The Sick Industrial Companies (Special Provisions) Repeal Act, 2003

(AS PASSED BY THE HOUSES OF PARLIAMENT)
A BILL

Act :

CHAPTER I: PRELIMINARY

1. Short title, extent, commencement and application

(1) This Act may be called the Sick Industrial Companies (Special Provisions) Act, 1985.

(2) It extends to the whole of India.

(3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision of this Act to the commencement of this Act shall be construed as a reference to the commencement of that provision.

(4) It shall apply, in the first instance, to all the scheduled industries other than the scheduled industry relating to ships and other vessels drawn by power.

(5) The Central Government may, in consultation with the Reserve Bank of India, by notification, apply the provisions of this Act, on and from such date as may be specified in the notification, to the scheduled industry relating to ships and other vessels drawn by power.

2. Declaration

It is hereby declared that this Act 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.

3. Definitions

(1) In this Act, unless the context otherwise requires-

(a) appellate authority means the appellate authority for industrial and financial reconstruction constituted under section 5;

(b) board means the Board for Industrial and Financial Reconstruction established under section 4;

(c) Chairman means the Chairman of the Board, or as the case may be, the appellate authority;

(d) company means a company as defined in section 3 of the Companies Act, 1956 1[***];

2[(da) date of finalisation of the duly audited accounts means the date on which the audited accounts of the company are adopted at the annual general meeting of the company;]

(e) industrial company means company which owns one or more industrial undertakings;

(f) industrial undertakings means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include-

(i) an ancillary industrial undertaking as defined in clause (aa) of section 3 of the Industries (Development and Regulation) Act, 1951; and

(ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid section 3;

(g) member means a member of the board or, as the case may be, the appellate authority and includes the Chairman thereof;

2[(ga) net worth means the sum total of the paid-up capital and free reserves.

Explanation: For the purposes of this clause, free reserves means all reserves credited out of the profits and share premium account but does not include reserves credited out of re-evaluation of assets, write-back of depreciation provisions and amalgamation;]

(h) notification means a notification published in the Official Gazette.

3[(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;]

(j) prescribed means prescribed by rules made under this Act;

(k) [Omitted by Act 12 of 1994];

(l) Reserve Bank means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934;

(m) scheduled bank means a bank for the time being included in Schedule II to the Reserve Bank of India Act, 1934;

(n) scheduled industry means any of the industries specified for the time being in Schedule I to the Industries (Development and Regulation) Act, 1951;

3[(o) 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.

Explanation: For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993, registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company;]

(p) State level institution means any of the following institutions, namely,-

(i) State Financial Corporations established under section 3 or section 3A and institutions notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951)

(ii) State Industrial Development Corporations registered under the Companies Act, 1956 (1 of 1956)

(iii) Such other institutions, being companies and not being public financial institutions, engaged in the development or financing of industrial undertakings, as the Central Government may, by notification, specify:
 

PROVIDED that no institution shall be so specified unless not less than fifty-one per cent of the paid-up share capital thereof is held by any State Government or Governments or by any institution or institutions mentioned in sub-clauses (i) and (ii) or partly by one or more public financial institutions or institutions mentioned in sub-clauses (i) and (ii) and partly by one or more State Governments.

(2) (a) Words and expressions used and not defined in this Act shall have the meanings, if any, respectively assigned to them in the Companies Act, 1956.

(b) Words and expressions used but not defined either in the Act or in the Companies Act, 1956, shall have the meanings, if any, respectively assigned to them in the Industries (Development and Regulation) Act, 1951.

(3) Any reference in this Act to any other enactment or any provision thereof, shall, in relation to an area in which such enactment of such provision is not in force, be construed as a reference to the corresponding law or the relevant provision of the corresponding law, if any, in force in that area.

Chapter II Board and Appellate Authority For Industrial and Financial Reconstruction

4. Establishment of Board

1. With effect from such date as the Central Government may, by notification, appoint, there shall be established a Board to be known as the Board for Industrial and Financial Reconstruction to exercise the jurisdiction and powers and discharge the functions and duties conferred or imposed on the Board by or under this Act.

2. The Board shall consist of a Chairman and not less than two and not more than fourteen other members, to be appointed by the Central Government.

3. The Chairman and other members of the Board shall be persons who are or have been or are qualified to be High Court Judges, or persons of ability, integrity and standing who have special knowledge of, and professional experience of not less than fifteen years in science, technology, economics, banking industry, law, labour matters, industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of , or professional experience in which, would be in the opinion of the Central Government useful to the Board.

5. Constitution of appellate authority

1. The Central Government may, by notification, constitute, with effect from such date as may be specified therein, an appellate authority to be called the Appellate Authority for Industrial and Financial Reconstruction consisting of a Chairman and not more than three other members, to be appointed by that government, for hearing appeals against the orders of the Board under this Act.

2. The Chairman shall be a person who is or has been a Judge of the Supreme Court or who is or has been a Judge of a High Court for not less than five years.

3. A member of the appellate authority shall be a person who is or has been a Judge of a High Court or who is or has been an officer not below the rank of a Secretary to the Government of India or who is or has been a member of the Board for not less than three years.

6. Term of office, conditions of service, etc. of Chairman and other members

1. Before appointing any person as the Chairman or other member, the Central Government shall satisfy itself that the person does not and will not, have any such financial or other interest as is likely to affect prejudicially his functions as such member.

2. The Chairman and every other member shall hold office for such period, not exceeding five years, as may be specified by the Central Government in the order of his appointment, but shall be eligible for reappointment :
   
   PROVIDED that no person shall hold office as the Chairman or other member after he has attained the age of sixty-five years.

3. Notwithstanding anything contained in sub-section (1), a member may-

(a) by writing under his hand and addressed to the Central Government resign his office at any time;

(b) be removed from his office in accordance with the provisions of section 7.

4. A vacancy caused by the resignation or removal of the Chairman or any other member under sub-section (3) or otherwise shall be filled by fresh appointment.

5. In the event of the occurrence of a vacancy in the office of the Chairman by reason of his death, registration or otherwise, such one of the members as the Central Government may, by notification, authorise in this behalf shall act as the Chairman till the date on which a new Chairman, appointed in accordance with the provisions of this Act, to fill such vacancy, enters upon his office.

6. When the Chairman is unable to discharge his functions owing to absence, illness or any other cause, such one of the members as the Chairman may authorise in writing in this behalf, shall discharge the functions of the Chairman, till the date on which the Chairman resumes his duties.

