we can say that the small scale sector of India has grown slowly and occupied the very important position in the Indian economy. The small scale sector is providing employment to the rural unemployment to the rural unemployed people. The number of registered units in the SSI sector has increased from 0.42 million as at end of March 1974 to 03.37 million at the end of year 2001 march. It means the sector has achieved the growth of 2.95 millions in the period of 27 years. But we have also unregistered small scale Industries who were working and their contribution was also very valuable for the economy. The small scale sector is also playing significant role by their contribution to the socio-economic objective which is related to the – employmentgeneration – Output – Export& – Fostering Entrepreneurship
It is well to say that the small scale sectors account for around 95% of the industrial units in the country contributing 40$ of the manufacturing sector output and near by 1/3 of nations export. In the area of employment generation the small scale sector has provided employment with the help of their more than 3.37 million modern small scale units around 1.86 million peoples.
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29. BANK CREDIT TO SMALL SCALE SECTOR
The commercial and rural regional banks as well as co-operative banks have been regular finance provides for the small scale sector. The interest charged to the small scale units located in backward have to pay the rate of interest @12.5% p.a. Where the units which are situated in developed areas they can get finances at rate of 13.50% p.a. interest on the loan amount up to Rs.25 lakhs and @ 14% if they are taking the loan more than 25 lakhs. SIDBI with the mode of its refinance and rediscount provided and providing financial assistance to the sector. The Bank SIDBI through SFC's , SIDC's and other RRB"s providing finance to the developing sector. The small scale sector specially the small scale units are getting refinance facility through SIDBI & its subsidiaries more than 85%.
TOTAL BANK CREDIT (RUPEES IN CRORES)
YEAR
CREDIT INDUSTRY
TO CREDIT SSI"s
TO % SHARE OF SSI's
1991
61576
17118
14.72
1992
65240
17830
14.47
1993
78662
20026
13.17
1994
80482
22620
13.75
1995
102953
27612
13.05
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1996
124937
31726
12.49
1997
138548
34113
12.25
1998
161038
43508
13.43
1999
178799
48483
17.88
30. ASSISTANCE BY SIDBI TO SSI'S
The apex financial institution in the field of development of small scale sector The bank (SIDBI) by the mode of refinance discounting and rediscounting as well as financial assistance through indirect & direct functions encouraging the rural India
Rs. In Crores YEAR
SANCTIONED
DISBURSMENT
1990-91
2408.7
1838.5
1991-92
2846.0
2027.4
1992-93
2909.2
2146.3
1993-94
3356.3
2672.7
1994-95
4706.3
3389.8
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1995-96
6065.6
4800.8
1996-97
6485.3
4584.7
1997-98
7484.2
5240.7
1998-99
8879.0
6285.2
1999-2000 10265.0
6964.2
2000-01
6441.0
10821.0
At the end of year 2001 March, SIDBI has sanctioned Rs.66299 crores and disbursed Rs.46,392 crores by the various mode of its services like – Refinance, Bills rediscounting, other scheme and direct finance. With its refinance scheme the name has sanctioned Rs.22792.3 crores and disbursed Rs.17225.2 crores. With bill discounting facility the bank has sanctioned Rs.2260.8 crores and Rs.1622.9 crores disbursed to the sector. With its direct finance scheme SIDBI has sanctioned Rs. 12,975.6 crores for the SSI's and disbursed Rs. 9948.6 crores. From its other various schemes bank has sanctioned Rs. 7115.1 crores and disbursed Rs. 4190.3 crores for the development of SSI's till year 2001.
31. SSIs AND FIVE YEAR PLANS
When the First Five Year Plan introduced the industrial base of India was not so good and was very limited. Generally, the industrial development based on consumer goods producing industries. Some important industries of that period were cotton industry, paper industry, salt industry, sugar industry, soap industry and leather industry which were facing a lot of financial and technological problems and fighting for their survival. When the Government of India had introduced Second Five Year plan it was given first priority to the industrialization in rural, semi-urban and areas of our country. That was a good decision. But, it is sad to say that the government has given priority to all the large scale and heavy industries and neglected the small scale sector which cause the sickness in small scale industries. After neglecting in 3rd, 4th, 5th, 6th, 7th, and 8th Five Year plans, we can say more than 25-30 years the government realized its mistake and then they had taken actions for rehabilitation o
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small sick industries by technological reform with sufficient credit facilities and various training programs for the workers engaged in small scale sector. The industries like powerlooms, handlooms , coir, sericulture and silk, handicrafts and other similar industries got affected due to the negligence of the government which results sickness in small scale sector. If we go through the business area of SIDBI we find that SIDBI governs small scale industrial units which contribute significantly to the national economy in terms of production employment and exports via rural development through rural industrialization. Impact of the New Economic Policy Reforms on Sickness Although industrial sickness has been endemic in Indian industriy since the lateseventies, there have been very few attempts to quantify the factors causing it. An extensive list of contributions from the early nineties divides the ―factors responsible for sickness‖ into two broad classes, viz. external vs. internal, depending on whether they are perceived as beyond or within the control of the individual firm (see, for instance Biswasroyee et al. (1990, pp. 20-29), Gupta (1990, p. 22-23), and various contributions inRamakant et al. (1993a, b).93 It is especially the former that have attracted considerable attention from Indian scholars. The suggestive argument runs that the typical Indian manufacturing firm has been prevented from employing the least costintensiveinput mix, for instance, because of capacity constraints or shortage of essential raw materials. These restrictions were reinforced by ―unfavorable government policies‖ in respect of taxation, labor, or credit supply. Economic distress and eventuallythe phenomenon of industrial sickness then occurred as a natural consequence. Empirical evidence – if supplied at all - comes in the form of a binary indicator model(―1‖ for sickness, zero otherwise), or a linear model with the ratio of net worth to totalassets as the left-hand side variable and explanatory variables such as the interest-salesratio, the wage-sales ratio, the ratio of gross profits to net worth or the share of deferredliabilities per Rupee of sales.94 Yet it is obvious that these ―explanatory‖ variablesdescribe the symptoms o sickness rather than catching its claimed causes. To addressthe latter, a firm‘s health status would have to be related to the degree to which it is subject to external constraints on performance. Unfortunately, however, this kind ofinformation is simply unavailable as long as datasets consist of ―observable‖ realizations,and are not supplemented by either ―desirable‖ outcomes (as often is the case insurvey data), or by fixed upper limits on, say, installed capacity, import quotas, orsupplies of basic raw materials. In effect, the ―tightness of constraints‖ at the firm -levelremains an unknown. For all the difficulties of establishing its causes, there is no doubt that the incidence ofindustrial sickness in the late nineties was much higher than it used to be in the prereformdays. In the previous chapter, we established that industrywise downturns inproductivity and mean efficiency were accompanied by greater variation inperformance across firms. Greater divergence in efficiency scores combined with93) From Ramakant et al. (1993a): Singh and Bhatia, pp. 35; Farsole, pp. 45; Kaur and Singh, pp. 98; Rao andChari, pp. 157. From Ramakant et al. (1993b): Khanka; Girdhari & Joshi; Jain; Mishra94) Chattopadhyay (1995), chapter 3; Anant et al. (1995), section 3.4 – 101 – increasing sickness rates suggest that the NEP reforms enabled economically viablefirms to benefit a great deal. From chapter 2, we know what kinds of firms were highlyregulated before 1991 and what types of firms operated under artificially ―soft‖conditions. Accordingly, as a first step, we take a static view and explore the hypothesisthat the New
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Economic Policy discriminates against the right set of firms. Just as theplanned economy favored selected types of firms (e.g. small scale units, public sectorundertakings, or companies located in remote areas), we expect the NEP reforms towork to their disadvantage. To anticipate our findings, the answer is in the affirmative. But what if these ‗natural sickness candidates‘ already faced a considerably higher riskof sickness in earlier years? In this case, we would only have demonstrated that the NEPreforms did not lower their chances of experiencing sickness.This question leads us to take up the outcomes of the reforms more directly: Why do atriskcandidates eventually fall sick and then recover (or not), and what role is there forprogressive changes in the economic environment? In particular, we investigatewhether firms fall sick because government assistance measures have become lessgenerous, or because, coincidentally, formerly protected firms have deteriorated interms o their productive efficiency. If so, what drives the level of firm efficiency, andwould these factors adversely affect sickness rates in turn? Here, we are confrontedwith core questions in industrial economics: how does the market structure impinge onthe survival (or failure) of firms, and what effects are observable from increased
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 o 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. Since industries are an integral part of a nation's economy, in a dynamic set up industrial units which are non-competitive, uneconomical and inefficient become sick and die out as new and more efficient units come up to take their place. This process takes place in a cycle as a sequence of economic restructuring. Re-allocation of resources, both material and human, from less efficient to more efficient areas is not only expected to increase production and productivity but is also likely to lead to higher employment generation in the long run.
32. NEED OF REVIVAL OF REHABILITATION PROGRAMME
A project that has gone sick would have already swallowed huge scarce resources. In order to utilize the assets and infrastructure already created for the project, the project is to be revived from sickness. There is no doubt that the project would have had some weak areas which could have been the cause for the sickness. Inspite of this, rehabilitating the sick project is worth considering since the cost of setting up a new unit might be substantially higher as compared to the cost o
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rehabilitating a viable sick unit. Of course, having known the factors that were responsible for leading the unit to sickness, they can be properly addressed in the revival package. Revival of a sick unit may be necessitated or justified in view of the under lying socio-economic objectives such as the following. (a) The project may be in a sector that is vital to the economy. Abandoning the project may lead to other socio-economic ill effects. (b) Many ancillary units may be dependent on the unit that has gone sick. Unless the sick unit is revived, it will have a chain effect of all such dependent ancillary units becoming sick. (c) Banks and financial institutions would have locked up their money in sick ventures. In order to get back the investment of banks and financial institutions, the project is to be revived and made to work again and generate surpluses. Though banks and financial institutions that support a revival programme for the sick unit may be required to fund the project again, they will beprepared to implement revival packages if they are convinced that they will, apart from getting back their present investment with interest, also get back their earlier investments that are locked up
33. RESTRUCTURING INDUSTRIAL SECTOR
The problem of industrial sickness in India is not a recent one. Protected market structures and policies reflected in high tariffs, quantity restrictions on imports, price regulation on inputs and barriers to domestic competition have contributed to cost inefficiencies and dampened the incentive to restructure. Based on the recommendations of a Committee of Experts under the Chairmanship of Shri T.T. Tiwari, the Government enacted a special legislation namely, Sick Industrial Companies (Special Provisions) Act, 1985 commonly known as the SICA. The Board for Industrial and Financial Reconstruction (BIFR) was established in January, 1987 which became operational from May 15, 1987. The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) was established in April 1987 as the appellate authority for the BIFR's decisions. The SICA was later amended in 1991 to bring government companies under its purview and again in 1993 when extensive changes were made in the Act including inter-alia changes in the criteria for determining industrial sickness. The main objective of SICA is to determine sickness, expedite the revival o potentially viable units and effect closure of unviable units. The SICA was enacted with a view to accelerating the process of restructuring through the BIFR and imparting it with the much needed coherence and consistency. The BIFR was visualised as a fast track facilitation agency with a single-point reference for rapid disposal.
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The Reserve Bank of India (RBI) has also been attaching a lot of importance to revival o potentially viable sick industrial units. Detailed guidelines have been issued for rehabilitation o these units and matters relating to better coordination between commercial banks and term-lending institutions for formulation and implementation of rehabilitation programmes. Certain broad parameters have been evolved for granting reliefs or concessions by banks as part of the revival packages. Banks have also been advised to set up cells which could make use of the information system suggested by the Tandon Study Group and detect the early warning signals which include nonsubmission/incorrect submission of stock statement, inability to make stipulated margins, binding difference between outstanding balance and sanction limits, diversion of sale proceeds through accounts with other banks and return of cheques. Comprehensive half-yearly returns are to be submitted by the banks in respect of sick/weak industrial units for monitoring their progress made by them in the matter of rehabilitation. The main reason for the good performance of the industrial sector during the eighties was starting of the liberalisation process and a number of policy measures including changes in the areas of licensing and procedures, import of technology and capital goods coupled with a reasonable rate of public investment and almost total protection to domestic industries from international competition through quantitative restrictions on imports as well as high tariff rates. With the launching of the new economic policy during the nineties, the protective barriers for the Indian industry started getting dismantled one by one. The average annual growth rate of the industrial sector including mining, manufacturing and electricity generation slumped to 0.6 per cent in 1990-91 as a short-term response to the reform process. However, in a few years the overall rate of industrial growth gradually recovered. It increased from 2.3 per cent in 1992-93 to 6.0 per cent in 1993-94, 9.4 per cent in 1994-95 and 12.1 per cent in 1995-96. Since 1996-97, however, there was a decline in the growth rate of industrial production and it may be less than 5 per cent during the financial year 1998-99.
34. SOME SUCCESSFUL CASES OF REVIVAL
A. CPSUs
An important development is that the closed unit of M/s National Instruments, a fully-owned CPSU has recently been handed over to Jadavpur University by Government of India after prolonged persuasions by GOWB. IISCO BURNPUR WORKS
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BIFR-sanctioned revival scheme is in successful progress of implementation. Govt. o India/Ministry of Steel has decided for merger of IISCO with SAIL. A modernization plan of Rs 9600 crore has already been approved by GOI and is being implemented. GOWB committed monetary sacrifices of around Rs 500 crore towards various reliefs for IISCO-revival. BENGAL CHEMICALS &PHARMACEUTICALS
This pioneering pharmaceutical company has been rehabilitated successfully with GOI-funds through implementation of BIFR-sanctioned scheme. GOI/MoC&F has since sanctioned around Rs 400 crore towards implementation of its modernization plan as well as restructuring of GOIloans. State Government shared its revival efforts initiated by GOI and granted a soft loan of Rs 2.25 crore to enable the said sick unit to settle its past dues of sales tax. BENGAL IMMUNITY LTD.
BIFR-sanctioned scheme has failed in respect of this CPSU and it was decided to wind-up the unit. On further persuasion, Govt. of India/Ministry of Chemicals & Fertilizers has reconsidered to run this closed unit for revival through a JV partner since selected. B. JV-Company JESSOP & COMPANY
This JV-company presently having minority share participation of GOI after disinvestments has been successfully revived and ceased to be sick with substantial financial assistance C. Private CALCUTTA CHEMICALS
This pioneering cosmetic and home-care items manufacturing unit has been successfully revived by its new management through implementation of a revival scheme approved by BIFR with financial support of the State Government. EMC
Both of its closed units located at Beliaghata and Agarpara have been reopened by its new management and are being rehabilitated successfully with the support of the State Government.
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CENTURY EXTRUSIONS
This aluminium-extrusion unit at Kharagpur Industrial Growth Centre has successfully implemented its revival package with financial support from State Government in the form of soft loan and has revived itself. GRAMAPHONE COMPANY OF INDIA LTD. (NOW SAREGAMA)
This pioneering CD/Music cassette manufacturing works turned sick due to product obsolescence but subsequently revived itself through implementation of a BIFR-approved revival scheme with the support of State Government. INDIA FOILS LTD.
State Government has since identified one new entrepreneur group M/s ESS DEE Aluminium, Mumbai, which has taken over the units of India Foils Ltd.. While it‘s Kamarhati unit has put into regular production with proposed expansion programme, the Hoera unit has since been reopened. Necessary repairs/renewal of this closed unit has since been started and its new management expects early resumption of production activities. BENGAL SALTS COMPANY
The unutilized land of this closed unit earlier engaged in salt-manufacturing has since been resumed and handed over to Power Department to start a new project of ‗Wind Firm‘ for production of 50 MW of electricity for distribution dist ribution of power in the locally through WBSEDCL, a State-owned power supply agency.
35. IS REHABILITATION THE ANSWER?
No Rehabilitation, it is not the answer and solution for sick industrial companies. It should be closed down as it is undue exercise and puts additional burden upon the government to take care of them. In addition, it also places burden upon all the existing well running industrial units SICA impose cess on companies to build up a fund for rehabilitation of the assets of the sick companies. It is opposed by the Federation of Indian Chambers of Commerce & Industry of India (FICCI) on
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the ground that healthy and sound companies should not suffer for faults of others.[19] others.[19] 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. It should leave the industrial company on its own condition and should afford an opportunity to the company to decide its own fate in this era of cut throat competition. The theory of survival of the fittest should be applied in this particular realm, it says competition for survival or predominance and ―survival of those who are better equipped for surviving‖. The government should segregate itself from the affairs of the industrial company and should do its own job.
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CHAPTER VI INDUSTRIAL SICKNESS IN THE STATE---INDUSTRIAL CONDITION IN WEST BENGAL SYNOPSYS: 1) IRD(INDUSTRIAL RECONSTRUCTION DEPARTMENT) a) FRAMEWORK b) IMPLICATIONS c) REASONS FOR SICKNESS d) ACTIVITIES OF THE DEPARTMENT e) APPLICABILITY f) ELIGIBILITY g) SUPPORT MEASURES 2) FACTORY CLOSURES AND PLIGHT OF WORKERS: A COMPREHENSIVE COMPREHENSIVE SUMMERY OF BENGAL‘S INDUSTRIAL CONDITION A. SECTION 1: ABSTRACT B. SECTION 2: VOICES FROM BELOW C. SECTION 3: SICKNESS PROFILE i. SECTION 3: SICKNESS PROFILE – I: NATIONAL TANNERY: A STORY WHICH STANDS OUT ii. SECTION 3: SICKNESS PROFILE - II. KOLAY BISCUIT: 25 GLORIOUS YEARS OF CLOSURE C LOSURE iii. SECTION 3: SICKNESS PROFILE - III. EASTERN PAPER MILL: LOCKED OUT BUT OPEN iv. SECTION 3: SICKNESS PROFILE - IV. DUNBAR COTTON MILLS: RESUMING LAND: GOVERNMENT STYLE v. SECTION 3: SICKNESS PROFILE - V. METAL BOX: A SCENE FROM THE ASSEMBLY vi. SECTION 3: SICKNESS PROFILE - VI. AMCO: TWENTY ONE YEARS
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vii. viii. ix. x. xi. xii. xiii. xiv.
OF UNPAID DUES SECTION 3: SICKNESS PROFILE - VII. BENGAL LAMP : WORKERS W ORKERS IN DARK SECTION 3: SICKNESS PROFILE - VIII. SMALL TOOL MANUFACTURING COMPANY: WILL IT EVER BE REVIVED? SECTION 3: SICKNESS PROFILE - IX. BASANTI COTTON MILL: HE BITTER SWAN SONG SECTION 3: SICKNESS PROFILE - X. BANGODAYA COTTON MILLS: PEERLESS ILLEGALITY SECTION 3: SICKNESS PROFILE - XI. SULEKHA WORKS : A BLOT OF INK SECTION 3: SICKNESS PROFILE - XII. BENI LMTD.: STILL A GOING CONCERN SECTION 3: SICKNESS PROFILE - XIII. MOHINI MILLS M ILLS LTD. No. 2: ABANDONED AND DESERTED SECTION 3: SICKNESS PROFILE - XIV. INDO-JAPAN STEELS LTD.: REDUCED TO JUNK
D. SECTION 4: REGIONAL ROUND UP OF INDUSTRIAL BELTS i. ii. iii. iv. v. vi.
SECTION 4.I. ON THE EASTERN FRINGES SECTION 4.II: INDUSTRIES ALONG B T ROAD SECTION 4.III: INDUSTRIES ALONG DUM DUM – LAKE TOWN – PATIPUKUR SECTION 4.IV: INDUSTRIES ALONG JADAVPUR – TOLLYGUNJ SECTION 4.V: INDUSTRIES ALONG TARATALA – HYDE ROAD SECTION 4.VI: INDUSTRIES ALONG BELEGHATA – PHULBAGAN – KANKURGACHI
E. SECTION 5: FACT SHEET i. ii. iii. iv. v.
SECTION 5: FACT SHEET - I: INDUSTRIAL POLICY AT A GLANCE SECTION 5: FACT SHEET - II: ECONOMIC REVIEW: EFFORT TO COMBAT SICKNESS SECTION 5: FACT SHEET - III: A SURVEY ON 500 CLOSED AND SICK INDUSTRIES SECTION 5: FACT SHEET IV: RAJARHAT SATELLITE TOWNSHIP SECTION: FACT SHEET - V: ‗EXCESS‘ INDUSTRIAL LAND
F. SECTION 6: SUMMARY i. ii.
SECTION 6: SUMMARY: WORKERS: SHIFTING SAND SECTION 6: SUMMARY: EMPLOYMENT: JOB LOSSES OUTSTRIP
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iii. iv. v. vi. vii.
