PROJECT REPORT

ON
SICKNESS IN INDIAN INDUSTRY

Submitted By:

ROHIT MALIK
E.NO:0101593909
MBA-II YEAR (Finance)
2010

RUKMINI DEVI INSTITUTE OF ADVANCED STUDIES

(Approved by AICTE, HRD Ministry, Govt. of India)

Affiliated to Guru Gobind Singh Indraprastha University, Delhi

2A & 2B, Madhuban Chowk, Outer Ring Road, Phase-1, Delhi-110085.

 CERTIFICATE

This is to certify that the project titled “SICKNESS IN INDIAN INDUSTRY” is

an academic work done by “ROHIT MALIK” submitted in the partial
fulfillment of the requirement for the award of the degree of “Masters in
Business Administration” from “Rukmini Devi Institute of Advanced Studies,
New Delhi.” under my guidance and direction. To the best of my knowledge and
belief the data and information presented by him in the project has not been
submitted earlier elsewhere.

M/s. kiran vashistha

(Project Guide)
RDIAS
 RUKMINI DEVI INSTITUTE OF ADVANCED STUDIES

(Approved by AICTE, HRD Ministry, Govt. of India)

Affiliated to Guru Gobind Singh Indraprastha University, Delhi

2A & 2B, Madhuban Chowk, Outer Ring Road, Phase-1, Delhi-110085.

TO WHOMSOEVER IT MAY CONCERN

This is to certify that, Mr Rohit malik, a student of Rukmani Devi Institute Of

Advanced Studies, Madhuban Chowk has completed her Summer Internship
Project “Sickness in Indian industry” with ‘Dhir & Dhir Associates.’ This Project is
his original work and it has been found to be satisfactory.
Signature of the Company Guide Signature of Faculty Guide

Name: Mr. Nilesh sharma(FCA) Name: Prof. kiran vashistha

Date:07.08.2010 Date: 07.08.2010
Place: Delhi Place: Delhi
`

CERTIFICATE
 ACKNOWLEDGEMENT

I would like to express my deep gratitude to all those who made it possible for me to
complete this internship project. I want to thank M/s Dhir & Dhir Associates,
Advocates & Solicitors, New Delhi, a leading law firm in corporate arena, for
providing the necessary guidance and facilities for carrying out this project in the
first instance and to do the necessary research work in their office. I have
furthermore to thank my college faculty Prof. kiran vashistha for referring me to
this law firm and also encouraging me to go ahead with this project.

I am deeply indebted to my supervisors:

FACULTY GUIDES:

M/S KIRAN VASHISTHA

COMPANY GUIDES:

MR.NILESH SHARMA (FCA)

MR. BHUVAN ARORA (ASOCIATE)
whose help, stimulating suggestions and encouragement helped me in carrying out
this exercise.

CONTENTS
Page No.
Chapter – I INTRODUCTION 01 –
1.1 OBJECTIVE OF STUDY 09
1.2 HYPOTHESIS OF STUDY
1.3 RESEARCH METHODOLOGY OF
STUDY
1.4 LIMITATIONS
Chapter – LITREATURE REVIEW 10 –
II 22
Chapter – ABOUT THE ORGANISATION 23 –
III 66
Chapter – ABOUT THE TOPIC 67–
IV 85
Chapter – CASE STUDY ON ANUSIKA 86 – 98
V INDUSTRIES LIMITED
Chapter – FINDINGS 99 –
VI 102
 Chapter – SUGGESTIONS 103 –
VII 115
Chapter – CONCLUSIONS
VIII
BIBLIOGRAPHY 116 – 122
ANNEXURE

EXECUTIVE SUMMARY

• Study on various industrial sectors.

• Study on industrial sickness, symptoms, predictions, causes.

• Study on SICA and working of BIFR.

• Preparation of schemes for rehabilitation.

• Draft rehabilitation scheme.

• Case study on Anusika Industries Limited

CHAPTER – 1 .INTRODUCTION

1.1OBJECTIVE OF THE STUDY

Objectives are the ends that states specifically how goal be achieved. Every study must
have an objective for which all the efforts have been done. Without objective no research
can be conducted and no result can be obtained. On the basis of objective all the research
process is followed. Objectives are the main aspect of every study. The objective of the
study gives direction to go through the research problem. It guides the researcher and
keeps him on track.