7. The salaries and allowances payable to and the other terms and conditions of service of the Chairman and other members shall be such as may be prescribed:
   
   PROVIDED that neither the salary and allowances nor the other terms and conditions of service of the Chairman or any other member shall be varied to his disadvantage after his appointment.

8. The Chairman and every other member, shall, before entering upon his office make a declaration of fidelity and secrecy in the form set out in the Schedule.

9. The Chairman or any other member ceasing to hold office as such shall not hold any appointment or be connected with the management or administration in any company in relation to which any matter has been the subject matter of consideration before the Board or, as the case may be, the appellate authority, for a period of five years from the date on which he ceases to hold such office.

7. Removal of members from office in certain circumstances

(1) The Central Government may remove from office any member, who-

(a) has been adjudged as insolvent, or

(b) has been convicted of an offence which, in the opinion of the Central Government, involves moral turpitude, or

(c) has become physically or mentally incapable of acting as a member, or

(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a member, or

(e) has so abused his position as to render his continuance in offence prejudicial to the public interest.

(2) Notwithstanding anything contained in sub-section (1), no member shall be removed from his office on the ground specified in clause (d) or clause (e) of that sub-section unless the Supreme Court on a reference being made to it in this behalf by the Central Government, has, on an inquiry held by it in accordance with such procedure as it may specify in this behalf, reported that the member ought, on such grounds, to be removed.

8. Secretary, officers and other employees of Board or appellate authority

1. The Central Government shall appoint a Secretary to the Board and a Secretary (by whatever name called) to the appellate authority to exercise and perform, under the control of the Chairman, such powers and duties as may be prescribed or as may be specified by the Chairman.

2. 3[(2) The Central Government may provide the Board and the appellate authority with such other officers and employees as may be necessary for the efficient performance of the functions of the Board and the appellate authority.]

3. The salaries and allowances payable to and the conditions of service of the Secretary and other officers and employees of the Board and the appellate authority shall be such as may be prescribed:
   
   PROVIDED that such Secretary, officer or other employee shall, before entering upon his duties, make a declaration of fidelity and secrecy in the form set out in the Schedule.

9. Salaries, etc. be defrayed out of the Consolidated Fund of India

The salaries and allowances payable to the members and the administrative expenses, including salaries, allowances and pension, payable to or in respect of the officers and other employees of the Board and the appellate authority shall be defrayed out of the Consolidated Fund of India.

10. Vacancies, etc. not to invalidate proceedings of Board and appellate authority

No act or proceeding of the Board, or, as the case may be, the appellate authority shall be questioned on the ground merely of the existence of any vacancy or defect in the constitution of the Board or the appellate authority or any defect in the appointment of a person acting as a member of the Board or the appellate authority.

11. Members and staff of Board and appellate authority to be public servants

The Chairman and other members and the officers and other employees of the Board and the appellate authority shall be deemed to be public servants within the meaning of section 21 of the Indian Penal Code.

12. Constitution of Benches of Board or appellate authority

(1) The jurisdiction, powers and authority of the Board or the appellate authority may be exercised by Benches thereof.

(2) The Benches shall be constituted by the Chairman and each Bench shall consist of not less than two members.

3[(3) If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of 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 make a reference to the Chairman of the Board or, as the case may be, the appellate authority who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other members and such point or points shall be decided according to the opinion of the majority of the members who have heard the case including those who first heard it.

13. Procedure of Board and appellate authority

(1) Subject to the provisions of this Act, the Board or, as the case may be, the appellate authority, shall have powers to regulate-

(a) the procedure and conduct of the business;

(b) the procedure of the Benches, including the places at which the sittings of the Benches shall be held;

(c) the delegation to one or more members of such powers or functions as the Board or, as the case may be, the appellate authority may specify.

(2) In particular and without prejudice to the generality of the foregoing provisions, the powers of the Board or, as the case may be, the appellate authority, shall include the power to determine the extent to which persons interested or claiming to be interested in the subject matter of any proceeding before it may be allowed to be present or to be heard, either by themselves or by their representatives or to cross-examine witnesses or otherwise to take part in the proceedings.

(3) The Board or the appellate authority shall, for the purposes of any inquiry or for any other purpose under this Act, have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying suits in respect of the following matters, namely,-

(a) the summoning and enforcing the attendance of any witness and examining him on oath;

(b) the discovery and production of document or other material object producible as evidence;

(c) the reception of evidence on affidavit;

(d) the requisitioning of any public record from any court or office;

(e) the issuing of any commission for the examination of witnesses;

(f) any other matter which may be prescribed.

14. Proceedings before Board or appellate authority to be judicial proceedings

The Board or the appellate authority shall be deemed to be a civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 and every proceeding before the Board or the appellate authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purposes of section 196 of the Indian Penal Code.

CHAPTER III : 4[REFERENCES, INQUIRIES AND SCHEMES]

15. Reference to Board

1. When an industrial company has become a sick industrial company, the Board of Directors of the company, 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 Board for determination of the measures which shall be adopted with respect to the company:
   
   PROVIDED that if the Board of Directors has sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company.

2. Without prejudice to the provisions of sub-section (1), 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, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Board 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.

16. Inquiry into working of sick industrial companies

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 matters 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-
   
   2[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 5[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 2[or in the public interest.]
   
   2[(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, 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, and any provisions 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;
   
   2[(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.]

17. Powers of Board to make suitable order on the completion of inquiry

1. (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, any order in writing, whether it is practicable for the company to 6[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 6[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 6[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.

4. The Board 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, 2[or if the company fails to revive in pursuance of the said order,] review such order or a reference in that behalf from any agency referred to in sub-section (2) of section 15 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.

18. Preparation and sanction of schemes

• Where an order is made under sub-section (3) of section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely,-
  
  3[(a) the financial reconstruction of the sick industrial company;]
  
  (b) the proper management of the sick industrial company by change in, or take over of, management of the sick industrial company;
  
  7[(c) the amalgamation of-
  
  (i) the sick industrial company with any other company; or
  
  (ii) any other company with the sick industrial company;]
  
  (hereafter in this section, in the case of sub-clause (i), the other company, and the case of sub-clause (ii), the sick industrial company, referred to as transferee company);]
  
  (d) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company;
  
  7[(da) the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law;]
  
  (e) such other preventive, ameliorative and remedial measures as may be appropriate;
  
  (f)such incidental, 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 (e).