GENERATIONS SECTION 6: SUMMARY: CLOSED, C LOSED, SICK AND LOCKOUTS: STAGGERING REALITY SECTION 6: SUMMARY: FAWLOI SCHEME: MILES TO GO SECTION 6: SUMMARY: PROVIDENT FUND: TURNING A BLIND EYE SECTION 6: SUMMARY: ESI: A MOCKERY OF SOCIAL SECURITY SECTION 6: SUMMARY: MINIMUM WAGES: MAXIMUM CHAOS
3) SUGGESSTION 4) CONCLUSION
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1. IRD(INDUSTRIAL RECONSTRUCTION DEPARTMENT)
a) FRAMEWORK
With 'Industries' being a subject on the Union List, the legislative frame-work within which the State Government has been required to design initiatives in this field are mainly 'The Companies Act 1956', 'The Sick Industrial Companies (Special Provisions) Act 1985' and ‘The Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002’. All these statutes are Central legislation.
b) IMPLICATIONS
All these legislations have given priority to the secured creditors mainly Banks and Financial Institutions attached to any sick/weak industrial units in recovering their secured debt by inter alia, seeking winding-up of the Company or by taking possession of the secured assets of the borrower Company with right to transfer the same by way of lease, assignment or sale. Whenever, any industrial unit turns weak or sick and makes any default in repayment of its secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as ‗non - performing performing asset‘, they fail to get any financial support from the Banks/Financial Institutions concerned. This puts the sick units into threats o permanent closure.
c) REASONS FOR SICKNESS
It is a fact that many industries in the large and medium sector were first established in West Bengal. But their failure to modernize and diversify along with fast technological obsolescence and changing market conditions has led to industrial sickness. In this connection, it is important to note that sickness in industries has been a countrywide problem.
d) ACTIVITIES OF THE DEPARTMENT
Notwithstanding this limitation, the efforts of State Government have been to evolve a
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coherent policy for the benefit of all concerned. To discharge its responsibilities, the Department is required to undertake, interalia, the following activities towards this objective during the period: Preliminary enquiry in respect of sickness and closure of a unit; To facilitate the formulation of proposals for rehabilitation and reconstruction of sick and closed industrial units with reference also to direction of the Board for Industrial & Financial Reconstruction (BIFR), under SICA;
To deal with civil rules and other cases arising at various Counts of law viz. Debt Recovery Tribunal (DRT), Hon'ble High Court/Supreme Court in connection with the implementation of various industrial rehabilitation schemes; arrange the appointment o Government Counsel to represent the interest of the State and keep a watch on developments in each case; To consider proposals under various Incentive Schemes of the State Government announced from time to time with a view to provide support to the revival/rehabilitation o eligible 'closed', 'sick' or 'weak' industrial units; To encourage measures for the operation of closed/sick industrial units by workers through Co-operative Societies, if feasible and where promoters are unwilling to make investments in their revival/rehabilitation effort.
e) APPLICABILI A PPLICABILITY TY
This department had introduced a Scheme ‗West Bengal Industrial Renewal Scheme 2001‘ (WBIRS) w.e.f. 1st January 2001 and that has been extended up to 31st December 2007 with certain modifications. This is applicable to all cases proposing the rehabilitation or revival of 'closed', 'sick' or 'weak' industrial units and also to the expansion in respect o 'closed', 'sick' or 'weak' units if forming a part of such rehabilitation or revival proposals as accepted by State Government. Such units can be in the private sector, co-operative sector, oint sector as also companies/undertakings owned or managed by the State or Central Government, in the large/medium sector. Cases of revival/rehabilitation of manufacturing industrial units in the small-scale sector as selected in consultation with the Micro & SSE & Textile (erstwhile Collage & Small Scale Industries) Department can also be considered for support under this Scheme, if otherwise eligible.
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f) ELIGIBILITY
To be eligible for consideration, proposals for the comprehensive and long-term revival/rehabilitation of 'closed', 'sick' or 'weak' industrial units are required to be formulated and submitted with the support of Financial Institutions/Banks having interest and the employees of the industrial unit whose revival/rehabilitation is proposed.
g) SUPPORT MEASURES
According to the modified notification by the State Government, the incentives/support measures available to sick/weak/closed industrial units are at present limited toRemission of stamp duty and registration fee up to 50%, if a closed unit be purchased by another entrepreneur; Re-scheduling of arrear sales tax dues to long-term soft loans; Waiver of Electricity Duty up to a period of five years; Limited window strictly according to the need and as a special consideration for disposal of surplus land assets, to generate resources for investment in revival/rehabilitation efforts.
2.
FACTORY
CLOSURES
COMPREHENSIVE
AND
SUMMERY
PLIGHT OF
OF
BENGAL‘S
WORKERS:
A
INDUSTRIAL
CONDITION FEBRUART 9, 2009
This comprehensive report was prepared by Nagarik Mancha in 2005 and first appeared on sarai.net
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o
SECTION 1: ABSTRACT
o
SECTION 2: VOICES FROM BELOW
o
o
SECTION 3: SICKNESS PROFILE SECTION 3: SICKNESS PROFILE – I: NATIONAL TANNERY: A STORY WHICH STANDS OUT SECTION 3: SICKNESS PROFILE - II. KOLAY BISCUIT: 25 GLORIOUS YEARS OF CLOSURE SECTION 3: SICKNESS PROFILE - III. EASTERN PAPER MILL: LOCKED OUT BUT OPEN SECTION 3: SICKNESS PROFILE - IV. DUNBAR COTTON MILLS: RESUMING LAND: GOVERNMENT STYLE SECTION 3: SICKNESS PROFILE - V. METAL BOX: A SCENE FROM THE ASSEMBLY SECTION 3: SICKNESS PROFILE - VI. AMCO: TWENTY ONE YEARS OF UNPAID DUES SECTION 3: SICKNESS PROFILE - VII. BENGAL LAMP : WORKERS IN DARK SECTION 3: SICKNESS PROFILE - VIII. SMALL TOOL MANUFACTURING COMPANY: WILL IT EVER BE REVIVED? SECTION 3: SICKNESS PROFILE - IX. BASANTI COTTON MILL: HE BITTER SWAN SONG SECTION 3: SICKNESS PROFILE - X. BANGODAYA COTTON MILLS: PEERLESS ILLEGALITY SECTION 3: SICKNESS PROFILE - XI. SULEKHA WORKS : A BLOT OF INK SECTION 3: SICKNESS PROFILE - XII. BENI LMTD.: STILL A GOING CONCERN SECTION 3: SICKNESS PROFILE - XIII. MOHINI MILLS LTD. No. 2: ABANDONED AND DESERTED SECTION 3: SICKNESS PROFILE - XIV. INDO-JAPAN STEELS LTD.: REDUCED TO JUNK SECTION 4: REGIONAL ROUND UP OF INDUSTRIAL BELTS
SECTION 4.I. ON THE EASTERN FRINGES SECTION 4.II: INDUSTRIES ALONG B T ROAD SECTION 4.III: INDUSTRIES ALONG DUM DUM – LAKE TOWN – PATIPUKUR SECTION 4.IV: INDUSTRIES ALONG JADAVPUR – TOLLYGUNJ SECTION 4.V: INDUSTRIES ALONG TARATALA – HYDE ROAD SECTION 4.VI: INDUSTRIES ALONG BELEGHATA – PHULBAGAN – KANKURGACHI
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o
SECTION 5: FACT SHEET
o
SECTION 5: FACT SHEET - I: INDUSTRIAL POLICY AT A GLANCE SECTION 5: FACT SHEET - II: ECONOMIC REVIEW: EFFORT TO COMBAT SICKNESS SECTION 5: FACT SHEET - III: A SURVEY ON 500 CLOSED AND SICK INDUSTRIES SECTION 5: FACT SHEET IV: RAJARHAT SATELLITE TOWNSHIP SECTION: FACT SHEET - V: ‗EXCESS‘ INDUSTRIAL LAND
SECTION 6: SUMMARY
SECTION 6: SUMMARY: WORKERS: SHIFTING SAND SECTION 6: SUMMARY: EMPLOYMENT: JOB LOSSES OUTSTRIP GENERATIONS SECTION 6: SUMMARY: CLOSED, SICK AND LOCKOUTS: STAGGERING REALITY SECTION 6: SUMMARY: FAWLOI SCHEME: MILES TO GO SECTION 6: SUMMARY: PROVIDENT FUND: TURNING A BLIND EYE SECTION 6: SUMMARY: ESI: A MOCKERY OF SOCIAL SECURITY SECTION 6: SUMMARY: MINIMUM WAGES: MAXIMUM CHAOS
A. SECTION 1 : ABSTRACT
Lockouts in the factories of West Bengal continue to play havoc while the plight of workers o locked-out factories remains largely ignored. It is necessary to zoom in on the state of being o these ―de-skilled‖ workers, on the changes in their lives, purchasing power and livelihood and assess the impact of factory lockouts on the urban space these workers once occupied. Conversely capital, instinctively moving from manufacturing sector to real estate business is, coupled with demands for new housing, triggering dismantling of industrial units on the plea of sickness, leading to thousands of jobless, unprotected workers. This study primarily aims at closely inspecting this synergistic relation between closing down of factories and urban space. It will also study the extent of rehabilitation or self-employment and trace its impact on the surrounding urban infrastructure like markets, schools, tea shops and trading points; observe and analyse the effect o closure on the non-worker section of this urban space; attempt to estimate the social cost of this loss of skill.
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B. SECTION 2 : VOICES FROM BELOW
Section 2.1: Bengal Lamp – Kantida
Located opposite the 8B bus terminus, the first shop on the right as one proceeds towards Jadavpur Coffee House, Kanti-da‘s ‗Mithu Tea Stall‘ on the pavement is a popular rendezvous specially for the medical representatives who throng to it throughout the day. Pranab Roy officially, Kanti-da recounted the events of the day, 16 years back, when Bengal Lamp closed down. ―It was the day after pay-day! When we arrived at the gate we found that our factory was closed. That was way back in early January 1989. There were at least 700 workers at the gate. It was all over. Within a month I started this tea stall here. There was no looking back.‖ Kanti -da did his LME from Jadavpur Poly-Technique after pursuing studies at the City College. He got for himself a job in Calcutta State Transport Corporation but moved to Bengal Lamp later. He was skilled and worked for years at the glass lamp plant. Being in his mid-fifties, he did not make any career moves during the early years of closure since he, like hundreds of others, expected the reputed ‗Bengal Lamp‘ to open its gates to the workers once again. ―Some say that the gates are going to open soon and residential apartments are going to come up. Maybe we will then get our arrears including PF dues‖, he said rather matter -of-factly. The only time his feathers got ruffled was when he said, ―Whom would I protest to? Who would care to listen?‖ in response to a query asking for his reactions about not getting his legitimate dues even after 16 years. He had been compelled to move into one of the dilapidated Bengal Lamp ‗quarters‘ at Ganguly Bagan, about ten years back . ―There was no electricity and water. But there was no rent either! I must bow my head to the total support we received from the local citizenry. A tap has been conveniently set up from which we share water, and a makeshift arrangement for the electricity connection would not have been possible without the initiative of the local youth.‖ He proudly declared that despite his meagre earnings, his children are graduates today. ―When I came to Jadavpur from Mymensingh after partition in 1952 I was 14 years old. This entire place has changed in front of my eyes‖, he said with his eyes going misty. He looked up with a hint of a smile and said nothing when one of us asked him about how he felt at the loss of his skill. His looks said it all and we knew when to stop!
Section 2.2: Bengal Lamp - J ugal Prasad
There was this solitary figure walking towards us down the lane that leads to the gates of Bengal Lamp. Once within earshot distance we asked him which the main gate was. He measured us nonchalantly, turned around and pointing to a clump of trees at a distance said, ―That is the gate through which I entered when I was a worker there‖. He was Jugal Prasad, originally from Siwan, Bihar. He was a blower, who would blow into the bulbs to give them their shape. Sixteen years back when Bengal Lamp closed down, he earned monthly wages of Rs 1800 besides a minimum
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of Rs 400 by way of production bonus. Now, sixteen years later, as ―security‖ of one of the apartment buildings, which shares the common boundary wall of the factory, he earns Rs 1200 per month for providing round the clock vigil. Buoyed by virtue of his immense experience and skill he reached Mumbai after Bengal Lamp was locked out. Unfortunately his newfound contractual ob there was short lived since the furnace blew up. ―Then I went to Chennai to work f or the makers of Borosil, but the food did not suit me, more since I was getting old. I came back to the city where I had grown up expecting the company to reopen. It didn‘t, and all my money is still locked up‖, said Jugal even as a huge sigh escaped shat tering the calmness of his seemingly composed exterior. ―My son has found himself a job of a driver and does look after his family. I ust have a few years left – hundreds of workers are no more‖, he said with a distinct sign o resignation.
Section 2.3: Sulekha Works - Narayan Das
Narayan Das came from his ancestral home in Orissa way back in 1955. For 26 years he toiled it out at Sulekha Works, a household name in West Bengal, manufacturing ink for fountain pens. When Sulekha was locked out, he was nearing the age of superannuation. Instead of going back to his village with a substantial amount that had accrued from his life‘s savings, he had to sit on the pavement frying pakoras and sundry to make two ends meet. ―Mine was the only shop in the vicinity – now there are a dozen of them‖, Narayan said with a wry smile! He is too old now to go through the rigours of frying pakoras. He sits in a ramshackle wayside tea-stall with some jars o biscuits with his aging wife to help him out. ―Two meals a day is all that we desire,‖ he said responding to the query as to how much income his vocation generates. His skeletal physique and laboured breathing indicates that he is not only old but could be sick too. But there was fire in his eyes when he spewed venom while speaking about the later day trade union ‗leaders‘! ―If only we were given our PF dues!‖ he said with a body language indicative of exasperati on. ―Even educated persons like Lalu of Bengal Lamp or Naren Kar of Sulekha are selling potatoes sitting on the pavements for over a decade now! Who cares for them?‖ he said looking straight at us through his high-powered glasses. When we told him that we would come back to him on some other day for some photographs, he gave us a toothless smile and said, ― W ho knows whether you will be able to find me or not! Every morning my body and soul is getting increasingly demotivated. I don‘t feel like getting up. Maybe very soon the end is going to come.‖
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Section 2.4: Sulekha Works - Kalidas Bhattacharya
―I can tell, that you very well know how it is for us!‖ said Kalidas Bhattacharya, who was a worker at the Sulekha Works before it closed down in January 1989. ―Since lockout was declared I earn a modest living by performing puja for families who have been the clients of my father, also a ‗purut thakur‘ (a Brahmin performing various religious rites)‖. On being asked as to whether he could earn enough to support his family, he pointed at his dress and said, ―I am just back from Gariahat where I supplied the lunch ‗dubba‘ to a shop -owning family after collecting it from their home at Subhashgram. They give me Rs 500 per month and the cost of a railway monthly between Ballygunj and Subhashgram stations. You have to do such odd jobs to survive, you see!‖ He had worked at Sulekha for 27 years and just the other day was shocked to see that there were no longer any machines inside his erstwhile workplace. ―Yes, with a lot of fanfare the factory is said to be reopening, but what about us? Will we get our dues? Someone said that a part of the factory premise will be handed over to promoters who have plans to build a residential high rise and instead of ink Sulekha will produce ballpoint refills and phenyl. But what about our unpaid dues?‖ he asked looking straight into our eyes.
Section 2.5: Beni Engineering - Manu sen
A large portrait of Lenin hung from the discoloured and damp wall. There was a polythene sheet draped over the bed. The patter of drain drops on the polythene sheet conveyed a loud and clear story! Perhaps to save us further embarrassment Manu Sen, an assembly line worker at the erstwhile Beni Engineering said, ―It has been difficult to pay even the monthly rent of Rs 75 for quiet a few months – how can I dream of repairing the leaking roof spending thousands in the process?‖ His home was pretty near his workplace but now it is rather dilapidated in a state o utter disrepair with even the bared bricks on the wall outside showing signs of weathering. ―You see that sewing machine? That is what feeds us these days‖, Manu said. He had somehow married off his elder daughter but the younger, suffering from a nerve disease is like a walking skeleton – symptoms of malnutrition clearly evident in this 16-year-old. ―See how she suffers? Who will believe that my father was a medical practitioner respected by each and every worker of Beni Engineering‖, Manu said pointing at his father picture hanging beside the one of Lenin. ―They have disconnected our electric meter. I could not pay the bills‖, he said when he s aw one of us glancing, perhaps by reflex action, towards the ceiling fan and tube light in this dark, hot and humid room. The rain outside and the gloom inside were mentally suffocating for even the bravehearted.
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Section 2.6: Beni Engineering - Sisir Sarkar
The framed but faded certificate which hung on the wall from which plasters were peeling off was ust not a piece of paper. It was a symbol of pride for this skilled worker who is fighting, even if, a losing battle to arrange for a square meal a day. Sisir Sarkar was a viceman-fitter at the Beni Engineering, a skilled worker of great value to any engineering enterprise. ―I took my diploma from ITI, Gariahat and faced a tough interview to get employed‖, said Sisir rueing the fact that in spite of his acquired skills he could not get suitable re-employment to sustain his family when Beni locked out its gates. ― I went to another state but there too the factory was closed down. When I returned, a neighbour gave me contacts and I worked as a male attendant at a Hospital for a few years. Since I lost that job, I am dependant on my son‘s income for surviving‖, Sisir said with misty eyes. He is better off than some of his ex-colleagues since he has an eight by eight room, which he can call his own home. Sitting in his home this experienced but now virtually deskilled worker did not look up when he said, ―I will never forget the day when I sent my elder daughter to her final Class X examination after offering her two biscuits and a glass of water!‖
Section 2.7: Beni Engineering - Birjan Prasad
Sitting on some folded gunny bags under a tree, just in front of Prabartak Jute Mill on BT Road, Birjan Prasad sells khaini (tobacco for chewing). He has been doing this for the last 18years now – since the day Beni Engineering dropped its shutters way back in 1987. He lives with a relative from and hence does not have to spend for his accommodation. ―I earn at least Rs 500 per month these days, but previously it often crossed Rs 1000. I need at least three to four hundred rupees per month for my food and the rest I can send back home,‖ he said while talking about his family staying at his ancestral village home in Bihar.
Section 2.8: Mohini Mills to Mohini Bricks
A brand of second-hand bricks is available for building construction in and around the BelghariaBirati-Agarpara area. The brick is referred openly, like any brand name, as ‗Mohini‘ bricks. Lakhs of such bricks have been pilfered from the Mohini Mills (No. 2) Ltd. Brick by brick the walls o the sheds, buildings and boundary have been dismantled and then heaped by the side of Belgharia Station on the Sealdah Main line. It was established way back in 1908 and when it was locked out it was a Central Government Undertaking managed by the National Textile Corporation Ltd. A
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household name for its dhotis, long cloth, saris, mosquito nets, bed sheets and shirting, Mohini Mills now is ‗supplying‘ clandestine bricks, while its 2079 workers or their legal heirs wait for 8.5 crores dues. Interestingly, the West Bengal Government has recently notified that it has resumed the land on which Mohini Mills stands. 90 bighas of prime land within stones throwing distance from Belgharia station, which would in the near future be linked by the Kolkata Metro railway, is ideal for a huge residential enclave. Time will tell as to how the State Government will be using this resumed land and what responsibility it will take about the unpaid legal dues of the workers.