I have two objectives regarding my research project. These are shown below :-
1. Primary objective
2. Secondary objective

1.Primary objective :-

(i) To analyze the various factors of industrial sickness and to find out the causes of
sickness.
(ii) To analyze the impact of remedial measures; adopted by government, financial
institutions and entrepreneurs on industrial growth;

2.Secondary objective :-
(i) To study the impact of industrial sickness, especially in small sector on industrial growth
and also on society at large;
(iii) To study and analyze the problems being faced by sick entrepreneurs on causes of
sickness especially non–availability of bank credit, quality control, in–conducive industrial
environment etc.

1.2Hypotheses of the study :

The following hypotheses are proposed to be empirically tested :

i)Industrial sickness has caused due to economic slow down, marketing competition and
changed business environment;
ii) Sick industrial units suffer from tough competition from large industries as well as
multinational companies in terms of marketing and procuring raw materials;
iii) Sick industrial units are facing financial crunch for technological up gradation and
utilization of installed capacity;
iv) Sick units are facing challenges from financial delay and financial support from
government sector;
v) Sick units are also facing problems due to withdrawal of support from government
organizations in terms of purchase of goods and products, extending technical and marketing
support and financial assistance.

1.3 Research methodology of the study

The present study is empirical one and quantitative in approach. It has equally focused on
qualitative methods of research. The selection of clusters has been done purposively with a
view to include traditional and modern industries in the sample. It means that a detailed list
of industries/ units has been prepared and number of these units/industries has been decided
on the basis of total number of sick units/ industries in the selected clusters. Apart from
Primary data, Secondary and published documented data has been collected through various
sources and analyzed accordingly. To make the study more meaningful and policy oriented
available literature and studies have been consulted and reviewed. It was also thought proper
that view perceptions of entrepreneurs, officials of financial institutions and government
agencies/departments including electricity board, industry associations may be sought out
through structured questionnaires to suggest the suitable policy measures. We have also
interacted with the representatives of financial and banking institutions as well as other
government departments for in depth discussions so that their observations may be
considered for evolving the strategies of the revival of sick industrial units. Primary data have
been collected through interview schedule. Apart form this field observations and open ended
discussion have also been equally considered and incorporated in the present study. The filled
in questionnaires were thoroughly scrutinized and processed in computer for drawing out
inferences, patterns, trends and conclusions. The primary data in tabular form has been
discussed, interpreted and analyzed while critical appreciation of pertinent literature has been
ensured in the report. The policy recommendations are based on analysis of research findings
and critical review of pertinent literature.
1.3.1 Research design
Research Design
A research designs is the arrangement of conditions for collection and analysis data in a
manner that aims to combine relevance to the research purpose with economy in
procedure. Research Design is the conceptual structure with in which research in
conducted. It constitutes the blueprint for the collection measurement and analysis of
data. Research Design includes and outline of what the researcher will do form writing
the hypothesis and it operational implication to the final analysis of data. A research
design is a framework for the study and is used as guide in collection and analyzing the
data. It is a strategy specifying which approach will be used for gathering and analyzing
the data. It also include the time and cost budget since most studies are done under these
two cost budget since most studies are done under theses tow constraints.
The design is such studies must be rigid and not flexible and most focus attention on the
following.
1. What is the study about?

2. Why is the study being made?

3. Where will the study be carried out?

4. What type of data is required?

5. Where can be required data be found?
6. What period of time will the study include?
7. What will be sample design?
8. What techniques of data collection will be used?
9. How will the data be analyzed?
10. In what style will the report be prepared?

TYPES OF RESEARCH DESIGN:

 EXPERIMENTAL RESEARCH DESIGN

  EXPLORATORY RESEARCH DESIGN
 DESCRIPTIVE& DIAGNOSTIC RESEARCH

Exploratory Research Design: This research design is preferred when researcher has a
vague idea about the problem the researcher has to explore the subject.

Experimental Research Design – The research design is used to provide a strong basis
for the existence of casual relationship between two or more variables.

Descriptive Research Design – It seeks to determine the answers to who, what, where,
when and how questions. It is based on some previous understanding of the matter.

Diagnostic Research Design It determines the frequency with which something occurs
or its association with something else.