2. The scheme referred to in sub-section (1) may provide for any one or more of the following, namely,-

1. the constitution, name and registered office, the capital, assets, powers, rights, interests, authorities and privileges, duties and obligations for the sick industrial company or, as the case may be, of the 8[transferee company;]

2. the transfer to the 8[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;

3. any change in the Board of Directors, or the appointment of a new Board of Directors, of the sick industrial company and the authority by whom, the manner in which and other terms and conditions on which, such change or appointment shall be 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;

4. the alteration of the memorandum or articles of association of the sick industrial company or, as the case may be, of the 8[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;

5. 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 17;

6. the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Board considers necessary in the interests of the reconstruction, revival or rehabilitation of the sick industrial company or for the maintenance of the business of the sick industrial company;

7. the allotment to the shareholders of the sick industrial company of shares .in the sick industrial company or, as the case may be, in the 8[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 amalgamation; or
   
   (ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced;

8. any other terms and conditions for the reconstruction or amalgamation of the sick industrial company;

9. 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;

10. lease of the industrial undertaking of the sick industrial company to any person, including a co-operative society formed by the employees of such undertaking;

11. method of sale of the 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;

12. transfer or 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 the sick industrial company;

13. 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.

3. 3[(a) The scheme prepared by the operating agency shall be examined by the Board and a copy of the scheme with modification, if any, made by the Board 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 Board shall publish or cause to be published the draft scheme in brief in such daily newspapers as the Board may consider necessary, for suggestions and objections, if any, within such period as the Board may specify.]
   
   (b) The Board may make such modifications, if any, in the draft schemes 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 8[transferee company] and any other 9[* * *] company concerned in the amalgamation and from any shareholder or any creditors or employees of such 9[* * *] companies:
   
   PROVIDED that where the scheme relates to amalgamation 10[* * *], 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 8[transferee company.]

4. The scheme shall thereafter be sanctioned, as soon as may be, by the Board (hereinafter referred to as the $sanctioned scheme$) and shall come into force on such date as the Board may specify in this behalf:
   
   PROVIDED that different dates may be specified for different provisions of the scheme.

5. The Board 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 as may be specified in the 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 sub-section (1).
   
   2[(6A) 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.]

7. The sanction accorded by the Board under sub-section (5) 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 Board to be a true copy thereof, shall, in all legal proceedings (whether in appeal or otherwise) be admitted as evidence.

8. 3[(8) 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.]

9. If any difficulty arises in giving effect to the provisions of the sanctioned scheme the Board may, on the recommendation of the operating agency 2[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 difficulty.

10. The Board 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 such sick industrial company as may be specified in the order.

11. Where the whole of the undertaking of the sick industrial company is sold under a sanctioned scheme, the Board may distribute the sale proceeds to the parties entitled thereto in accordance with the provisions of section 529A and other provisions of the Companies Act, 1956.

12. 2[(12) The Board may monitor periodically the implementation of the sanctioned scheme.]

19. Rehabilitation by giving financial assistance

1. Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or 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, bank, 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. very 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 2[or within such further period, not exceeding sixty days, as may be allowed by the Board, 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 Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.
   
   24[(3A) 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 and a bank from amongst themselves which shall be responsible 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.
   
   (3B) The financial institution and the bank designated under sub-section (3A) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard.]

4. 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 Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.
   
   24[19A. Arrangement for continuing operations, etc. during inquiry

(1) At any time before completion of the inquiry under section 16, the sick industrial company or 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 or any other institution, bank or authority providing or intending to provide any financial assistance by way of loans or advances or guarantees or reliefs or concessions to the sick industrial company may make an application to the Board-

(a) agreeing to an arrangement for continuing the operations of the sick industrial company; or

(b) suggesting a scheme for the financial reconstruction of the sick industrial company.

(2) The Board may, within sixty days of the receipt of the application under sub-section (1), pass such orders therein as it may deem fit.]

20. Winding up of sick industrial company

1. 25[(1) Where the Board, after making inquiry under section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of 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.]

2. The High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956.

3. For the purpose of winding up of the sick industrial company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sick industrial company and the officer so appointed shall for the purpose of the winding up of the sick industrial company be deemed to be, and have all the powers of, the official liquidator, under the Companies Act, 1956.

4. Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may 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 529A, and other provisions of the Companies Act, 1956.

21. Operating agency to prepare complete inventory, etc.

Where 11[for the proper discharge of the functions of the Board under this Act] the circumstances so require, the Board may, through any operating agency, cause to be prepared-

(a) with respect to 12[a company], a complete inventory of-

(i) all assets and liabilities of whatever nature;

(ii) all books of account, registers, maps, plans, records, documents of title or ownership of property and all other documents of whatever nature relating thereto;

(b) a list of shareholders and list of creditors showing separately in the list of creditors, the secured creditors and the unsecured creditors;

(c) a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of a part or whole of the industrial undertaking of the company or for fixation of the lease rent or share exchange ratio;

(d) an estimate of reserve price, lease rent or share exchange ratio; and

(e) proforma accounts, where no up to date audited accounts are available.

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, 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 2[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.

2. Where the management of the sick industrial company is taken over or changed 2[in pursuance of any scheme sanctioned under section 181, notwithstanding anything contained in the Companies Act, 1956, or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law-

(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;

(b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board.

3. 13[Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period] of consideration of any scheme under section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, 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 of 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 of 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 :
   
   PROVIDED that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.

4. Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956, or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, Tribunal, officer or other authority or of any submission, settlement or standing order and accordingly-
   
   (a) 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, Tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
   
   (b) on the declaration ceasing to have effect-

   (i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and
   
   (ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.

5. In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded.
   
   2[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 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 proceeding relating to the winding up before the concerned High Court.]