Section 2.9: Basanti Cotton Mills - Sudheer Chandra Das
Sudheer Chandra Das is waiting for his twenty six thousand rupees for more than 18 years now! He used to work in a factory whose foundation stone incidentally was laid by no less a person than Rabindra Nath Thakur, way back in 1934. Basanti Cotton Mills, set up by the Mitras, conjures up the spirit of the ‗swadeshi‘-era. ― The Goenkas took over from the Poddars in 1967, who had taken over from the Mitras sometime in the early 60‘s. Basanti Cotton Mills later b ecame one of the famous Swan Group of Mills‖, said Das with a far away look. ―I had been working in this Mill from 1955 and when it finally closed down in May ‘87 I was earning about Rs 2100 per month. And now I am a hawker selling gamchas (hand woven cotton towels)‖ he said, sitting in his Ranibag labour-line room. He had earned enough to buy a piece of land and construct a small little house in his village in Nadia district where his wife and two sons live. He had married off his only daughter by selling off a portion of the land. ―Things have changed so much. Believe me we were so happy when the factory was open. Besides our wages we had so many other benefits. Look at those shops! They had a steady stream of customers. Now, like the workers, they are struggling too,‖ said Das with a hint of empathy. Responding to what had been done about their legal dues he sounded angry when he said, ―All the unions are the same. You would see them collecting subscriptions and special donations when we earned. They have done absolutely nothing about our legitimate demands or arrears. I had filed a case and in October 2003 the District Magistrate (Collector) was instructed to make arrangements for payment of my gratuity. I have run out o steam! Nothing has happened till then. There is no one to follow it up.‖ He spoke about the long drawn battle between the State Government and the Punjab National Bank regarding the land o Basanti Cotton Mill. He said he was not sure whether he would get anything before his death, which he thought, was not too far away. He stared us in our eye and shot off a series of questions, ―Why have most of the looms in West Bengal closed down? What is the use of sharing our experience? We remain in the margins of the society – for eighteen long years – what has anyone done for us?‖ We just had to look away.
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Section 2.10: B.T. Road - wire manufacturing company
A leading wire manufacturing company had been locked out for almost 8 years. Some of the workers from this unit had regrouped and the well-attended meeting they had organised, with support from local citizens, was underway. The venue was right by the side of the busy BT Road – the ‗Barrackpur Trunk‘ Road – passing through one of the most thriving industrial hubs of yester years. As if adding colour to the proceedings there stood a man selling his gas-filled balloons tied by strings to his machine on a cart. Just to engage him into a conversation I asked about how many balloons he lost everyday by accident. Like a natural philosopher he tugged at the taut strings to which the balloons were straining against and sai d, ―These are there!‖ What he said next came as a sucker punch! ―What can we do? We do not have any strings anymore. So the balloons have scattered in all directions.‖ He was from the same locked out factory and since he wanted to attend the meeting he had parked his cart nearby and did not take the usual route as on other days. ―I have read the handbill and I am sure we will be able to do something,‖ he said sounding optimistic.
Section 2.11: Hindwire - Gulab Goyala
―The nature of this intersection has changed beyond recognition. Previously there were hundreds of stalls and makeshift shops. From sunrise till late night, eating houses, vegetable producersturned vendors and shops selling everything that the working population needed, made this Sukchar Morh a hubbub of activity. Now eight large and many more small units have closed down in the vicinity and the working population are in dire economic straits. So the problem of closed units is not for us – the directly affected workers – alone. What about the auto rickshaw operators? We now walk three kilometres instead of jumping on to a shuttling auto since even Rs. 3 is hard to come by!‖ said Gulab while imploring the locals t o realise that the demands of workers from closed out units were not only just but also beneficial to the rest of the society. Gulab Goyala, from a local locked out industry, Hindwire, had around Rs.40, 000 of unpaid dues when his factory was locked out in 1998. He said, ―Don‘t be surprised! Sarkar -da, who was old and sick and unable to walk the streets for work died just last Sunday. The neighbours would feed this jobless hungry man. His legal dues amounted to Rs. 85,000. And he died without food or medicine!‖ How we hoped that the heart wrenching economics rendered by this ordinary worker could cut ice! ―Bhaaion, where do you want to go? Back to Bihar/UP from where you had to run away as a child?‖ were his words as he ended his ‗speech‘ at one of the prepa ratory meetings to the run up to the proposed ‗May Day Bhukha Michhil‘. We learnt a lot and we spoke with many of Gulab‘s co workers telling them that we would come back to learn more from them.
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Section 2.12: Thermal Power Station, Shyamnagar - residential complexes
The huge Thermal Power Station had been shut down at Shyamnagar, North 24 Parganas. We were keen to take some photographs since we were sure that a closed down unit today could be a residential apartment tomorrow. And this was big! We skirted the boundary and approached it from the riverside. Local activists told us that there were security personnel galore and half a dozen Doberman guarded the huge area inside. We had to have a suitable escape route since we were not stealing any property, we were told! Theft, in connivance with those in charge – earth to boiler parts – was rampant, it was alleged. This was ideally suitable for an exceptionally located riverside residential complex! Before we could complete shooting we were given the charge and the escape route, chosen with care, engulfed us in a maze of lanes through one of those clusters o riverside ‗jhopris‘ beyond the control of the private security personnel. Later we heard from various sources that perhaps the Sahara Group was in the run to create a residential township in this industrial ‗fallow‘ land! It was really big! We also came to know that in another nearby Cotton Mill, located similarly beside the river, negotiation was on to evict the workers from their quarters and to sell off the quarters to proper ‗promoters‘ who would then get some lovely riverside apartments in place. It would help the ‗company‘ financially and would also be a bane to those who would not be able to afford the expensive Sahara flats! It is a pity that the State Government too has actually given a green signal to such a proposal. It is ominous when one takes note of the fact that West Bengal Government has identified 1,36,000 bighas of land stuck up in locked and closed industries and naturally it is considering its ‗fair‘ use! We sincerely hope that the Government will not embark on a project of ‗unfair‘ land speculation in a big way.
Section 2.13: National Tannery - Singheswar Ram
Singheswar Ram hailed originally from Muzaffarpur, Bihar. He was a highly skilled worker in the hide separating section of National Tannery. ―Separating one layer of hide from another required good eyesight and high skills‖, Singheshwar said with a faint twinkle in his aging eyes. ―In 1989, when we used to get our wages, I earned about Rs 1700 a month, and maintaining a six-member family was no big deal‖, said Singheshwar whose son now works in another leather factory and earns Rs. 1000 per month. To supplement this poor income Singheshwar does some odd jobs for a pittance. Ram received his provident fund dues in 1989 but he is yet to receive his gratuity sum even after 13 years of the closure. ―The Government has purchased this unit but has not opened it for 13 years! Why doesn‘t it give us our dues? Just a few months back the Left Front Government has removed all machines and broken down even the sheds from our factory. Is it wrong to hope that they will now give us our dues?‖ he said clinging perhaps to a hope that he would receive his
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gratuity from National Tannery and pay off his loans in the near future. ―Otherwise I have to sell whatever little land I have in Bihar before I die!‖ were his parting remarks.
Section 2.14: National Tannery - Nimai Adhikary
Nimai Adhikari, along with his father, was initially a landless labourer tilling some one else‘s land as a tenant at Dhapa – Kolkata‘s waste dumping area in the eastern periphery – where the organic landfill was and is ideally exploited for supplying almost 30% of fresh vegetables to the city markets. ―When I got the job of a helper at the National Tannery in 1968, my family members felt that our hard times were over! I worked very hard and in two years I was no longer a helper. Though it sounds like a fairy tale, even in those days I earned almost a thousand rupees per month‖, said Nimai almost smiling as he recalled the good times he had been through. In 1982 he was transferred to the shoe division and by 1989 he was earning to the tune of Rs 1800 per month. ―We were so proud about National Tannery. Our two o wn hands were making Bata shoes like ‗North Star‘ and ‗Quo Vadis‘! We worked hard, we never stopped production, market was strong – but still the company turned sick. How? Who was to blame?‖ asked Nimai, almost to himself. He hated the months during which the Committee of Management ran the Company on a cooperative basis. ―After the closure I had to go back to my land to try and earn whatever I could. It was so very difficult after so many years. My two daughters had to go to work in a local bulb factory‖, he said rather apologetically. He had to sell a portion of their homestead land to marry off two of his three daughters. ―Then I got sick. I could no longer work as hard as before. The doctor said I had blood sugar and a nerve disease. I have given our farmland on rent. My son and my daughter help me to run the family. I do not know what will happen when my youngest daughter gets married. How will I manage without the Rs 600 she gives me every month‖, said Nimai like one possessed. He had a vacant look in tandem.
Section 2.15: Aluminium Manufacturing Company (AMCO) - J atila Mandal
Jatila Mandal was an expert moulder at the Aluminium Manufacturing Company, popularly referred to as AMCO. AMCO was famed initially for its aluminium utensils for domestic use. Later it acquired a name for producing aeroplane and helicopter parts. ―I joined in the year 1963 and remained in employment till 1985 when the factory was locked out. I distinctly remember those few days in mid-1987 when with a lot of fanfare one Anup Dhar, who had bought the company, declared that the factory would reopen. But nothing happened. I had no other option but to take to agriculture‖, said Jatila sitting on the steps of his home in the Rajarhat area to the North East of Kolkata. For 15 years this skilled worker toiled away on his land by the side of his
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homestead with help from some hired hands. ― Now see for yourself what has happened to my agricultural land! The West Bengal Government has taken it away for a pittance. They are building the New Town – Mega City – and they will not allow us to sell our land directly to the developers and promoters. I lost my job and then here I am losing my land‖, said this worker turned peasant who is now struggling as a helper of a construction worker that too when he does get a chance. ―I am being repeatedly deprived of my livelihood. Whom do I blame? Who cares for people like us?‖ said Jatila Mandal as he walked away with his hands firmly clasped behind his back. The plans of building multi-storeyed apartments at AMCO made Jatila jobless. The current paradigm of development catering to the dreams of some to be able to live in picturesque city extension projects put paid to the aspiration of Jatila‘s peasant self. Has he resigned to his fate and is walking, with his hands firmly clasped behind his back, towards pauperisation?
Section 2.16: An ousted worker on the streets of Belgharia
We were walking along the crowded streets of Belgharia, once bustling with large and famed industries like Mohini Mills (NTC), Beni Engineering, and others. Our tableau was ahead and a few of us were distributing leaflets as a rearguard. Feeling a light touch on my elbow I turned back to find a frail smiling man who wanted the leaflet. He looked into my eyes and said, ― I am a worker of a locked-out unit, too.‖ Pointing at his meagre wares spread out on the roadside, rather shyly he said, ―I sit there!‖ Embarrassed for having passed him by unintentionally and touched by his interest in what we had to say, I stood a while and asked him about his unit. He was from a composite steel mill at Belur, Howrah, locked out almost ten years back. When I told him that there were quite a few workers from that unit campaigning from the tableau his eyes lit up and without a backward glance he ran towards the tableau. I stood there guarding his ‗shop‘, while the warm reunion unfolded in front of my eyes. It was almost five years since they had met! He came back beaming and promptly promised that he would join the Bhukha Michhil on May Day when workers from locked out units would take to the streets of Kolkata. He did keep his promise!
Section 2.17: May Day 2005
On May Day 2005, they came in twos and threes. They came in dozens. Workers from locked out industries spread far and wide. They were not obliged to go to the May Day meeting at Shahid Minar organised jointly by all the left Central Trade Unions since their issue was not on the day‘s agenda. No one, these days, ask them to attend, maybe since they are not deemed to be workers
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any more! They had not heard about Daabi Mancha earlier, but they knew that all the 13 demands being pressed for were related to them. So they came. So did a couple of hundred seemingly ‗unrelated‘ members of the civil society. They were present in solidarity. They thought quite a few of the 13 demands could be pressed home without much ‗pressure‘ on the cash strapped State Government. And they all walked in the May Day Bhukha Michhil – with banners, colourful posters and full throated in their response to the 13 demands of the day. The grand total – between eleven and fifteen hundred – was immaterial. It was a hot and humid Sunday afternoon! What is important is that we are now in touch with hundreds and hundreds of hitherto ‗unknown‘ workers from scores and scores of locked out industries who are not only suffering but are also prone to come out of the rut, into which they have been pushed into, and fight for their just and legal demands.
Section 2.18: Easter Paper Mill - Balai Parui
Balai Parui was a highly skilled worker of Eastern Paper Mill. He was a fitter and an expert in dynamic balancing of paper machines. Dynamic balancing is not a job that any fitter can do. It requires special skill. At the time of closure in 1986, he was on a salary to the tune of Rs. 3000 per month. ―My income was enough and everything seemed to be sailing smoothly. After closure, arranging for two square meals a day seemed to be a Herculean task‖ said Balai. Balai lived in a two-roomed accommodation in Pragati Pally on Jessore Road, Dum Dum. After the closure of the factory he rented out one of the rooms to another household and now earns Rs. 600 as rent. ―Presently my son is working for a local cable operator and earns Rs. 1500 per month. In 1990 I set up a shop, stocking lungi, bath towels, slippers, etc. The average profit doesn‘t exceed Rs. 500 per month‖ he said. Balai‘s health is failing these days. He suffers from diabetes, heart ailment and fading vision. His wife is also not keeping well. ―Frankly there is no value of my life any more. When the head of the family can not earn, who is going to pay heed to even his advice?‖ said Balai rather cynically.
Section 2.19: Siddhartha Apparels, “Park Avenue” shirts - Pushpa Pal
While the state of affairs pertaining to employment of women in industries, in and around Kolkata is grim, the ‗Park Avenue‘ girls at Siddhartha Apparels did deserve special mention. No more now. After 2002 that too has become history. They were the ones who stitched together the famous ‗Park Avenue‘ shirts, marketed by Raymond, working with zest and involvement. No wonder since they would earn to the tune of Rs. 150 per day besides the usual PF, ESI, Gratuity and 20% bonus! ―We were a happy lot and we worked with enthusiasm‖, said Pushpa Pal when
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we met a group of about 15 female workers in front of the closed gate of Siddhartha Apparels. At the onset shirts from this modern and mechanised unit were exported to Germany when duty exemption was almost 70%. Later when such exemptions were removed, ‗Park Avenue‘ shirts marketed by Raymond was their staple brand. ―The management wants to reopen the factory, but before that they would like to transform us from wage workers to contractual workers. They are saying o penly that sooner all of us ‗resign‘ more the chances of reopening early‖, said Malati Kundu. There were 169 permanent and 46 casual women working at this unit. ―Some of us have to work as hospital attendants and maid servants but most of us are jobless. The economy of our families is in shambles‖, said the likes of Manisha Purkait or Dipali Chowdhury who come to inspect the factory once in a while and almost invariably notice signs of some clandestine work being carried out within the premise perhaps with outside contractual workers. ―We are determined to fight though our number is shrinking. This closure we are certain is to convert protected workers to bonded labour,‖ said Sumita Chakraborty with great conviction.
Section 2.20: Kolay Biscuit - Ambika Majhi
Ambika Majhi, now well past 70, sells khaini on the roadside very near the gate of the factory in which he was a worker. Kolay Biscuit celebrates Silver Jubilee of its closure this year (2005). He had worked for 28 years after having joined the company, fresh from Bihar, at the age of 24. ―You must be remembering Lacto Bonbon lozenges? It was one of the most popular brands till mid70‘s? I worked in that department!‖ said Ambika running his hands through the white flowing beard while his eyes glittered as it does when one traverses a long forgotten path down memory lane. However khaini has been sustaining him for 24 years now. ―My factory is gone and now they say it is the turn of my home. I have been staying in ‗Batli Sau -er Bagan‘ but it seems that we will get evicted since the slum is going to make way for big buildings!‖ said Ambika and a sigh escaped subjectivising his feelings. Back in 1980 he had an assured earning of more than Rs 900. ―I just have about Rs 11000 left from what I got from my Provident Fund. Someone has bought Kolay Biscuit and they are breaking it down. I cannot express how I feel! They will give us more money – 1 crore to be divided among 900 ex-workers – but did they have to break it down?‖ he asked with a tinge of sadness which weighed down heavily on all those present.
Section 2.21: Kolay Biscuit - Bholanath Kundu
Bholanath Kundu used to work in the Packaging Division of Kolay Biscuit. He is in his mid-60‘s and has some serious problems with his heart. ―I cannot go to a chest specialist and so every month I visit the Homoeopathic Hospital at Salt Lake. Rs 150 per month takes care of my
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medicine bill,‖ said Bholanath rather shyly for his age. Not looking at us he said, ―Our elder son is an alcoholic. The youngest is physically challenged, but he too is an alcoholic and he begs for alms to sustain himself. Our family now is made up of our grand daughter and the two of us. I sell potato on the streets. Selling a gunny bag of potato leaves a profit of Rs30.‖ They live in a makeshift shelter by the side of the train line and even to repair it he has to spend Rs. 500-1000 at least once a year. He signed off when he looked up and said, ―Yes, we are still alive!‖
Section 2.22: Kolay Biscuit - Harekrishna Mishra
―I had joined Kolay Biscuit in 1966. At that time many from Orissa came to work in the bakeries and biscuit factories in West Bengal. I was from Basudebpur in Bhadrak District of Orissa. I was among the large group of Oriya workers who left Britannia Company and came over to Kolay Biscuits,‖ said Harekrishna Mishra. He was one of those workers who were closely a ssociated with the CPI (M). The Beleghata Local Committee of CPI (M), since its inception, and up to mid80‘s, had such workers in its fold. Throughout the 70‘s Harekrishna was at the front of all political activities in this area. As a result he along with some of his colleagues had to stay away from the factory and from his Kolkata home between 1972 and 1977 like thousands of other CPI (M) activists during this period. He became a party member in 1974 and remained so till 1992. Interestingly his membership was not renewed since by then he had started expressing his strongest reservations about the manner in which some of the party leaders and trade unionists were out to please the owners of Kolay Biscuits to remain in their good books. ―Now I live at Kailash Bose Street in Central Kolkata and as means of living some of us have teamed up to cook food during marriage ceremonies and also serve the food,‖ said Harekrishna with a defiant look. ―The way they treated us that day was shameful. For 15 months the wor kers were asked to clean the premise of Kolay Biscuit and help in maintenance and we did so with all seriousness against a daily wage of Rs 40. Finally on 3 September 1997 when the Chief Minister and dignitaries came to start production we were not allowed to enter the factory. Was this the same party for which we were prepared even to give our blood?‖ asked Harekrishna and one knew that the fire within him was still burning.
Section 2.23: Metal Box - Anando Ganguly
Anando Ganguly joined Metal Box as a fitter in the year 1956 and within 3 years became a permanent worker. ―I had been promoted and at the time of closure I was earning to the tune of Rs 6000 per month. Quite a few of us refused to shift to Government jobs since during our time the
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salary at companies like Metal Box was much better, the benefits in cash and kind were innumerable and one did enjoy a better social status and respect. Can you believe that?‖ said Anando almost quizzically. After the closure he took three consecutive jobs in small containermanufacturing units. ―All of them closed down after one or two years! Can you beat that?‖ he said almost in triumph! His wife fell down and fractured the head of the femur bone and now Anando has to stay at home to do the needful. ―My son wor ks in a automobile company and his ESI coverage saved us from further problems,‖ he said with a longish sigh. ―We could not believe that a factory like Metal Box could close down and remain closed. These days I am a petty salesman distributing whatever comes my way for a commission – be it tea or plastic bags,‖ Anando said while standing in ‗his‘ factory amidst the rusted idle machines many covered by bushes. Pointing at a building, where the private security men stay these days, he told us that it had earlier been their canteen and recalled how they were given a lavish lunch for 31 paisa during the heydays o the company. He remembered the costly Rolex watch, with his name and number embossed on it, presented to him when he completed 20 years of service at Metal Box. ―How can they boast about industrialisation when they stand as spectators while hundreds of factories like ours get locked out?‖ Anando said with discernible tinge of exasperation.
Section 2.24: Metal Box - Anima Chakraborty
Tapan Chakraborty used to work at the garage in Metal Box. He was the generator operator at the time of closure. Anima Chakraborty, his wife said ―My husband used to work with a courier company after the company closed down. At times he would cycle to as far off as Dakshineshwar to deliver packets. Those were hard times but nothing compared to what we had in store! The doctors told us that he had cancer. We sold our ornaments and took loans from family members and friends and he was operated upon. But we could not save him. We have nothing left.‖ She earns a pittance as a tutor and somehow survives with some help from well wishers. As per rules Anima was supposed to get Rs 500 from the State Government as financial assistance being a widow of a worker of a locked out industry. For the first few months she did get it but then it stopped. ―They say that my file has been lost. I have gone there repeatedly but to no avail. I think they are doing it on purpose. Actually feeling harassed I had given a lady officer a piece of my mind and I am sure she did not like it. What do they expect me to do? They have lost my file. Will I have to beg to them?‖ said a visibly resilient Anima. One cannot be a woman who protests to get things done in a Government office!
