The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) was enacted to make special provisions for the timely detection of sick (and potentially sick) companies owning industrial undertakings. The Board for Industrial and Financial Reconstruction (BIFR) was formed under the SICA to determine the sickness of such industrial companies and to prescribe measures either for the revival of potentially viable units or the closure of unviable companies.

With effect from December 1, 2016, the SICA has been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (“Repeal Act”). This has resulted in the dissolution of the BIFR and other bodies formed under the SICA.[1]

SICA and its Repeal

In practice, the time taken by the BIFR and the appellate body under the SICA (AAIFR) in dealing with cases of industrial sickness and revival was lengthy and often plagued with uncertainties. Further, there were often separate matters pending under different statutes (such as SICA and the Companies Act) before various fora with respect to the same company. This often caused confusion and conflict regarding the jurisdictions of such bodies. It was therefore decided that instead of various bodies looking into different matters, one body should be constituted to handle all such matters and to dispose of all pending matters, allowing companies to approach a single forum and address varying pending disputes.

Accordingly, the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) were constituted under Companies Act, 2013 (Companies Act). The NCLT has the jurisdiction to hear matters with respect to, amongst others, the management of a company, mergers and amalgamations and revival or rehabilitation of companies. The jurisdiction of the NCLT has been further bolstered by the Insolvency and Bankruptcy Code, 2016 (Bankruptcy Code) which, amongst other things, provides that corporate insolvency processes may be initiated before the NCLT.

With the Bankruptcy Code coming into effect, all proceedings pending before the BIFR and AAIFR stand abated. However, the entity whose reference has abated may initiate fresh proceedings before the NCLT under the Bankruptcy Code (that of corporate insolvency resolution), within 180 days of the commencement of the Bankruptcy Code, i.e. December 1, 2016. Further, as per the provisions of the Repeal Act, the repeal of SICA would not affect any orders sanctioning a scheme under SICA, however, the same does not provide any clarity with respect to the manner in which the administration of such schemes (that have not yet been implemented) may be carried out.

Procedure for Rehabilitation of Sick Companies under the Bankruptcy Code

The Bankruptcy Code attempts to harmonise the process of insolvency, restructuring and rehabilitation under the umbrella of the “corporate insolvency resolution process”. Under the Bankruptcy Code, the process for corporate insolvency may be initiated by a financial creditor, an operational creditor or the company (irrespective of whether the same owns an industrial undertaking or not) itself (“Insolvency Applicant”). Briefly understood, the corporate insolvency proceeds when there is a debt, in respect of which the corporate debtor has committed a default. The amount of default should be Rs. 1 lakh or more. It is pertinent to note that the Bankruptcy Code aims to move away from the “sickness” test encapsulated under SICA and the Companies Act, 2013 (under Chapter XIX, which now stands deleted) to the “cash flow” test, allowing for a more objective standard of evaluation.

An Insolvency Applicant may thereafter file an application before the NCLT for the initiation of the corporate insolvency resolution process in respect of the corporate debtor upon complying with certain prescribed procedural requirements . Upon being satisfied with the contents of the application, the NCLT may admit or reject the application.

If the application is admitted, the corporate insolvency resolution process for such corporate debtor commences. On admission of the application, the NCLT shall declare a moratorium period during where no legal proceedings may be instituted or continued against the corporate debtor. Further, an “interim resolution professional” will be appointed and a public announcement of the initiation of the corporate insolvency process issued. Such resolution professionals have to be registered with the Insolvency and Bankruptcy Board of India after clearing an examination.

The Bankruptcy Code prescribes detailed steps on the manner in which the corporate insolvency process is to be carried out, which includes the formation of a resolution plan to attempt to revive and rehabilitate the business of the company. In the event the resolution plan is approved, the same is implemented accordingly. However, if no resolution plan is agreed upon or approved by the NCLT within 180 days of the admission of the application, the company will be wound up as per the provisions of the Bankruptcy Code.

Way Forward

The change in the law, brought about by the repeal of SICA and the notification of the Bankruptcy Code, moves beyond the concept of a “sick” company or an “industrial undertaking”, and consolidates the revival process for all companies under one law, before a single tribunal. This should make the process more speedy and efficient. The success of such a move will, however, depend on the NCLT being provided with the necessary infrastructural and legal support to handle the potential volume of matters.

It remains to be seen whether a qualified pool of insolvency resolution professionals who will help with the implementation of the law will be efficiently formed. The new regime can also aid corporates achieve greater efficiency in functioning by promoting an environment that supports commercial prudence and people who want to do business. Banks and lenders may approve of the new regime as it allows for a speedy resolution of matters where large amounts of funds may be tied up, while simultaneously allowing such creditors to be an active part of the resolution process of a corporate debtor.

[1] Ministry of Finance, Notification No. S.O. 3568(E), dated November 25, 2016, available at