Comparison between sick industrial companies (special provisions) Act and
Provisions in companies Act

Provisions in respect of revival and rehabilitation of sick industrial company are now merged in Companies Act vide Companies (Second Amendment) Act, 2002. Powers of BIFR [Board of Industrial and Financial Reconstruction] shall be exercised by NCLT (National Company Law Tribunal) and appeal against order of NCLT will be before National Company Law Appellate Tribunal [NCLAT] instead of Appellate Authority for Industrial and Financial Reconstruction [AAIFR].

There are some major deviations from provisions of SICA and provisions as are now incorporated in Companies Act. Major changes are as follows :—

1. Section 22(1) of SICA provided for suspension of legal proceedings when enquiry was pending or scheme was under preparation or implementation or where appeal with AAIFR was pending. This section provided protection to sick industrial company against suit for recovery of money, execution against property of company or winding up proceedings. This protection has not been provided under Companies Act. Hence, recovery proceedings and suits against sick company can continue even if the matter is pending with NCLT for revival and rehabilitation of sick industrial company. However, winding up proceedings may be kept pending as these are with the same Tribunal.

2. SICA provisions were overriding provisions. The provisions of SICA prevailed over all other laws, except FEMA and Urban Land Ceiling Act, as per section 32(1) of SICA. In absence of such overriding powers, NCLT may be handicapped while passing orders for rehabilitation of a sick industrial company.

3. Definition of ‘industrial company’ as incorporated in Companies Act is faulty. Instead of section 3(d) of IDRA, section 3(aa) has been mentioned in the definition. Thus, by strict interpretation, only ancillary undertakings as defined under IDRA will be covered under new provisions of Companies Act. This does not seem to be and indeed cannot be the intention.

4. Burden of preparing scheme for revival of sick company is cast on the company itself. The company has to submit a scheme while making reference to Tribunal (NCLT). The application should be submitted along with certificate by auditor from approved panel.

5. A cess will be payable by all companies which will be used towards ‘Rehabilitation and Revival Fund’ to be used for sick industrial companies. The fund will be at disposal of Tribunal.

6. Government companies are out of the provisions for making reference. They need to make reference only if Central/State Government gives specific approval.

Comparison between provisions of SICA and provisions as incorporated in Companies Act is given in following table.