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Section 2.25: Endpiece
In the Swadeshi era the movement for boycotting foreign goods, including foreign textile, was magnificently complemented on the industry front when a number of Cotton Mills were set up and Basanti, Bangodaya, Annapurna, Sri Durga, Mohini were high up on this list. Dozens of such cotton textile mills, which came up in Undivided Bengal, were aimed not only to reap profit. The mill owners, it may sound unsound, had other social aims too. This is where the unemployed youth would work for gain. After partition members of refugee colonies secured employment. Then there was an effort to provide economic independence to women and hence mills like Basanti had crèches even 70 years back. Most of these mills supported setting up of consumer cooperatives to offer workers with fair price shops. Economic support for children‘s education was easily available from the management. It was surprising to hear the emotional outbursts o surviving old timers when they recalled the economic and other support offered by the company for meeting the expenses of religious festivals, social gatherings and special celebrations which were organised invariably within the campus of the mills. It was really astounding to hear these senior citizens recount the various humanitarian responsibilities over and above the economic benefits accorded by the various mill owners of bygone eras. What has happened during the last few decades, which has precipitated a crisis in the lives of the lakhs of workers? There has been commonly uttered concepts like ‗social responsibilities of workers and their preparedness to make sacrifices‘; ‗assurance by the government to become more human‘. The symptoms o destabilisation of the economic equilibrium of the region around the locked out industries have become so tell tale. The State Government with great conviction talks about poverty being a matter of the past and prophetically announces fulfilment along the road ahead. The jobless and hungry workers and their relatives stare blankly and ask weakly – ―Who goes ahead and who falls behind?‖
C. SECTION 3 : SICKNESS PROFILES
In this section the state of affairs in 14 industrial units have been discussed in brief.
Sickness profile I: National Tannery: A Story Which Stands Out
1. National Tannery was set up in 1905. The two doyens of Indian nationalism – Acharya P C Ray, the famous Professor of Chemistry and research scholar who championed the cause o
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indigenous industries competing bravely with the capital intensive British companies, and Dr. Nil Ratan Sarkar, a legendary physician of the period – took lead roles to establish it. 2. Interestingly, M K Gandhi visited the National Tannery in Calcutta and with keen interest saw the process of manufacturing chrome leather. He marked how salted cowhides were limed to take of hair and how dyeing was done. 3. The company flourished in the mid-1950s under the stewardship of Sanjay Sen, a Bengal based industrialist. 4. Later on Sanjay Sen became the owner of the factory. 5.Products of National Tannery earned reputation worldwide. 6. Its footwear division was established in 1969. Other than the Bata India Ltd, National Tannery was the only factory in Eastern India, which had a footwear division. It used to produce ‗North Star‘, ‗Quo Vadis‘ and other value-adding products for Bata. Leather and chemicals were supplied by Bata and for each pair of ‗North Star‘ shoe, for example, Rs 9.50 was paid to National Tannery. 7. The Company started turning sick from early ‗70‘s owing to lack of initiati ve of the management and alleged financial irregularities. There was no ‗proverbial‘ labour unrest or dearth of market whatsoever. 8. In 1974 IRCI (later known as IRBI and presently IIBI) made some investments in National Tannery on pledging shares to different financial institutions. The Board of Directors included some representatives from those financial institutes but was chaired by Mr. Sanjay Sen, during whose regime in the pre-IRCI period, the Company‘s loans rose to a whopping Rs.9 crores. It was a peculiar norm adopted by the IRCI. Working capital, term loans and even cash loans were liberally sanctioned to the erstwhile managements of sick companies, in spite of the fact that the same management was responsible for the economic doldrums. In the first 4 months of 1983 (January to April) workers did not get their wages. 9. In May 1983, IRBI took over the management of National Tannery. 10. However in 1985 IRBI dissolved the Board of Management and virtually abandoned the Company. The last full time Chairman, J G Kumarmangalam, formerly Chairman, Coal India, agreed to act as part-time chairman on being requested by the West Bengal Government. During this period, National Tannery survived only on job work. Bata was the main customer. The State Government declared National Tannery as a ‗relief undertaking‘ to insulate the sick company from the creditors who were thus prevented from going into legal action including liquidation suits. Workers did not get even half of their wages during the period. Mr. Kumarmangalam died in 1987. 11. During late ‗80‘s, with the Janata Dal -led Government at the centre and Sri Arun Nehru the Union Commerce Minister, the State Trading Corporation proposed to set up a production unit at National Tannery. Since the Company already had the basic facilities, the proposal submitted to the West Bengal Government was pretty rational. Strangely the State Finance Minister, for unknown reasons, refused to grant an appointment to SC Sen, Chairman STC. Much later, in the year 1997, West Bengal Government told the Calcutta High Court, that National Tannery, which had all the potential to become viable, could not be reopened owing to the lack of a suitable entrepreneur. 12. The NTCL was referred to the Board for Industrial Finance and Reconstruction in 1989. The BIFR, in the absence of any rehabilitation scheme, put it on liquidation. The Reserve Bank o India in more than one study concluded that more than 80 per cent of companies became sick due
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to ‗management deficiency‘ and seldom due to mili tant trade unionism. Management deficiency very often was in content financial mismanagement including siphoning of funds. 13. On 10 July 1990 Calcutta High Court ordered the sale of the Company as a going concern. A Committee of Management consisting of 5 workers‘ representatives was formed under the Official Liquidator to run the Company during the interim period. 14. The Committee of Management was formed without bothering for the opinion of general workers and employees. It consisted of 2 from CITU, 2 f rom INTUC and 1 from Officers‘ Association. Union election did not take place for a long time. Self-proclaimed leaders of the union who had seized union leadership incurred wrath of the common workers and employees. There was no proper accounting of job work, month after month. Employees and workers did not get even Rs.300 to Rs. 400 per month. Despite repeated protest and deputation given to the Labour Minister, West Bengal there was no result. 15. Ultimately the workers went to Calcutta High Court against the Official Liquidator and the Committee of Management making various allegations of corruption. 16. The High Court admitted the petition of the workers, appointed a Special Officer and ordered an enquiry. As a matter of revenge, the canteen was closed without any notice and workers‘ salaries were also stopped. Customers of the company for job work were asked to remove their materials. 17. In May 1991, the Committee of Management closed down the factory. During a 10-month period after formation of the Committee of Management workers did not get their salary for 7 months. During the period regular work had been stopped other than sundry job work. 5 machines of the Footwear Division were also removed. The five-man body pasted a notice at the factory, declaring lockout. This was for first time when two labour unions, belonging to CITU and INTUC, had shut down any establishment in India. Most probably, there is no recurrence of it to date. 18. On 12 September 1991, the Calcutta High Court ordered that the canteen should be reopened, work to be started and salary to be paid from February 1991 to August 1991. The High Court also ordered that all machines removed from the factory should have to be returned and reinstalled. But this order was never obeyed. The account presented by the Special Officer to the Court revealed financial irregularities and a gap of Rs. 8 lakhs during the 10 month period when the Committee o Management ran the factory. The Calcutta High Court ordered that Rs.8 lakhs should be given to the employees as salary arrear. But this order was also disobeyed. The Chairman of the Committee of Management was the General Secretary of CITU-led union. 19. Ultimately, by order of the Court, notice was released in the newspaper for sale of the Company. 20. The State Government offered to acquire the National Tannery on liquidation, in response to the said notification for auction by the High Court, on 11 March 1991. The State Government submitted to the Court that the West Bengal Government was prepared to take over the factory at a price of Rs. 50 lakhs. But the High Court was unwilling as the price was exceptionally low. 21. Its advocates in a reply submitted that the Government of West Bengal would purchase National Tannery as ―a going concern‖, agreeing to take over the responsibility of paying workers‘ dues amounting to nearly Rs 3.5 crores but declined to increase wages. Workers who were present in the High Court appealed to the Court to accept the LF Government‘s proposal. The Government representative went on record stating that the government would sit with the workers and solve the
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issue of outstanding dues. 22. By that time National Tannery Bnachao Committee (Save National Tannery Committee) was formed comprising of 305 out of 365 workers. The workers severed links with CITU or INTUC. 23. On 18.09.1991 the Hon‘ble Justice Ruma Pal passed an order directing sale of National Tannery in favour of the Government at a cost of Rs.50 lacks to be deposited by the State of West Bengal and the Hon‘ble Justice was, however, pleased to direct the Government that the workers dues shall be settled in consultation with the workers. However till date the Government has not gone into any negotiation with the workers. 24. The government paid Rs 5 lakhs being the first instalment of Rs 50 lakhs and another Rs 10 lakhs thereafter. But then it stopped paying instalments, as assured. The Official Liquidator then moved the High Court for forfeiture of Rs 15 lakhs. It was only then that the advocate-on-record appeared before the High Court, seeking time to pay the remaining Rs 35 lakhs. 25. The State Government took over National Tannery in September 1992. 26. Since then, besides the 50 lakhs it had invested initially, the State Government has paid Rs 3500 to each worker incurring another 15 lakhs in the process. This despite the commitment in High Court that it will pay 3.5 crores by way of outstanding dues to workers of National Tannery. 27. In March 1994, the State Finance Minister, Dr Ashim Dasgupta, stated in the ‗Economic Review‘ that the State Government had bought National Tannery. However, National Tannery has not opened till date. 28. On 10.11.1994 the Government informed the Hon‘ble High Court that a sum of Rs.15 lacks i.e. Rs.3500 per head have been paid to the workers and that the factory will be reopened soon. 29. The STC offer apart, Basanta Saha, owner of Amicos Chem (India) offered to take over National Tannery. He made a commitment before Justice Ashim Kumar Banerjee of HC o Calcutta on 4 July 2003 to ―pay a su m of Rs 1.76 crores for the assets in addition to Rs 65 lakhs to the workers‖. The State Advocate General did not show any interest about the proposal. He stated in the High Court that the ―tannery unit was located in a congested area. Hence, the said tann ery, despite sincere efforts of the state government cannot be reopened at the place where it is situated. The state government has now decided to go for a joint venture‖. The AG was actually referring to a Supreme Court order (M C Mehta case) for relocation of such factories from residential areas or around. But there was a decade long gap between the purchase of National Tannery by the State Government and the SC verdict. 30. With the operation of tanneries being specifically prohibited in this area beyond February 2002, as per Supreme Court order, State Government proposed before the Hon‘ble Court for utilization of the assets of this unit, in an environmental-friendly industrial unit to be established by resourceful entrepreneur/business house duly selected by State Government. It was also submitted that the Government would be agreeable to work in such a joint venture project and also agreeable to compensate those workers who may be found not capable of being absorbed on health ground or otherwise. 31. Industrial Reconstruction Department has since considered that it has no expertise in the promotion of industrial investments in the State. 32. NTCL was transferred to the Commerce & Industries Department of this Government, which wants to set up a Garments Park. NTCL has free-hold land measuring 7 acres plus leasehold lands measuring 4 acres at 19 Canal South Road under Tangra Police Station. The present market value of these is conservatively estimated at Rs 50 crores.
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33. December 15, 2004 witnessed an unprecedented scene at Tangra in east Kolkata. Machines and equipment of National Tannery were being dismantled or broken into pieces. 34. One of the machines, thus taken away, was sold at over Rs 1.2 crores, according to a very reliable source. This money will go to the state exchequer. This is nearly double that the state government incurred so far towards the National Tannery and its staff members.
Sickness Profiles - I I . Kolay Biscuit: 25 Glorious Years Of Closure
1. Even in the 70‘s the unparalleled superstar of Bengali film world, Uttam Kumar, appeared in the advertisements for Kolay Biscuit. Both were household names even if for different reasons. 2. The owner of Kolay Biscuit was Jagannath Kolay, a Congressman who once became a Central Minister. 3. The Kolay‘s were a Zamindar family hailing from the Bankura district of West Bengal. This family took keen interest in industries and one by one set up factories like Nafar Chand Jute Mill, Kolay Steel and Kolay Biscuit beside some other lesser-known factories. Kolay Market, next to the Sealdah Station, is the largest wholesale vegetable market in West Bengal. 4. Family squabbles resulting in fragmentation of the property followed by ups and downs in the power corridors at both the Central and the State, resulted in serious trouble for these otherwise viable industries. Inability to withstand increasing competition and the failure to invest for timely modernisation resulted in sickness and closure of all the industries once owned by the mighty Kolays. 5. Kolay Biscuit was locked out on 17 October 1980 right in the middle of Durga Puja that year. 6. It was sent to the BIFR, which on 11 August 1991 sent the unit to the High Court for liquidation. 7. The Shramik Karmachari Sanghati Committee (meaning Workers and Employees Unity Committee) a non-affiliated body, on behalf of the workers of Kolay Biscuit appealed to the High Court for payment of their outstanding dues, and the same was accepted on 21 April 1995. 8. Later, in July 1996, in response to an appeal by the Sanghati Committee, the High Court issued a sale notice for Kolay Biscuit as a going concern. 9. At the auction in August 1996, Indrani Soft Drinks was the lone bidder who brought the unit for Rs 67 lakhs when the valuation was just ten thousand rupees less. 10. The Kolay Biscuit Company (1996) was set up with Nani Gopal Das, Bimal Krishna Kar and Kamal Krishna Kar as its three Directors. 11. United Bank of India‘s appeal for sale cancellation at the High Court was dismissed in December 1996. 12. The new owners took over possession of the factory in December 1996. 13. Renovation work started in January 1997 while by August in the same year trial production runs were started. Biscuits thus produced were distributed free in the adjoining locality. 14. A memorandum of understanding was signed on 25 July 1997 between the workers and the new management in which it was stated that (a) able bodied workers would be re-employed; (b) when need for more workers would arise at a later point of time, such workers would be employed from the families of retired workers; (c) Rs 1200 would be given to each worker and as a result 300 workers were paid the said amount by October 1997.
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15. On 3 September 1997 the then Chief Minister Jyoti Basu formally ‗inaugurated‘ the fac tory in presence of a galaxy of political bigwigs. The list on that day included Ajit Panja (MP), Santosh Mohan Dev (Central Minister) and Manab Mukherjee, Subhash Chakraborty, Mrinal Banerjee – all State Ministers. 16. Within days of this ‗inauguration‘, Greater Calcutta Gas Supply Authority, a Government o West Bengal undertaking, stopped the supply of gas to Kolay Biscuit as a result of which the unit could not start its commercial production. 17. Till date it has not produced another biscuit. 18. West Bengal Industrial Development Bank sanctioned Rs 33 lakhs for purchase of new machines with which to start the factory. The machines were ready for production. 19. On behalf of the workers, Sanghati Committee submitted a claim to the Official Liquidator for the arrear salary for the month of October 1980, the bonus for the same year and outstanding gratuity payment. 20. United Bank of India, a secured creditor, appealed and the Supreme Court on 20 August 2000 cancelled the 1996 sale of Kolay Biscuit to the Indrani Soft Drinks, further ordering for revaluation of property and fresh sales proceeds. 21. Consequently on 28 November 2003 Kolay Biscuit was put to auction and Comsource Data System, Information and Technology paid up Rs 1.01 crore to take possession of the company. 22. In July 2004 the factory sheds, buildings and machines were dismantled.
Sickness Sickness Profil rofi les - I I I . Eas E aste tern Pap P aper Mi M ill: L ocke ocked d Out But Ope Open
1. Eastern Paper Mill is situated on the VIP Road – which takes one to the Kolkata Airport – near Ultadanga at Dakshindnari. 2. Paper machineries were manufactured at this unit. 3. Upwards of 30 leading paper mills are locked out or closed in West Bengal, including the famous Titagarh Paper Mill and the Bengal Paper Mill. 4. The cardinal reason for sickness in the Paper Mills of the State emanates from the paucity o raw materials, bamboo, which stopped coming in from Assam since the AASU movement. Factually the modernisation and appropriate mechanisation of these Paper Mills, which could have utilised locally available alternative raw materials for manufacture of paper, did not come about. 5. Most of the Paper Mills in West Bengal, which almost invariably were sent to the BIFR, were granted approval for huge investments for revival. In many cases Banks and Financial Institutions invested according to revival schemes but nothing worthwhile evolved. 6. Eastern Paper Mill was sent to the BIFR in 1989. 7. In mid-1991, the Company sold 42 kathas of prime land adjacent to the premise to one Ganesh Prasad on the plea that they had to mobilise resources for depositing the promoter‘s contribution related to the Revival Scheme to be submitted to the BIFR. The management also promised to pay two months wages to all the workers, though they coughed up a month‘s salary later. 8. The Management of Eastern Paper Mill appealed for permission to sell its land but in absence
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of any viable revival package BIFR ordered for winding up on 12 November 1991. 9. Eastern Paper Mill appealed against this order of the BIFR at the AAIFR, which on 26 August 1993 ordered for liquidation. 10. The owners of this unit went to the High Court and filed a writ petition against the liquidation order passed by the AAIFR. The Calcutta High Court dismissed the appeal on 3 August 1994. 11. The Company once again moved the High Court against the winding up order passed by the BIFR. The Calcutta High Court dismissed the appeal on 29 July 1997. 12. On behalf of the workers, Sangrami Shramik Union (meaning struggling workers union) moved the Company Appeal Court, which consequently, on 9 August 1999, dismissed the appeal of the management for being allowed to sell all property including land. 13. The Sangrami Shramik Union appealed to the Kolkata High Court demanding for winding up of Eastern Paper Mill as per clause 529A of the Company Act. Interestingly, in connection with the said petition, the High Court has allowed the management to sell the land of this factory in what now is a prime residential area to the north-northeast of the city. 14. As per High Court order dated 1 February 2005, the Company was permitted to sell only the surplus land and the outstanding dues of its secured creditors would have to be paid. However the said order did not mention anything specifically about the outstanding dues of the workers. 15. The Management of Eastern Paper Mill had informed the High Court that they would get Rs 24 crores by selling the land while the total workers dues including due wages, bonus, gratuity and Rs 45000 to 200 workers as VRS stood at Rs 4.86 crores. 16. However between 1996 and 2002 every single mou between the Company and the workers it had been mentioned that the total outstanding labour dues stood at Rs 11.63 crores. 17. It was further ordered that the sum of money be deposited with the two Special Officers appointed by the High Court. 18. Eastern Paper Mill has 28 bighas of land of which sheds, buildings and machines occupy 11 bighas. Whether it is the Company or the UBI, which is going to dismantle and remove these machines, is sparking off a lot of controversies at present. 19. The Regional Provident Fund Commissioner in connection with PF default has attached a little over 4 bighas of land belonging to the Company. 20. There is a three-storied incomplete construction adjacent to the factory, which in 1979-80 had come up for a tissue paper plant. It was said that Eastern Paper Mill had an order for Rs 35 crores worth of tissue paper for which UBI sanctioned a loan of Rs 7 crores. Presently the outstanding dues have gone up to Rs 15 crores and the building remains unfinished. 21. The Company had started a foundry at Narayanpur, which also had been locked out long back. 22. Financial assistance of Rs 500 per month given by the West Bengal Government to workers in locked out industries (FAWLOI Scheme) have not reached the toilers at Eastern Paper Mill. This despite the favourable decision of the Scrutiny Committee of the FAWLOI Scheme. The concerned department has opined that Eastern Paper Mill has not been properly locked out as per law. It is held that the company is virtually open. The workers have no work, no wages but were required to give their attendance every day at the main gate between 2001 and 2003. 23. On 12 March 2001 a landmark fiasco was enacted in front of the Main Gate of the Eastern Paper Mill. From a dais especially set-up for the purpose, the West Bengal Finance Minister Ashim Dasgupta in presence of other State Ministers including Mrinal Banerjee, Subhash Chakraborty, the owners and trade union leaders said, ―Come to the Writers Building tomorrow
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itself and take Rs 50 lakhs. Give some money to the workers and open the factory right away!‖ 24. The headlines of leading dailies applauded the ‗reopening‘ of a closed unit after 11 long years. It was stated that with the co-operation of the West Bengal Government, Rs 21 crores would be mobilised by selling land and the owners would contribute Rs 70 lakhs. 25. The factory did not open; the 550 workers did not get back their work or any of their outstanding dues. Moreover caught up in a controversy about its status, the workers were denied the monthly financial assistance of Rs 500. 26. Presently the workers have united again. They are fed up with promises and assurances o revival. They insist that their outstanding dues be paid and they do not care any more whether the sum is made available by selling the land or through other means.
