Merger and the Sick Industrial Companies (Special Provisions) Act
The Sick Industrial Companies (Special Provisions) Act, (SICA) 1985 was enacted for prompt diagnosis of industrial sickness and to expedite rehabilitation of viable sick industries and facilitate closing down of unviable ones beyond recovery, which are not capable of being nursed back to health. This Act received the assent of the President of India on 8th January, 1986.
Initially before the amendment of 1994 only normal mergers were permitted under SICA whereby healthy companies absorbed sick ones. Now the amended Section 18 of SICA also allows ‘reverse mergers’ which denotes absorption of a healthy company by a sick company if situation warrants.
SICA
Board for Industrial and Financial Reconstruction (BIFR) constituted under SICA is the authority under the said Act, which is empowered to sanction and monitor the implementation of the rehabilitation scheme prepared by its designated operating agency, which is usually a bank or financial institution. There is also the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), to whom anybody aggrieved by the order of BIFR can appeal within 45 days. BIFR can also recommend the reliefs and concessions that can be granted to sick company by the lenders and other stakeholders including banks and financial institutions. Motivated by such incentives healthy companies have taken over sick companies and nursed them back to health.
BIFR after examining the proposed scheme sends a copy of the same to the concerned parties and also publishes the same in the newspaper. In amalgamation the proposed scheme has to be approved by shareholders of the healthy company in its general meeting, whereupon BIFR shall sanction the same. The scheme shall come into operation on such date as specified by the BIFR. BIFR can specify different dates for commencement of different provisions of the scheme.
If such scheme provides for transfer of property or liability from one company to another, then such property shall stand transferred and liability stand vested accordingly as soon the scheme or the particular provision thereof comes into force. Such rehabilitation scheme sanctioned by the BIFR is binding on the concerned companies and their stakeholders.
All the ingredients for corporate restructuring in Sections 391 to 394 of the Companies Act also find place in Section 18 of SICA. As a result, Section 18 can be used as a single window clearance mechanism for the rehabilitation scheme, which can involve more than one company and their multiple stakeholders. Further, as per Section 32 of the said Act SICA overrides all legislations except Foreign Exchange Regulation Act and Urban Land Ceiling Act. Any corporate reengineering exercise, sanctioned by BIFR under SICA, can be expeditiously completed through this fast track single window clearance route. In the absence of such single window, multiple authorities including Courts would have been required to be approached for multiple approvals causing further delays with larger number of procedures.