Research Design Used in this Project

Research Design chosen for this study is Descriptive Research Design. Descriptive study
is based on some previous understanding of the topic. Research has got a very specific
objective and clear cut data requirements.

1.3.2 Method of data collection

DATA COLLECTIONS
The process of data collection begins after a research problem has been defined and
research design ahs been chalked out. There are two types of data –

PRIMARY DATA - It is first hand data, which is collected by researcher itself. Primary
data is collected by various approaches so as to get a precise, accurate, realistic and
relevant data. The main tool in gathering primary data was investigation and observation.
It was achieved by a direct approach and observation from the officials of the company.
SECONDARY DATA:- It is the data which is already collected by someone else.
Researcher has to analyze the data and interprets the results. It has always been important
for the completion of any report. It provides reliable, suitable, adequate and specific
knowledge.
I took data comprise annual reports and post records. The valuable cooperation extended
by staff members contributed a lot to fulfill the requirements in the collection of data in
order to complete the project. Various statistical tools are applied depending on the
research problem. In this study ratio analysis, comparative financial statements analysis
has been used for analyzing and interpreting the result.

1.4 Limitations
1. Not able to cover the Practical aspect i.e the actual working of the
company (because in the books, the networth may become positive but in
actual it suffers from losses).

CHAPTER -2 REVIEW OF LITREATURE

Going through the rich source of Journals, magazines, articles and newspapers, I found
that no research has been conducted in the field of sickness in the Indian Industry, thus it
motivated me to do a research in this field.

 P.S Kaicker ,’Sick Industrial Companies”pg-1.205-1.227,”It explains

about Sick Industrial Companies Act which gives the provisions for the
formation of BIFR”.
 H.P.S Pahwa,”Sick Industries and BIFR”pg-91-191,”it explains about
References, Inquiries and Schemes to be followed by sick company.
K.R Sampath, “Mergers, Amalgamations, Takeovers and Corporate Restructure”pg-
1173-1178,”it explains about the scheme of rehabilitation for sick industrial unit.
CHAPTER-3
ABOUT THE
ORGANISATION
Sick Industrial Companies Act

Industrial sickness is one of the most complex problems of the Indian economy. Inspite
of the different measures taken by the Government the problem persists. The rise has
remained unabated, even in the years after the passage of the Sick Industrial Companies
Act (SICA) and the creation of the Board for Industrial and Financial Reconstruction
(BIFR). The study reveals that sick units have not only lost their net worth, but they have
also lost capital raised from sources other than ownership. The extent of accumulated
losses of sick units in India, is about two times that of the net worth of the sick units. The
study reveals the failure of the policies in controlling industrial sickness in India, and puts
forward certain suggestions to revamp the policy framework so as to effectively tackle
the problem.

In the wake of sickness in the country’s industrial climate prevailing in the eighties, the
Government of India set up in 1981, a Committee of Experts under the Chairmanship of
Shri T.Tiwari to examine the matter and recommend suitable remedies therefore. Based
on the recommendations of the Committee, the Government of India enacted a special
legislation namely, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of
1986) commonly known as the SICA.

The main objective of SICA is to determine sickness and expedite the revival of
potentially viable units or closure of unviable units (unit here in refers to a Sick Industrial
Company). It was expected that by revival, idle investments in sick units will become
productive and by closure, the locked up investments in unviable units would get released
for productive use elsewhere.

The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called the Act)
was enacted with a view to securing the timely detection of sick and potential sick
companies owning industrial undertakings, the speedy determination by a body of experts
of the preventive, ameliorative, remedial and other measure which need to be taken with
respect to such companies and the expeditious enforcement of the measures so
determined and for matters connected therewith or incidental thereto.

The Board of experts named the Board for Industrial and Financial Reconstruction
(BIFR) was set up in January, 1987 and functional with effect from 15th May 1987. The
Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) was
constituted in April 1987. Government companies were brought under the purview of
SICA in 1991 when extensive changes were made in the Act including, inter-alia,
changes in the criteria for determining industrial sickness.
SICA applies to companies both in public and private sectors owning industrial
undertakings:-
(a) pertaining to industries specified in the First Schedule to the Industries (Development
and Regulation) Act, 1951, (IDR Act) except the industries relating to ships and other
vessels drawn by power and;
(b) Not being "small scale industrial undertakings or ancillary industrial undertakings" as
defined in Section 3(j) of the IDR Act.
(c) The criteria to determine sickness in an industrial company are (i) the accumulated
losses of the company to be equal to or more than its net worth i.e. its paid up capital plus
its free reserves (ii) the company should have completed five years after incorporation
under the Companies Act, 1956 (iii) it should have 50 or more workers on any day of the
12 months preceding the end of the financial year with reference to which sickness is
claimed. (iv) it should have a factory license.