CHAPTER IV: PROCEEDINGS IN CASE OF POTENTIALLY SICK INDUSTRIAL COMPANIES, MISFEASANCE PROCEEDINGS, APPEALS AND MISCELLANEOUS

23. Loss of fifty per cent net worth by industrial companies

1. If the accumulated losses of an industrial company, as at the end of any financial year (hereinafter referred to as the relevant financial year) have resulted in erosion of fifty per cent, or more of its peak net worth during the immediately 14[preceding four financial years],-
   
   (a) the company shall, within a period of sixty days from the date (hereinafter referred to as the relevant date) of finalisation of the duly audited accounts of the company of the relevant financial year-

(i) report the fact of such erosion to the Board; and

(ii) hold a general meeting of the shareholders of the company for considering such erosion;

(b) the Board of Directors shall, at least twenty-one days before the date on which the meeting under sub-clause (ii) of clause (a) is held, forward to every member of the company a report as to such erosion and the causes for such erosion;

(c) the company may, by ordinary resolution passed at the meeting held under clause (a) remove a director (being a director appointed by the members of the company) and fill the vacancy created by such removal, so far as may be, in accordance with the procedure provided in sub-sections (2) to (6) of section 284 of the Companies Act, 1956.

2. A direct or removed under sub-section (1) shall not be entitled to any compensation or damages for termination of his appointment as director or of any appointment terminating with that as director.

3. If default is made in complying with the provisions of this section, every director or other officer of the company who is in default shall be punishable with imprisonment which shall not be less than six months but which may extend to two years and with fine.
   
   2[23A. Proceedings on report, etc. of loss of fifty per cent net worth
   (1) Without prejudice to the provisions of clause (a) of sub-section (1) of section 23, 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, if it has sufficient reasons to believe that the accumulated losses of any industrial company have resulted in erosion of fifty per cent, or more of its peak net worth during the immediately preceding four financial years, report the fact of such erosion to the Board.
   
   (2) If the Board has, upon information received or upon its own knowledge, reason to believe that the accumulated losses of any industrial company have resulted in erosion of fifty per cent or more of its peak net worth during the immediately preceding four financial years, it may call for such information from the company as it may deem fit.
   
   (3) Where the Board is of the opinion that an industrial company referred to in sub-section (1) is not likely to make its net worth exceed its 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, it may require by order an operating agency to inquire into and make a report with respect to such matters as may be specified in the order.
   
   (4) After consideration of the report of the operating agency the Board may publish or cause to be published a notice in such daily newspapers as the Board may consider necessary, for suggestions and objections, if any, within such period as the Board may specify, as to why the company should not be wound up.
   
   (5) Where the Board, after consideration of the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of the opinion that the 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, the Board may record and forward its opinion to the concerned High Court in rotation to the company as if it were a sick industrial company and the provisions of sub-sections (2), (3) and. (4) of section 20 shall apply accordingly.
   
   2[23B. Power of Board to call for periodic information
   On receipt of a report under sub-clause (i) of clause (a) of sub-section (1) of section 23 or under sub-section (1) of section 23A or upon information or its own knowledge under sub-section (2) of section 23A, the Board may call for any periodic information from the company as to the steps taken by the company to make its net worth exceed the accumulated losses and the company shall furnish such information.]

24. Misfeasance proceedings

1. If, in the course of scrutiny or implementation of any scheme or proposal, it appears to the Board that any person who has taken part in the promotion, formation or management of sick industrial company or its undertaking, including any past or present director, manager or officer or employee of the sick industrial company-
   
   (a) has misapplied or retained, or become liable or accountable for, any money or property of the sick industrial company; or
   
   (b) has been guilty of any misfeasance, malfeasance or non-feasance or breach of trust in relation to the sick industrial company, the Board may, by order, direct him to repay or restore the money or property or any part thereof, with or without interest, as it thinks just, or to contribute such sum to the assets of the sick industrial company or the other person entitled thereto by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Board thinks just, and also report the matter to the Central Government for any other action which that government may deem fit.

2. If the Board is satisfied on the basis of information and evidence in its possession with respect to any person who is or was a director or an officer or other employee of the sick industrial company, that such person by himself or along with others had diverted the funds or other property of such company for any purpose other than a bona fide purpose of the company or had managed the affairs of the company in a manner highly detrimental to the interests of the company, the Board shall, by order, direct the public financial institutions, scheduled banks and State level institutions not to provide, during a period of ten years, from the date of the order, any financial assistance to such person or any firm of which person is a partner or any company or other body corporate of which such person is a director (by whatever name called).

3. No order shall be made by the Board under this section against any person unless such person has been given an opportunity for making his submissions.

4. This section shall apply notwithstanding that the matter is one for which the person may be criminally liable.

25. Appeal

1. Any person aggrieved by an order of the Board made under this Act may, within forty-five days from the date on which a copy of the order is issued to him, prefer an appeal to the appellate authority:
   
   PROVIDED that the appellate authority may entertain any appeal after the said period of forty-five days but not after sixty days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time.

2. On receipt of an appeal under sub-section (1), the appellate authority may, after giving an opportunity to the appellant to be heard, if he so desires, and after making such further inquiry as it deems fit, confirm, modify or set aside the order. appealed against 2[or remand the matter to the Board for fresh consideration.]

26. Bar of jurisdiction

No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the appellate authority or the Board is empowered by, or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

27. Delegation of powers

The Board may, by general or special order, delegate, subject to such conditions and limitations, if any, as may be specified in the order, to any member or Secretary or other officer or employee of the Board or other person authorised by the Board to manage any industrial company or industrial undertaking or any operating agency, such powers and duties except the powers and duties under sub-sections (2) and (4) of section 16, section 17, sub-sections (3) and (4) of section 19, sub-sections (1) and (4) of section 20, sub-section (3) of section 22 and section 24 under this Act as it may deem necessary.

28. Returns and information

(1) The Board shall furnish from time to time to the Central Government such returns as the Central Government may require.

(2) The Board may, for the purpose of efficient discharge of its functions under this Act, collect from, or furnish to-

(a) the Central Government,

(b) the Reserve Bank,

(c) the scheduled bank or any other bank,

(d) the public financial institution, 15[* * *]

(e) the State-level institution, 2[or

(f) the sick industrial company and in case of amalgamation, the other company,]

such information as it may consider useful for the purpose in such manner and within such time as it may think fit.

29. Power to seek the assistance of Chief Metropolitan Magistrate and District Magistrate

1. The Board or any operating agency, on being directed by the board, may, in order to take into custody or under its control all property, effects and actionable claims to which a sick industrial company is or appears to be entitled, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any property, books of account or any other documents of such sick industrial company be situate or be found, to take possession thereof, and the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, shall, on such request being made to him-

(i) take possession of such property, books of accounts or other documents; and

(ii) cause the same to be entrusted to the Board or the operating agency. =

2. For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may, in his opinion, be necessary.

3. No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority on any ground whatsoever.

30. Protection of action taken in good faith

No suit or other legal proceeding shall lie against the Board or the appellate authority, or the Chairman or any other member, officer or other employee of the Board or the appellate authority, or operating agency or any other person authorised by the Board or the appellate authority to discharge any function under this Act for any loss or damage caused or likely to be caused by any action which is in good faith done or intended to be done in pursuance of this Act.

