Board for Industrial and Financial Reconstruction

FormationNature PurposeChairmanParent organization-

1987 A Government Organisation Sick company remedies Mr. Nirmal Singh Ministry of Finance (India)

In the wake of sickness in the countrys 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 therefore. Based on the recommendations of the Committee, the Government of India enacted a special legislation namely, the Sick Industrial Companies (Special Provisions) Act, 1985 commonly known as the SICA. Board of industrial and Financial Reconstruction (BIFR) was established by the Central Government, under section 3 of the Sick Industrial Companies (Special provisions) Act, in 1985 and it became fully operational in May, 1987. The main objectives of BIFR determine sickness and expedite the revival of potentially viable units or closure of unviable units (unit here in 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 timely detection of sick and potential sick companies speedy determination by a body of experts of the preventive, ameliorative, remedial and other measure Expeditious enforcement of such measures

BIFR has a chairman and may have a maximum of 14 members, drawn from various fields including banking, labour, accountancy, economics etc. It functions like a court and has constituted four benches. It is a quasi- judicial body. SICA applies to companies both in public and private sectors owning industrial undertakings: (a) 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; (b) not being "small scale industrial undertakings or ancillary industrial undertakings" as defined in Section 3(j) of the IDR Act. (c) The criteria to determine sickness in an industrial company are (i) 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 (ii) the company should have completed five years after incorporation under the Companies Act, 1956 (iii) 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. (iv) it should have a factory license.

Procedure under BIFRIt is mandatory for the Board of Directors of a sick industrial company to make a reference and report to BIFR for formulation of revival and rehabilitation schemes and other remedial measures to be adopted with respect to such a company. BIFR, since its inception in May 1987 till the end of September 2006, has received 6,991 references. Enquiry by the BIFRWhen a case is referred to the BIFR, it is verified by the Registrar of the BIFR as to whether the facts of the case falls within the provisions of the Sick Industrial (Special provisions) Act, 1985. If so, the BIFR accepts the case and notifies a date for hearing the case. For rehabilitating a sick unit, cooperation of various connected agencies is a must. This coordination is achieved by the BIFR. The BIFR invites the representatives of the informant sick company, the representatives of concerned financial institutions and commercial banks, representatives of the Central/State Governments, trade union representatives etc., to the hearing and inquiry is made under section 16 of the Act. After the hearing, the BIFR itself may conduct a study or entrust the work to an operating agency appointed by it to determine whether the company is in fact sick. Normally, the lead financial institution (IDBI, ICICI, IFCI, SFC) or the lead public sector bank that has financed the company is nominated as the operating agency. Lead institution is one that has major financial stake in the sick company. The enquiry is to be completed within 60 days. On completion of the enquiry, the BIFR will declare whether the company is sick or not. For this purpose, the Board may, through any operating agency, cause to prepare with respect to the sick company:

A complete inventory of that company which includes all assets and liabilities as well as all books of accounts, registers, maps, plans, records, documents of title or ownership of property and all other documents of whatsoever nature relating thereto A list of shareholders and of creditors (showing separately the list of secured creditors and unsecured creditors); A valuation report in respect of the shares and assets of the company; An estimate of its reserve price, lease rent or share exchange ratio; and Performa accounts, where no up-to-date audited accounts are available.

On the basis of such an enquiry, if BIFR is convinced that the company has become sick, it will either give reasonable time to the company concerned to make its net worth positive or it will appoint an operating agency consisting of certain banks and financial institutions to prepare a package for the revival of such sick industrial units. The package may consist of any one or more of the following measures: Restructuring the capital base of the company.

Inducting more capital to improve its resource position. Merger and amalgamation of the sick company with a healthy unit.

Providing soft loans to the company. Bringing about technological changes and modernisation in the company. Bringing about a change in its management Writing off the interest burden of the company. Rescheduling its loans. Providing fiscal concessions like tax rebate, tax exemptions or tax reliefs to it.

If BIFR is of the opinion that the sick industrial company is not likely to make its net worth exceed its accumulated losses within a reasonable time and that it is not likely to become viable in future and also it is just and equitable that the company should wound up, it could imitate proceedings with the High Court, for winding up of the company. It can only forward its opinion to the concerned High Court and the High Court will initiate the winding up proceedings The decision of the BIFR is binding on all the concerned parties. The entire responsibility for diagnosing, identifying, investigating, rehabilitating, reviving and ultimately recommending the winding of such a sick unit lies with the BIFR. Along with it, certain measures may also be initiated by the Reserve Bank of India (RBI) by instructing banks to keep a constant track of borrower's profile and try to identify sickness at the initial stages, that is, when a unit has started becoming weak. It has issued detailed guidelines for rehabilitation of these units and matters relating to better coordination between commercial banks and term-lending institutions for formulation and implementation of rehabilitation programmes. But, under the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, which replaced Sick Industrial Companies (Special Provisions) Act,1985 (SICA), the Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) stand dissolved. The work of revival and rehabilitation has been entrusted to National Company Law Tribunal (NCLT) in place of BIFR and any appeal against the order of the NCLT will be made to the National Law Appellate Tribunal (NCLAT) instead of AAIFR. BIFR has had mixed success. Some examples of successful recoveries are the recovery of Bharat Heavy Electricals Limited in the 1980s, and more recently the turnaround of Arvind Mills, Scooters India and the North Eastern Regional Agricultural Marketing Corporation. There have been many more cases where attempts to revive the companies failed, including Bharat Coking Coal Limited, Binny and Co., Calico Mills, Guest Keen Williams, Hindustan Cables, Metal Box Company and Wyman Gordon.[17] Problems have included insufficient resources, delays and lack of political willingness to take tough decisions.