Sick Industrial Companies Act - 1985

Part - 5 Legal Frameworks

1.

Special features of The SICA (Special Provisions) 1985,

5.1.1. Meaning and Definition,
5.1.2. The broad objectives of SICA
5.1.3. Industrial Sickness in India
5.1.4. Causes of sickness in Indian industry

B R MURTHI, GVIC, Madanaplli.

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Sick Industrial Companies Act - 1985

5.1 Sick Industries Companies Act (Special Provisions) 1985,

The provisions of Sick Industrial Companies (Special Provisions) Act, 1985 after having assented
by the President of India on 8th January, 1986, the same was provided to objective to check
sickness and expedite the process of revival of efficient and viable sick industrial companies and
closure of those unviable. The said Act of 1985 was further provided with the object to
constitute the Board for Industrial and Financial Reconstruction and also Appellate Authority
thereof, which was vested with the power to recommend and supervise the implementation of
the rehabilitation plans of the sick industries. Also said Board was provided with the power to
decided reliefs to be granted and measures to be ascertained to such sick industrial companies.
Industrial sickness is defined in India as "an industrial company (being a company registered
for not less than five years) which has, at the end of any financial year, accumulated losses
equal to, or exceeding, its entire net worth and has also suffered cash losses in such financial
year and the financial year immediately preceding such financial year".
5.1.1. Meaning: - According to Companies (Second Amendment) Act, 2002, "'Sick Industrial
Company' means an industrial company which has
i) The Accumulated losses in any financial year equal to 50 per cent or more of its average net
worth during four years immediately preceding such financial year; or
ii) Failed to repay its debts within any three consecutive quarters on demand made in writing
for its repayment by a creditor or creditors of such company"

Definition: 3[(o) "sick industrial company" means an industrial company (being a company registered for not less than five
years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth.

(e) "Industrial company" means company which owns one or more industrial undertakings;

B R MURTHI, GVIC, Madanaplli.

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Sick Industrial Companies Act - 1985

5.1.2. The broad objectives of SICA :-

Timely detection of sick and potentially sick companies.

Finding the possibility of revival and rehabilitation of sick units.
Minimizing the losses to creditors, bankers and financial institutions in consequence to
closure of sick units.
To speed up the process of winding up in case industrial companies do not have any
chances of rehabilitation and revival.
Plugging the loopholes of original SICA to ensure that promoters of industrial companies
do not misuse the provisions of SICA to avail concessions and other under benefits from
financial institutions.
5.1.3. Industrial Sickness in India
Industrial sickness specially in small-scale Industry has been always a demerit for the Indian
economy, because more and more industries like cotton, Jute, Sugar, Textiles small steel and
engineering industries are being affected by this sickness problem.
As per an estimate 300 units in the medium and large scale sector were either closed or were
on the stage of closing in the year 1976. About 10% of 4 lakhs unit were also reported to be
ailing. And this position also remains same in the next decades. At the end of year 1986, the
member of sick units in the portfolio of scheduled commercial stood at 1.47,740 involving an
outstanding bank credit of Rs. 4874 corers.

Where the total numbers of large Industries which are sick were 637 units at the end of
year 1985 increased to 714 units in the end of next year 1986.

Likewise on the other hand the numbers of sick small scale units were also increased
1.18 lacks at the end of 1985 to 1.46 lakhs at the end of 1986.

The bank amount which was outstanding in case of large industries for the same period
also increased from Rs.2,900 crores to Rs. 3287 crores at the end of year 1986

Dues of Small Scale sector also increased from Rs.1071 crores to Rs.1306 crores at the
end of the year 1986.

B R MURTHI, GVIC, Madanaplli.

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Sick Industrial Companies Act - 1985

Of the 147, 740 sick industrial units which contains large medium as well as small scale
involving the total bank (credit) of Rs. 4874 at the end of the year 1986.