COMPARISON BETWEEN PROVISIONS OF SICA AND COMPANIES ACT

Section No. of SICA	Section No. of Companies Act	Remarks
2	-	Declaration that the SICA is to give effect to policy towards securing principles specified in Articles 39(b) and 39(c) of Constitution. This was made to avoid possible challenge to constitutional validity of SICA. There is no similar declaration under new provisions. However, chances of success in challenge to constitutional validity of provisions seem very remote.
3(1)(a) to (c) and (g)	-	Definitions relating to formation of BIFR and AAIFR and hence not relevant now
3(1)(d)	3(1)(i)	Definition of ‘Company’ - Practically same definition
3(1)(da)	-	Definition of ‘date of finalisation of duly audited accounts’ omitted, as the words are incorporated in the relevant section itself. Moreover, making a reference has been practically de-linked from finalisation of accounts.
3(1)(e)	2(19AA)	Definition of Industrial Company - No change
3(1)(f)	2(19AB)	Definition of ‘Industrial Undertaking’ as incorporated in Companies Act is faulty. As per strict interpretation, only Ancillary Undertakings are covered. This appears to be a drafting mistake.
3(1)(ga)	2(29A)	Definition of ‘Net Worth’ in SICA retained but the words ‘after deducting provisions or expenses as may be prescribed’ have been added. This is because companies were not deducting preliminary expenses or development expenses while calculating ‘Net Worth’ and these were shown as ‘Assets’. Similarly, provisions which were required were often not made while finalizing accounts. Now this loophole has been (hopefully) plugged.
3(1)(h)	-	Definition of ‘Notification’ - Omitted as not relevant
3(1)(i)	2(31AA)	Definition of ‘Operating Agency’ widened to include ‘any group of experts consisting of persons having special knowledge of business or industry in which the sick industrial company is engaged’.
3(1)(l) to (n)	-	Definitions of Reserve Bank, Scheduled Bank and Scheduled Industry Omitted - Omissions not significant, as definitions are covered elsewhere
3(1)(o)	2(46AA)	Definition of ‘sick industrial company’ considerably modified. - (1) Requirement of 5 years existence is not required, which was required earlier (2) Accumulated losses exceeding 50% of average net worth during last four years is sufficient to classify a company as sick (3) Alternative criteria of ‘failing to repay its debts within any three consecutive quarters to creditor/s’ has been added. (4) Any one of the criteria, i.e., either (2) or (3) above is sufficient to classify an industrial company as sick.
3(1)(p)	2(46AB)	Definition of ‘State Level Institution’ - All SFCs and SIDCs covered. Practically, no change as omission of providing ‘any other institution as State level institution’ does not anyway alter the position.
4 to 14	-	Constitution of BIFR and Appellate Authority - Now not relevant as NCLT and NCLAT will be the prescribed authority
15(1)	424A(1) and 424A(4)	Reference to NCLT shall be accompanied by scheme for revival and rehabilitation by the company itself. Application to be accompanied by certificate from auditor giving reasons why it has become sick. Reference to be made within 180 days after Board came to know that it is sick or within 60 days after final adoption of accounts, whichever is earlier. Thus, adoption or even preparation of accounts is not the basic criteria. Reference is required to be made even if Financial Institutions/Banks have taken over assets under Securitisation and Reconstruction of Financial Assets & Enforcement & Security Act, 2002. Government Companies need not make any reference unless approved by Central/State Government.
-	424A(2)	Certificate from auditor in panel giving reasons why company has become sick. This is a new provision.
15(2)	424A(3)	Provision that Central/State Government, Public Financial Institution or Scheduled Bank can also make reference continues - No change
-	424A(5)	Board to decide whether the company has become sick, even before making enquiry. This is similar to admission of petition. Reference may be rejected at that stage itself. Earlier, under section 16(1) of SICA, such order could be passed only after making enquiry.
16(1)	424B(1)	Tribunal to make Enquiry if the company is sick. Tribunal has to pass specific order under section 424A(5) that the company has become sick. [Such specific order was not required earlier].
16(2)	424B(2)	Tribunal can ask Operating Agency to enquire into scheme of revival submitted by company and make a report. [Earlier, the company was not required to submit any scheme and hence Operating Agency only had to submit report on matters as may be specified by BIFR].
16(3)	424B(4)	Earlier, provision was that Board (BIFR) shall endeavour to pass final orders within 60 days from commencement of enquiry. Now, the provision is that operating agency, shall submit its report within 21 days, extendable upto 40 days by Tribunal [see section 424B(3)]. The Tribunal shall conclude enquiry within 60 days from commencement of enquiry, extendable upto 90 days by Tribunal for reasons to be recorded.
16(4)	424B(5)	Appointment of special directors by Tribunal - No change in provision
-	424B(6)	Special director to submit report to Tribunal within 60 days. He will have powers of director of company - This is a new provision
16(4A)	424B(7)	Tribunal can issue directions to special director - No change
16(5)	424B(8)	Validity of appointment of Special Director notwithstanding anything to contrary in other provisions - No change
16(6)	424B(9)	Special director not to retire by rotation, not to be liable for prosecution etc. - No change
17(1) to 17(4)	424C(1) to 424C(4)	Powers of Tribunal to make suitable orders on completion of enquiry. Tribunal can give time to company to revive itself. Alternatively, if Tribunal decides that preparation of scheme of revival is necessary, it may order operating agency to prepare a scheme. The order can be reviewed by Tribunal. - No change, except that the words ‘make repayment of loan’ have been inserted, in view of change in definition of ‘sick industrial company’.
18(1)	424D(1)	Operating Agency should prepare scheme for revival/rehabilitation normally within 60 days, extendable to 90 days. No change except that earlier 90 days were provided to prepare a scheme. It is specifically provided that regard shall be had to guidelines of RBI while preparing scheme.
18(2)	424D(2)	What revival scheme can provide - Almost verbatim reproduction of clauses (a) to (m) as contained in SICA - No change