Sickness Sickness Profil rofi les - I V. Dunb Dunbar ar Cot Cotto ton n Mi M ills: Resum Resuming L and and – Government Style
Dunbar Cotton Mill had remained locked out for 19 years. Locked out remained the legal dues o the workers too. On 28 June 2005, Land and Land Reforms Officer, Barrackpur-1, issued a notice, which was pasted at the gates of Dunbar Cotton Mills. The notice informed all concerned that all efforts to hand over or take possession of the 56.919 Acres of land, previously belonging to Dunbar Cotton Mills, was illegal since the said land has been resumed by the West Bengal Government as per Rule 6(3) of West Bengal Zamindari Abolition Act vide Order No. 1979 LR/5M-2/05 GE. (M) dated 6.6.2005 of the Land and Land Reforms Department, Government of West Bengal. Some time prior to this effort of the Government of West Bengal to resume the land, there was considerable tension following the attempts of one Mahesh Agarwal who on behalf of Emtec Dealers tried to take possession of the land belonging to the Dunbar Cotton Mills. The workers were pretty apprehensive about the possibility of eviction from the labour barracks. The local Legislator, Haripat Biswas, stood solidly beside the workers and came out with scathing attack on the role of all the trade unions and his own party. At this point of time the District Superintendent of Police had given commitment that the workers would not be evicted and till all arrears were paid to the workers work ers no one would woul d be allowed to take away anything an ything from fr om the factory premise. p remise. To protect the rights of the workers, ‗Dunbar Bnachao Committee‘ (Save Dunbar Committee) was formed which, with full support of the local Legislator, demanded that nothing but industries would be allowed in the premise of Dunbar Cotton Mills. Under such circumstances, this latest move by Government of West Bengal to resume the said land has thrown open the issue into utter confusion. Workers in the past had been told that a new owner had taken over Dunbar Cotton Mills and that all arrears and dues would be cleared within a month. Nothing happened even after three months. Similarly they had witnessed the efforts of one V P Sarkhel who had submitted a counterfeit cheque while taking over the factory and before the fraud was detected, removed materials and machinery worth a crore of rupees and cut down and removed quiet a few trees from within the
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premise. Later, however, the police polic e arrested him. Presently the owners of above-mentioned Emtec Dealers have moved Court in connection with taking possession of the land in question. The workers are, perhaps understandably, apprehensive about getting their legitimate dues.
Sickne Sickness ss Profil ofi les - V. M etal Box: Box: A Scene Scene from the Asse ssembly
Metal Box located in the Taratala-Hyde Road Industrial Area towards the Southwestern part of the city has left its signature in dozens of items used by millions. The product line included the tube o toothpastes; containers for coconut oil, shoe polish and rasogollas; seal of the batteries; ornament boxes; five litre tins ti ns for oils etc. Metal Box has not reopened reopen ed after 28 December 1987. On 10 May 2005, a letter was despatched by the OSD, Industrial Reconstruction Department, Government of West Bengal to Sri Vinod Krishnan, Chairman & MD, Metal Box stating that the Minister Sri Nirupam Sen has directed the Department to communicate that in connection with reopening of Metal Box, No. 1 Unit, a meeting has been arranged for at the Minister‘s Chamber in Writers Building on 17 May 2005. Incidentally such letters have been sent on a number o occasions in the past but the Chairman & MD, Metal Box had not turned up for such meetings. On 29 June 2005, the Leader of the Opposition Sri Pankaj Banerjee addressing the Minister Sri Nirupam Sen stated on the floor of the Assembly that the Management of Metal Box, without informing the State Government or discussing with the Unions had resorted to lock out way back on 28 December 1987. At that point of time there were 2600 workers at Metal Box. Since then 10 workers have committed suicide, about 350 workers have died of ill health caused by joblessness, non-payment of dues and hunger while at present there are only 500 odd workers below the age o superannuating. According to their balance sheet their outstanding PF dues stand today at Rs 5 crores. Today they are selling off their property at their erstwhile headquarters at 59C Chowringhee Road and the premises on New Road and Belvedere Road. Neither had the management taken permission of the Minister nor did they hold any discussion in this matter. He asked as to what the IR Minister Sri Nirupam Sen is thinking and what he intends to do about Metal Box. In reply to this the Minister Sri Nirupam Sen said, ―It is clear from the letters read out by the Hon‘ble MLA Sri Pankaj Banerjee that the State Government has not been sitting idle… The properties you referred to have been b een sold by the orders o rders of the Court and the State Government Gov ernment has very little power in this regard. Anticipating that they might demolish the property, clear up the land and then try to use the land for any other purpose I have asked the Kolkata Corporation to keep a letter ready…What I want to state is that in respect to the laws of the land and considering the limitations that the State Government has about being capable of reopening Metal Box, we have repeatedly tried to arrive at a solution, which is amply clear from the letters you had read out. I am not aware as to what else we could have done given the state of the legal position pertaining to this matter.‖
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Responding to the above statement of the Minister Sri Nirupam Sen, Sri Pankaj Banerjee said, ―The Hon‘ble Minister has stated that he has not been able to do much owing to the legal framework of our country. May I state for your information that Smt Jayalalitha, the Chie Minister of Tamil Nadu, had confiscated the entire property of the Metal Box in Chennai and told the management to seek permission from the State Government before selling the property and pay all the outstanding ou tstanding dues of o f the workers after selling sel ling the same. In this way the management o Metal Box had to sign on a written commitment before seeking the permission of the court to sell the said property. Since the same set of laws holds good in all States, the Government of West Bengal could also confiscate the property of Metal Box. But no such action was taken! Allow me to inform the Hon‘ble Finance Minister that the management of Metal Box is so dishonest that they have Rs. 71,35,21,254 as outstanding Sales Tax dues. You did not do anything and when they went to Court the State Government remained un-represented. As a result a one sided arbitrary decision was taken.‖ Metal Box management had given cheques to about 200 workers as payment in settlement of their PF accounts. All these cheques bounced. FIR‘s were lodged but no action was taken. Sri Nirmal Ghosh, MLA, who is also a member of the All India PF Trustee Board, lodged this complaint. On 29 March 1999, the then Industrial reconstruction Minister Sri Mrinal Banerjee had announced that in order to open the factory the West Bengal Government would give Rs 5 crores as loan to the Metal Box management. This decision was communicated to the Delhi High Court where a case pertaining to revival of Metal Box was being heard. It was also communicated that the West Bengal Government would allow Metal Box to sell off as much of its property as it wished for the sake of rejuvenation. As per the revival package No. 1 Unit of Metal Box was supposed to be reopened in 2003 and 1000 out of a total of 1800 workers was to get back their jobs.
Sickne Sickness Profil ofiles - VI VI . A AM M CO: Twenty-One nty-One Years of of Unp Unpaid aid Dues Dues
1. Aluminium Manufacturing Company, popularly referred to as AMCO, was established in the year 1922. 2. Of its products ‗Crown‘ brand was a household household name. 3. When it was locked out in 1984, there were 1100 workers in AMCO. 4. The secured creditors including IRBI and other banks appealed to the High Court and consequently it was sent for liquidation. 5. On 3 July 1987 the entire property of AMCO was handed over to the Oriental Sales Agency against payment of Rs 1.5 crores as orders of Justice Manjula Bose. 6. Justice Bose categorically stated that the bid of the Oriental Sales Agency was upheld in spite o a number of higher bids that day, since the new promoter had ―also accepted the Courts view that the sale is for the purpose of running the factor y and not for the purpose of dismantling the same.‖
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7. In the order of Justice Bose it was reiterated that ―it is made clear that the sale is being confirmed only taking into account that the factory premises being purchased … for the purpose o running the factory and the interest of the workers, the same will not be dismantled at any point o time.‖ 8. On that day a concern that had prayed for dismantling orders offered to pay Rs. 2 crores and yet this higher bid was disregarded in order to allow AMCO to be sold only as a going concern. 9. Another part of the said order of Justice Manjula Bose read ―… as the Court consid ered the interest of the workers to be of paramount importance and a matter to be considered along with the interest of the Company, inasmuch as it was the hard labour of the workers which was created the Company to exist all these years. Now that the Company faced closure, it would not be right to throw them out on the street, when there is an offer for the Company to run, and an offer made to re-employ all the workers who had been on the payroll…factory should be sold in running condition so that the factory workers should not be thrown out of work and / or employment.‖ 10. The humanitarian angle in the said order is truly exemplary. During the last two decades when the juggernaut rolled over thousands of factories a High Court Justice coming out in open support for the right to life, livelihood and work of lakhs of workers in locked out industries is indeed a rare event. 11. A few days prior to take over of AMCO, Sri Anup Dhar the owner of Oriental Sales Agency, signed a mou with the Joint Action Committee, which was formed with representatives from all the Unions of the unit. It was stated that the workers would be given Rs 66 lakhs in 3 instalments comprising of wages/salary for 10 months; those who were above 55 years would be removed from service after payment of an additional amount corresponding to 16 months of salary. This was contrary to the letter and spirit of the High Court order. 12. Similarly the Court order was again violated when all the plants and machineries were removed from the factory on the plea that these old machines were to be replaced by new ones in order to restart the factory. 13. Since then what remains of this factory is the skeleton of the shed and the empty land! 14. In the meanwhile in July 1987, the news of the ‗victory‘ celebrations appeared in ‗Ganashakti‘ and the luminaries who were present included the Labour Minister, Sri Santi Ghatak, Sri Subhash Chakraborty and leading CITU and INTUC leaders of the area. 15. In 1989 the non-affiliated workers organisation – AMCO Sanghati Committee (AMCO Unity Committee) – appealed to the High Court. 16. In a order signed by Deputy Secretary, Land and Land Reforms Department, Government o West Bengal dated 14 June 1994 it was stated ― therefore in exercise of power conferred by sub section (3) of Section 6 of the said [West Bengal Estate Acquisition Act 1953], the Governor is pleased to declare that 14.7055 acres of land as described in the enclosed schedule stands hereby resumed by the Government as the same is not required by the said Company and as such, the said Company is not entitled to remain in possession of the said 14.7055 acres of land.‖ 17. It transpired from the statements of the then Deputy Secretary that following an enquiry made by the department dep artment the government has come to know k now about 300 such instances where land of such su ch locked out industries is lying unused or in some cases such land has been handed over without permission or where the nature of land use has changed. The government had decided to resume the said lands like those at Hindustan Textiles, Motor Machinery, Beni Engineering and so on. 18. By reasonable estimate the Government of West Bengal would ‗earn‘ Rs 43 crores if it resells
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the resumed land of AMCO. 19. But the workers of AMCO are still awaiting payment of unpaid dues.
Sickne Sickness Profil ofiles - VI VI I . Bengal Bengal Lam L amp: Worker Workers in the the Dark
1. Bengal Lamp was established in the year 1913. 2. The Roy Brothers – Tapan Kumar Roy and Tapas Kumar Roy – were the Joint Managing Directors of the Company. 3. Bengal Lamp had two manufacturing Units – one at Jadavpur, Kolkata while the other was at Bangalore. 4. The primary products of Bengal Lamp were fluorescent lights, tube lights and filament bulbs. 5. Suspension of work was declared at the Jadavpur unit of Bengal Lamp on 7 January 1989. 6. Bengal Lamp Management refused to reopen the factory contrary to the suggestion of the State Government. Under such circumstances as per Section 18A of Industrial (Development and Regulation) Act 1941, Government of India initiated action to take over the Company. The Company promptly filed a writ petition against this decision and on 14 May 1990 the High Court of Calcutta ordered that before the take over a date for a hearing be fixed to allow the Management of Bengal Lamp to express its viewpoint. 7. Before any decision was taken by the Central Government (in response to the said High Court order) the Company made reference to the BIFR under section 15, registered as Case No. 72/90. 8. In October 1990, the BIFR asked the Company to submit a revival package and the IRBI was appointed as the Operating Agency. 9. Though the Roy Brothers were supposedly ready to reopen the factory but they declared that they were not in a position to deposit Rs 6 crores by way of promoter‘s contribution essential for the implementation of the revival scheme. 10. At this point of time differences started surfacing regarding the attitude of the two brothers towards the future of Bengal Lamp. One of them seemed more eager to allow take over of the Company by Philips India, which in the recent past had shown keen interest to do so. 11. BIFR ordered the management to deposit 50 lakhs by 18 June 1992 and also enter into an MOU with the unions. 12. Within the stipulated time frame, with the active efforts of the State Government, a draft of the MOU was agreed upon and the unions signed on it. However one of the two brothers – Tapas Kumar Roy – declined to sign the same. It was alleged that he by then was more interested to farm out the entire manufacturing activity. 13. Shortly the Management appealed to the State Government for permission to sell some of the factory land. 14. Side by side the Management appealed to the AAIFR challenging the order of the BIFR though ultimately this appellate body upheld the latest order of the BIFR. 15. In October 1993, IRBI, the Operating Agency, was directed by the BIFR to invite proposals for the revival of the Company from any other party.
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16. The Company once again moved a writ petition in Calcutta High Court challenging the BIFR‘s direction. The writ was rejected and the High Court ordered that the direction of the BIFR be implemented. 17. On 9 December 1994 the BIFR ordered that in the absence of any revival scheme on behalf of the Bengal Lamp management, non-payment of the stipulated deposit and the lack of faith of the workers union on its management, the OA should insert ―advertisements in two nati onal dailies for inviting offers 18. for revival of the Company or take over/lease/merger as provided for under Section 18.‖ 19. In response to the said advertisement, M/s Om Development Ltd. appealed to the High Court for taking over Bengal Lamp in January 1995. Simultaneously they appealed to the State Government and the Unions for support. This Company did have experience in glass and engineering industries. 20. Shortly afterwards the Roy Brothers appealed to the Calcutta High Court for a stay order against the BIFR direction. The Unions also filed a petition appealing in order to be heard in the case. At the same point of time Roy Brothers filed a writ at the Bangalore High Court in this matter. In his judgement the Hon‘ble Justice of Calcutta High Court mentioned that though there was ample justification of the BIFR to issue prompt directions in order to dispose this long standing case, the Karnataka High Court had restrained the BIFR in this case. 21. For 10 long years nothing happened and presently the draft scheme of BIFR for prima facie conclusion of the winding up process of Bengal Lamp is under consideration. 22. Of the 480 workers and employees of Bengal Lamp at the time of suspension of work, 237 workers below the age of 58 presently receive Rs 500 per month as financial assistance to workers of locked out industries from the Government of West Bengal. At the Bangalore unit 170 are employed at present.
Sickness Profiles - VII I. Small Tools Manufacturing Company: Will it Ever be Revived?
1. Ila Pal Chowdhury, the owner of STM, was also a sitting MP from Krishnanagar in Nadia District of West Bengal. 2. STM is located in Kankurgachi area on CIT Road (in between Phulbagan and Kankurgachi crossings), which is about 13 km of straight drive from the Dum Dum Airport. 3. Suspension of work was declared at STM on 11 March 1996. 4. The quality of tools manufactured at STM was acclaimed both in India and abroad. 5. As per the BIFR Report dated 31 March 2005 the status of STM is as follows: ― Revival scheme failed. Winding up stayed and revival scheme approved by the High Court is being implemented.‖ 6. As per ‗Labour in West Bengal‘ – a State Government document – published in 2005, of the 277 workers/employees in STM, 87 are getting financial assistance of Rs 500 as per FOWLAI Scheme. Provident fund dues stand at Rs 2.85 crores. There were 275 workers at the Krishnanagar
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unit of whom 105 are receiving the financial assistance mentioned above. 7. Ground level reality as of date is that machines have been removed from the factory; sheds demolished; and preparations for ‗Orchid Towers‘, flaunted as ‗Kankugachi‘s tallest luxurious apartment‘ building is under way on the very premise where STM stood. 8. It is perplexing to note that whereas permission for selling a portion of its land was granted to the Company for ‗revival‘ of the factory, the entire factory has been dismantled and the e ntire premise is being used for real estate purposes with ‗Orchid Towers‘ proposed on the premise. Where then is the factory which is to be revived? No one really knows about the future of STM. 9. Hundreds of factories exist only in Government reports while multi-storey buildings keep changing the urban space beyond recognition.
Sickness Profiles - I X. Basanti Cotton Mill: The Bitter Swan Song
1. Basanti Cotton Mill was set up in the year 1934 having been inaugurated by Rabindra Nath Thakur. It was symbolically named after Basanti Devi, the wife of Desbandhu Chittaranjan Das. 2. Acharya Praphulla Chandra Roy, a doyen of Indian nationalism, had on innumerable occasions underlined the need for Indians to set up indigenous industries. Charged by this philosophy, a huge number of his direct students and followers had set up cotton, leather, chemical, pharmaceutical and rubber industries during the 20‘s and 30‘s. Most of the industries with ‗Bengal‘ or ‗National‘ as a prefix have a similar history. 3. Basanti Cotton Mills, set up by the Mitra family, hence conjures up the spirit of the ‗swadeshi‘ era. 4. There were 356 looms and 28,640 spindles and the total employment at the time of closure stood at 1025. 5. Basanti Cotton Mill is located on the BT Road next to the Panihati Municipality building. This area had a cluster of textile mills, the famous among them being Sodepur Cotton Mill and Bangodaya Cotton Mill. Besides there were upwards of 50 power looms which had sprung up in this area. 6. This area on both the sides of BT Road also had a variety of industries owned by the famous ‗Ispahan Group‘, which owned a number of jute, cotton -textile, tobacco and engineering units. Later on a majority of these factories were taken over by the ‗Goenka Group‘. 7. Another family – Poddars – had taken over the Basanti Cotton Mills from the Mitras sometime around early 60‘s. However later in 1967 Basanti Cotton Mills passed on to t he Goenkas. 8. The Goenkas took over the Swan Mill at Mumbai and later the Kurla Mill too. In 1979, all these mills were amalgamated with the Swan Group of Mills of which thus Basanti Cotton Mills became a subsidiary. 9. Right after amalgamation the Swan Group management started closing one department after the other of Basanti Cotton Mill on the plea that these were no longer profitable. The ‗process house‘, ‗printing‘, ‗hand-dyeing‘, ‗cheese dyeing‘, ‗colour winding‘, ‗wrapping‘ besides 100 looms and
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6000 spindles met with the same fate between 1979 and 1986. 10. In 1977 the management had borrowed heavily from banks and financial institutions for the purpose of modernisation at Basanti Cotton Mill. However little really changed on the shop floor level. For example a machine for the process house worth Rs 21 lakhs in those days figured prominently in the list. 11. However after amalgamation the processing jobs were all shifted to the Mumbai mills of the Swan Group and that put paid to the plans of ‗modernisation‘ of Basanti Cotton Mill. 12. All through this period ‗grey cloth‘ from the Basanti Cotton Mill was ‗sold‘ to its other subsidiaries of the Swan Mills Group. For all practical purposes the Mill was reduced to becoming a captive plant of sorts left with little value adding capability. 13. The Mill was closed down for little over 14months with effect from 29 February 1984. Finally it was locked out on 30 May 1987 and it is yet to reopen. 14. That there was a great demand for the products of Basanti is evident from the fact that the Power Loom Owners Association based at Khardah, 24 Parganas in a letter dated 29 October 1988 wrote, ― We write to inform you that we had been taking cloth from your Basanti Mill before, but the then management could not properly supply our needs. We would be glad to consume the entire products of cotton and sized beam and wastage at market price. Our Association gives you a full guarantee as we know that Basanti Cotton Mill has its tradition and is fed with the blessings o people of hallowed memory like Rabindranath Thakur, Acharya Praphulla Chandra Roy and Lokmata Basanti Devi.‖ 15. The workers dues make them by far the ‗highest‘ creditor with gratuity and other dues piling up to Rs 3 crores.
Sickness Profiles - X. Bangodaya Cotton Mills: Peerless Illegality
1. Bangodaya Cotton Mill was locked out on 21 January 1984. 2. There were 234 looms and 12844 spindles and the total employment at the time of closure stood at about 1200. 3. In some of the yearly reports of the West Bengal Government mention is still being made of the Bangodaya Cotton Mill. Factually that is the only place where it still exists! 4. A visit will reveal that Bangodaya Cotton Mill is no more and after total dismantling a huge block of apartments called ‗Peerless Abasan‘ occupies this piece of urban space. Peerless Abasan exists now for over a decade! 5. The bidder who had purchased Bangodaya Cotton Mill at the auction in the High Court as a ‗going concern‘ has effectively removed the sheds and machines, resold the land and paved the way for the residential blocks to come up. Incidentally Bangodaya Cotton Mill has earned the dubious distinction of being the first well-known industrial unit, which has been wiped away from the face of the earth in flagrant violation to the laws of the land. Since nothing happened many more ‗entrepreneurs‘ ventured into this ‗business‘ learning its lessons from Peerless.
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6. Needless to mention the land use pattern of this piece of land earmarked for industrial use has been changed without going through any legal process. 7. The entry of Peerless Group into the arena of real estate promoting started inauspiciously in the land of this dismantled factory virtually illegally handed over to them with full knowledge and support of the government-municipal corporation-trade union combine. 8. Last but not the least mention may be made of the unpaid dues of the workers who are still languishing not too far off from their past place of employment expecting that something might happen and the unpaid dues might some day be given to them.
