Sick Industrial Companies (special provisions) Act, 1985 & BIFR
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INTRODUCTION
In the wake of sickness in the country’s industrial climate prevailing in
the eighties, the Government of India set up in 1981, a Committee of Experts under
the Chairmanship of Shri T. Tiwari to examine the matter and recommend suitable
remedies therefor. Based on the recommendations of the Committee, the Government of
India enacted a special legislation namely, the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986) commonly known as the SICA.
OBJECTIVES OF SICA
The main objective of SICA is to determine sickness and expedite the revival of
potentially viable units or closure of unviable units (unit herein refers to a Sick
Industrial Company). It was expected that by revival, idle investments in sick units
will become productive and by closure, the locked up investments in unviable units
would get released for productive use elsewhere.
The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called
the Act) was enacted with a view to securing the timely detection of sick and
potential sick companies owning industrial undertakings, the speedy determination by
a body of experts of the preventive, ameliorative, remedial and other measure which
need to be taken with respect to such companies and the expeditious enforcement of
the measures so determined and for matters connected therewith or incidental
thereto.
FUNCTIONING
- It contains special provisions for timely detection of sick and potentially
sick industrial companies, speedy determination and enforcement of preventive,
remedial and other measures with respect to such companies.
- Those measures are to be taken by a body of experts
- The measures are mainly
(a) Legal
(b) Financial restructuring
(c) Managerial
The Board of experts named the Board for Industrial and Financial Reconstruction
(BIFR) was set up in January, 1987 and functional with effect from 15th May, 1987.
The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) was
constituted in April 1987. Government companies were brought under the purview of
SICA in 1991 when extensive changes were made in the Act
including, inter-alia, changes in the criteria for
determining industrial sickness. ).
- BIFR was set up as an apex board to tackle industrial sickness and was
entrusted with the work of taking appropriate measures for revival and
rehabilitation of potentially sick undertakings and for liquidation of non-viable
companies. While, AAIFR was constituted for hearing the appeals against the orders
of the BIFR.
IMPORTANT PROVISIONS OF SICA
- Constitution of two quasi-judicial bodies – BIFR and AAIFR and their
Benches.
- Procedure of the Board and the Appellate Authority.
- Filing of references u/s 15 and criteria of sickness.
- Provision of enquiry u/s 16.
- Appointment of Special Directors and OAs u/ss 16(4) and 17(3).
- Preparation of sanctioned scheme under sections 17(2), 17(3) & 18(4).
- Provision for monitoring of schemes u/s 18(12).
- Rehabilitation by giving financial assistance u/s 19.
- Winding up of sick industrial companies u/s 20.
- Protection to safeguard the interests of the sick companies u/ss 22(1), 22(2),
22(3).
- Provisions for dealing with potential sickness u/ss 23, 23(a), 23(b).
- Provision in case of misfeasance u/s 24.
- Provision for seeking information and giving information – Central Govt.,
RBI, FIs State institutions and sick companies and in case of amalgamation other
companies.
- Power to seek assistance of MMs & DMs u/s 29.
- SICA has overriding provisions u/s 32 over other laws except the provisions of
FERA, 1973 and the ULCRA, 1976.
- Penalty u/s 33 for violation of the Act.
APPLICABILITY
SICA applies to companies both in public and private sectors owning industrial
undertakings:–
- pertaining to industries specified in the First Schedule to the Industries
(Development and Regulation) Act, 1951, (IDR Act) except the industries relating to
ships and other vessels drawn by power and;
- not being "small scale industrial undertakings or ancillary industrial
undertakings" as defined in section 3(j) of the IDR Act.
SICK INDUSTRIAL UNIT
Sick industrial unit is defined as a unit or a company (having been in existence
for not less than five years) which is found at the end of any financial year to have
incurred accumulated losses equal to or exceeding its entire net worth.
Accordingly, criteria to determine sickness in an industrial company are
:–
- the accumulated losses of the company to be equal to or more than its net
worth; i.e., its paid-up capital plus its free reserves
- the company should have completed five years after incorporation under the
Companies Act, 1956
- it should have 50 or more workers on any day of the 12 months preceding the
end of the financial year with reference to which sickness is claimed.
- it should have a factory licence.
The net worth is calculated as sum total of paid-up capital and free reserves of a
company less the provisions and expenses, as may be prescribed.
