Industrial Sickness of India

Industrial sicknessIndustrial sickness

Presented To,Presented To,

MS. Manisha MS. Manisha MadamMadam

Presented by:Presented by:Chaudhary Mukesh J (12)

Chavda Indrajitsinh H (14)

Makwana Vijay (37)

DefinitionDefinition

definition According to SICA, 1985definition According to SICA, 1985 A unit was defined as “industrial company (being a A unit was defined as “industrial company (being a

company registered for not less than seven years )which company registered for not less than seven years )which has at the end of any financial year accumulated losses has at the end of any financial year accumulated losses equal to or exceding its entire net worth and has also equal to or exceding its entire net worth and has also suffered cash losses in such financial year and the suffered cash losses in such financial year and the financial year immediately preceding such financial year. financial year immediately preceding such financial year.

Cont’dCont’d

Definition according to companies Act,2002Definition according to companies Act,2002 Sick industrial company means an industrial company Sick industrial company means an industrial company

which has –which has –- Accumulated losses in any financial year which are equal Accumulated losses in any financial year which are equal

to to 5050 percent or more of its average net worth during percent or more of its average net worth during four year immediately preceding such financial yearfour year immediately preceding such financial year

- Failed to repay its debts within any three consecutive Failed to repay its debts within any three consecutive quarter on demand made in writing for its repayment by quarter on demand made in writing for its repayment by a creditor of such company. a creditor of such company.

Causes of industrial sicknessCauses of industrial sickness

External causesExternal causes

Internal causesInternal causes

1.1. Internal causesInternal causes:: 1.1.Power CutsPower Cuts::

- lack of power electricity support- lack of power electricity support

- shortage in electricity- shortage in electricity

Cont’dCont’d2.2.Erratic supply of inputs:Erratic supply of inputs: - shortage of raw material - shortage of raw material - lack of transportation facility- lack of transportation facility - high price- high price3. 3. Demand & credit restraints:Demand & credit restraints: -no equal balance of demand and supply and lack of -no equal balance of demand and supply and lack of credit facility. credit facility. - lack of credit facility- lack of credit facility - storage expanses- storage expanses - chance of out of fashion- chance of out of fashion4. 4. Government policyGovernment policy.. - change in government policy- change in government policy - lack of government support.- lack of government support. - high authority to large unit- high authority to large unit

Cont’dCont’d

External causesExternal causes1.1.Fault at the planning & construction stage:Fault at the planning & construction stage:

- wrong location area- wrong location area

- absence of market analysis.- absence of market analysis.

- unbalance capital structure.- unbalance capital structure.

2. 2. Financial problem:Financial problem:

- unable to repay payment.- unable to repay payment.

- lack of financial support from bank & - lack of financial support from bank &

institutioninstitution

Cont’dCont’d

3.3. Defective plant & machinery Defective plant & machinery - lack of technical & professional skill- lack of technical & professional skill - lack of technology- lack of technology - in efficient in machine.- in efficient in machine. - high maintance- high maintance4. 4. Entrepreneurial incompetence Entrepreneurial incompetence - lack of knowledge of market- lack of knowledge of market - lack of efficient professional skill- lack of efficient professional skill - lack of innovation- lack of innovation

5. 5. Management problemManagement problem - inefficiency of management function- inefficiency of management function - lack of expert opinion.- lack of expert opinion.6. 6. Labour problem:Labour problem: - lack of inefficient lab our- lack of inefficient lab our - lack of coordination in work.- lack of coordination in work. - unsatisfied labour- unsatisfied labour

Cont’dCont’d

Consequences of ISConsequences of IS

1.1.Set back to a employment prospects.Set back to a employment prospects.