Sickness Profiles - XI. Sulekha Works: A Blot of Ink?
1. In most parts of the country Sulekha Ink in the age of the fountain pen was a brand name o choice. 2. It was Rabindranath Thakur who formally named this unit ‗Sulekha‘ when this enterprise came up to produce an alternative to imported fountain pen inks. 3. Besides the main unit at Jadavpur, Kolkata, there were two other units of Sulekha Works – one at Sodepur on BT Road and the other at Gaziabad in UP. The total strength of the two West Bengal based units at Jadavpur and Sodepur was around 330. 4. Kalyan Mitra was the owner of Sulekha Works, which dropped its shutters for the last time on 1 January 1989. 5. In 1989 the management of Sulekha Works as pre-conditions of reopening proposed that they be allowed to build a housing complex on a part of the land of its Works at Jadavpur; only 90 workers would be retained in service and the rest given VRS; if they can organise the necessary amount of Rs 6 crores for diversification they would retain 100 more workers. 6. In the same year in connection with the proposed housing complex to be build on Sulekha land for the middle class the management said that if need be the erstwhile workers of Sulekha could also buy their own flats in the complex. 7. The State Government was not averse to give permission to sell a part of the land at Sulekha Works, Jadavpur had it not been for a strong stand taken by the CITU union, which strongly opposed these pre-conditions. 8. Since 1985 the management had repeatedly sat with the workers with various proposals but the management had honoured none of them. 9. There was an effort on the part of the management to sell of 12 bighas of land at the Sodepur Works and 4 bighas at Jadavpur but with the workers appealing to the High Court against the sale of land this effort was stayed. 10. In 1994 Alipur Court appointed a receiver to look after the entire property belonging to Sulekha Works. 11. During 1997-98 there was a proposal to sell the land at Sodepur and use the money to reopen the Jadavpur unit. However this too was not implemented.
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12. Finally in June 2005, the Sulekha management formally announced their plans to use the ‗excess‘ land at Jadavpur for housing purposes and to reopen the factory after necessary product diversification. The new line of products would include ball pen refills and other stationery products. It was announced that workers able enough to work would be given employment while all the erstwhile workers were given between 20 to 30 thousand rupees. 13. With great fanfare a programme was organised at the Sulekha Works were Ministers, leaders and trade unionists were present. 14. It was remarkable that ‗pre -conditions‘ of reopening in 1989 and the present declarations by the management were almost the same: - selling of excess land; employing a quarter of the workers; and announcement of housing complex. The ministers, leaders and trade unionists too are almost the same 15. Only that, in the meantime, certain factors have changed: the net profit for the Sulekha Works from the proposed housing complex will be higher; the land price at Jadavpur during the last 15 tears have shown a ten-fold increase; a large proportion of the workers have committed suicide or have died of lack of healthy food and health care or have crossed the age of superannuation; the Rs 20-30000 given to the workers were actually worth maybe Rs 2000 at 1989 price level.
Sickness Profiles - XII. Beni Limited: Still a Going Concern
Beni Limited was located within the Panihati Municipality on BT Road. Since being set up in the year 1960 it was closed down for the first time in 1979. Beni Limited reopened again in 1983 only to be closed down permanently in 1988. The product line of Beni Limited included sophisticated electrical equipments for Railway and Defence including anti aircraft guns with harness; railway AC dynamo; signalling equipments; generators; tramway receivers and a wide range of sophisticated electrical engineering products. The Company was referred to the BIFR in 1987 citing financial crisis. Since the management of Beni Limited did not have a revival proposal, winding up orders were passed by the BIFR on 20 September 1990. On 22 July 1994 the Calcutta High Court passed liquidation orders for Beni Limited. When Beni Limited was sent below the auction hammer the Official Liquidator had specifically mentioned that the company would have to be purchased as a ‗going concern‘ and all its eligible workers were to be re-employed. Ganesh Singhania of Ratnagiri Engineering accepted all the conditions laid down and bought Beni Limited on 15 March 1996. Strangely enough it was mentioned in the Report of the Official Liquidator that the total land holding of Beni Limited was 40 bighas while later enquiry revealed that actually there was 66 bighas of land belonging to the company. The Management of Ratnagiri Engineering announced that the company would start two new projects – iron foundry and a fan-manufacturing unit.
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On 11 August 1996 Ganesh Singhania signed an agreement with the workers in which it was stated that on the basis of need, able-bodied workers would be inducted in phases and within a year of reconnection of electricity the process would be completed. It was also mentioned that the company has decided to bring about thorough change in the production process and product line; to set-up the new unit all scraps, old machines and non-essential assets would be removed from the premise; in order to augment funds the godowns would be demolished and sheds would be hired out/leased/sold to third parties; leaving enough land for the new project the remaining land would be sold or leased out; the company would reserve the right to employ contract labour as and when required; and that the unions would have no right to protest or intervene in any such matter as stated above. It was also agreed upon that those who will be employed will have to accept fresh employment on production of proof of employment at Beni Limited and that the wages would be decided once the new company goes into production. On 23 August 1997 Ganesh Singhania wrote a long letter to the State Labour Minister informing him about the response expressed to him by 7 companies who were eager to buy plots of land inside the Beni Limited campus. Obviously the Government was well aware about the intention and ulterior motive of this unscrupulous ‗entrepreneur‘ who by then had gathered much infamy for being an expert scrap dealer and a land shark in the guise of a highest bidder for buying out closed unit at auctions. Another company which he had virtually reduced to scrap was Calcutta Fan which he had bought from the Calcutta High Court at Rs 1.41 crores back in April 1994. After finding that the company did not reopen even after a year, on 11 November 1997 the workers, already aggrieved with the agreement, formed a non-affiliated initiative called Beni Bnachao Committee. Citing the observations of Justice Rajindar Sachar while chairing the ‗Fact Fining Commission on the Plight of Workers‘, held at Calcutta in June 1997 where he observed that ―…the undertaking given by the buyer is not being carried out. If the buyer does not carry out the same, the workmen may move the Calcutta High Court for proceeding against the buyer for contempt of Court and for cancellation of the sale in favour of the buyer…‖, three lawyers on behalf o f the workers of Beni Limited moved the High Court against the Ratnagiri Engineering. The Calcutta High Court ordered the Official Liquidator to enquire into the matter and on 21 April 1998 the team of enquiry found substance in the complain of the workers. The Report of the Official Liquidator stated that on enquiry it was revealed that none of the machines or equipments (excepting 2) listed at the time of the sale was found. There was no tangible sign of any effort to restart the factory and on the contrary water pipelines, high-tension wires and even a part of the factory shed was found to be missing. On 27 June 1998 Beni Bnachao Committee moved the Calcutta High Court for payment of dues and compensation to the workers. Ratnagiri Engineering was attracted most to the 66 bighas of land at the disposition of Beni Limited. It transpired that 40 of the above mentioned 66 bighas was taken on lease from the Iliyas Free School Trustee Board who now approached the High Court for justice. Later it was also learnt that the remaining 26 bighas also belonged to the same trustee. On 15 April 1999 Sri Lakshmi Chatterjee, a North 24 Parganas District level well known leader and also the president of the CITU unit at Beni Limited, along with one Ramen Bhattacharya (a HMS leader) were caught red handed by the Police at a restaurant near the Kolkata High Court while accepting Rs 1 lakh as bribe from the tainted Ganesh Singhania himself.
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Though since long stories about such under hand deals between owners and trade union leaders were doing the rounds in this state, this incident sent shock waves all around. Since 1988 about 400 of the 1306 workers at Beni Limited have died of suicide, joblessness, hunger and lack of health care. Ultimately during 2002-3 after a protracted and intense legal battle Beni Bnachao Committee have been able to get Rs 1.9 crores by way of PF arrears and another Rs 1.3 crores from Ratnagiri Engineering by way of compensations. Ratnagiri Engineering had bought Beni Limited as a ‗going concern‘ but the factory remains closed even after almost 10 years. They might have sold the machines, equipments and scraps worth Rs 8 crores. The land they had at their disposal at the time of buying would be having a market value of Rs 15 crores.
Sickness Sickness Profil rofi les - XI XI I I . Mohini M ohini Mills Ltd Ltd.. No. 2: Ab Abandone oned and and Dese Deserted rted
1. Mohini Mill Ltd. opened its first mill at Kushtia (now in Bangladesh) in 1908. Later this mill at Belgharia was set up. 2. It was a composite textile mill and its product line included dhotis, long cloth, saris, mosquito nettings, bed sheets, shirting etc. 3. Mohini Mill products catered to the needs of the rural poor and the urban middle class downwards. 4. There were 436 looms and 32100 spindles and the total employment at the time of closure stood at about 2079. 5. Since the early 70‘s Mohini Mill started to be dogged by frequent closures. It remained completely closed between 1979 and 1981. 6. Mohini Mill was taken over by the Government of India under ID&R Act, 1951 as per Gazette notification dated 23 October 1981. 7. The National Textile Corporation (NTC) was immediately authorised to take over the management of Mohini Mill. 8. Since there was no further extension of the period of take over of Mohini Mill by the NTC, the said Mill was denotified by default and ceased to be Government of India undertaking with effect from 22 June 1988. 9. After remaining in charge of Mohini Mill for almost 7 long years the management of NTC, a Central Public Sector Undertaking, virtually abandoned and deserted the unit without even declaring closure as per ID&R Act, 1951. 10. Petitions at the Calcutta High Court on behalf of the unions praying for extension of takeover remained pending for decades. 11. In April 1990 the BIFR submitted a report stating that Mohini Mill was not any more in a position to carry out the much-needed modernisation after taking takin g care of the th e past liabilities. BIFR
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opined that Rs 17.17 crores would be necessary to revive Mohini Mill. 12. On 11 October 1993 the Calcutta High Court directed for the sale of Mohini Mill as a going concern. 13. Approximately 90 bighas of land lie within the boundary of Mohini Mill which by current valuation could fetch 30 crores in open market. More so since this land is located within stone throw distance from the Belgharia station and is by any standards prime land. 14. Around 600 workers and their families at present share the 400 labour-quarters within the premise of Mohini Mill. 15. Factually the quarters though dilapidated are the only structures which are still standing inside Mohini Mill. The machines, equipments, factually everything that can be removed have been taken away. Even the walls are being dismantled brick by brick. The administration was a passive and indifferent onlooker throughout this phase of pilferage in broad daylight. 16. Almost 85% of the workers who were on payroll at the time of closure have crossed the age o superannuation in the meantime. 17. Since 1988, the workers were left to suffer their plight without any intervention from any quarters. When there was nothing left of anything the Banks stepped in to lay claim to the land on the plea that they were ‗secured‘ creditors and Mohini Mill owed them a lot. 18. Finally the State Government stepped in with aplomb. On 1 September 2003 the mighty Government of West Bengal hung up notices all around that it had ‗resumed‘ the land of Mohini Mill. The logic was that once upon a time, this land was made available to the Mohini Mill for constructing the factory. Now that it is closed the West Bengal Government deems it to be fit and proper to take back or resume res ume the land of Mohini Mill in its favour. 19. The workers of Mohini Mill are still languishing and their outstanding dues from whosoever is in charge amounts to a whopping Rs 12.55 crores, by way of unpaid wages and salaries, gratuity, bonus and closure benefits. b enefits. 20. It is to be seen whether the step initiated by the Government of West Bengal in resuming the land of a closed industrial unit has any positive effect on the plight of these suffering workers at Mohini Mill.
Sickne Sickness Profil ofiles - XI XI V. I ndo-J ndo-J apan apan Ste Steels L td: td: Re Reduce duced to junk
1. Late Y L Agarwala who was the founder promoter of the Company established Indo-Japan Steels Ltd. in 1966. 2. The factory situated at 5/1 G T Road near Belur Math, Howrah was perhaps one of its only kind in the private sector in Eastern India where steel making from ingot stage to cold rolling was done under the same roof. 3. Indo-Japan Steels was a heavy engineering industry having its facilities of electric arc furnace for making steel (MS and alloy steel) ingots, hot as well as cold rolling mills for manufacture o
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different types and sizes of hot/cold rolled products conforming to mild, alloy and other special steels. Indo-Japan Steels was also well equipped with all the ancillary equipment and other infrastructural facilities with a dedicated and skilled work force of about 800. The Indo-Japan Steels was working satisfactorily since its inception and encouraged by its results and the market, the management went for significant expansions during 1982-3 when they installed two new cold rolling mills one of them imported from France. 4. However around 1984 the management started failing to utilise the enhanced installed capacity of the plant due to inadequate supply of raw materials, spare parts and consumables triggered reportedly by fund crunch. This vicious cycle dipped threateningly and soon production became uneconomical and the company started incurring heavy losses. 5. Indo-Japan Steels in 1985 imported a steckel mill taking loan from IOB but was unable to clear it from the godowns of the Calcutta Port Trust. This resulted in a huge blockage of capital in the form of an interest bearing term loan and ever increasing demurrage charges payable to Calcutta Port Trust. 6. In view of the increasing losses Indo-Japan Steels was referred to the BIFR in 1990. 7. The BIFR ordered winding up of the company on 12 August 1993 against which the management appealed to the AAIFR. 8. Despite the hard times the company remained in production surviving, but barely so, on conversion jobs. Sensing that all could be lost the management resorted to illegal activities which was hitherto not in practise. The wages and salaries were left unpaid; the full and final settlement of retirement dues withheld; diversion of funds and various such activities were resorted to. When the Indo-Japan Steels Ltd. Employees Union, an independent union not affiliated to any central trade union, demanded the workers dues, Indo-Japan Steels was locked out on 13 May 1995. 9. Though the lock out was lifted in little over 3 months following a tripartite agreement also involving the Labour Commissioner, West Bengal, the management repeatedly failing to honour the agreement finally declared lock out on 17 July 1996. 10. The AAIFR too ultimately recommended winding up of Indo-Japan Steels on 13 November 1996. 11.
Given the skill, technology and infrastructure available at Indo-Japan Steels, and the positive demand in the market for the company‘s products, the Employees Union had submitted revival schemes for running the factory on co-operative basis to both the BIFR and the AAIFR. The West Bengal Government too was approached on several occasion seeking its support and cooperation in this regard. Unfortunately the State Government in spite of everything failed to stand by the side of the motivated workers.
D. SECTION 4 I n this thi s section ction we have dealt alt with 6 Industri I ndustrial al belts and have descri describe bed the prese present conditi conditions ons along with an attempt to relate as an overview the maladies affecting each geographical region.
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Regi Regional onal Roundup Roundup of of I ndust ndustrrial Be B elts - I On The Eastern Fringes
Starting from South Beleghata and running southward along Tangra, Topsia and Tiljala this industrial belt was a hubbub of activity in the past. It is bounded on the East by what now is an important landmark of Kolkata – the Eastern Metropolitan Bypass beyond which, to the east lie the East Calcutta Wetlands. The western boundary was comprised of the rail line li ne towards South Sou th 24 Parganas originating from f rom Sealdah. The residential areas of Picnic Garden lies on the South while the Northern boundary comprises of the Beleghata Main Road. This belt was dominated by manufacturing units producing leather, rubber, chemicals and ceramics. Most of the larger units in this area had been nationalised in the past. Let us briefly run down the list of prominent industries and there present status: Tyre Corporation of India (TCI) : - The Tangra Unit of TCI, a Central Government Undertaking, once upon a time employed 4500 workers. Very recently the 77 workers, who had not accepted VRS earlier, have been heard to give up their resistance. The huge premise is all set to become a residential complex. Bengal Pottery : - Situated again in Tangra, this unit was shut down for good in the year 1993 with 4900 workers in its roll. The Central Government had taken over this unit but since it was not nationalised within the stipulated 17 years Bengal Pottery was de-notified. This unit was a household name and its products ranged from cups, dishes and other household pottery to electrical ceramics. The workers have been paid their PF and Gratuity dues and the West Bengal Government bought the land and sheds for Rs 12 crores. Later in early 2005, the State Government has declared its intentions of setting up an Industrial Estate in the premise. National Tannery: - This was the first mechanised tannery in India and was set up in the year 1907. Pretty nearby came up the Leather Technology College. National Tannery, which was famous for its leather processing, also developed a modern shoe division functional since 1965. Even after it turned ‗sick‘, the infrastructure of this unit and the skill of its wo rkers were utilised by Bata who, through ‗job work‘ got its famous brands like li ke ‗North Star‘ and a nd ‗Quo Vadis‘ made at National Tannery. After BIFR ordered ordere d winding win ding up, the State Government purchased the unit as a ‗going concern‘ in 1992 spending a paltr y 50 l akhs for the
purpose. Despite repeated rep eated pledges inside insi de and outside the t he High Court the West Bengal Ben gal Government has neither reopened it nor settled the unpaid dues of the workers. The State Government till date had handed over a sum of Rs 3500 to each worker. Since December 2004, the Left Front Government, like any other promoter, has started dismantling the sheds and removing the machineries with hundreds of erstwhile workers silently suffering the pangs of joblessness and
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abject poverty. It is alleged that after having ‗invested‘ Rs 65 lakhs over the last 12 years, the State Government has already earned Rs 3.5 crores through the process of dismantling the plants and machinery. The land too will be used for setting up a Garments Park and the process too should yield crores in the near future. Till date 107 of the 400 workers have died of suicide, hunger and disease and most of those who still survive are barely alive. Bharat Brakes and Valves : - This Central Government Undertaking has been closed for long and only in the year 2003 around 550 workers have been given VRS. Smith Stanisstreet : - This Central Government Pharmaceutical unit was located opposite the Entally Police Station and employed 900 workers/employees. It was closed in 2001 and presently effort is on to allow residential apartments to come up on the said piece of prime land. EMC: - The Electrical manufacturing Company popularly referred to as EMC has two units – at Dum Dum and Beleghata – and is owned by Central Minister Sri Kamal Nath. The Beleghata unit has been under closure turning 1800 jobless in the process. The workers, as in hundreds of such units, are yet to get payments while multi-storeyed residential blocks on the factory premise may ust be a matter of time. Sur Enamel: - There were around 300 workers working in this unit. The owners have gone into a contract with Purnendu Chatterjee and have also obtained permission from the High Court to sell a portion of the land. Scientific Indian Glass Company : - Closed for more than 25 years. A huge complex of six multistoreyed apartment blocks collectively referred to as Brindaban Gardens is already in place.
In the Tangra/Topsia/Tiljala area about 550 tannery and rubber units faced closure by virtue o Supreme Court order pertaining to environmental pollution. The Supreme Court had also ordered for alternative relocation for all the closed units at the proposed Bantala Leather Complex. Recently on 30 July 2005, the said complex has been formally inaugurated and 34 units have been shifted to this new venue. The area in question involves about 100 bighas of land within a short distance of the Eastern Metropolitan Bypass. Some of these old tanneries owned by Chinese families are being transformed into Chinese Restaurants while residential blocks are replacing some tanneries owned by Muslim owners. The much-hyped plans regarding setting up of ecofriendly projects in this area remains mere good empty words till date. Upward of 20,000 skilled workers have been rendered jobless. They should be viewed as the ‗victims of pollution-free development‘. Whereas the Supreme Court order has been cited while declaring closure of these 550 industrial units, the other relevant portion of the said SC order pertaining to payments p ayments to workers have hav e remained a far cry. So here too to o development gallops gall ops while workers languish. The Supreme Court had stated that during the period of relocation the workers would be deemed to be in active employment with full wages payable and without break o service. A years salary as ‗shifting bonus‘ would be payable to workers who opt for resuming duties after the relocation is completed. If a company fails to relocate to Bantala Leather Complex its workers would be treated as retrenched and over and above the compensations and legal dues
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payable as per Section 25b 2 5b of ID Act, an additional amount equal equ al to 6 years wages has to be paid to the workers as compensation. Again those workers who choose not to work at the relocated factory will also have to be treated as retrenched and over above the dues as per ID Act a year‘s wages have to be paid as compensation. The Supreme Court has also clarified that the amount o gratuity payable will be as per law and will have nothing to do with the compensation packages. A huge majority of these workers have not been given their stipulated compensation as per order o the Supreme Court.
