SICK COMPANIES


This chapter may and will replace the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. We may note this chapter has much wider impact then earlier Act of 1985.

SICK COMPANIES (SUB – SECTION 1 OF SECTION 253):

Where on a demand by the secured creditors of a company representing fifty percent or more of its outstanding amount of debt, the company has failed to pay the debt within a period of thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor may file an application to the Tribunal in the prescribed manner along with the relevant evidence for such default, non-repayment or failure to offer security or compound it, for a determination that the company be declared as a sick company.

A company which fail to pay or secure a debt, which is fifty percent or more of its total outstanding debt, within thirty days of demand notice it may be declared as sick company.

DETERMINATION OF SICKNESS (SECTION 253):

The demand for payment or to secure or to compound such debt shall be made by secured creditors only. On failure of the company to fulfil the demand to pay or to secure to compound, any secured thereafter may file an application to the Tribunal. The application shall be accompanied with relevant evidence for such default, non – payment or failure to offer security or compound the debt.

Where, a debt is already secured but secured creditors demand further security because of erosion of value of current security, this provision attracts.

Stay of any Proceeding (Sub – Section 2 of Section 253):

The applicants (creditors) may also make an application for the stay of any proceedings:

(a)  for winding up of the company, or

(b) for execution, distress or the like against any property and assets of the company, or

(c)  for appointment of a receiver in respect of any property and assets of the company, or

(d)  for enforcement of any security against the company.

The tribunal may pass an order for stay of these proceedings. This order shall be operative for a period of one hundred and twenty days.

Application by Company (Sub – Section 4 of Section 253):

A company may also file an application before the Tribunal to declare it a sick company and also for stay of proceedings discussed above.

References for Determination as Sick Company (Sub – Section 4 of Section 253):

Further, on sufficient reason to believe that any company become a sick company; the Central Government, or the Reserve Bank of Indian, or the State Government, or a public financial institution, or a state level institution, or a schedule bank may also file reference before the Tribunal. A reference shall not be made in respect of any company by—

(a) the Government of any State unless all or any of the undertakings belonging to such company are situated in such State;

(b) a public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to such company, an interest in such company.

Protection of Certain Interests (Sub – Section 6 of Section 253):

Where an application for determination as a sick company or by the company for stay of proceedings:

(a)  the company shall not dispose of or otherwise enter into any obligation with regard to its properties or assets;

(b) the Board of directors shall not take any steps likely to prejudice the interest of the creditors.

Any action in the normal course of business is permitted.

Time –Period for Determination (Sub – Section 7 of Section 253):

The tribunal shall, within a period of sixty days of the receipt of any application, determine whether a company is a sick company or not. The company shall be given a notice of the application and a reasonable opportunity to reply to the notice within thirty of the receipt of the notice.

Repayment of Debt (Sub – Section 8, 9 of Section 253):

If the Tribunal is satisfied that a company has become a sick company, the Tribunal shall by an order decide, whether the company may make repayment of its debt within a reasonable time.

Where Tribunal determine that it is practicable for the sick company to pay its debt within a reasonable time, the Tribunal shall, by order in writing shall give a time period to make repayment of the debt.

Application for Revival and Rehabilitation (Section 254):

Once a company is determined as a sick company by the Tribunal, any secured creditor of the company or the company itself may make an application to the Tribunal for determination of measures for revival and rehabilitation of the company.

Such reference shall abate (i.e. fade away or decline) if the secured creditors representing three – fourths in value of the amount outstanding against financial assistance disbursed to the borrow have taken measures to recover their secured debt under sub – section (4) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

No reference shall be made if the secured creditors representing three – fourths in value of the amount outstanding against financial assistance disbursed to the borrower have taken measure to recover their secured debt under sub – section (4) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.[i]

No such application shall be made without consent of the securitisation or reconstruction company, where the financial assets of the sick company had been acquired by such Securitisation Company or reconstruction company under sub – section (1) of the Section 5 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.[ii]

Application for Revival and Rehabilitation:

An application shall be accompanied by—

(a)  audited financial statement of the company relating to the immediately preceding financial year;

(b) such particulars and documents, duly authenticated in such manner, along with such fee as prescribed; and

(c)  a draft scheme of revival and rehabilitation of the company in prescribed manner.

Where the sick company has no draft scheme of revival and rehabilitation to offer, it shall file a declaration to that effect along with the application.

The application for revival and rehabilitation shall be made ti the Tribunal within a period of sixty days from the date of determination of the company as a sick company by the Tribunal.

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One response to “SICK COMPANIES

  1. Pingback: REVIVAL AND REHABILITATION OF SICK COMPANIES (Companies Act, 2013) | AishMGhrana

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