31. Saving of pending proceedings

Where a receiver or an official liquidator has been appointed in any proceeding pending immediately before the commencement of this Act, in any High Court for winding up of an industrial company such proceeding shall not abate but continue in that High Court 2[and no proceeding in respect of such industrial company shall lie or be proceeded with further before the Board.]

32. Effect of the Act on other laws

1. The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.
   
   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 of 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 amalgamation of a company owning an industrial undertaking with another company.
   
   16[* * * ]

33. Penalty for certain offences

1. Whoever violates the provisions of this Act or any scheme, or any order of the Board, or the appellate authority and whoever makes a false statement or gives false evidence to the Board or the appellate authority, shall be punishable with simple imprisonment for a term which may extend to three years and shall also be liable to fine.

2. No court shall take cognisance of any offence under sub-section (1) 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 behalf by the Board or the appellate authority.

34. Offences by companies

1. Where any offence, punishable under this Act has been committed by a company, every person who, at the time the 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:
   
   PROVIDED that nothing contained in this sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

2. Notwithstanding anything contained in sub-section (1), where any offence punishable under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
   
   Explanation : For the purposes of this section-
   
   (a) company means any body corporate and includes a firm or other association of individuals; and
   
   (b) director in relation to a firm, means a partner in the firm.

35. Power to remove difficulties

If any difficulty arises in giving effect to the provisions of this Act or the rules, schemes or orders made thereunder, the Central Government may, by notification, remove the difficulty:

PROVIDED that no such notification shall be made by the Central Government after the expiry of a period of three years from the date on which this Act receives the assent of the President.

36. Power to make rules

1. The Central Government may, by notification, make rules for carrying out the provisions of this Act.

2. In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely-
   
   (a) the salaries and allowances payable to and other terms and conditions of service of the Chairman and other members under sub-section (7) of section 6;
   
   (b) the powers which may be exercised and the duties which may be performed by the Secretary to the Board or the appellate authority under sub-section (1) of section 8;
   
   (c) the restrictions and conditions subject to which officers and employees may be appointed to the Board or the appellate authority under sub-section (2) of section 8;
   
   (d) the salaries and allowances and other conditions of service of the Secretary and other officers and employees of the Board or the appellate authority under sub-section (3) of section 8;
   
   (e) the additional matters referred to in sub-section (3) of section 13;.
   
   (f) any other matter which is required to be, or may be, prescribed.

3. Every rule made under this Act shall be laid, as soon as may be, after it is made before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both. Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
   
   THE SCHEDULE : DECLARATION OF FIDELITY AND SECRECY
   [Sections 6(8) and 8(3)]
   
   I, ..........................., do hereby declare that I will faithfully, truly and to the best of my skills and ability, execute and perform the duties required of me as the Chairman/ Member/ Secretary/ other officer or employee of the Board for the Industrial and Financial Reconstruction/ the Appellate Authority for the Industrial and Financial Reconstruction and which properly relate to the office or position held by me in or in relation to the said Board/ Appellate Authority.
   
   I further declare that I will not communicate or allow to be communicated to any person not legally entitled thereto any information relating to the affairs of the Board/ Appellate Authority, nor will I allow any such person to inspect or have access to any books or documents belonging to or in possession of the Board/ Appellate Authority or the business of any person having any dealing with the said Board/ Appellate Authority.
   
   Signed before me Signature

Foot Notes

1 The words and figures, but does not include a government company as defined in s. 617 of that Act omitted by Act No. 57 of 1991.

2 Inserted by Act No. 12 of 1994.

3 Substituted by Act No. 12 of 1994.

4 Sections 15 to 34 came into force w.e.f. 15th. May, 1987, vide Notification No. So. 444(E), dated 28th. April, 1987.

5 Substituted for the word shall by Act No. 12 of 1994.

6 Substituted for the words make its net worth positive by Act No. 12 of 1994.

7 Clause (c) substituted by Act No. 12 of 1994.

8 Substituted for the words transferee industrial company by Act No. 12 of 1994.

9 The word industrial omitted by Act No. 12 of 1994.

20 The words of the sick industrial company omitted by Act No. 12 of 1994.

11 Substituted by Act No. 12 of 1994, for the words in relation to an inquiry or scheme.

12 Substituted for the words an industrial company by Act No. 12 of 1994.

13 Substituted for the words during the period by Act No. 12 of 1994.

14 Substituted for the words preceding five financial years by Act No. 12 of 1994.

15 The word or omitted by Act No. 12 of 1994.

16 Omitted by Act No. 12 of 1994

F.NO 77/2010/BIFR/SD & C CELL BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION SPECIAL DIRECTOR & CO-ORDINATION CELL

New Delhi, 12^th, October, 2010

Subject:- Guidelines for change of management of sick companies

In supersession of earlier guidelines, the following Guidelines have been approved by the Board for Industrial and Financial Reconstruction (BIFR) for Change of Management (COM) of sick companies.

1. Following the order of BIFR for Change of Management (COM), the company shall submit (1) Latest Audited Balance Sheet; (2) Detailed valuation of inventory of all its fixed & current assets with their book value; (3) Break-up of all its liabilities as on the above date, under the following heads (a) secured dues (of banks, institutions and others) with breakup of principal, simple/compound interest and other charges; (b) unsecured dues (with break up into pressing creditors and others); (c) workers dues; (d) statutory/Government/local body dues; and (e) contingent liabilities, if any. Amounts/ items below ₹ 10.00 lakh each could be clubbed together under one head.
   
   The above information, duly certified by the company s Chartered Accountants, should be submitted by the company to BIFR, Operating Agency (OA) and secured creditors within one month of the order of BIFR.

2. The cost of valuation of assets will be borne by the concerned company.

3. Based on the above information/documents to be received from the company, Consultant and Valuer, the OA shall prepare a profile of the company. The profile should contain, inter alia, the details of the major assets & liabilities as well as strengths & weaknesses of the company. The profile as well as the Guidelines would be shared by the OA with the parties evincing interest in joining the company as JV partner or taking it over in response to the advertisements released in this regard.