18(3)	424D(3)	The draft scheme as approved by Tribunal to be circulated. Following changes are made - (a) Brief particulars of draft scheme may be published. [Earlier word used was ‘shall’ and hence publication of advertisement was compulsory]. (b) Draft scheme should be kept at registered office. [presumably for inspection - though these words are not used].
18(4)	424D(4)	Scheme may be sanctioned within 60 days from the date of advertisement/circulation, extendable to 90 days. Earlier there was no time limit and the word was ‘shall’ instead of ‘may’, which could be interpreted to mean that the scheme must be sanctioned by BIFR.
18(5)	424D(5)	Tribunal can review the sanctioned scheme - no change, except that it is specifically mentioned that operating agency, while preparing fresh scheme, shall have regard to guidelines framed by RBI in this behalf. [Similar provision are made in section 424D(1) under which the original scheme is prepared].
18(6)	424D(6)	Fresh scheme also to be circulated/advertised and then sanctioned - same provision - No change
18(6A)	424D(7)	Property/liability transfer as specified in scheme becomes effective on the date when scheme becomes effective - No change [SICA had overriding powers over other laws. There are no similar provisions in Companies Act. Hence, validity of this provision seems doubtful]
18(7)	424D(8)	Sanction of scheme by Tribunal is conclusive evidence - No change
-	424D(9)	Copy of sanctioned scheme to be filed with Registrar - New provision
18(8)	424D(10)	Scheme binding on company and others - No change
-	424D(11)	Creditors can also prepare scheme and submit to Tribunal, if 75% of creditors agree - New provision
-	424D(12)	Provisions in respect of preparation and sanction of scheme will apply to scheme prepared by creditors also - New provision
	424D(13)	Scheme sanctioned will be binding on creditors and all concerned - New provision - but there seems to be duplication, as similar provision is already there in section 424D(10).
18(9)	424D(14)	Tribunal can pass orders to remove difficulties in implementing scheme - No change
18(10)	424D(15)	Tribunal can direct an operating agency to implement the scheme - No change
18(11)	424D(16)	Tribunal can distribute sale proceeds as per provisions of section 529A - No change
18(12)	424D(17)	Tribunal can monitor the implementation of the sanctioned scheme - No change
19(1)	424E(1)	Rehabilitation by giving financial assistance and sacrifices by various agencies - No change
19(2)	424E(2)	Scheme for rehabilitation by financial assistance/sacrifices to be circulated and their consent/rejection to be given within 60 days extendable by further 60 days - No change
19(3)	424E(3)	Scheme if sanctioned is binding on all - No change
19(3A)	424E(4)	Lead FI and Bank will be responsible to disburse Financial Assistance on behalf of other FIs/Banks - No change
19(3B)	424E(5)	Lead FI and Bank will disburse Financial Assistance on behalf of other FIs/Banks - No change
19(4)	424E(6)	Tribunal may order winding up or adopt other measures, if consent to distribute financial assistance or making sacrifices is not given by any person - No change
19A	424F	Bank/FI/Government/company can apply to Tribunal any time during enquiry, agreeing for arrangement to continue operations or suggesting scheme for assistance or making sacrifices - No change
20(1)	424G(1)	Tribunal can order winding up, if it is of the opinion that sick company is not likely to revive. Earlier, BIFR could only record its opinion and forward it to High Court. Now, the Tribunal can itself order winding up.
20(2)	-	Provision in SICA was that High Court shall order winding up on receipt of recommendation from BIFR. Now this provision has become redundant.
20(3)	424G(2)	Tribunal can appoint any officer of Operating Agency as Liquidator. Earlier, under SICA, this power was with High Court.
20(4)	424G(3)	Tribunal can sell assets of the sick company and distribute proceeds in accordance with provisions of section 529A. This power was with BIFR under SICA
-	424G(4)	Winding up should be completed within one year from order of winding up - This is a new provision.
21	424H	Preparation of inventory, list of creditors and valuation, accounts - No change
22	-	Section 22 of SICA provided complete immunity from legal suits, recovery proceedings and winding up petitions, during the enquiry and implementation of scheme. There is no parallel provision in new law.
22A	424-I	Tribunal can direct company not to dispose of assets without prior approval - No change
23 and 23A	-	SICA made provisions for ‘potentially sick industrial company’. Now there is no such provision.
23B	424J	Tribunal can call for periodic information from company as to steps being taken by it for revival - No change
24	424K	Misfeasance proceedings against directors, manager or employees - No change
25	-	SICA provided appeal to AAIFR against order of BIFR. Now, appeal will be to NCLAT.
26	10GB	Jurisdiction of Civil Court is barred - No change.
27	10FO	Delegation of powers by Tribunal to its member, officer, employee or person appointed to manage industrial company - No change.
28	-	Board (BIFR) was required to furnish information and return to State/Central Government, and to collect from and furnish information to various authorities. Now, there is no such provision.
29	10FP	Power to seek assistance from Chief Metropolitan Magistrate or District Magistrate to take possession of property - No change
30	10FZ, 635A	Protection of action taken in good faith - No change
31	-	Saving of proceedings which were pending before High Court when SICA was passed. Now there is no such provision.
32	-	Overriding provisions to SICA over all laws except FERA and Urban Law Ceiling Act. Now, there is no such overriding provision. Thus, provisions of various laws will have to be complied with to make the sanctioned scheme effective.
33	424L	Penalty of imprisonment upto 3 years or fine upto Rs. 10 lakhs, for violation of orders of Tribunal, making false statement or giving false evidence or attempt to tamper records of reference or appeal. Only following changes have been made - (a) Words ‘tampering records of reference or appeal’ are specifically added (b) Limit of fine upto Rs. 10 lakhs is specified.
34	-	Offences by companies - No parallel provision now
35	-	Power to remove difficulties for first three years was given to Central Government under SICA. Now, there is no such provision.
36	642	Power to make rules to Central Government - No change