- - lack of opportunitylack of opportunity

- lack labour intensive- lack labour intensive - high unsatisfaction rate- high unsatisfaction rate22. Fear of industrial unrest. Fear of industrial unrest - high unemployment rate- high unemployment rate - low productivity- low productivity - unfavour of trade union- unfavour of trade union

Cont’dCont’d

3.3.Wastage of resourcesWastage of resources - lack of infrastructure facilities- lack of infrastructure facilities - block of capital equipment- block of capital equipment4.4.Adverse impact on related unitsAdverse impact on related units - channel breakdown between industries- channel breakdown between industries5.5.Adverse effect on investor & employmentAdverse effect on investor & employment - low satisfaction of investor- low satisfaction of investor - negative effect on the same line new - negative effect on the same line new entrepreneur entrepreneur - effect on the growth rate of industry - effect on the growth rate of industry

Cont’dCont’d

6. 6. Losses to banks & financial institutionLosses to banks & financial institution

- - low recovery rate of banks & institution low recovery rate of banks & institution - loss image in the marketloss image in the market- lack of financial support for new industrieslack of financial support for new industries

77.Loss of revenue to government.Loss of revenue to government- loss of income to governmentloss of income to government- loss of government benefit loss of government benefit

Remedial MeasuresRemedial Measures

1.1. Steps taken by banks. Steps taken by banks. - giving adequate working capital when there is a - giving adequate working capital when there is a

shortage.shortage. - recovery of interest reduced rate- recovery of interest reduced rate - defining the special cell in the RBI - defining the special cell in the RBI - arrange the special committee of state level in - arrange the special committee of state level in

the local branch for link between financial the local branch for link between financial institution and government agency.institution and government agency.

Cont’dCont’d

2. 2. Policy framework of the governmentPolicy framework of the government

- according the guideline that are lying on the - according the guideline that are lying on the october 1981 that monitor the sickness of october 1981 that monitor the sickness of industry .industry .

- swot analysis of industry- swot analysis of industry

- liberalization on sick industries- liberalization on sick industries

Cont’dCont’d

3.3.Consessions by governmentConsessions by government

- giving high facilities to large industry who take - giving high facilities to large industry who take over the small sector for revivalover the small sector for revival

- high liberalizations in terms of financial rather - high liberalizations in terms of financial rather than intervention.than intervention.

- Introduce the scheme for sick industryIntroduce the scheme for sick industry

4. 4. Steps for detecting sickness earlySteps for detecting sickness early

- corrective action taken by the RBI- corrective action taken by the RBI

Cont’dCont’d

5.5. The industrial investment bank of India The industrial investment bank of India

-- set up the IRCI (industrial reconstruction set up the IRCI (industrial reconstruction corporation of india.)corporation of india.)

- convert IRCI into IRBI in March 20 ,1985- convert IRCI into IRBI in March 20 ,1985

- convert IRBI into IIBI in march 27, 1997- convert IRBI into IIBI in march 27, 1997

COMPANIES (SECOND COMPANIES (SECOND AMENDMENT)ACT 2002AMENDMENT)ACT 2002

Definition of Sick Industrial CompanyDefinition of Sick Industrial Company As started earlier, Companies (Second As started earlier, Companies (Second

Amendment) Act, 2002 changed the definition of Amendment) Act, 2002 changed the definition of sick industrial company stands considerably sick industrial company stands considerably changed. According to the Companies (Second changed. According to the Companies (Second amendment) Act ,2002,sick industrial company amendment) Act ,2002,sick industrial company means an industrial company which has (1) the means an industrial company which has (1) the accumulated losses in any financial year which accumulated losses in any financial year which are equal to 50 % or more of its average net are equal to 50 % or more of its average net worth during four year immediately preceding worth during four year immediately preceding such financial year ;such financial year ;

NATIONAL COMPANY LAW NATIONAL COMPANY LAW TRIBUNALTRIBUNAL

The Act was provides for the constitution of a National The Act was provides for the constitution of a National Company Law Tribunal. The function that are presently Company Law Tribunal. The function that are presently being handled by the Company Law Board (dispute being handled by the Company Law Board (dispute resolution and compliance with certain provisions of the resolution and compliance with certain provisions of the Companies Act 1956.Companies Act 1956.