4. The OA shall issue advertisements in at least 2 prominent news papers/journals (regional and economic) within 15 days of the receipt of information from the company, seeking offers for change of management of the company by way of takeover/merger/amalgamation for the purpose of revival u/s 18(1)(b) read with Section 18(2) (i) of SICA.

5. The advertisements for change of management should be published containing brief particulars of the major assets & liabilities and location. Due and wide publicity should be provided to the advertisements by putting them on the Website of the OA and supplying copies thereof to the leading Chambers of Commerce and Industry etc. A sample/model advertisement is given in the Appendix.

6. 2% of the outstanding principal secured debt of banks/ FIs of the company shall be deposited, within 15 days of advertisement, by the interested parties as EMD at the time of submitting expression of interest. Whereafter, they will be allowed to visit the company s premises.

7. OA would facilitate visit of the interested parties to the factory premises, machineries, land, buildings etc. of the company will be allowed to inspect the same at stipulated date and time as indicated in advertisement.

8. Sixty days time from the date of release of advertisement would be allowed to the interested parties to submit their bid containing the outline of a Draft Revival Proposal for the company, which shall be time bound and indicate the additional resources to be brought in by the bidder for settling the secured debts (the statutory liabilities etc. can be settled through a scheme to be sanctioned eventually by the Board and the time-frame for the purpose of the company s revival). Other things being equal, the proposal from the existing promoters will still get a preference over others.

9. On the expiry of the time limit referred to above, OA shall scrutinize all the proposals received in response to the advertisement and evaluate the financial and technical capability of the parties to assess their suitability for taking over the management and then shortlist the suitable parties for approval of the Board. The entire exercise should be completed by the OA in 2 months from the date of closing of bid/offer.

10. The selected parties by the Board shall deposit an additional amount of 10% of the outstanding principal debt of FIs/banks to be utilized as part of the scheme to be sanctioned eventually by the Board.

11. In case of there being no appropriate response to the advertisements, the OA will submit its report to the Bench (with a copy to the company) within a week of the closing date mentioned in the advertisements. The company could, if it so desires, respond to this report within further 15 days by writing to the Bench, under copy to the OA. Thereafter, the Bench will pass further orders which may include issue of a Show Cause Notice (SCN) for winding up of the company, without holding any further hearing, but after due consideration of the reply from the company, if any, received on time.

12. The cost of the advertisement will be initially borne by OA and subsequently will be re-imbursed by the company. The OA will not delay the release of the advertisement on this account.

13. Any undue delays on the part of the company should be immediately brought to the Board s notice for further action/directions.

These Guidelines will come into force with effect from date of issue. Guidelines are circulated to all concerned for information and necessary action. A copy of the Guidelines has been placed on BIFR Website (www.bifr.nic.in) also.

Sd/
( G.Bhujabal)
Secretary

CIRCULATION

PS to Hon ble Chairman
PPS to Hon ble Member (VKM)
PPS to Hon ble Member (SB)
Section Officer(Bench-I)
Bench Officer (Bench-II)
Bench Officer (Bench-III)
Section Officer(Mon-I)
Section Officer(Mon-II)
Section Officer(Mon-III)
Computer Cell
All Officers in BIFR

Appendix _______________________ (Name of the OA) OFFERS INVITED FOR TAKEOVER/MERGER/AMALGAMATION OF _________ (Name of the Company) LOCATED AT ____ (Location of the company)

Whereas the aforesaid company was registered as a sick industrial company in the BIFR in ________(year) and the proceedings under SICA for revival are underway.

Pursuant to the directions issued by BIFR, _____________ (Name of OA), as Operating Agency (OA) of BIFR, invites offers for change in/take over of management/ merger/ amalgamation as per measures listed in Section 18(1)(b) & 18(2)(i) of SICA for rehabilitating a company, having facilities for manufacturing of ______________ (name of the product manufactured).

OA will be generally guided, inter-alia, by the following main considerations while evaluating the offers, viz. (i) Proven financial, technical & managerial capabilities (ii) Acceptability to Financial Institutions & Banks (iii) Minimum possible reliefs/ concessions from Financial Institutions, Banks, State/ Central Government (iv) Experience in similar industry; (v) Willingness and ability to bring in requisite funds by way of fresh equity/ interest-free unsecured loans for the company s rehabilitation.

Interested parties may inspect the factory premises/unit/assets etc of the company between ___________.(time) to .___________ (time) from __________.(date) to.____________ (date).

Interested parties may contact the OA for a copy of the Guidelines for change of Management (COM) and detailed profile of the company. The interested parties shall deposit 2% of the outstanding principal secured debt of banks/ FIs of the company as EMD within 15 days of the release of this advertisement. in sealed envelope to:

_________________________ Name & Designation of officer of OA

_________________________ Address of OA

The complete offer in sealed cover should reach at the above address by --------------(indicate the date) before 1630 hrs. OA/ BIFR reserve the right to accept or reject any offer without assigning any reason therefore.

Dated : ______________

LIST OF OPERATING AGENCIES (OAs)

• INDUSTRIAL DEVELOPMENT BANK OF INDIA

• INDUSTRIAL RESERVE BANK OF INDIA

• INDUSTRIAL FINANCIAL CORPN. OF INDIA

• INDUSTRIAL CREDIT OF INVESTMENT CORPN. OF INDIA

• STATE BANK OF INDIA

• CANARA BANK

• PUNJAB NATIONAL BANK

• BANK OF INDIA

• CENTRAL BANK OF INDIA

• BANK OF BARODA

• INDIAN BANK

• STATE BANK OF BIKANER AND JAIPUR

• UCO BANK

• UNION BANK OF INDIA

• UTTAR PRADESH FINANCE COORPORATION

• STATE BANK OF HYDERABAD

• STATE BANK OF INDORE

• STATE BANK OF MYSORE

• STATE BANK OF PATIALA

• STATE BANK OF SAURASHTRA

• STATE BANK OF TRAVANCORE

• DENA BANK

• SYNDICATE BANK

• ALLAHABAD BANK

FILING OF REFERENCE

Reference by the Companies may be filled in Form ‘A’ U/s 15(1) of the Sick Industrial Companies (Special Provision) Act. 1985. Form ‘A’ and copies of the Act. are available with all the leading Book Agencies. Assistance from PRO, BIFR can be taken in filing the references. However, PRO will not be responsible as to the correctness of the information & details furnished by the company. Some of the essential feature/information as per Form ‘A’ one given below:-

