BIFR became functional from May 15, 1987. Almost simultaneously an Appellate Authority was also established to review the decisions of BIFR. The Sica was amended in 1991 to bring government companies under its purview and again in 1993 when extensive changes were made in the Act including inter alia changes in the criteria for determining industrial sickness.

BIFR has been in operationfor more than a decade now, a time span long enough to assess effectiveness or otherwise as also whether or not it has been able to achieve the objectives as set out in the Sica. The economic liberalisation and globalisation against the backdrop of the cumbersome procedures envisaged in Sica and adopted by BIFR have brought into focus the very rationale of the existence of BIFR in its present form.

The unduly long period taken for disposal of a case including winding up is due to a variety of reasons. These include the failure of operating agencies to prepare the rehabilitation scheme, which again is due to non cooperative attitude if not deliberate attempt by the promoters to buy time, the provision in Sica for appeals against BIFR order, non-compliance by financial institutions and banks, government agencies etc.

Section 17(3) of Sica envisages appointment of an "operating agency" (OA) by the board when it decides that it is not practicable for the sick industrial company to make its networth positiveon its own and it is necessary or expedient in public interest to adopt all or any of the measures specified in section 18 in relation to that company, to prepare, having regard to such guidelines as may be specified by the board, a scheme providing for such measures in relation to the company. Four central financial institutions; eight nationalised banks and two state financial corporations have been notified as operating agencies of BIFR. The financial institution or bank having the maximum exposure in a particular sick industrial company is usually appointed as the OA for the case to formulate a revival scheme. As on March 31, 1998 operating agencies were appointed in respect of 1,527 cases. The operating agencies are required to submit their reports to the board within a period of 90 days. However, due to variety of reasons, submission of OA reports is delayed in several cases.

Briefly, these reasons are cited below

Section 25 of Sica provides that any person aggrieved by an order of the Board mayprefer an appeal to the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). As per information available in BIFR 1,405 appeals were filed in AAIFR up to March 31, 1998. A majority of these appeals were against the orders of the board under section 20(1) or against the winding up notices. In some appeals, relief was sought even against orders of interlocutory nature. The break up of the nature of all the appeals is not available with the board.

The sanctioning of rehabilitation schemes by BIFR does not ensure their (scheme) ultimate success. A total of 356 rehabilitation schemes sanctioned were found to have failed in achieving the desired results and therefore they had to be reopened. The main reasons for the failure of the rehabilitation scheme have been noticed as under.

Non-compliance of conditions

i) Not bringing in the promoter's contribution within the time frame envisaged in the scheme.

ii) Not completing the capital expenditure programme, both in physical and financialterms, as envisaged.

iii) Not taking timely action to dispose of the surplus assets to mobilise resources in the manner and within the time-frame envisaged.

iv) Not completing the essential documentation required for release of term loans and working capital by financial institutions and banks.

There have been instances of delay in releasing term loans and need based working capital as provided in the scheme by the banks and financial institutions. Generally, such delays are due to non fulfilment of procedural formalities by the sick company. Consequently, the implementation of the scheme gets delayed which further leads to cost overruns.

The central government, state government and state electricity boards also in some cases do not release the reliefs and concessions as per the provisions of the sanctioned scheme. For instance, the state government do not release the sales tax loan, or do not ensure availability of adequate power, or do not pay the outstanding dues relating to the goods supplied bythe company to government departments, or do not release timely the subsidy amounts due as per the provisions of the sanctioned scheme.

Change in market conditions can make the product of the company under rehabilitation non-competitive as a result of which the performance of the company may not be in tune with the projections made in the sanctioned scheme. Shift in government policies which could not be anticipated at the time of formulation of the rehabilitation schemes also contribute to the failure of the scheme.

Operation of section 33:

Section 33 of Sica prescribes the penalty for offences under the Act The offences are violation of any order of the board or the AAIF and making a false statement before and giving false evidence to the board or the AAIFR. This section enables the board to ensure strict compliance with its directions and provisions of the schemes by the parties. The board has issued 46 show cause notices under section 33 to various parties. A majority of the notice were issued topromoters for non compliance of the provisions of the schemes. In 44 cases, the replied furnished by the parties were accepted by the board.

In one case (South East Footwear Ltd) the board found the reply given by the promoters not satisfactory and it was decided to proceed further. However, the promoter obtained stay order from the court against further proceedings by the board in the matter.

There is a growing feeling corporates take shelter in BIFR as they get protection under section 22 of Sica. In the case of Real Value Appliances vs Canara Bank, the view that protection under section 22 of Sica would be available from the date of registration of the case with BIFR was upheld. The fact is that companies made their references to the board more by way of getting a temporary, if not a prolonged, reprieve from the winding up petition rather than getting rehabilitation schemes for their revival.

Banks and financial institutions have also felt the impact of industrial sickness leding to a rise in thelevel of their non-performing assets (NPAs). They are required to fulfil the stringent provisioning requirements laid down by the RBI in this regard. Their stress on profitability, a cleaner bottomline and answerability to the public leads to the banks reluctance in extending additional exposure to the sick companies. They would much rather settle their dues by way of one-time settlement (OTS) and opt out of the scheme of rehabilitation. Banks are also concerned with the depletion of the current assets, their primary security, which is invariably the first casualty of sickness. However, since banks sever their relations with the company after OTS of their dues, a piquant situation is created as normally no other bank would come forward to extend working capital assistance, a necessary ingredient for the operations of any company.

Of late another piquant situation has emerged. In January 1999, five BIFR cases (Indian Drugs & Pharmaceuticals Ltd, Hindustan Antibiotics Ltd, Bengal Immunity Ltd and SmithStanistreet & Pharmaceuticals Ltd were referred to the Disinvestment Commission. The latter has decided to keep the examinations of the companies on hold till a legal opinion is obtained on whether it has the locus standi to take up BIFR cases.

True, the reference to BIFR under Sica is a statutory obligation, whereas referral to the Disinvestment Commission is purely voluntary in nature. But it should be determined whether the government can withdraw a case registered with BIFR and if so, whether any formal permission is warranted. The aims and approach of BIFR and the Disinvestment Commission are entirely different in nature. Disinvestment is not provided under the Sica. The focus of BIFR is on revival and rehabilation on the basis of consensus among all the parties concerned in the process. Besides the commission reports directly to the government and not to BIFR.

If and when an `exit policy' is announced, the problems and complexities will get further aggravated.

BIFR has already becomenon-functional with only one bench and deputationists/retired staff. The appointment of so called special directors are yet another opportunity for rest and recreation for retired officials from concerned ministries of the government. Except a few exceptions, who can be counted on fingers, the contribution of these nominees to the sick companies is nothing to talk of but supporting the existing management to continue to loot the public and the exchequer.

To sum up, BIFR has miserably failed to achieve the avowed objectives, it is used to further the interests of the unscrupulous corporates to take advantage of protection granted under the Sica, to indulge in protracted legal battles in the guise of appeals etc. If one were to calculate the monetary benefits granted to corporates and quantification of sacrifices made by the concerned institutions, government (central and state) and of course, the labour of that quantum of funds would have been adequate enough to provide reasonable compensation to workerswhose interest the revival scheme is mainly sought to be protected. Let the concerned agencies, be allowed to take independent action as provided for in the relevant provision of their respective acts, take frequent recourse to extreme steps for recovery of their dues, including auctioning of the assets, to expedite and conclude a deal either to revive or close down. As such, the earlier Sica is scrapped the better for a healthy and competitive corporate governance in a liberal framework with a reasonable degree of protection to the workers affected. In fact, the earlier steps are taken to wind up BIFR, the better for all concerned.