POTENTIALLY SICK UNIT
An industrial unit is also regarded as potentially sick or weak unit if at the end
of any financial year, it has accumulated losses equal to or exceeding 50 per cent of
its average net worth in the immediately preceding four financial years and has
failed to repay debts to its creditor(s) in three consecutive quarters on demand made
in writing for such repayment.
PROCEDURE IN NUTSHELL
- BIFR would make an inquiry as it may deem fit for determining whether any
industrial company had become sick, under the following conditions:–
- If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. Such
reference was to be made within sixty days from the date of finalisation of the
duly audited accounts of the company for the financial year at the end of which the
company had become sick. For filing the reference, the Board of Directors must have
sufficient reasons to form the opinion that the company had become sick; or
- On receiving such information (reference) with respect to a sick company or
upon its own knowledge as to the financial condition of a company. Such a reference
to the board may be made by:– (i) The Central Government; (ii) The Reserve
Bank of India; (iii) State Governments; (iv) Public financial institutions; (v)
State level institutions; or (vi) Scheduled banks.
However, such a reference shall not be made in respect of any industrial company
by :– (i) the Government of any State, unless all or any of the industrial
undertakings (belonging to such a company) were situated in that State; (ii) a public
financial institution or a State level institution or a scheduled bank, unless it
had, by reason of any financial assistance or obligation rendered by it or undertaken
by it, interest in such a company.
- The Board may order any Operating Agency to enquire into the matter and
complete the inquiry as expeditiously as possible.
- If the Board deems it fit to make an inquiry or to cause an inquiry to be made
into any industrial company, it may appoint one or more persons as Special
Director(s) of the company for safeguarding the financial and other interests of
the company. The appointment of a special director shall be valid and effective
notwithstanding anything to the contrary contained in the Companies Act, 1956 or in
any other law for the time being in force or in the memorandum and articles of
association or any other instrument relating to the industrial company.
Any special director so appointed shall :– (i) hold office during the
pleasure of the Board and may be removed or substituted by any person by order in
writing by the Board; (ii) not incur any obligation or liability by reason only of
his being a director or for anything done or omitted to be done in good faith in
the discharge of his duties as a director or anything in relation thereto; (iii)
not be liable to retirement by rotation and shall not be taken into account for
computing the number of directors liable to such retirement; (iv) not be liable to
be prosecuted under any law for anything, done or omitted to be done in good faith
in the discharge of his duties in relation to the sick industrial company.
- If after making an inquiry, the Board is satisfied that the company has become
sick, it shall, after considering all the relevant facts and circumstances of the
case, may take either of the following decisions:-
– If the Board decides that it is practicable, it shall, by order in writing
and subject to such restrictions or conditions as may be specified in the order, give
such time to the company as it may deem fit to make its net worth exceed the
accumulated losses.
– If the Board decides that it is not practicable for the sick company to
make its net worth exceed the accumulated losses within a reasonable time and that it
is necessary or expedient in the public interest to adopt all or any of the measures
in relation to the said company, it may, as soon as may be, by order in writing,
direct any operating agency specified in the order to prepare a scheme providing for
such measures in relation to that company. The measures may include:–
- The financial reconstruction of the sick industrial company;
- The proper management of the sick industrial company by change in or take over
of the management of the company;
- The amalgamation of the sick industrial company with any other company
(transferee company), or any other company with the sick industrial company
(transferee company);
- The sale or lease of a part or whole of the sick industrial company;
- Such other preventive, ameliorative and remedial measures as may be
appropriate;
- Such incidental, consequential or supplemental measures as may be necessary or
expedient in connection with or for the purposes of the measures specified
above.
– If the Board is of the opinion that the sick industrial company is not
likely to make its net worth exceed the accumulated losses within a reasonable time
while meeting all its financial obligations and that the company as a result thereof
is not likely to become viable in future and that it is just and equitable that the
company should be wound up, it may record and forward its opinion to the concerned
High Court. The High Court shall, on the basis of the opinion of the Board, order
winding-up of the sick industrial company in accordance with the provisions of the
Companies Act, 1956.
- Where in respect of an industrial company, an inquiry is pending, or any
scheme referred is under preparation or consideration or a sanctioned scheme is
under implementation, then no proceedings for the winding-up of the industrial
company or for execution, distress or the like against any of the properties of the
industrial company shall be made. Also, no suit for the recovery of money or for
the enforcement of any security against the industrial company or of any guarantee
in respect of any loans, or advance granted to the industrial company shall lie or
be proceeded with further, except with the consent of the Board or, as the case may
be, the Appellate Authority.