OBJECTIVES OF SICA

The objectives of this Act (SICA) as incorporated in its preamble, emphasises the
following points:

 The SICA had been enacted in the public interest to deal with the problems of
industrial sickness with regard to the crucial sectors where public money is locked
up.
 It contains special provisions for timely detection of sick and potentially sick
industrial companies, speedy determination and enforcement of preventive,
remedial and other measures with respect to such companies.
 Those measures are to be taken by a body of experts.

The measures are mainly:

(a) Legal
(b) Financial restructuring

(c) Managerial

The measures include:-

 The financial reconstruction

 The proper management by change in or take over of the management of the
company;
 The amalgamation of the sick industrial
 The sale or lease of a part or whole of the sick industrial company;
 Such other preventive, ameliorative and remedial measures as may be appropriate.
 Such incidental, consequential or supplemental measures as may be necessary or
expedient in connection with or for the purposes of the measures specified above.

GENISIS OF SICA, 1985

 Industrial sickness had started right from the pre-Independence days.

 Government had earlier tried to counter the sickness with some ad-hoc measures.
 Nationalisation of Banks and certain other measures provided some temporary
relief.
 RBI monitored the industrial sickness.
 A study group, came to be known as Tandon Committee was appointed by RBI in
1975.
 In 1976, H.N. Ray committee was appointed.
 In 1981, Tiwari Committee was appointed to suggest a comprehensive special
legislation designed to deal with the problem of sickness laying down its basic
objectives and parameters, remedies necessary for revival of sick Units.
 The committee submitted its report to the Govt. in September 1983 and suggested
the following:
 1) Need for a special legislation.
2) Need for setting up of exclusive quasi-judicial body.

Thus, the SICA came into existence in 1985 and BIFR started functioning from 1987.

IMPORTANT SECTIONS OF SICA

 Constitution of two quasi-judicial bodies – BIFR and AAIFR and their Benches
 Procedure of the Board and the Appellate Authority.
 Filing of references u/s 15 and criteria of sickness.
 Provision of enquiry u/s 16.
 Appointment of Special Directors and OAs u/s 16(4) and 17(3).
 Preparation of sanctioned scheme under section 17(2), 17(3) & 18(4).
 Provision for monitoring of schemes u/s 18(12)
 Rehabilitation by giving financial assistance u/s 19.
 Winding up of sick industrial companies u/s 20.
 Protection to safeguard the interests of the sick companies u/s 22(1), 22(2), 22(3).
 Provisions for dealing with potential sickness u/s 23, 23(a), 23(b).
 Provision in case of misfeasance u/s 24.
 Provision for seeking information and giving information – Central Govt., RBI,
FIs State institutions and sick companies and in case of amalgamation other
companies.
 Power to seek assistance of MMs & DMs u/s 29.
 SICA has overriding provisions u/s 32 over other laws except the provisions of
FERA, 1973 and the ULCRA,1976.

 Penalty u/s 33 for violation of the Act.

BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR)

Board of industrial and Financial Reconstruction (BIFR) was established by the Central
Government, under section 3 of the Sick Industrial Companies (Special provisions) Act,
1985 and it became fully358 Project Management operational in May, 1987. BIFR deals
with issues like revival and rehabilitation on sick companies, winding up of sick
companies, institutional finance to sick companies, amalgamation of companies etc.
BIFR is a quasi judicial body. The role of BIFR as envisaged in the SICA (Sick Industrial
Companies Act) is:
(a) Securing the timely detection of sick and potentially sick companies.
(b) Speedy determination by a group of experts of the various measures to be taken in
respect of the sick company.
(c) Expeditious enforcement of such measures
BIFR has a chairman and may have a maximum of 14 members, drawn from various
fields including banking, labour, accountancy, economics etc. It functions like a court and
has constituted four benches.

