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1) What is a 'Sick Industrial Company' Section 3(1)(o) of SICA specifies three conditions : (a) It should be an industrial company (b) It should be registered for at least five years - A company usually makes losses in initial years and hence, initial losses do not mean that the industrial company is sick. (c) At the end of financial year, accumulated losses should be equal to or more than its entire net worth.
External factors are those which take place outside an organisation. They include: Energy crisis arising out of power cuts or shortage of coal or oil Infrastructural problems like transport bottlenecks Situations like market recession, changes in technology,etc International pressures or circumstances, etc.
It locks up necessary resources and funds in the sick unit. This also increases the non-performing assets (NPAs) of banks and financial institutions It leads to loss of production and productivity in the economy;
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Chapter 3 [References, inquiries and schemes]
15. Reference to Board 16. Inquiry into working of sick industrial companies 17. Powers of Board to make suitable order on the completion of inquiry 19. Rehabilitation by giving financial assistance 20. Winding up of sick industrial company
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Chapter 4 (Proceedings in case of potentially sick industrial companies, misfeasance proceedings, appeals and miscellaneous)
23. Loss of fifty per cent net worth by industrial companies 23B. Power of Board to call for periodic information 24. Misfeasance proceedings 33. Penalty for certain offences 34. Offences by companies
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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 a reference to NCLT and submit a scheme of revival and rehabilitation. Earlier, under Section 15 of SICA, the company was required to submit a scheme for revival. It was the responsibility of bank/financial institution to the sick baby. 3) After receiving reference under Section 424(1), The Tribunal may 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 an order will be final. Such order can be passed without making enquiry. Earlier, under Section 16(1) of SICA, such order could be passed only after making enquiry.
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4) Under SICA, BIFR could only recommended the winding up of the company whereas NCLT can directly order winding up.
5) The entire focus of NCLT is expected to be on speeding up the process of liquidation of sick company rather than rehabilitation.
EXAMPLES
Bengal Chemicals & Pharmaceuticals :This pioneering pharmaceutical company has been rehabilitated successfully with GOI-funds through implementation of BIFR-sanctioned scheme. GOI has since sanctioned around Rs 400 crore towards implementation of its modernization plan as well as restructuring of GOI-loans. 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.
Contd...
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.