- Also with respect to the above conditions, the Board may by order declare with
respect to the sick industrial company concerned that the operation of all or any
of the contracts, assurances 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.
However, such declaration shall not be made for a period exceeding two years, which
may be extended by one year at a time so that the total period shall not exceed
seven years in the aggregate.
- Under the Act, whosoever violates its provisions or any scheme or any order of
the Board or of the Appellate Authority, shall be punishable with imprisonment for
a term which may extend to three years and shall also be liable to a fine. No court
shall take cognizance of any offence mentioned except on a complaint in writing of
the secretary or any such other officer of the Board or the Appellate Authority or
any such officer of an operating agency as may be authorised in this behalf by the
Board or the Appellate Authority.
Section 22 of SICA provides that legal proceedings against an industrial company
– that is, a company that owns a factory wherein it carries on any of the
industries specified in the schedule to the Industries (Development and Regulation)
Act, 1951 – shall remain suspended if an inquiry to determine whether the
industrial company is sick is pending before the Board for Industrial and Financial
Reconstruction (BIFR), if a scheme for its rehabilitation is being prepared or is
under consideration of BIFR, or if an appeal against BIFR’s order is
pending.
Parliament, through the Sarfaesi Act, has amended SICA and has inserted a
provision whereby a "reference pending" before BIFR shall abate if secured creditors
representing three-fourths in value of the amount outstanding against the financial
assistance disbursed to the borrower have taken measures to recover their secured
debt under section 13(4) of the Sarfaesi Act (as per the process described
above).
On a plain reading, it seems the amendment to SICA ensured that there remains no
conflict between SICA and the Sarfaesi Act. However, the words "reference is
pending", as used in the amendment to SICA, are being utilized by defaulting
corporate borrowers to avoid enforcement of security by FIs. The borrowers argue that
for FIs to be able to initiate action under the Sarfaesi Act, it is necessary that
the reference filed by such borrowers should be pending before BIFR and that such
reference does not remain pending once the borrower has been declared a sick
industrial company by BIFR.
BOARD FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION
Year Wise Performance as on 30-9-2010
Year
|
|
Cases Disposed of during the Year
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Dismissed
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Total Cases Regd. during the
Year
|
Cases under Revival
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Cases Revived
|
Winding up Recommended
|
1
|
2
|
3a
|
3b
|
3c
|
3d
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1987
|
311
|
0
|
0
|
0
|
8
|
1988
|
298
|
0
|
1
|
12
|
29
|
1989
|
202
|
0
|
1
|
31
|
77
|
1990
|
151
|
1
|
3
|
42
|
45
|
1991
|
155
|
1
|
5
|
47
|
27
|
1992
|
177
|
3
|
7
|
30
|
43
|
1993
|
152
|
3
|
13
|
63
|
59
|
1994
|
193
|
2
|
38
|
77
|
48
|
1995
|
115
|
6
|
25
|
61
|
29
|
1996
|
97
|
6
|
92
|
83
|
25
|
1997
|
233
|
2
|
34
|
81
|
21
|
1998
|
370
|
5
|
21
|
49
|
36
|
1999
|
413
|
4
|
11
|
61
|
72
|
2000
|
429
|
8
|
37
|
142
|
156
|
2001
|
463
|
10
|
47
|
113
|
126
|
2002
|
559
|
21
|
34
|
107
|
212
|
2003
|
430
|
8
|
42
|
99
|
190
|
2004
|
399
|
6
|
29
|
50
|
70
|
2005
|
180
|
17
|
71
|
19
|
180
|
2006
|
118
|
63
|
91
|
22
|
296
|
2007
|
78
|
66
|
81
|
19
|
205
|
2008
|
57
|
80
|
64
|
13
|
130
|
2009
|
64
|
192
|
82
|
19
|
125
|
2010
|
43
|
690
|
70
|
22
|
118
|
TOTAL
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5687
|
1199
|
899
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1262
|
2327
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Source : http://bifr.nic.in/geninfo.htm
Please click for following topics-
- The Sick Industrial Companies (Special Provisions) Act, 1985 (Click
here)
- Revised Guidelines for Change of Management of Sick Companies (F.No
77/2010/BIFR/SD & C Cell Dt. 12th , October, 2010) (Click
here)
- List of Operating Agencies (Click
here)
- Filing of Reference in FORM A – u/s. 15(1) (Click
here)
- Procedure and guidelines to be followed by Asset Sale Committee (ASC) appointed
by BIFR for sale of assets of sick companies (F.No. 58/ 2010/BIFR/SD & Coord.