Reporting to the BIFR

The Board of Directors of a sick industrial company is required, by law, to report the
sickness to the BIFR within 60 days of finalization of audited accounts, for the financial
year at the end of which the company has become sick. BIFR has prescribed a format for
this report. While reporting by a company of its sickness to the BIFR is mandatory as per
the provisions of law, any other interested person/party can also report the fact of
sickness of a company to the BIFR. Such interested parties may be the financial
institution/bank that has lent loan to the company, the RBI, the Central/State
Governments. The BIFR has prescribed a different format for the report to be submitted
by such interested parties. When a company has been financed by a consortium of banks,
it is the Lead Bank that should report to the BIFR about the sickness under advice to
other participating banks in the consortium.

Enquiry by the BIFR

When a case is referred to the BIFR, it is verified by the Registrar of the BIFR as to
whether the facts of the case fall within the provisions of the Sick Industrial (Special
provisions) Act, 1985. If so, the BIFR accepts the case and notifies a date for hearing the
case. For rehabilitating a sick unit, cooperation of various connected agencies is a must.
This co-ordination is achieved by the BIFR. The BIFR invites the representatives of the
informant sick company, the representatives of concerned financial institutions and
commercial banks, representatives of the Central/State Governments, trade union
representatives etc., to the hearing and inquiry is made under section 16 of the Act.
After the hearing, the BIFR itself may conduct a study or entrust the work to an
‘operating agency’ appointed by it to determine whether the company is in fact sick.
Normally, the lead financial institution (IDBI, ICICI, IFCI, SFC) or the lead public sector
bank that has financed the company is nominated as the operating agency. Lead
institution is one that has major financial stake in the sick company. The enquiry is to be
completed within 60 days. On completion of the enquiry, the BIFR will declare whether
the company is sick or not.

Revival Package

Once a company has been found sick, the BIFR may grant time to the sick company to
enable it to make its net worth positive and bring the company out of sickness, without
any external financial assistance. If it is found infeasible for company to make its net
worth positive with out any external financial assistance or if the BIFR decides that the
company can not make its net worth positive.
CHAPTER-4 ABOUT THE TOPIC
Sickness in Indian industry

Industrial sickness: Just like birth and growth, sickness and death is an inevitable
aspect of trade and industry. An industry flourishing today may face closure tomorrow
while an industry languishing today may turn the corner and grow rapidly tomorrow,
this is unavoidable in any economy.

A sick industrial unit is like a patient at home. A patient, in addition to suffering from
ailment himself, causes inconvenience to others and, often, spells ruin to the family,
particularly when the treatment is prolonged and expensive. A sick unit too will have
serious repercussions on the economy as a whole, besides adversely affecting the
interests of the people directly connected with it.

Sickness in industry is a universal phenomenon. Sickness is not defined in precise terms

in various acts. Sickness is a symptom of ailment and not an ailment in itself. it indicates
that everything is not well but it does not in itself show what is not well in that
everything. The financial institutions pay reliance on the following parameters for the
categorization of the unit in the sick industry:

1. Continuous default by the unit in repaying the dues of industry.

2. Continuous default by the unit in repaying the installments which have fallen
due.
3. Occurrence of cash losses on a continuous basis.

Reserve Bank of India study on causes of sickness covered 378 units and it revealed as
follows:

Causes Number Percentage

1. Units which have gone sick due to mismanagement. 197 52
2. Initially faulty planning and technical drawback. 52 14
3. Labor trouble. 9 2
4. Market recessions. 86 23
5.Ohers 34 9

Sickness has following ill effects on the economy:

1. Loss of production.
2. Loss of employment.
3. Loss to government by way of lesser realization of duties, levies and taxes and
revenue, in general.
4. Locking up of recyclable funds of institutions.
5. Loss of inbuilt capacity of the plant.

DEFINITION

BY SICK INDUSTRIAL COMPANIES(SPECIAL PROVISIONS) ACT, 1985, SEC

3(1) (0)“Industrial company(being a company registered for not less than five years)
which has at the end of any financial year accumulated loss equal to or exceeding its
entire net worth and which has also suffered cash losses in such a financial year
immediately preceding such financial year”.

