THE SICK INDUSTRIAL COMPANIES

(SPECIAL PROVISIONS) ACT, 1985

 

CHAPTER I

 

PRELIMINARY

 

1.         Short title, extent, commencement and application

 

(1) This Act may be called the Sick Industrial Companies (Special Provisions) Act, 1985.

 

(2) It extends to the whole of India.

 

(3) It shall come into force on such date¹ as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision of this Act to the commencement of this Act shall be construed as a reference to the commencement of that provision.

 

(4) It shall apply, in the first instance, to all the scheduled industries other than the scheduled industry relating to ships and other vessels drawn by power.

 

(5) The Central Government may, in consultation with the Reserve Bank of India, by notification, apply the provisions of this Act, on and from such date as may be specified in the notification, to the scheduled industry relating to ships and other vessels drawn by power.

 

2.            Declaration

 

It is hereby declared that this Act is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of article 39 of the Constitution.

 

3.            Definitions

 

(1) In this Act, unless the context otherwise requires, -

 

(a) "Appellate Authority" means the Appellate Authority for Industrial and Financial Reconstruction constituted under section 5;

 

(b) "Board" means the Board for Industrial and Financial Reconstruction established under section 4;

 

1         The Act (except sections 15 of 34) came into force w.e.f. 12-1-1987, vide Notification No. GSR 24(E), dated 12^th January, 1987 and sections 15 to 34 came into force w.e.f. 15-5-1987, vide Notification No. SO 444(E), dated 28t^h April 1987.

(c) "Chairman" means the Chairman of the Board or, as the case may be, the Appellate Authority;

 

(d) "company" means a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) ¹[***];

 

²[(da) "date of finalisation of the duly audited accounts" means the date on which the audited accounts of the company are adopted at the annual general meeting of the company;]

 

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

 

(f) "industrial undertaking" means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include -

 

(i) an ancillary industrial undertaking as defined in clause (aa) of section 3 of the Industries (Development and Regulation) Act, 1951; and

 

(ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid section 3;

 

(g) "Member" means a Member of the Board or, as the case may be, the Appellate Authority and includes the Chairman thereof;

 

²[(ga) "net worth" means the sum total of the paid-up capital and free reserves.

 

Explanation - For the purposes of this clause, "free reserves" means all reserves credited out of the profits and share premium account but does not include reserves credited out of re-evaluation of assets, write back of depreciation provisions and amalgamation;]

 

(h) "notification" means a notification published in the Official Gazette;

 

³[(i) "operating agency" means any public financial institution, State level institution, scheduled bank or any other person as may be specified by general or special order as its agency by the Board;]

 

 

1         The words and figures “, but does not include a Government Company as defined in section 617 of that Act” omitted by Act 57 of 1991, sec. 2.

2         Ins. by Act 12 of 1994, sec. 2.

3         Subs. by Act 12 of 1994, sec. 2.

 

(j) "prescribed" means prescribed by rules made under this Act;

 

¹[***]

 

(l) "Reserve Bank" means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934;

 

(m) "scheduled bank" means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934;

 

(n) "scheduled industry" means any of the industries specified for the time being in the First Schedule to the Industries (Development and Regulation) Act, 1951;

 

²(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.

 

Explanation - For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provision) Amendment Act, 1993 (12 of 1994), registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company.]

 

(p) "State level institution" means any of the following institutions, namely: -

 

(i) State Financial Corporations established under section 3 or section 3A and institutions notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951);

 

(ii) State industrial development corporations registered under the Companies Act, 1956 (1 of 1956);

 

(iii) such other institutions, being companies and not being public financial institutions, engaged in the development or financing of industrial undertakings, as the Central Government may, by notification, specify:

 

 

1         Clause (k) omitted by Act 12 of 1994, sec. 2.

2         Subs. by Act 12 of 1994, sec. 2.

Provided that no institution shall be so specified unless not less than fifty one per cent of the paid-up share capital thereof is held by any State Government or Governments or by any institution or institutions mentioned in sub-clauses (i) and (ii) or partly by one or more public financial institutions or institutions mentioned in sub-clauses (i) and (ii) and partly by one or more State Governments.

 

(2) (a) Words and expressions used and not defined in this Act shall have the meanings, if any, respectively assigned to them in the Companies Act, 1956 (1 of 1956).

 

(b) Words and expressions used but not defined either in this Act or in the Companies Act, 1956 (1 of 1956), shall have the meanings, if any, respectively assigned to them in the Industries (Development and Regulation) Act, 1951 (65 of 1951).

