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Tuesday, January 23, 2001

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Group okays repeal of SICA, wind-up of BIFR

Sarbajeet K. Sen

NEW DELHI, Jan. 22

THE Sick Industrial Companies (Special Provisions) Act, 1985, and the Board for Industrial and Financial Reconstruction (BIFR) set up under the Act are soon destined to become things of the past.

The Group of Ministers (GoM) headed by the Finance Minister, Mr Yashwant Sinha, which was set up to review the laws and structure on insolvency and sickness among companies, today gave its final go-ahead for the repeal of SICA and the installation of a w hole new structure to deal with industrial sickness.

Consequently, the BIFR, which was presiding over the revival, restructuring or winding up of sick companies for over a decade and a half, would itself be finally liquidated. Along with it will go the Appellate Authority for Industrial and Financial Recon struction (AAIFR).

The other members of the GoM are the Minister for Heavy Industry and Public Enterprises, Mr Manohar Joshi, the Labour Minister, Mr Satyanarayan Jatiya, and the Minister of State for Law, Justice and Company Affairs, Mr Arun Jaitley.

As an alternative to SICA and BIFR, the GoM has also cleared the proposal to bring about necessary legislative amendments for the setting up of the National Company Law Tribunal (NCLT) which, among other things, would handle matters relating to insolvenc y and sickness.

Highly-placed official sources said that the scheme to repeal SICA also incorporates the ushering in of a parallel mechanism for corporate debt restructuring (CDR). This has also been cleared by the GoM.

Under the CDR system, the lending banks and financial institutions would sit together and work out plans for the restructuring of debts of ailing corporate entities for their eventual revival.

However, instead of the system under SICA, where all lenders are required to agree on a package before it is approved by the BIFR, the CDR system would propose that lenders representing only 75 per cent of the debts of a company should agree before a res tructuring package is put into operation for the ailing company.

The GoM has also agreed to incorporate a safety provision in the post-SICA laws for the protection of the interests of labour.

Officials, however, did not want to hazard a guess on the time-frame within which the new scheme under the NCLT would be brought into operation. "We would like to introduce the system at the earliest," top officials said.

The setting up of the NCLT was suggested by the high-level committee on insolvency and winding up headed by Mr Justice V. Balakrishna Eradi. The committee, apart from proposing the repeal of SICA, suggested that matters pending under BIFR be brought unde r the NCLT. It recommended that all matters pending with the Company Law Board (CLB) and the various company law benches of High Courts also be transferred to the tribunal.

The NCLT is to be set up under the Companies Act, 1956, while a constitutional amendment is also envisaged to endow wide powers to the body.

*Sick Industrial Companies Act, 1985, to be repealed

*BIFR, AAIFR to be scrapped

*National company law tribunal proposed

*New corporate debt restructuring system to be introduced

*Interest of labour to be protected

Related links:
BIFR likely to be replaced
Eradi panel proposals on insolvency law -- Core Group to examine changes in Cos Act
Plan for tribunal to deal with insolvency of cos

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