In order to solve certain problems and to cut down the time taken in winding up and liquidation of companies under the Companies Act 1956, based upon the recommendations of a High Level Committee, a Bill namely the Companies (Amendment) Bill, 2001 has been introduced in the Lok Sabha on August 30, 2001. This Bill has also been referred to the Standing Committee of Parliament.
The Bill proposes to set up National Company Law Tribunal (NCLT) which would cover the power and jurisdiction of Company Law Board, Board for Industrial and Financial Reconstruction Appellate Authority for Industrial and Financial Reconstruction and also of the High Court relating to company law matters. The cases pending before the Company Law Board and the winding up cases that are before various High Courts will be transferred to proposed NCLT. The matters pending in BIFR / AAIFR would get abated but such companies can file fresh reference to NCLT. An Appellate Tribunal in Delhi has also been proposed where the appeals against NCLT has to be filed within forty five days from the receipt of the orders from the NCLT. Appeal against the order of Appellate Tribunal would lie before the Supreme Court.
Under Sec 2(46 AA) of the proposed Bill, a 'Sick Company' is defined as one whose losses accrued in any financial year are equal to or more than fifty percent of its average net worth during one financial year immediately preceding such financial year or a company who fails to repay its debt within any three consecutive quarters on demand, for its repayment by a creditor or creditors. This is a marked change from the provisions of Sec 3 (1) (o) of The Sick Companies (Special Provisions) Act, 1985 (SICA) where a sick industrial company has, at the end of any financial year accumulated losses equal to or exceeding its entire net worth and is registered for not less than five years. This change in definition will result in a Sick Company getting the attention earlier thereby improving the chances of its revival. The provision regarding the default in payments by the company for three consecutive quarters will not only allow the Board of directors of company but also Banks and Financial Institutions to refer the company to the Tribunal for its revival even if the company is registered for less than five years. This provision will even bring the companies registered for less than five years under the ambit of 'Sick Company'
