Industrial sickness

Presented To, Presented by:

MS. Manisha Chaudhary Mukesh J (12)
Madam Chavda Indrajitsinh H (14)
Makwana Vijay (37)
 Definition
definition According to SICA, 1985
A unit was defined as “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 exceding its entire net worth and has also
suffered cash losses in such financial year and the
financial year immediately preceding such financial year.
 Cont’d
Definition according to companies Act,2002
Sick industrial company means an industrial company
which has –
Accumulated losses in any financial year which are equal
to 50 percent or more of its average net worth during
four year immediately preceding such financial year
Failed to repay its debts within any three consecutive
quarter on demand made in writing for its repayment by
a creditor of such company.
 Causes of industrial sickness
External causes
Internal causes
Internal causes:
1.Power Cuts:
- lack of power electricity support
- shortage in electricity
 Cont’d
2.Erratic supply of inputs:
- shortage of raw material
- lack of transportation facility
- high price
3. Demand & credit restraints:
-no equal balance of demand and supply and lack of
credit facility.
- lack of credit facility
- storage expanses
- chance of out of fashion
4. Government policy.
- change in government policy
- lack of government support.
- high authority to large unit
 Cont’d
External causes
1.Fault at the planning & construction stage:
- wrong location area
- absence of market analysis.
- unbalance capital structure.
2. Financial problem:
- unable to repay payment.
- lack of financial support from bank &
institution
 Cont’d
3. Defective plant & machinery
- lack of technical & professional skill
- lack of technology
- in efficient in machine.
- high maintance
4. Entrepreneurial incompetence
- lack of knowledge of market
- lack of efficient professional skill
- lack of innovation
 Cont’d
5. Management problem
- inefficiency of management function
- lack of expert opinion.
6. Labour problem:
- lack of inefficient lab our
- lack of coordination in work.
- unsatisfied labour
 Consequences of IS
1.Set back to a employment prospects.
- lack of opportunity
- lack labour intensive
- high unsatisfaction rate
2. Fear of industrial unrest
- high unemployment rate
- low productivity
- unfavour of trade union
 Cont’d
3.Wastage of resources
- lack of infrastructure facilities
- block of capital equipment
4.Adverse impact on related units
- channel breakdown between industries
5.Adverse effect on investor & employment
- low satisfaction of investor
- negative effect on the same line new
entrepreneur
- effect on the growth rate of industry
 Cont’d
6. Losses to banks & financial institution
- low recovery rate of banks & institution
- loss image in the market
- lack of financial support for new industries
7.Loss of revenue to government
loss of income to government
loss of government benefit
 Remedial Measures
1. Steps taken by banks.
- giving adequate working capital when there is a
shortage.
- 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 government agency.
 Cont’d

2. Policy framework of the government

- according the guideline that are lying on the
october 1981 that monitor the sickness of
industry .
- swot analysis of industry
- liberalization on sick industries
 Cont’d
3.Consessions by government
- giving high facilities to large industry who take
over the small sector for revival
- high liberalizations in terms of financial rather
than intervention.
- Introduce the scheme for sick industry
4. Steps for detecting sickness early
- corrective action taken by the RBI
 Cont’d
5. The industrial investment bank of India
- set up the IRCI (industrial reconstruction
corporation of india.)
- convert IRCI into IRBI in March 20 ,1985
- convert IRBI into IIBI in march 27, 1997
 COMPANIES (SECOND
AMENDMENT)ACT 2002
Definition of Sick Industrial Company
As started earlier, Companies (Second
Amendment) Act, 2002 changed the definition of
sick industrial company stands considerably
changed. According to the Companies (Second
amendment) Act ,2002,sick industrial company
means an industrial company which has (1) the
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 ;
NATIONAL COMPANY LAW
TRIBUNAL
The Act was provides for the constitution of a National
Company Law Tribunal. The function that are presently
being handled by the Company Law Board (dispute
resolution and compliance with certain provisions of the
Companies Act 1956.

Members:
NCLT shall consist of a President and such number of
judicial and technical
member not exceeding 62, to be appointed by the
government.
 National Company Law
Appellate Tribunal
Appeal against order of tribunal will be with
National Company Appellate Tribunal.
Appeal has to be filled within 45 days from date
of receipt of order.
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.
 Reference to NCLT by Sick
Company
Where an industrial company has become a sick
industrial company, the Board of Directors of such
company shall make a reference to the Tribunal
and prepare a scheme for its revival and
rehabilitation.
The central government or the RBI or a State
government or public finance institution can also
make a reference in respect of a company which
has become a sick company.
 SICA Vs Companies
(Amendment) Act, 2002
In the new atmosphere of liberalization and
openness that has emerged during the last
decade, there is a clear preference in favor of
liquidation of sick industrial companies rather
than rehabilitation.
Some important changes in the new Act are as
follow:
1. The definition of sick industrial company has
been changed.
 Cont’d
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 letter , it will be classified
as sick.
 Cont’d

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’.
 Cont’d
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 passed without making enquiry.
Earlier, under Section 16(1) of SICA, such order
could be passed only after making enquiry.
 Cont’d

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 forum.
5. The entire focus of NCLT is expected to be on
speeding up the process of liquidation of sick
company rather than rehabilitation.