Cel dt. 12th October, 2010 and revised vide circular dt. 28th
January, 2011 (Click
here)
- Guidelines for preparation of Draft Rehabilitation Scheme along with the
Checklist dt. 30-4-2008. (Click
here)
F.NO 77/2010/BIFR/SD & C CELL BOARD FOR
INDUSTRIAL AND FINANCIAL RECONSTRUCTION SPECIAL DIRECTOR & CO-ORDINATION CELL
New Delhi, 12th, 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.
- 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.
- The cost of valuation of assets will be borne by the concerned company.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 Webs ite
(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).
Location : Complete address of the company
|
|
Financial position as on March 31, ____(year)
|
(` In Lakh)
|
Equity capital
|
Gross Fixed Assets
|
Reserve & surplus
|
Net Fixed Assets
|
Term liabilities
|
Current Assets
|
Current Liabilities
|
Accumulated Losses
|
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
S.No.
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Subject
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Tick in the appropriate column
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Yes
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No
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NA
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1.
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Backgraound of the company and products manufactured when declared sick by
BIFR-subsequent developments / orders , if any, and compliance thereof.
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2.1
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Cut off date
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2.2
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Share holding pattern as on
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2.3
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Names of Directors
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3.
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Reasons for sickness
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4.
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Strategy to overcome the reasons for sickness and for revival-Availability of managerial and
technical personnel-raw
material-power water-pollution control issues-marketing etc. if any
Techno-Economic Viability study was done, brief details to be
given.
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5.1
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Details of dues of secured creditors and settlement reached
with them in dicating the percentage at which they will be settled.
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5.2
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Details of dues of unsecured creditors and how they will be settled (in dicating percentage at which dues will be settled).
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5.3
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Details of dues of workers and whether their written consent
obtained for settlement.
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5.4
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Details of statutory dues and how they will be settled.
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6.
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In ca s e of modified scheme, details of implementation of the
scheme so far.
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7.
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Financials:
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7.1
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Cost of the Scheme and Means of Finance
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7.2
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Past performance
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7.3
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Whether projected balance sheet and profit and loss A/C
attached.
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7.4
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Whether projected cash flow statement attached.
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7.5
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Whether DSCR worked out (if there are any dues to be repaid
-even other than Bank dues-over a period , DSCR should be worked
out)
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8.
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Capital Restructuring
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|
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8.1
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Whether any strategic investor (SI) is being brought in and
OA has checked SIs background and found it satisfactory
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8.2
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Any derating of equity-if so, details
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8.3
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Details of infusion of funds/equity
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8.4
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Price at which shares will b e is s u ed a n d p res en t m a rk et
va lu e of th e com p a n y s shares.
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8.5
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Whether in fusion of funds will result in change of managementt (COM); if
so, the process adopted for COM.
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9.
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Sale of surplus assets, if any, proposed with d eta ils of th e a s s ets
lik e m a ch in ery a n d extent of land and location.
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10.1
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Deta ils of reliefs s ou gh t with n a m e a n d a d d res s of th e a gen
cy con cern ed a n d wh eth er th e reliefs s ou gh t a re with in th e p
olicy gu id elin es of th e con cern ed a gen cy/ Govt. ( n o relief u n d er
FEMA, Urb a n La n d Ceilin g Act a n d crim in a l p roceed in gs should be
included)
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10.2
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Other terms and conditions
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11.
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Viability
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11.1
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Date on which net worth will become positive.
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11.2
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Da te on wh ich a ccu m u la ted los s es will b e wiped out (i.e. end of
scheme period)
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12.
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In ca s e of m erger wh eth er res olu tion s p a s s ed b y th e s h a
reh old ers m eetin g for m erger. Au d ited Ba la n ce Sh eet of th e com p
a n y with wh om th e s ick com p a n y will b e m erged is to b e en clos ed
. Net worth of b oth th e com p a n ies to b e s ta ted . Ba s is of share
exchange ratio is to be mentioned.
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13.
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Date of Join t Meeting and whether minutes enclosed.
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14.
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In case of DRS u / s 1 7 (2 ) whether consent of all agencies from whom
relief is sought enclosed.
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15.
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Details of Court case, if any, pending.
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Signature of Authorized
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Signature of the OA
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Official of the company
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Date:
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Date:
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NA - not Applicable
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