 

(3) Any reference in this Act to any other enactment or any provision thereof, shall, in relation to an area in which such enactment or such provision is not in force, be construed as a reference to the corresponding law or the relevant provision of the corresponding law, if any, in force in that area.

 

CHAPTER II

 

BOARD AND APPELLATE AUTHORITY FOR INDUSTRIAL

AND FINANCIAL RECONSTRUCTION

 

4.            Establishment of Board

 

(1) With effect from such date as the Central Government may, by notification, appoint, there shall be established a Board to be known as the "Board for Industrial and Financial Reconstruction" to exercise the jurisdiction and powers and discharge the functions and duties conferred or imposed on the Board by or under this Act.

 

(2) The Board shall consist of a Chairman and not less than two and not more than fourteen other Members, to be appointed by the Central Government.

 

(3) The Chairman and other Members of the Board shall be persons who are or have been or are qualified to be High Court Judges, or persons of ability, integrity and standing who have special knowledge of, and professional experience of not less than fifteen years in science, technology, economics, banking industry, law, labour matters, industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in which, would in the opinion of the Central Government be useful to the Board.

5.            Constitution of Appellate Authority

 

(1) The Central Government may, by notification, constitute, with effect from such date as may be specified therein, an appellate authority to be called the "Appellate Authority for Industrial and Financial Reconstruction" consisting of a Chairman and not more than three other Members, to be appointed by that Government, for hearing appeals against the orders of the Board under this Act.

 

(2) The Chairman shall be a person who is or has been a Judge of the Supreme Court or who is or has been a Judge of a High Court for not less than five years.

 

(3) A Member of the Appellate Authority shall be a person who is or has been a Judge of a High Court or who is or has been an officer not below the rank of a Secretary to the Government of India or who is or has been a Member of the Board for not less than three years.

 

6.         Term of office, conditions of service, etc., of Chairman and other Members

 

(1) Before appointing any person as the Chairman or other Member, the Central Government shall satisfy itself that the person does not and will not, have any such financial or other interest as is likely to affect prejudicially his functions as such Member.

 

(2) The Chairman and every other Member shall hold office for such period, not exceeding five years, as may be specified by the Central Government in the order of his appointment, but shall be eligible for reappointment:

 

Provided that no person shall hold office as the Chairman or other Member after he has attained the age of sixty-five years.

 

(3) Notwithstanding anything contained in sub-section (1), a member may -

 

(a) by writing under his hand and addressed to the Central Government resign his office at any time;

 

(b) be removed from his office in accordance with the provisions of section 7.

 

(4) A vacancy caused by the resignation or removal of the Chairman or any other Member under sub-section (3) or otherwise shall be filled by fresh appointment.

 

(5) In the event of the occurrence of a vacancy in the office of the Chairman by reason of his death, resignation or otherwise, such one of the Members as the Central Government may, by notification, authorise in this behalf shall act as the Chairman till the date on which a new Chairman, appointed in accordance with the provisions of this Act to fill such vacancy, enters upon his office.

 

(6) When the Chairman is unable to discharge his functions owing to absence, illness or any other cause, such one of the Members as the Chairman may authorise in writing in this behalf, shall discharge the functions of the Chairman, till the date on which the Chairman resumes his duties.

 

(7) The salaries and allowances payable to and the other terms and conditions of service of the Chairman and other Members shall be such as may be prescribed:

 

Provided that neither the salary and allowances nor the other terms and conditions of service of the Chairman or any other Member shall be varied to his disadvantage after his appointment.

 

(8) The Chairman and every other Member shall, before entering upon his office, make a declaration of fidelity and secrecy in the form set out in the Schedule.

 

(9) The Chairman or any other Member ceasing to hold office as such shall not hold any appointment or be connected with the management or administration in any company in relation to which any matter has been the subject matter of consideration before the Board or, as the case may be, the Appellate Authority, for a period of five years from the date on which he ceases to hold such office.

 

7.            Removal of Members from office in certain circumstances

 

(1) The Central Government may remove from office any Member, who -

 

(a) has been adjudged as insolvent, or

 

(b) has been convicted of an offence which, in the opinion of the Central Government, involves moral turpitude, or

 

(c) has become physically or mentally incapable of acting as a Member, or

 

(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a Member, or

 

(e) has so abused his position as to render his continuance in office prejudicial to the public interest.

(2) Notwithstanding anything contained in sub-section (1), no Member shall be removed from his office on the ground specified in clause (d) or clause (e) of that sub-section unless the Supreme Court on a reference being made to it in this behalf by the Central Government, has, on an inquiry held by it in accordance with such procedure as it may specify in this behalf, reported that the Member ought, on such grounds, to be removed.