BY THE COMPANIES (SECOND AMENDMENT) ACT, 2002

Defines a sick company as one:

  Which has accumulated losses in any financial year to 50 percent or more of its
average net worth during four years immediately preceding the financial year in
question, or

 This has failed to repay its debts within any three consecutive quarters on demand
for repayment by its creditors.

CRITERIA TO IDENTIFY INDUSTRIAL SICKNESS

 Continuous decline in gross output compared to the previous two financial years.
 Delays in repayment of institutional loan, for more than 12 months.
 Erosion in the net worth to the extent of 50 percent of the net worth during the
previous accounting year.

EFFECTS OF INDUSTRIAL SICKNESS

 Decline In Capacity Utilization

 Shortage Of Liquid Funds
 Inventories In Excessive Quantities
 Irregularity In Maintaining The Bank Accounts
 Frequent Break Downs In Plant & Equipments
 Decline In The Quality Of Products
 Frequent Turnover Of Personnel
 Technical Deficiency
 Shortage Of Cash
 Deteriorating Financial Ratios
 Continuous Decline In Prices Of The Shares
 Delay And Default In The Payment Of Statutory Dues
 Morale Degradation Of Employees
 Frequent Request To Banks & Financial Institutions For Loans
  Delay In The Audit Of Annual Accounts

PREDICTION OF SICKNESS

Though symptoms of sickness can be observed from the leading indicators, such
indicators may only suggest that the unit is a potentially sick unit. However, it is not easy
to arrive at a definite conclusion about the impending sickness on the basis of the leading
indicators of sickness. Considerable research work has been done to identify other
measurable parameters that can be used for predicting sickness. The research, in general
has been done by two different methods of analysis. They are Univariate Analysis and
Multivariate Analysis

Univariate Analysis

Univariate analysis aims to predict sickness on the basis of a single financial ratio.
Though many financial ratios were used by analysts for predicting sickness, there was no
consensus as to what the most appropriate ratio is for the prediction of sickness. Such a
situation prevailed till William H. Beaver published his study on univariate analysis in
the year 1966. Beaver examined the predicative power of 30 different financial ratios by
choosing a sample of 79 firms that had become sick and 79firms that were healthy for the
same period of time. The sample was so chosen that for each failed(sick) firm, a healthy
firm operating in the same industry and having comparative size was included in the
sample set. For both the set of samples of 79 firms each, Beaver examined the behaviour
of 30different financial ratios during the period of 5 years prior to the failure. The main
finding of Beaver was that the ratio that is most useful in predicting impending sickness
is the ‘ratio of cash flow to total debt’, since this ratio showed the minimum error in his
prediction.
Multivariate Analysis

Univariate analysis examines the predictive power of individual financial ratios. The joint
effect of more than one financial ratio in predicting sickness is not studied in univariate
analysis. Multivariate analysis, on the other hand, aims to predict industrial sickness by
studying the combined influence of several financial ratios.
Altman. E.I. presented his model of multivariate analysis for predicting industrial
sickness in the year 1966. In his model, Altman combined several financial ratios into a
single index. He named this index as ‘Z-score’. His analysis was based on a statistical
procedure known as ‘multiple discriminate analysis’ (MDA). Altman studied a sample of
33 bankrupt firms along with a paired sample of 33non-bankrupt firms. He examined 22
financial ratios to identify their combined influence on sickness
and selected five ratios, which in his opinion jointly possess the maximum power to
predict bankruptcy. Altman derived a discriminant function (‘Z’) that contains five
financial ratios. The discriminant function derived by Altman is as under:

Z = 1.20x1 + 1.40x2 + 3.30x3 + 0.60x4 + 0.999x5

Where,
Z = discriminant score
x1 = (working capital) Π (total assets)
x2 = (retained earnings) Π (total assets)
x3 = (earnings before interest and tax) Π (total assets)
x4 = (market value of equity) Π (book value of total debt)
x5 = (sales) Π (total assets)

A cut-off point for the ‘Z’ score was determined by Altman in such a way that it
minimized the overlap between bankrupt and non-bankrupt groups. Altman found that a
cut off value of 2.675 for ‘Z’ minimized the possibility of misclassification. Thus, as per
Altman’s analysis, firms with ‘Z’ score less than 2.675 are prone to become bankrupt and
firms with ‘Z’ score more than 2.675 are free from the threat of bankruptcy.
STAGE
S IC
CAUSES OF INDUSTRIAL SICKNESS

