The Sick Industrial Companies (Special Provisions) Act, 1985

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The Sick Industrial Companies (Special Provisions) Act, 1985 being Act no. 1 of 1986 was assented on 8th January, 1986 and was enacted by the Government of India with the view to make special provisions for securing time detection of sick and potentially sick companies which own the industrial undertakings. The Act further makes provisions for the purpose of Board of experts to determine speedily the preventive, ameliorative, etc. measures which are necessarily to be taken and enforced expeditiously in relation to such companies. The Act was special legislation brought in public interest by the Government of India on the recommendations of the Committee of Experts. The said committee was headed by Chairman, Shri. T. Tiwari and was set up in the year 1981, in the view of prevailing climate of sickness of Industries in India in the 80s. The Act in its popularity know with the name ‘SICA’. The Act under its first Chapter, deals with preliminary provisions, including short title, extension, etc. The Act was short titled as aforesaid and so far as its extension is concerned, the provisions thereof were extended to the entire India. The sub section (4) of the Section 1 thereof, deals with application of the Act, as the same should apply to the every Scheduled industries other than which related to ships and other vessels drawn by power. However, the Act can be applied to such Scheduled industries related to ships and other vessels drawn by power, by the Central Government by consulting with the Reserve Bank of India.

The Act declares in its section 2 that, the provision herein are made to give effect to the policy of the State for securing principles provided under Article 39(b)and (c) of the Constitution of India. The section 3, deals with definitions of several terms being important in the Act.

The Act, as aforesaid, deals with establishment of the Board under its second Chapter. The Board is named as ‘Board for Industrial and Financial Reconstruction’ and comprise of the Chairman and minimum 14 members who will be appointed by the Central Government. Similarly, the Central Government is empowered to constitute an Appellate Authority for Industrial and Financial Reconstruction’ for determining appeals against the Orders of the aforesaid Board. Such Appellate authority is to consist of one Chairman and minimum 3 members. Such Chairman and Members of the Board and Appellate authority should hold their office for the period of 5 years. The Act also makes provisions as to appointments of Secretary and other officials of the Board as well as Appellate authority by the Central Government. And all such Chairmen, Members, Secretaries, etc. are the public servant.

The very important procedure of the Board and Appellate authority is given under section 13 of the Act, where it is provided that these authorities are empowered as to regulation of procedure and conduct of business, procedure of the Benches of such authorities, delegation of power by such authorities to the Members thereof, etc. Moreover, the authorities should have certain powers of Civil Court provided under Code of Civil Procedure, 1908.

The Board under this Act was set up in January, 1987 and was started functioning w.e.f.15th May, 1987 similarly, the Appellate Authority was constituted in April 1987.

The next chapter is important as it is dealing with references, etc. by such Board or appellate authority. Section 15 says that, the Board of Directors of the sick industrial Company should make reference to the Board for determining measures which such sick industrial company to adopt. The reference to be made within the period of 60 days from the date on which the duly audited accounts of the company was finalized, for the financial year on the end which year the said company becomes sick industrial company. Similarly, the Board is empowered to make enquiry in the working of companies which has make reference or otherwise on has been informed to that effect, etc. sick industrial companies. And after such enquiry, the Board is empowered to make order which will be suitable on determination that whether the company can make within the reasonable time, the net worth exceed the accumulated losses. The Board can further on its decision as to above, if satisfied that the sick industrial company can make its net worth exceed the accumulated losses within time, they it can order such company to make net worth as such. And if such company found incapable to making net worth as such, then the Board may direct the operating agency to prepare scheme which is to provide measures for such company. Section 18 deals with such scheme.

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Further, the Act makes provision for winding up of the sick company under this Act, where it is provided that, if the company is unable to make net worth as required above, or even if the same in future will not become viable, then such sick company to be wound up.

The Chapter IV of the Act is related with the proceedings in respect of Potentially sick companies, etc. The provisions say that, when the company’s loss at the end of any financial year during four immediate financial years, comes in erosion of 15% or more of its net worth, then said fact of erosion to be stated to the Board, and do all the acts provided under section 23 of the Act. The Act makes further provisions in relation to such companies.

The Act further makes provisions as to misfeasance proceedings against the persons who have parted in the promotion, etc. of the sick industrial company, and while so have wrongly applied or retained, etc. any money or property of that company or otherwise found guilty of misfeasance, etc. The Board can in such situation direct such person for repayment of money or restoration of said property thereof. There is provision of appeal against such order of the Board, which may lie before the Appellate Authority. And in respect of the matters which the Board or Appellate authority is empowered to deal, the Civil court should not have jurisdiction.

The Act provides for penalty including maximum imprisonment of 3 years and fine for the offence of violation of provisions of this Act or scheme, or otherwise the orders of the authorities under this Act. And the Central Government is empowered to make rules under this Act.

Notably, the Act was amended twice, firstly in the year 1991 and secondly in the 1998. However, the Act finally was repealed along with dissolution of the Board and Appellate Authority under this Act, in the year 2003, by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003. And the functions whereof were transferred to the National Company Law Tribunal constituted under the provisions of Company Act, 1956.

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by Faim Khalilkhan Pathan.