Chambers, legal experts favour scrapping of SICA

Chambers, legal experts favour scrapping of SICA
AGENCIES

New Delhi, Sept 4: Leading chambers and top legal experts of the country have favoured scrapping of Sick Industrial Companies Act (SICA) as suggested by the Law Commission chairman Justice Jivan Reddy but for different reasons.

"We call for scrapping SICA but for different reasons. It has not served the purpose for which it was enacted," says Assocham secretary T G Keshvani and adds "we, however, do not agree with the observations of Justice Reddy that the SICA has been misutilised by the industry."

Echoing identical views, Confederation of Indian Industry (CII) said the Act has several drawbacks and procedural bottlenecks. "The drawbacks with the law and the Board for Industrial and Financial Reconstruction (BIFR) are late detection, cumbersome and time-consuming procedures and indefinite stay on creditors claims," said a CII spokesman.

Justice Reddy in an interview to PTI had suggested scrapping of SICA saying companies were misusing the provisions to evade payment of their dues to financial institutions. While terming the Act as "bad in law," the Law Commission chairman stated "in a market economy, if an industry cannot survive on its own, it should better die".

SICA was enacted with a view to securing the timely detection of potentially sick companies and the determination by an expert board of the preventive and remedial measures required to be taken and the quick enforcement of the same.

As per the provisions of SICA, a company whose accumulated losses have exceeded or are equal to its entire net worth, has to file an application to the Board for Industrial and Financial Reconstruction (BIFR) for it to be declared sick. When a company is declared sick, no case can be filed against it in any court of law. In fact, all cases pending against it are stayed. Neither a creditor of the company nor government authorities can proceed against it for the recovery of their dues.

Noted advocate Rajeev Dhavan says "the problem is not only that SICA has been abused by the companies. Lack of institutional capacity and wrong legislation has paralysed sick units further rather than rejuvenating them."

He says "the fact that SICA has failed is certain. Neither the people who are incharge of BIFR, AIFR have been in recent years acted properly nor the Act has been manned by people who can make comprehensive decision to resolve sick industry."

Another senior advocate G L Sanghi said "SICA is only serving those industries which do not want to pay their liabilities and they deliberately show that their industry is sick." Stating that SICA was not serving any purpose, he said "it has been used to deliberately declare the industries sick to take protection under Section 22 of the act, which gives automatic moratorium for any proceedings."

Assocham, however, said "industry had utilised the said Section when it was required and there was nothing that they deliberately sought protection under the Act." "Industry need insolvency law based on UK type which allows the winding up of the sick industry expeditiously."

Dhavan said "we need new competent and powerful legislations to deal with industrial sickness, specifically and efficiently with financial competence and compassion towards workers." CII also called for more efficient law and bankruptcy system for protection of industries while replacing SICA and BIFR regime.