5.1.4. Causes of sickness in Indian industry

The different types of industrial sickness in Small Scale Industry (SSI) fall under two important
categories. They are as follows:
Internal causes for sickness
We can say pertaining to the factors which are within the control of management. This sickness
arises due to internal disorder in the areas justified as following:
a) Lack of Finance: This including weak equity base, poor utilization of assets,
inefficient working capital management, absence of costing & pricing, absence of planning and
budgeting and inappropriate utilization or diversion of funds.
b) Bad Production Policies : The another very important reason for sickness is wrong selection
of site which is related to production, inappropriate plant & machinery, bad maintenance of
Plant & Machinery, lack of quality control, lack of standard research & development and so on.
c) Marketing and Sickness: This is another part which always affects the health of any sector as
well as SSI. This including wrong demand forecasting, selection of inappropriate product mix,
absence of product planning, wrong market research methods, and bad sales promotions.
Failure in the field of marketing (which is an essential element in the processes of production),
faulty change in production-mix, failure to modernize production processing these days when
rapid technological changes in all spheres of production are taking place, may all cause
industrial sickness.
In modern time where quick changes are taking place in all spheres like technology,
advertisement and media handling, marketing etc. it is absolutely essential for any industrial
unit to be adequately flexible so that it can adapt itself fairly quickly to the ever changing
environment.

B R MURTHI, GVIC, Madanaplli.

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Sick Industrial Companies Act - 1985

d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs
is inappropriate personnel policies which includes bad wages and salary administration, bad
labor relations, lack of behavioral approach causes dissatisfaction among the employees and
workers.
e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or
bad corporate management which includes improper corporate planning, lack of integrity in top
management, lack of coordination and control etc.
f) Wrong Location: Selection of a wrong location may create problems for an industrial unit and
may lead to industrial sickness at an early stage. Thus, high technology based units are
established in areas without skilled labor on supporting infrastructure facilities industries based
on imported raw materials are established in regions without adequate transport and
communication system.
It is necessary to take into a account a number of factors such as availability of various
infrastructural facilities like energy, water, transport and so on, apart from skilled labor,
climate, etc. before the choice of location of a particular industrial unit is finalized any mistake
in respect of any one of the factors would surely lead to industrial sickness at an early stage.
(g) Technology: Technological factor also plays vital role. Adoption of inappropriate technology
or obsolete technology or installation of sophisticated machinery for which spare parts are not
easily available or of defective machinery may all lead to sickness of an industrial unit.
(h) Collaboration: Unsatisfactory collaboration agreements leading to legal complications may
result in industrial sickness right from the start or at any later stage.
(i) Demand Forecast: Wrong demand forecasts sudden appearance of competing substitutes on
the market, radical and sudden change in the tastes of people as production of a commodity is
being taken up may all cause industrial sickness.

External causes for sickness

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Sick Industrial Companies Act - 1985

a) Personnel Constraint: The first for most important reason for the sickness of small scale
industries are non availability of skilled labor or manpower wages disparity in similar industry
and general labor invested in the area.
b) Marketing Constraints: The second cause for the sickness is related to marketing. The
sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers,
changes in global marketing scenario, excessive tax policies by govt. and market recession.
c) Production Constraints: This is another reason for the sickness which comes under external
cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high
prices, import-export restrictions.
d) Finance Constraints: The external cause for the sickness of SSIs is lack of finance. This arises
due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments,
fear of nationalization.
e) Credit squeeze initiated by the government policies.

5.1.5. Measures of Sick Industrial companies act 2013

The company administrator shall prepare or cause to be prepared a scheme of
revival and rehabilitation of the sick company after considering the draft scheme filed along
with the application under Section 254.
The scheme may provide any one or more of following measures, namely
1. The financial reconstruction of the sick company;
2. The proper management of the sick company by any change in, or by taking over, the
management of such company;
3. The amalgamation of (a) the sick company with other company or (B) Any other
company with the sick company;
4. Takeover of a part or whole of my asset or business of the sick company;
5. The sale or release of a part or whole of any asset or business of the sick company;

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Sick Industrial Companies Act - 1985

6. The rationalization of managerial personnel, supervisory staff and workmen in

accordance with law;

7. Such other appropriate preventive, ameliorative and remedial measures;

8. Repayment or rescheduling or restructuring of the debts or obligations of the sick
company to any of its creditors or class of creditors;
9. Such incidental, consequential or supplemental measures as may be necessary or
expedient in connection with or for the purpose of the measures specified in above
clauses.

Questions
1. Write a short note on SICA?
2. Define SICA?
3. What are the Broad Objectives of SICA 1985?
4. Write a short note on Industrial Sickness in India?
5. Explain causes of sickness in Indian industries?
6. Write a short note on Sick Industrial Companies act 2013?
7. Explain SICA 1985?

References
1. T R Jain, Mukesh Trehan, Ranju Trehan, Business Environment, V.K.(india) Enterprises.
2. www. Vakilno1.com
3. Indiankanoon.org
4. Financialservices.gov.in
5. Lawyeralaw.org

B R MURTHI, GVIC, Madanaplli.

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