1. Date of reference.

2. Name & address of the informant.

3. Name & address of the industrial company and location of its factories.

Head Office:

Registered Office:

Factory:

4. Number of workers employed in the factory.

5. Whether the unit is working/closed w.e.f.

6. Whether sickness claimed on the basis of finalized/audited accounts with the year ending.

7. Business activities as to whether it falls under Scheduled Industry as per col. 3 © of Form ‘A’.

8. Date of registration of the company and the State where it is registered

State:

Incorporation:

Industry:

Factory:

9. Net worth as defined in section 3(1)(0) of the SICA, 1985.

(a) Paid up Capital: ₹

(b) Total Reserves: ₹

(c) Net worth (Total): ₹

10. Accumulated losses at the end of financial year: ₹

11. Investment in Plant & Machinery: ₹

12. Whether the Company is subsidiary/auxiliary or not. If yes, the name of the company.

13. Whether any official liquidators/receiver has been appointed in any company petition. If so case No., date of filing and date of order of High Court.

14. Position of other companies, if any, in the same group/house/associate etc. Indicate Registration Number and the Bench to which assigned.

F.NO. 58/ 2010/BIFR/SD & COORD. CELL BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION SPECIAL DIRECTOR & CO-ORDINATION CELL

New Delhi, 28th January 2011(CORRIGENDUM)

Subject:-Procedure and guidelines to be followed by Asset Sale Committee (ASC) appointed by BIFR for sale of assets of sick companies.

Attention is drawn to para 20 of the BIFR s OM No. 58/ 2008/ BIFR/ SD&C Cell dated 12th October 2010 on the above subject. The Board in its meeting dated 30.12.2010 has decided to amend the above para as given below:

For; "20. The Asset sale Committee shall obtain the prior permission / approval of the Board, for any relaxation of the above guidelines."

Read: "20. If any relaxation/deviation of the aforesaid guidelines are considered necessary by the ASC, the Committee shall, with full justification, approach and obtain prior permission of the Board before proceeding further."

The above amendment in the guidelines for Asset Sale Committee (ASC) will come into force with effect from the date of issue. These guidelines are forwarded to all concerned for information and necessary action.

( Capt. K. Paul James )
Under Secretary (Admn.)

CIRCULATION

1) PS to Hon ble Chairman
2) PPS to Hon ble Member (VKM)
3) PPS to Hon ble Member (SB)
4) PS to Secretary
5) Section Officer(Bench-I)
6) Bench Officer (Bench-II)
7) Bench Officer (Bench-III)
8) Section Officer(Mon-I)
9) Section Officer(Mon-II)
10)Section Officer(Mon-III)
11)Computer Cell
12)All Officers in BIFR

Chairman's Office

Enclosed please find herewith the Guidelines for preparation of DRS along with check list for adoption by all Benches. This has the approval of Hon. Chairman and all Hon. Members.

(V. Arumugham)
PPS to Hon Chairman Date :-30-04-2008

PPS to HM(BS) PPS to HM(KCV) PPS to HM(PR) Consultant (AB), Consultant (KG), Consultant & (WVGVRAB), BO-II, BO-III, SO(B-I) DD(MON)

GUIDELINES FOR PREPARATION OF REHABILITATION SCHEME

1.1 The company shall provide detailed, item -wise inventory of all its fixed and current assets with their book values as on the last ABS date and also estimated as on the cut-off-date (COD). It shall also furnish detailed break up of all its liabilities, as on the same dates, under the heads of (i) Secured dues (of banks, institutions and others with break up into Principal, simple/ compound interest and other charges etc.); (ii) Unsecured dues including electricity dues (with break up into pressing creditors and others); (iii) Workers

dues; (iv) Dues towards Government/ statutory/ local bodies/ PF/ ESI: and (v) Contingent liabilities, if any. In case the last balance sheet is yet to be audited, provisional figures may be given. In such a situation, the previous year s ABS figures should be shown. The above information based on ABS/ estimates, as on above dates, should be supplied to BIFR (4 sets), within a period of (4) weeks. This information should be duly certified by the company s Director (Finance)/ statutory auditor. Amounts below Rupees one lakh each could be clubbed together. The details, as on the COD, shall form an Annexure to the revival proposal as also the draft rehabilitation scheme (DRS) to be circulated by the Board, if rehabilitation is feasible. No DRS will be circulated in the absence of this information.

1.2 The company in their proposal shall specify the cut off date (COD) and indicate clearly as to when their net worth will become positive. The period for the rehabilitation scheme (i.e. the period by which accumulative losses will be wiped out) should be minimum possible and in any case not exceed seven years, i.e. the limit fixed by RBI guidelines in this regard.

1.3 In case the company has not undertaken valuation of its assets by any Govt./ Bank approved valuer in the recent past, the company shall get its fixed assets valued by Govt./ bank approved valuer, within a period of three (3) weeks time, at its own cost. The valuation Report must be shared with all concerned agencies immediately upon receipt of the same and four

(4) copies thereof would also be submitted to BIFR.

1.4 If so ordered specifically by BIFR, prior to formulation of any draft scheme for revival, a detailed Techno-Economics Viability (TEV) study should be carried out by the OA at the company s cost. The appointment of the technical consultants would be finalized in consultation with the company but the OA s decision in this regard would be final. The TEVS and Valuation Reports should be shared with all concerned agencies from whom reliefs and concessions are being envisaged immediately on receipt, and four copies thereof submitted to BIFR. In case the TEVS valuation report is bulky, only a gist thereof may be submitted to BIFR copies.

1.5 While conducting the T.E.V. study the following should be kept in view:

a) The current industry profile as well as the perspective for the next 5-6 years, with appropriate demand forecasting and competitive environment.

b) Desirable cost reduction measures.

c) Managerial competence of the promoters and the executive level suggesting improvements therein.

d) Contingent liabilities.

14. The company shall submit a comprehensive and fully tied up proposal, indicating verifiable means of finance, within a period of four (4) weeks, to all concerned from whom it expects reliefs. The proposal should preferably be based on RBI parameters. Failing that, chances for one time settlement (OTS) of secured dues of the company could also be explored.

15. As a certain time-gap between preparation of the draft scheme by the company/ MA vis -à -vis its sanction by the BIFR would be inevitable, the company/OA, besides ensuring repayment of the crystalised dues up to the COD, would also ensure that the fund required to meet such liabilities for this intervening period is also provided in the draft scheme to be considered by the Board.