 

8.            Secretary officers and other employees of Board or Appellate Authority

 

(1) The Central Government shall appoint a Secretary to the Board and a Secretary (by whatever name called) to the Appellate Authority to exercise and perform, under the control of the Chairman, such powers and duties as may be prescribed or as may be specified by the Chairman.

 

¹[(2) The Central Government may provide the Board and the Appellate Authority with such other officers and employees as may be necessary for the efficient performance of the functions of the Board and the Appellate Authority.]

 

(3) The salaries and allowances payable to and the conditions of service of the Secretary and other officers and employees of the Board and the Appellate Authority shall be such as may prescribed:

 

Provided that such Secretary, officer or other employee shall, before entering upon his duties, make a declaration of fidelity and secrecy in the form set out in the Schedule.

 

9.            Salaries, etc., be defrayed out of the Consolidated Fund of India

 

The salaries and allowances payable to the Members and the administrative expenses, including salaries, allowances and pension, payable to or in respect of the officers and other employees of the Board and the Appellate Authority shall be defrayed out of the Consolidated Fund of India.

 

10.            Vacancies, etc., not to invalidate proceedings of Board and Appellate Authority

 

No act or proceeding of the Board or, as the case may be, the Appellate Authority shall be questioned on the ground merely of the existence of any vacancy or defect in the constitution of the Board or the Appellate Authority or any defect in the appointment of a person acting as a Member of the Board or the Appellate Authority.

 

11.            Members and staff of Board and Appellate Authority to be public servants

 

The Chairman and other Members and the officers and other employees of the Board and the Appellate Authority shall be deemed to be public servants within the meaning of section 21 of the Indian Penal Code (45 of 1860).

1      Subs. by Act 12 of 1994, sec. 3.

12.            Constitution of Benches of Board or Appellate Authority

 

(1) The jurisdiction, powers and authority of the Board or the Appellate Authority may be exercised by Benches thereof.

 

(2) The Benches shall be constituted by the Chairman and each Bench shall consist of not less than two Members.

 

¹[(3) If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the Members are equally divided, they shall state the point or points on which they differ, and make a reference to the Chairman of the Board or, as the case may be, the Appellate Authority who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other Members and such point or points shall be decided  according to the opinion of the majority of the Members who have heard the case including those who first heard it.]

 

13.            Procedure of Board and Appellate Authority

 

(1) Subject to the provisions of this Act, the Board or, as the case may be, the Appellate Authority, shall have powers to regulate -

 

(a) the procedure and conduct of the business;

 

(b) the procedure of the Benches, including the places at which the sittings of the Benches shall be held;

 

(c) the delegation to one or more Members of such powers or functions as the Board or, as the case may be, the Appellate Authority may specify.

 

(2) In particular and without prejudice to the generality of the foregoing provisions, the powers of the Board or, as the case may be, the Appellate Authority, shall include the power to determine the extent to which persons interested or claiming to be interested in the subject matter of any proceeding before it may be allowed to be present or to be heard, either by themselves  or by their representatives or to cross-examine witnesses or otherwise to take part in the proceedings.

 

(3) The Board or the Appellate Authority shall, for the purposes of any inquiry or for any other purpose under this Act, have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying suits in respect of the following matters, namely: -

 

1         Subs. by Act 12 of 1994, sec. 4.

 

(a) the summoning and enforcing the attendance of any witness and examining him on oath;

 

(b) the discovery and production of document or other material object producible as evidence;

 

(c) the reception of evidence on affidavit;

 

(d) the requisitioning of any public record from any court or office;

 

(e) the issuing of any commission for the examination of witnesses;

 

(f) any other matter which may be prescribed.

 

14.            Proceedings before Board or Appellate Authority to be judicial proceedings

 

The Board or the Appellate Authority shall be deemed to be a civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 and every proceeding before the Board or the Appellate Authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purposes of section 196 of the Indian Penal Code.

 

CHAPTER III

 

REFERENCES, INQUIRIES AND SCHEMES¹

 

15.            Reference to Board

 

(1) Where an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company:

 

Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company.

 

 

1         Sections 15 to 34 came into force w.e.f. 15-5-1987, vide Notification No. SO 444(E), dated 28^th April 1987.

 

(2) Without prejudice to the provisions of sub-section (1), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Board for determination of the measures which may be adopted with respect to such company:

 

Provided that a reference shall not be made under this sub-section in respect of any industrial company by -

 

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