Members:Members: NCLT shall consist of a President and such number of NCLT shall consist of a President and such number of

judicial and technical judicial and technical member not exceeding 62, to be appointed by the member not exceeding 62, to be appointed by the

government.government.

National Company Law National Company Law Appellate TribunalAppellate Tribunal

Appeal against order of tribunal will be with Appeal against order of tribunal will be with

National Company Appellate Tribunal. National Company Appellate Tribunal. Appeal has to be filled within 45 days from date Appeal has to be filled within 45 days from date

of receipt of order. of receipt of order. On receipt of an appeal, the Appellate Tribunal On receipt of an appeal, the Appellate Tribunal

shall, after giving parties to the appeal, an shall, after giving parties to the appeal, an opportunity of being heard, pass such order opportunity of being heard, pass such order thereon as it thinks fit, confirming modifying or thereon as it thinks fit, confirming modifying or setting aside the order appealed against. setting aside the order appealed against.

ReferenceReference to NCLT by Sick to NCLT by Sick CompanyCompany

Where an industrial company has become a sick industrial company, the Board of Directors of such company shall make a reference to the Tribunal and prepare a scheme for its revival and rehabilitation.

The central government or the RBI or a State government or public finance institution can also make a reference in respect of a company which has become a sick company.

SICA Vs Companies SICA Vs Companies (Amendment) Act, 2002(Amendment) Act, 2002

In the new atmosphere of liberalization and In the new atmosphere of liberalization and openness that has emerged during the last openness that has emerged during the last decade, there is a clear preference in favor of decade, there is a clear preference in favor of liquidation of sick industrial companies rather liquidation of sick industrial companies rather than rehabilitation.than rehabilitation.

Some important changes in the new Act are as Some important changes in the new Act are as follow:follow:

1. The definition of sick industrial company has 1. The definition of sick industrial company has been changed.been changed.

Cont’dCont’d

Now, if a company has accumulated losses Now, if a company has accumulated losses exceeding 50% of its net worth during last four exceeding 50% of its net worth during last four years or its fails to repay its debts to the years or its fails to repay its debts to the creditors within a period of 9 months of the creditors within a period of 9 months of the demand made by the letter , it will be classified demand made by the letter , it will be classified as sick. as sick.

2.2.Under section 424A(1) of the amendment Act,Under section 424A(1) of the amendment Act, when an industrial company falls sick, the Board when an industrial company falls sick, the Board of Directors of the company is required to make a of Directors of the company is required to make a reference to NCLT and submit a scheme of revival reference to NCLT and submit a scheme of revival and rehabilitation. Earlier, under Section 15 of SICA, and rehabilitation. Earlier, under Section 15 of SICA, the company was required to submit a scheme for the company was required to submit a scheme for revival. It was the responsibility of bank/financial revival. It was the responsibility of bank/financial institution to the ‘sick baby’.institution to the ‘sick baby’.

Cont’d

Cont’dCont’d

33. . After receiving reference under Section 424(1), After receiving reference under Section 424(1), the Tribunal may pass an order as to whether a the Tribunal may pass an order as to whether a company in respect of which a reference has company in respect of which a reference has been made has become a sick industrial been made has become a sick industrial company and such an order will be final. Such company and such an order will be final. Such order can passed without making enquiry. order can passed without making enquiry. Earlier, under Section 16(1) of SICA, such order Earlier, under Section 16(1) of SICA, such order could be passed only after making enquiry. could be passed only after making enquiry.

Cont’dCont’d

4.Under SICA, BIFR could only ‘recommended’ the 4.Under SICA, BIFR could only ‘recommended’ the winding up of the company whereas NCLT can winding up of the company whereas NCLT can directly ‘order’ winding up. Moreover, NCLT will be directly ‘order’ winding up. Moreover, NCLT will be the single forum for company replacing the existing the single forum for company replacing the existing three forum.three forum.

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