16. The company shall furnish in their proposal the names ad addresses of all concerned agencies from whom reliefs/ concessions are required u/ s 19 of SICA, clearly indicating reliefs & concessions envisaged from each.

17. The scheme should take care of all the known liabilities of the company. Dues of the unsecured creditors should also be given appropriate treatment, which, however, should not be better than the one provided for the secured dues of the company.

18. In respect of Govt./ statutory/ local bodies, only those reliefs & concessions should be included which have reasonable prospects of being granted. The dues of the pressing creditors such as State Electricity Boards (SEBs) etc. should be covered. If any sacrifices are expected form workers, the same shall be discussed with them and their written consent shall be obtained.

7.1 The Company/ OA would ensure infusion of atleast 30% of the total cost of the revival scheme (excluding the value of reliefs & concessions and other sacrifices, by the promoter(s). The projections in the draft scheme should not exceed the industry s average and the DSCR should not fall below 1.33.

7.2 Any shortfall in cash-flow projections should be met by the promoters by bringing in interest-free fund from sources outside the company. Various measures for strengthening and streamlining the management setup like appointment of Concurrent Auditor(s); constitution of Management Committee and appointment of nominee Directors shall be suggested. Specific dates should be mentioned for discharging each of the commitments/obligations.

8.1 Working capital needs should be assessed in consultation with Banks with a consensus arrived at on the method of lending, quantification of irregular component and other connected issues, like margin requirement, level of inventory, and level of finance as per latest credit policy of RBI.

8.1 As per loan agreements, the company would be required to route its sale proceeds/ transactions through its financing banks. Banks should allow the sick company to operate its accounts without any tagging unless tagging is permitted by BIFR or agreed to by the company. If the company is permitted by BIFR to maintain accounts with another bank, statement of account from such bank should be given to the financing banks by the company at monthly intervals to enable them to verify the utilization of sale proceeds.

8.2 The company shall not dispose of, lease out, encumber or alienate any of its fixed or current assets, without specific prior approval of BIFR. However, if the unit is working, the current assets could be utilized for running day-to-day operations, subject to keeping proper records thereof and routing all transactions through the account with the company s financing bank(s) only unless specifically permitted as stipulated under 8.2.

19. The company/ promoter(s) can induct strategic investor(s)/ copromoter(s), but the company/ existing promoter(s) would ensure that such induction of strategic investor(s) / co-promoter(s) does not entail change of management (COM) of the company. The company/ promoter(s) would furnish the details of such strategic investor(s)/ co-promoter(s) along with the copies of MOU(s)/ agreement(s) entered into with them. In case COM of the company is envisaged, by way of introduction of strategic investor(s)/co-promoter(s), the same need to be done through a transparent process and the Company/OA shall obtain specific prior permission of BIFR for COM.

20. The company shall note that protection of Section 22(1) of SICA would not be available to it against withholding of any of the workers dues, including EPF & ESIC dues (other than damages levied, if any), gratuity, wages for the working period, etc. The company shall not default in the timely payment of any such dues on the ground that its case is pending with the BIFR.

21. The secured and unsecured creditors are not permitted to file/pursue suits already filed at this stage. The Bench, however, would reconsider its decision in this regard, if the directions issued by the Board are not complied with by the company, within the given time frame.

22. In case of change in the Accounting Year beyond 3 months, prior approval for the same may be obtained from the concerned Registrar of Companies.

23. ESIC and EPF authorities shall convey their dues with break -up viz principal, interest, penalties, etc. to the OA within a period of 4 weeks, along with the acceptable mode of payment thereof as per their policy.

24. BIFR may consider change of management (COM) if the company is not able to submit a fully tied up rehabilitation scheme within a reasonable time.

25. The company would allow the OA to have access to all information and allow inspection of the plant and furnish authentic date to them, as required, promptly. Any instance of non -cooperation of delay on the company s part would be viewed seriously. The OA in turn shall ensure that the roles of BIFR s OA and Bank/ Financial institution as the lending organizing are kept distinct. The actual cost to be incurred by the OA shall be borne by the company.

26. Failing availability of any acceptable proposal & other relevant information from the company within the given time frame, the OA may work out a fully tied up scheme of its own under RBI guidelines, if practicable. Such a scheme could be offered to interested parties if change of management becomes necessary in future.

27. The OA, upon receipt of the draft revival proposal (DRP) from the company, would examine/ consider the same in a joint meeting (JM) of the concerned agencies from whom the reliefs & concessions are being envisaged and, in case the said proposal is found to be feasible/ viable and also found to be generally acceptable by he concerned agencies from whom the reliefs & concessions are being envisaged, the OA would prepare a draft of revival scheme for the company s revival in corporating, inter-alias, therein the outcome of discussions/ decisions in the said JM and submit the dame to the Board, along with the minutes of the JM for its further consideration by the Board. The OA would complete this exercise of preparation of draft scheme for the company s revival within a period of six (6) weeks from the date of receipt of the draft revival proposal from the company.

18.2 In case the OA does not receive the draft revival proposal from the company within the stipulated time frame or the OA finds that the company s draft revival proposal is not fully tied -up with the means of fin a n ce and/ or the said proposal is not feasible/ viable/ acceptable to the concerned agencies, from whom the reliefs & concessions are being envisaged, the OA would inform the Board forthwith, along with their views/recommendations regarding further course of action, based on which the Board would pass further appropriate order(s) according to law, without holding any further hearing.

In case, the company wants to submit a rehabilitation scheme u/s 17(2) of SICA, the company should submit the draft scheme complying with the guidelines mentioned above except that there will be no Operating Agency/ Joint Meeting. The company should also submit consent letters from the concerned agencies from whom reliefs are being envisaged. In case, such written consents are received from all concerned along with the draft scheme as aforesaid, BIFR may consider approving the scheme without circulation of the DRS for consent and without holding any hearing.

Check list for preparation of Draft Rehabilitation Scheme

As the SICA has not yet been repealed, the sick Companies will continue to be under BIFR. The newly inserted definition of Industrial Undertaking, seems to be faulty. Further, the definition of Industrial Undertaking is explicitly exempting the Small Scale Industries (SSI) from its ambit and therefore, SSI will remain out of the purview of the BIFR and the NCLT both.