Reg Regional onal Rou R ound ndup up of of I ndus ndustri trial al Be B elts - I I Along B T Road
Barrackpur Trunk Road. Not too far back, this north-south trunk road was synonymous to trucks and chimneys – the hallmark of an industrial belt. Factories dotted the municipalities o Kamarhati, Panihati and Khardah. Around 1985, and within a span of about ten years, a huge majority of these factories were locked out – legally and illegally. Soon weeds, bushes and trees overran the premises. Theft of machines became routine since allegedly the local police and administration were hand in glove with the criminal nexus. Most of the leading factories belonged to the engineering, cotton and pharmaceutical industries. Yet another characteristic of this area was the predominance of local Bengali workers in the above-mentioned industries. Refugees from erstwhile East Pakistan had settled down on either side of the Bangaon-Sealdah railway line rom Belgharia, Kamarhati, Panihati, Sodepur, Agarpara, Khardah during the 50‘s and 60‘s. Youth f rom got themselves employed for gain at the Basanti Cotton Mill, Mohini Mill, Bangodaya Cotton Mill, Sodepur Cotton Mill, Beni Engineering, Dipti Hurricane Lamp Factory and scores of other such names, which are the part of history now. Those which are still running including Wimco safety match factory, Texmaco blade factory do not employ even a third of its original strengths. Conversely migrant workers, from Bihar and UP, comprised of the dominant majority in the Jute Mills, Rolling Mills and Paper Mills of this area. The pattern of ruthless disintegration has been strikingly consistent. First came the takeovers, promising to treat the units as going concerns; the second step was the calculated removal, tantamount to theft, of everything worth removing including machines, sheds, bricks and even the underground wires; third step involved the arrival of the realtors and appearance of the multi-storeyed residential apartments. Recently another variant of the above-mentioned third step is becoming popular – – the West Bengal Government for so long a passive and indifferent observer jumps into the fray and starts ‗resuming‘ the land, given way back to industries, as if not any longer to be left out of this real estate bonanza. No one seems to be responsible, or for that matter bothered, about the legitimate
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dues of the workers of these locked out industries, leave alone their plight!
Locked out industries and changing urban space is no longer just a possibility. ‗Peerless Abasan‘ has come up after dismantlingBangodaya Cotton Mills at the intersection of Panihati and BT Road crossing; Oriental Metal Industries manufacturers of Dipti hurricane lamps has made way for a residential complex at Agarpara; Structural Engineering, Sekhar Iron, Beni Engineering are just a few of the scores of factories of repute in this ten square kilometre area on which multi-storeyed residential blocks have come up or are coming up thereby changing the urban space of Suburban Kolkata.
Between Baranagar and Barrackpur there are six Jute Mills, which remain closed more often than not every year. That these units are not giving way to real estate is owing to the fact that the ownership pattern in these Mills are immensely complicated or rather mind boggling. The two units of Titagarh Paper Mill used to employ about 4500 workers only the other day. Now 400 contract workers are employed and this ‗Paper Mill‘ currently produces wagons. The developmental model of urban expansion pursued by the State Government however is soon going to pave the way for residential apartments in industrial land if something ‗unforeseen‘ does not happen.
Reg Regional onal Rou Round ndup up of Ind I ndus ustri trial al Be Belts - II III Dum Dum-L Dum-L ake Townown-P Patipukur
This was yet another well-known industrial belt towards the northeast of the city. The tall chimneys; early morning sirens acting as clarion calls for the starting shift; hundreds pedalling in unison on their bicycles along Jessore Road, Dum Dum Road and VIP Road; commuters streaming out in hundreds from Ultadanga and Dum Dum Railway Stations – this was a common sight. They were workers in the scores of large, medium and small factories in this industrial belt. This entire urban space has changed visibly during the last 15 years.
The workers have in part being transformed into helpers in construction sites maybe at buildings rising on the same premise where their factory stood. Maybe when the construction gets over some of them might find jobs as security guards in these building complexes.
During the last 20 years adjacent to the Dum Dum and Ultadanga Stations on the Sealdah Main line, groups of workers are found to gather around 6-7 in the morning. These are referred to as
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‗majoor bazaars‘, meaning labour markets. Workers of closed and locked out industries or their sons, daughters, wives and other relatives gather there in search of daily employment. Labour contractors bargain heavily and minimum wage norms are blown away in the wind. As the sun climbs higher, the rates offered plummet. Sexual harassment and abuse is rampant in case o women workers and as yet they are compelled to come back early next morning.
The list of locked out industries in this area is pretty long. The most prominent among them are: apartment Apollo Zipper; AMCO; East Anglia Plastics; Ruby Paints (residential constructed); Hindustan called ‗rod call ‘ (residential apartment Iron popularly constructed); ARP Rubber (residential apartment constructed); New Luck Rubber (residential apartment constructed); Business Firms (preparation ongoing for residential apartment); Asila Pharmaceuticals; EMC (residential apartment to be constructed); Motor Machinery Manufacturing; Paul Lehman; Airport Hotel; Vegal Engine and Engineering; Siddheshwari Hosiery (residential apartment under construction); BMT Mills (residential apartment under construction); Eastern Paper Mills; and many Plywood Factories on R N Guha road have been locked out.
Regional Roundup of Industrial Belts - I V adavpur-Tollygunj
The industries were virtually embedded in this predominantly residential area. The semi-rural somewhat suburban characteristics of this area to the South of Kolkata were radically changed after partition when a huge number of refugee colonies came into being. Gradually the large factories and scores of smaller ones employed the bread earners and urbanisation and industrialisation went well in tandem. With the passage of time the one-time settlers were given the land rights and refugee colonies gradually changed as small concrete houses started coming up on the self-owned plots. By mid-70‘s the refugee colonies were a thing of the past and most of this area was a typical middle class-low middle class residential area. However large apartment blocks were conspicuous by its absence since the predominantly small land holdings did not allow ample room for such constructions.
Before long the South Suburban area was an integral part of the city and almost around this time the factories in the area started closing down. Only the land belonging to the locked out industries were suitable enough for multi-storey apartment buildings.
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Ekta Heights has come up on Annapurna Glass factory premise, which is not even a kilometre from the Jadavpur Crossing. Dabur has also gone the real estate way. The West Bengal Government went for a tripartite agreement and as a result reportedly the countries largest residential complex – South City – is coming up on the Anwar Shah Road premise of Jay Engineering (brand name Usha).Sulekha Works has obtained permission for building residential apartments on its land in Jadavpur. Bengal Lamp with its sprawling complex in ruins, opposite
the Jadavpur University campus is hot in pursuit for real estate gains and it might well be a matter of time. Krishna Glass a Government of West Bengal Undertaking, has created history by most handsomely paying dues and compensation to its ex-workers, and time will tell what the Government plans to do with the land also well within a kilometre from Jadavpur Crossing. The State Government has decided to close down Jadavpur TB Hospital and sell off the land for promoting purposes. Chopra Motors and Chaliha Rolling Mills in Tollygunj have been closed since long and everything is possible pertaining to its landed property. Yes, tall buildings are perhaps going to change the urban character of this industrial belt once again.
Regional Roundup of I ndustrial Belts - V Taratala-Hyde Road
This entire industrial belt since 30‘s and 40‘s was considered to be a cut above the other such belts since it had a cluster of factories run by foreign companies. Paradoxically perhaps this industrial belt is virtually devoid of any significant signs of activity since most factories in this area are locked out and closed. Of the 220 major The list is long and some of the well known ones is as follows: American Refrigerator (ARCO) ; Machinery Manufacturing Company (MMC) ; Bengal Ingot; Das Reprographics; Avery; Glaxo; Rolls Mills; Poddar Projects ; Shalimar Tar; Rolls Print; Metal Box; Siddhartha Apparels ; WEBEL; Air Condition; Kesoram Cotton ; Farinni; Angel India (state public sector undertaking); Steel and Allied Products; APJ India; Mahindra and Mahindra; ALCON; universal Autocraft.
The ‗real estate‘ factor, so dominant in other industrial belts of the City, does not have much to do with the lockouts in this area since the land on which the factories were built belongs to the Kolkata Port Trust. Delving deeply into the individual cases and observing on the one hand the phases of sickness and on the other the nature of the degradation of the employer-employee relationship, two distinct reasons seem to be common in most of the units in this Taratala-Hyde Road industrial belt. The per capita value addition and the per capita productivity in the respective
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types of industries were lower as compared to similar industries in other parts of the country. This should be definitely viewed in conjunction with the protracted and strong labour movement roughly between 1960 and 1985 as a result of which the labour wages were comparatively higher than at other industrial belts. Hence the existing labour overhead component could definitely be ‗felt‘ to be deflating profitability. In the organised sector there was job security, a social security network of sorts and the heavily subsidised canteens, picnics, various cultural and social programmes with aid from the management, gifts and such other ‗perks‘. One scratches the surface and all these tumble out though they are things of the past.
Then everything changed! For industrial capital value adding became the order of the day. Competition made the need to add value stronger. Control over the market reversed into market driven profit margins. The wage component had to be slashed. With the market calling shots as never before the product ranges changed. Mechanisation, modernisation and diversification were needed for survival. Workers lost their jobs at which they were skilled. For new skills to develop retraining was a must. That was hardly a shared point of view. Organisational strength and party based trade unionism forced surplus labour to continue as idle labour. With crisis brewing, more often than not, the number of trade unions in an industrial unit increased, some of them with dubious credentials very often with covert patronage and support of the management. Labour relations deteriorated with the multiplicity of trade unions making matters that much more worse, complex and opaque. In a role reversal the management went on rampage. Labour rights were usurped one after the other. Wage cuts, reduction in bonus, non-payment of gratuity after super superannuation, withdrawal of subsidy, PF and ESI defaults... all of these and more now became the order of the day. When such pressure was turned on the productivity was perhaps understandably affected. Then started the ‗lockout era‘. When terror struck, instances of total surrender increased and the noose tightened that much more.
Then more changes were ushered in. The objectives became simpler – to find out the maximum increase in production and the corresponding quantum of profit; to ascertain the minimum labour cost at which level workers would maintain the ‗desired‘ productivity. The philosophy was simpler – permanent workers with assured social security is tantamount to low production since the sword then does not hang threateningly. The ‗sense‘ of security must go. The industrialists needed all round support. They needed the Government; the legislators; the Labour Department; udges and the judicial system; the trade union leaders and the citizenry. Soon in perfect tandem – a dream come true for any conductor – the orchestra started. It was stated matter of factly but politely that the workers should adjust to the changing scenario after understanding the nature o the changing world. It was iterated that the workers should not get too bothered about whether minimum wages was given or whether job security was being provided – they will have to take up obs as and when offered.
The fact is there is no need for any skilled workers any more. The need of the hour is a few sincere
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operators who will be trained during the trial period by the agency supplying the machines. The need of the hour is employees with sufficient sense of insecurity at every moment of their existence which will make them terrorised enough to keep themselves clear of expressing dissatisfaction or create problems by protesting or demonstrating.
Slavery is looked down upon by one and all. We talk highly of those social reformers who fought against this dehumanising practise even though slavery was ‗profitable‘ to those who ‗owned‘ slaves. The path through which slave labour was finally transformed into wage labour was long and tortuous. It took centuries of long and protracted struggle by millions of the downtrodden world over even after ‗slavery‘ was legally banned. Mankind feels proud that it had been able to eradicate the utter dehumanisation of slave labours and had put the labour laws in place.
The
time has come now to ‗rewind‘ history at a breathtaking pace. The omnipotent dominance o capital, free market economy, unbridled lust for profit has ushered in an inhuman system, which demands nothing less than ‗slave workers‘ for our industries. Many are those who are parroting the efficacy of this new paradigm and branding it as inevitable unknowingly paving the way for a return trip to the dark ages.
Regional Roundup of Industrial Belts - VI Beleghata-Phulbagan-Kankurgachi The Beleghata Canal towards the north and eastern part of the City is dotted by hundreds o factories. Starting from small ones like the lamp factories, saw mills, board mills and small engineering units right up to heavy weights like Kolay Biscuit and EMC. 10 December 2003 started with trademark fanfare marking the Human Rights Day. The same day saw thousands o ‗citizens‘ being evicted from hundreds of jhopris along this Beleghata Canal. The image of the City benefited since it got that much more cleaner. This was reminiscent of another such eviction drive a year back when for the sake of extension of Metro Railway thousands of similar ‗citizens‘ were evicted along the Tolly‘s Canal in the southern part of the City. The Beleghata Canal, it has been heard for couple of decades now, will be used as a waterway for mass passenger transport. Historically this waterway was once the mainstay of cheap goods transport but gradually it fell into disuse owing to lack of State attention. Kolkata is changing rapidly. The areas where the working class resided, the city of factories so essential for their life and livelihood, is changing at a gallop. The suburbs are being sucked into the vortex of an expanding metropolis – a mega city with a ‗future‘! This is how Jadavpur, Khidderpur, Metiabruj, Garden Reach and Behala are now an integral part of the expansionist Kolkata Municipal Corporation.
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As one moves northwards from Sealdah Station, a prominent Central Kolkata landmark, one reaches Rajabazar, a predominantly Muslim area. The road which stretches eastwards from this intersection travels past Phulbagan as Narkeldanga Main Road and cuts Eastern Metropolitan Bypass at Kadapara, passing into Salt Lake near the Salt Lake Stadium – and the five star Hyatt Regency next to it. Between Phulbagan and Kadapara – less than two kilometres on foot – thousands and thousands of workers worked for gain at hundreds of small and large factories. During the last decade or so the scene was showing signs of slow but steady change but now during the last couple of years an aggressive unfolding of ‗urban‘ development is changing this space beyond recognition. The curved belt of industries running north to south along the eastern periphery of Kolkata around the central core is gradually being wiped clean. Maybe this was fate accompli of sorts! The hitherto unplanned growth of this urban conglomerate was a constant source of resentment and frustration among the ‗bhadrolok‘ society. With the plague li ke social malady called ‗industrial closures‘ spreading its tentacles, some ex -workers dispersed looking for a livelihood. Those who stayed back as street hawkers bore the brunt of the infamous ‗Operation Sunshine‘ in 1996. And now the eviction of slums is on the cards. No more security in the form o twenty or fifty-rupee worth of monthly accommodation. As one proceeds from the predominantly residential area of Phulbagan towards Kadapara on the Eastern Metropolitan Bye Pass, the walls are what remain of the Bally Jute Mill of the Birlas. Inside, away from human gaze, nothing stands, as if in eager anticipation for real estate activities to start at a prime residential location. Mandal Rubber, established by Kali Mandal, the ‗rubber king‘, also affectionately referred by the old-timers of Beleghata as the potential ‗Dhirubhai‘ o the east, stands closed. The roadside premises of Surah (Bally) Jute Mill , Gobinda Sheet Metals, Kedar Rubber, Calcutta Jute Mill – to name some of the prime locations – have become the happy hunting grounds for the promoter-developers. Units like Orient Fan are already experiencing the throes of sickness and with the entire two-kilometre stretch showing a recent transformation into an ‗avenue of under -construction multi-storeys‘, death of such other sickness prone factories could indeed be imminent. Development is oozing in from the EM Bye Pass end too! The first landmark is ‗Swabhumi‘, the ‗heritage‘ cum amusement park, surrounded by lush greenery, on a hillock – which was not too long ago a largish mound of urban solid waste. The land – or the hillock – to the Neotia‘s had reportedly come for free. Next and adjacent to Swabhumi, is ‗89‘ a cine-multiplex, with state-of-the-art comfort, ‗matching‘ price line and usual concentrate of fast food outlets. However maybe a hundred yards down the road the scene changes: rickety road side shops; a huge building in which about a thousand residents, mostly workers and ex-workers, live under the same roof; all the tell tale signs of a working class neighbourhood. But for how long, is the moot point! Roughly parallel to this road, about a kilometre to the north, is an almost a twin set-up along the road connecting the busy, and somewhat posh, Kankurgachi-CIT Road crossing and the EM Bye Pass. Tata Oil Mill and Santosh Biscuits are closed; Bengal Chemicalhas sold some of its ‗excess‘ land on which a multinational school has come up; scores of wire mesh manufacturing units, dozens of storage lead battery manufacturing units, rubber based units, small scale engineering units and lathe machine workshops a vast majority of which are presently locked out.
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In between Phulbagan and Kankurgachhi crossings one comes across the Small Tools Manufacturing Limited, which has been dismantled of late paving the way for the proposed ‗Orchid Towers‘. The
twin set-ups between Phulbagan-EM Bye Pass and Kankurgachi-EM Bypass have a lot in common. Land is in great demand. Once not so long back, upward of 15000 families earned their living as workers in these two adjacent localities. Urban expansion has put paid to their modest livelihood. Those who still live in the vicinity can feel that their days are numbered and soon they would have to move. Move away, since the juggernaut has arrived!
E. SECTION 5
I n this section we have prepared 5 fact sheets, which have relevance to the present policies governing urbanisation and industrialisation. F act Sheet – I
Industrial Policy and Sickness: At a Glance
After independence the first national Industrial Policy was formulated in the year 1948. In essence it had included much of what was laid down in the 1941 recommendations of Sir A. Dalal and also the 'Bombay Plan' or 'Tata-Birla plan‘, which came into circulation in1944. In the 'Bombay plan' the Indian industrialists had categorically stated that the capital intensive heavy and core industries should be established and run by the state owned 'Public Sector‘ given the fact that the private capital should not be compelled to invest so heavily in such industries and its associated infrastructure development. However it was envisaged that after 15 years the heavy and core sector would be handed over to the private sector. The Industrial Finance Corporation of India (IFCI) was established in 1948 with an objective to provide medium and long-term credits to the public sector limited companies in order to facilitate post-war rehabilitation and development. The State Financial Corporations (SFC) were established at state level in 1951 to supplement the work of IFCI by financing medium and small-scale industrial concerns.
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The Industries (Development & Regulation) Act , 1951 came into being. Primarily it aimed at categorising and scheduling the various industries thereby working its way towards an industrial licensing policy. However around 1953 this Act provided the Central Government with adequate powers to assume direct management and / or control of some private sector s ector units unit s in certain cases cas es of proven mismanagement or in broader public interest thus paving the way for nationalisation, which emerged as a trend later. Industrial Development Bank of India (IDBI) was established in 1964 as a coordinating body for financial and banking institutions engaged in financing, promoting or developing the Indian industry on the whole.
In 1970, The Monopoly & Restrictive Trade Practices (MRTP) Act was enacted with the purpose of enforcing control over large powerful monopoly houses and there related trade practises. Industrial Reconstruction Corporation of India or IRCI was set up (which was later to be transformed into IRBI) with its head quarters at Calcutta in 1971. The ongoing ongoin g economic depression, overall mismanagement, labour troubles, shortage of raw materials, lack of market demand, stringency in import restrictions were officially put forward as main reasons of closure and sickness of many industrial units particularly in West Bengal. It was envisaged that IRCI was to revive and revitalise the closed and sick industrial concerns by removing the shortcomings. IRCI was expected to reconstruct and restructure the financial base as well as the management o the assisted units, besides providing financial assistance and technical/managerial guidance. The control measures to be adopted by IRCI included transfer of major shares in the name of IRCI; appointment of IRCI nominees in the Board of Directors of the sick unit; appointment o personnel and nominees in key managerial post po st and purchase/sales pur chase/sales committees; committ ees; frequent plant and factory inspections and so on. Industries (Development & Regulation) Act , 1951 was further amended in 1971 empowering the Central Government to take over industrial undertakings which special emphasis on sick units.
By an amendment in the relevant Act the IFCI with effect from 1972 was empowered to extend its assistance to private limited companies. Foreign Exchange Regulation Act (FERA) enacted in 1973 was aimed at limiting the share o foreign companies in any Indian industry to 40% of the total capital.
The Reserve Bank of India set up a study stud y group in 1975, which was called the Tandon Committee, and a guideline was laid down governing the participation of banks in the management of various sick industries. The Reserve Bank of India (RBI) in the year 1979 conducted a study to identify the causes o sickness in 378 such large industrial units Mismanagement accounted for 52% (197 cases); market recession 23% (86 cases); faulty planning and technical drawbacks 14% (52 cases); power cuts,
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shortage of raw materials etc. 9% (34 cases); followed at the end by labour trouble 2% (9 cases). The Tiwari Committee on Rehabilitation of Sick Units was constituted in 1981. This committee was formed in view of the mounting industrial sickness in the country and its serious ill effects on the national economy. Shri T. Tiwari, Chairman of IRCI (later IRBI), headed the 11-member committee constituted by the Reserve Bank of India. The committee was to examine the legal and other difficulties faced by banks and financial institutions in the rehabilitation of sick industrial undertakings and to suggest remedial measures, including changes in law. It submitted its report in 1983 along with a model bill. On the recommendations of an expert committee that the IRCI should be converted into a statutory corporation with 'powers' to restructure the capital base of assisted industrial unit, freeze pastliabilities and even sell units free from encumbrances the Central Government by the Industrial Reconstruction Bank of India Act, 1984, established es tablished a separate separat e statutory statuto ry body bod y called the Industrial Reconstruction Reconstruction Bank of India or IRBI, as a successor to the IRCI. Largely based on the model Bill suggested by the Tiwari Committee, the Sick Industrial Companies (Special Provisions) Act 1985(SICA) was enacted. According to Central Government statements, sickness of industries was causing loss of production, employment revenue along with a locking up of a large chunk of bank funds. The alarming rate of increase o sickness was dangerous. So it was felt by the government that viable sick units should be revived, vitalised or rehabilitated as early as possible while non-viable units should be liquidated to salvage reusable bank funds. SICA would play a 'stellar' role in this direction vis-à-vis the existing multiplicity of laws, which created hindrances in dealing effectively with sick industries.
The SICA paved the way for setting up in 1987 of a board of experts acting also as an appellate authority, called the Board for Industrial & Financial Reconstruction or BIFR for reconstruction of sick & potentially sick units. The BIFR armed by SICA hence became the apex body on whose hands rested res ted the future of most sick units. u nits.
1991 was the year of the legendary 'New Industrial Policy'. For all practical purposes nationalisation, or take over by way of I (D&R) Act, was scrapped. The Public Sector Units would be sent oven to the BIFR if found sick or potentially sick, as per SICA descriptions. d escriptions. Needless to say they would be wound up if found 'non-profitable'. Privatisation was on the cards save 8 heads of industries, which would be 'left' for the Public Sector.
In
1994 the Government of West Bengal announced the Industrial Policy Statement.
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F act Sheet – I I
Economic Review: Efforts To Combat Sickness
The Government has initiated the ‗West Bengal Industrial Revival Scheme 2001‘ to offer support to sick industries.
Industrialists have submitted around 175 proposals but since the Financial Institutions have shown stark disinterest in providing working capital, the effectiveness of this scheme is being hampered. Most of the proposals submitted concerns applying for bridge loans in order to pay back outstanding loans at high interest rates. Between 2000-01 and December 2004 Rs 30.89 crores have been doled out as loans to only 14 units. Of these in only one case Rs 22.56 lakhs have been given as a subsidy to capital investment. 7 weak or sick units have been allowed waiver of Rs 94.5 lakhs towards electricity duty. It has been declared that henceforth the support forthcoming as per the ‗West Bengal Industrial Revival Scheme 2001‘ would remain restricted within the following framework: If an industrialist purchases any other closed unit, a discount of 50% would be allowed on the values of stamp duty and registration fee; The outstanding sales tax of the sick unit will be allowed to be transformed into a loan on easy repayment schedule and low interest; Electricity duty will be waived for five years; In order to revive or rejuvenate the sick industrial unit the industrialist would be permitted to mobilise cash by selling the excess and belonging to the particular sick industry. Regarding point number 2 mentioned above, the Economic Review states that in 13 industrial units employing 17,160 workers a total of Rs 29.93 crores of outstanding sales tax has been transformed into loans. These loans will be payable within 11 years and during the first 3 years the principal would not be required to be repaid. The rate r ate of interest will be 8.75% and a further rebate of 2% will be up for grabs if the repayment is done within the stipulated period. Most of these units are jute mills.
In industrial units like NTC (WBABO), Tyre Corporation of India (Tangra Unit), Joy Engineering Works, Howrah Mills, Small Tools, Sur Enamel, Stamping Ink Company and Haldia Textiles Ltd., the West Bengal Government has permitted the sale of excess land in order to revive the sick unit in question. In some other units it has been principally agreed to permit such sale of excess land for purposes of revival and the list includes: Kusum Products, Calcutta Silk, Standard Pharmaceuticals, NICCO Corporation, Annapurna Textile Ltd.
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Besides
pursuing the ‗West Bengal Industrial Revival Scheme 2001‘, the West Bengal Government has declared 33 sick units as a Relief Undertaking between April 2003 and December 2004, so that during prescribed period no creditor can prefer any claim, or move the court against the unit for recovery of dues and also that winding up will not take place in consequence to liquidation cases filed by creditors.
F act Sheet – I I I
A Survey on 500 closed and sick industries:
WEBCON has carried out a survey for The Department of Industrial Reconstruction, Government of West Bengal among 500 closed and sick industrial units in the State. Of these: 402 are sick and weak and the remaining 98 are closed 64 are in the public sector and the remaining are private run 327 are large or medium employing 3,38,920 workers and the remaining 173 are small units employing 13,343 workers Of the 327 large and medium units 226 have been referred to the BIFR Of the 500 studied some of the important industries are as follows:
Iron and steel (87); Chemicals and pharmaceuticals (62); Engineering (46); Electrical and electronics (38); Jute (37); Textile (29); Plastic and rubber (28); Paper (22); Cement (18); Agro based (17); other metals (14); ( 14); Food processing (13). (1 3).
Regarding the reasons of failure of these units he perception of the Management and the Banks/Financial Institutions have a varying viewpoint: Whereas the management says failure of planning is to be blamed in 19.95%, production related failures in 44.18% and other factors in 34.61% cases the Banks/Financial Institutions hold that failure of planning is to be blamed in 9.52%, production related failures in 56.19% and other factors in 32.38% cases.
According to the report, leaving aside the casual workers, there are 3,52,223 affected workers in these 500 closed and sick industries.
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Touching upon the geographical distribution of the sick industries under survey the report reveals that of the affected workers 1,57,000 are in the district of Bardhaman; 65,492 in North 24 Parganas; 32,576 in Howrah; 31,632 in Kolkata; 30,918 in Hugli; 30,918 in South 24 Parganas and the remaining 16,221 in six remaining districts.
F act Sheet – I V
Rajarhat Satellite Township:
On 1 June 1995 the Government of West Bengal officially announced that adjacent to Bidhan Nagar, popularly referred to as Salt Lake, a New Town will be built on 2750 hectare of land covering 21 moujas in the Rajarhat Police Station area. In a notification published in 1994 it was announced that land falling within the following 21 moujas viz. Tarulia, Gopalpur, Salua, Chandiberia, Hatiara, Aatghara, Kaikhali, Tegharia, Nawpara, Dasadrone, Raigachhi, Mahishgote, Shulongari, Mahishbathan, Rekjoani, Ghuni, Baliguri, Thakurdaari, Chak Pnachuria, Jatragachhi and Kadampukur would be taken by the Government of West Bengal for the Satelite Township Project. A total of 1,31,000 inhabitants would be evicted in the 21 moujas. As per the Census report of the 2750-hectare of land in these 21 moujas 2095 hectares are agricultural land. A large portion of the said land yields two crops of paddy per year. In some areas wheat is grown during the summer. There are number of fisheries in the area. Kadampur and Sikharpur moujas are famous in the state for its flowers. There are about 15 lakhs of trees in the area. 1 lakh 31 thousand inhabitants live in 40 villages. 12,500 of these are involved in agriculture, 4000 with fish farming and 4650 are landless labourers. The Rajarhat Satellite Township Project involves an estimated expenditure of Rs 5000 crores with a projected capacity of 50,000 flats. After the Environment Impact Assessment (EIA) 4 more moujas have been added to the original 21 as a result of which the total land acquired increased from 2750 to 3075 hectares. Very soon announcement for acquiring of land falling in 6 more moujas is expected.
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F act Sheet – V
‗Excess‘
Industrial Land:
Some industrial units have appealed to the Government of West Bengal to allow them to use some of their ‗excess‘ industrial land for the purpose of constructing residential apartments. They have clarified that the profit generated would be suitably utilised for modernisation purposes. The following are some of the leading factories and the amount of land they plan to build residential apartments on: 7.5 of the 12.5 acres at the Sahagunj Unit of Dunlop; 4 acres at the Gramophone Company in Dum Dum; 300 acres at the Hind Motors in Hugli District; 10 acres at a few Jute mills in and around Kolkata.
In 2003, the Government of West Bengal had asked WEBCON (a State Government public sector consultancy firm) to carry out a study on the ‗excess‘ land located within var ious industries. The study revealed that there were about 41,000 acres of ‗excess‘ land in just 500 industrial units in West Bengal.
It is expected that immediately after the Land Reforms Bill is passed the Government of West Bengal will announce a guideline for ‗utilisation‘ and probably ‗fair -use‘ of the ‗excess‘ industrial land. The guideline supposedly mentions that when on a piece of land a commercial project will be envisaged, the Government Govern ment will set up the base price and the t he rest will be decided in an auction.
Minister of Housing, Sri Gautam Deb, has given his consent to the plan to build residential apartments in the ‗excess‘ land belonging to industrial units. The Government‘s eagerness stems from a objective that in the next 20 years 90,000 families would have to be provided with proper housing. The first target would be to utilise as soon as possible the land locked up in locked out industries and closed Central Public Sector Undertakings.
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F. SECTION 6 : SUMMARY
SUMMARY POSITION Central Sector
Out of 25 units of Central sector, implementation of revival packages has been successfully completed in 4 units under the provisions of the revival packages approved by BIFR and these units have revived themselves. These are IISCO, Braithwaite, Jessop and Becco-Lawrie; Remaining 7 units are at various stages of implementation of their respective revival packages approved by BIFR. The units of Bengal Chemical, Andrew Yule and Eastern Coalfields are indicating successful revival. Revival packages are in process of finalization in 2 cases viz. Hindustan Cables and Tyre Corporation; 12 units have however, been recommended by BIFR for winding-up in absence of any supportworthy revival proposal from any corner; An important development is that the closed unit of M/s National Instruments, a fully-owned CPSU has recently been handed over to Jadavpur University by Government of India after prolonged persuasions persuasio ns by GOWB. Some of the closed/non-operating units have been decided by GOI for revival; These include both units of Hindustan Fertilizer. Strategic JV partners are being identified for reopening and revival of closed MAMC unit at Durgapur and some jute mills of National Jute having major activities in this State. Efforts have been taken by GOWB in consultation with GOI so that some other closed CPSUs could be revived with permission of the Hon‘ble High Court. Private Sector
Out of 324 units in private sector, respective revival schemes for 69 units have been approved by BIFR so far. Out of these, 27 units have so far been successfully revived and came out from BIFR under the provisions of SICA 1985. cases of ABB ABL (now Alstom Power), Gramaphone Company (now Saregama), Century Extrusion, Khaitan Agro, Dalhousi Jute, Champdani Jute, Sri Badrinarayan Steel etc. Implementation of respective revival schemes of remaining 42 units is either in progress or under revision as their original BIFR-schemes has been decided by BIFR as ‗failed‘. Meanwhile, the units like Dunlop, Air Conditioning Corporation and GKW have come out of BIFR upon receipt of verdicts of Hon‘ble Courts of Laws and AAIFR in respective cases, although revival
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in respect of their units located in the State have not yet been completed; Admissible relief/concessions for some deserving/eligible units having fully tied-up revival schemes duly approved by BIFR, for which State Government has already granted ―in principle‖ clearance are presently under consideration by the Finance Department. These units are presently being rehabilitated successfully. e.g. Andrew Yule, (a CPSE), Duroplyprene, Versatile Wires, Gourishankar Jute Mills, Nuddea Mills and Deepak Industries. Various options towards revival measures in respect of 113 units are under consideration o BIFR. 78 units have been decided by BIFR for final closure in absence of any support-worthy revival proposal. Their liquidation proceedings are either stuck in appeals before the Appellate Authorities or underway before the Hon‘ble High Court. Out of these liquidated Companies, assets of 7 units have been purchased by prospective promoters for further industrial activities. For example, India Machinery, Eastern Explosive, Recon Castings and Hindustan Pilkingston etc. State Government is in search of new investors out of them a few have evinced interests in taking over some closed units upon seeking permission from the Hon‘ble High Court. Cases of 26 units have been rejected by BIFR as non-maintainable under SICA. Remaining cases of 38 units are not under the purview of this State as their works are outside the State. References have been made as they are originally incorporated in West Bengal.
Summary: WORKERS: Shifting Sand
The total working population of the state is rising at a higher rate when compared to the increase in the rate of total population, as per census figures. Whereas the total population of the state increased by 17.84% between 1991 and 2001, the total working population increased during the same period by 34.62%. But this seemingly positive trend is not really positive for the industrial scenario. This will be clear when one observes that during the same period, the workers in the primary sector increased by 12.06% that is a third less than the rate of total population increase (17.84%). This means a huge lot of workers lost their jobs in the organised sector. The picture will be clearer when one finds that the number of marginal workers increased from 13.34 lakhs to 64.39 lakhs in these 10 years, which is a whopping increase of 412.67% [marginal workers are those who get 183 days of work per annum]! In ten fateful years the percentage of marginal workers in the state rose from a modest 1.97% to 8.03% of the total West Bengal population. It is pretty evident as to what is happening to the lakhs of toilers who are losing their jobs from the organised sector owing to industrial closures, lockouts and retrenchment. The figures will reveal a lot about the plight of workers.
Summary: EMPLOYMENT: J ob Losses Outstrips Generation
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In the year 2003, there were fresh jobs created for 9,120 workers in 238 factories set up during the year. On the other hand 6,35,000 workers lost their jobs for varying periods owing to lockouts and strikes in 432 factories. In the year 1981 for every crore of Rupees invested, 228 workers got fresh employment. During 1999 the same crores created 16 job opportunities. During 1991 and 2001 19,775 crores created 62,404 fresh jobs – at an average rate of little over 3 jobs per crore. It is obvious that nature of industries being set up in the state is in no way solving our employment related problems. Compounding this is the unabated trend of job losses, which is pushing the workers against the wall. Tall claims apart the reality on ground level is simply appalling.
Summary: CL OSED, SICK AND L OCKOUTS: Staggering Reality
42.2% of the registered 69,269 factories in West Bengal are closed. Only 28% of the factories are registered. The number of unregistered factories total up to 1,78,120. In the 288 large units alone, which are officially sick, there are 4,27,750 affected workers. Of the total number of cases where factories stop production 92% are due to lockouts declared by the management. Such lockouts initiated by management accounts for 94% of the annual man-days lost in the State. It is popularly stated that there are 55,000 closed and sick industries in West Bengal. However this estimate could be rather optimistic, given the fact that 1.78 lakh factories are unregistered and information about the number of closed units are officially unavailable. Similarly there are no official figures of medium and small-scale factories, which are sick. Hence the number of workers affected by industrial sickness could be nearer to the 1 million mark. As regards the spiralling trend of lockouts one can only state that it is a social malady much worse than the much-criticised phenomenon of militant trade unionism, which is a thing of the past. The workers are on the back foot while the management is on the rampage.
Summary: F AWLOI SCHEME: Miles To Go
As per FAWLOI scheme (Financial Assistance to Workers of Locked Out Industries), Rs. 500 is payable to workers below the age of 58 in units under lockout for more than a year. In the year 2003-2004, the Government of West Bengal spent Rs. 24.55 crores by way of financial assistance to 42,729 workers in 263 units. The budgetary allocation is Rs 50 crore of which not even half was utilised for the scheme whereas 2 lakhs of workers in West Bengal are in locked out medium and large industries of this state. Whereas the Government of West Bengal deserve to be applauded for this exemplary gesture
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towards workers of locked out industries it must be stated that this social security net, by now, should have covered more workers deserving assistance.
Summary: PROVI DENT FUND: Turning A Blind Eye
Only 8.7% of the total workers in the state have PF coverage. There are 5.69 lakh workers in 654 factories under exempted category and 17.67 lakh of workers in 18,938 un-exempted units. In West Bengal the total PF dues have tripled in the span of fifteen years – from Rs 113.89 crore in 1989-90 to Rs.348.11 crore in 2003-2004. The Jute Industry alone accounts for about 36% of the total PF dues in West Bengal during 2003-2004. The units under the exempted category covers about 25% of the total workers but are responsible for 70% of the PF dues. The PF Board of Trustees in the exempted category group comprises of representatives of both the employers and the employees. Despite such huge dues not a single case have been lodged against these Trustee Boards. Misappropriating the PF has almost become a legitimised business practice in thousands of industrial units. In the absence of any State intervention this malpractice is assuming unmanageable proportions. The workers in the long run bear the brunt of the seemingly inert behaviour of the Government machinery. There own money remains locked up in these funds for years and decades while they struggle to obtain a square per day.
Summary: ESI: A Mockery of Social Security
Shockingly the number of beneficiaries covered by the Employees State Insurance (ESI) Scheme has taken a nosedive having been reduced to less than one-third of its value in 14 years – from 10.75 lakhs in 1990 to 3.5 lakhs in 2004. During the same period the unpaid ESI dues have sky rocketed from 35 crore to 203 crore. 62% of this entire arrear is accounted for by default from the Jute industry alone. Despite the extent of default the ESI Corporation has accumulated Rs 39 crore as excess of income over expenditure during the last 6 years. The small-scale manufacturing sector stays outside the ambit of ESI and hence about 35 lakh prospective beneficiaries remain uncovered. The defaulters are not punished, but by default, the workers get punished! This paradoxical situation is presently the hallmark of this important arm of the social security network. Whose profit, whose loss, remains an unanswered question!
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Summary: MI NI MUM WAGES: MaximumChaos
57 categories occupation or industry has been included in the schedule of minimum wages while minimum wages have been fixed for 53 occupations or industry, leaving out a multitude of others. As per rules the minimum wages are to be revised every 4 years but in 22 occupations there has been no revision for over 20 years now. The Government has computed the minimum wage in every occupation at Rs 2700 per month, but has done scanty little to bring those errant employers to book who violates the Government order in letter and spirit. There are 341 Minimum Wage Inspectors in 345 blocks of the State and as yet information regarding minimum wages in various parts are as yet unknown to those who matter. The number of enquires carried out annually regarding Minimum Wage violation has fallen by 24% in the last five years – from 37971 in 1999 to 28979 in 2003 – while the number of cases in which conviction was made came down to a third of its value in the same period – from 628 in 1999 to 206 in 2003. All this has culminated from the industry-friendly posture the Government of West Bengal seems to be projecting – all at the cost of unorganised sector labour.
3. SUGGESSTIONS
At the very outset, it has to be said that a strong determination is needed for dealing with the disease of industrial sickness. Otherwise, the same disease is definitely bound to spread to the
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whole industrial sector. In a state like Manipur where resources are very scarce, every effort should be made for its maximum utilization and the question of resources being kept idle and unproductive should not be tolerated. Otherwise, the ever increasing incidence of industrial sickness may threaten the whole socio- economic setup of the state in particular and the country in general. The following suggestions are made to prevent and avoid industrial sickness in Manipur: The progress of industrial sickness has been highlighted from the period before Independence to the present prevailing condition. The Rehabilitation given to sick industrial companies is not the answer and solution for them.
4. CONCLUSION
The intrinsic Characteristics governing a model recognized restructuring process in any part of the planet are universal if not similar though they may be prearranged differently. Sick Industrial Companies Special Provisions Act, 1985 is planned, more or less, on the above principles. The issue which, thus, arises for deliberation and discussion is as to why SICA has been called as a fractured regime and why it has been a fiasco in rehabilitation of sick companies. The best advice here would be, any good legislative framework for its triumph is dependent upon effective judicial process attached to efficient implementation apparatus. Not only we are required to bring about changes in implementation process but also we need to change our thought process towards rehabilitation of sick companies. The call for commercial approach towards sick companies is called for and it is the need of the hour in this era o globalization. Attempt towards rehabilitation is required rather than just helping the organization in becoming bankrupt. As it is always said something is better than nothing same applies here keeping sick companies and rehabilitating them will be a better option instead of closing down the organization. As the Companies Bill 2009 which changes the entire framework of laws relating to corporate has been pending to be passed, the idea of a new legislative framework in regard to sick companies is futile.
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8. CONCLUSION AND SUGGESTIONS
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. 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 o 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.
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9. REFERENCES
www.sidbi.com www.taxmann.com www.scribd.com www.inflibnet.ac.in www.newagepublishers.com www.shodhganga.inflibnet.ac.in www.planningcommission.nic.in www.business.gov.in www.docstoc.com www.authorstream.com www.adb.org www.pib.nic.in www.ideas.repec.org www.dhakachamber.com www.slideshare.net www.indianmba.com www.oecd.org www.employment.indlaw.com www.mgu.ernet.in www.vikalpa.com www.indiabudget.nic.in www.prsindia.org www.financialexpress.com
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