 Internal Causes
 External Causes

INTERNAL CAUSES FOR SICKNESS

a) Personnel Constraint: The first for most important reason for the sickness of small
scale industries are non availability of skilled labour or manpower wages disparity in
similar industry and general labour invested in the area. Thus, the major personnel
constraints are:-

 Inappropriate Wage And Salary Administration

 Bad Labour Relations
 Absence Of Manpower Planning
 Bad T & D

b) Marketing Constraints: The second cause for the sickness is related to marketing.
The sickness arrives due to liberal licensing policies, restrain of purchase by bulk
purchasers, changes in global marketing scenario, excessive tax policies by govt. and
market recession. Thus, the major marketing constraints are:-

 Inaccurate Demand Forecasting

 Selection Of Inappropriate Product Mix
 Absence Of Product Planning
 Dependence On Few Buyers
 Lack Of Market Research
 Inappropriate Sales Promotion
c) Production Constraints: This is another reason for the sickness which comes
under external cause of sickness. This arises due to shortage of raw material,
shortage of power, fuel and high prices, import-export restrictions. Thus, the major
production constraints are:-

 Site Selection
 Improper Layout
 Inappropriate Plant Machinery
 Inadequate Maintenance
 Inadequate Material Control
 Lack Of Quality Control
 Lack Of Emphasis On R & D

d) Finance Constraints: Another external cause for the sickness of SSIs is lack of
finance. This arises due to credit restrains policy, delay in disbursement of loan
by govt., unfavorable investments, fear of nationalization. Thus, Some major
financial constraints are:

 Inappropriate Financial Structure

 Poor Utilization Of Assets
 Inefficient Working Capital Management
 Lack Of Proper Costing And Pricing
 Absence Of Financing, Planning & Budgeting
 Improper Utilization Or Diversion Of Funds
 e) Management constraints: The another internal reason for the sickness of SSIs is
inappropriate personnel management policies which includes bad wages and salary
administration, bad labour relations, lack of behavioral approach causes dissatisfaction
among the employees and workers. Thus, the major management constraints are:

 Improper Corporate Planning

 Lack Of Coordination And Control
 Resistance To Change
 Dispute In Top Management
 Lack of integrity in top management
 Managerial inadequacies/ineffectiveness
 Time and cost overruns
 Ineffective market policies

EXTERNAL CAUSES FOR SICKNESS

These are the causes that arises from outside the firm, they include:

a) Improper Credit Facilities: Banks and financial institutions have also felt the
impact of industrial sickness leading to a rise in the level of their Non Performing
Assets (NPAs).stress on the profitability, a cleaner bottom line and answerability to
the public leads to the increasing reluctance on the part of banks in extending
additional exposure to sick companies. They would rather settle their dues by the way
of one time settlement (OTS) and opt out of rehabilitation scheme.

b) Delay in Advancing of Funds: Most companies have complained of delays in

providing adequate and timely working capital facilities. it alleged that banks take a
very rigid view even with companies which have proven track record .even if loan
was sanctioned it was recalled immediately when the companies were facing
 financial difficulties and court cases/winding up petitions were filed against the
companies for recovery of the dues by the banks and FI’s.

c) Unfavorable Investment Climate Shortage Of Inputs: Another major factor,

which contributed to industrial sickness was inadequate supply of power. big
industrial units which required constant supply of electricity had to resort to costlier
diesel generated power which pushed up the overhead expenses.

d) Import Restrictions On Essential Inputs: A random survey of the reasons for

sickness as spelt out by the companies has revealed that there are some common
factors, which have also contributed to industrial sickness .one of the main factors
cited was payment of high excise duties by the Indian companies while imports were
available at cheaper rates due to drastic cut in custom duties. some of the companies
mentioned that due to availability of cheaper products from china, south Asian
countries like Korea and Taiwan, the indigenous manufacturers faced difficulties and
found it very tough marketing their products.

e) Change In International Marketing Scene: Reduction in import duties, stiff

competition in from multinational companies with wider market access and better
quality products, competition from unorganized sector which can offer cheaper
products due to lower taxes and other charges ,inadequate power supply, high cost of
finance, etc .have also been cited as other major causes of sickness.

f) Excessive Taxation Policy of Government: Unfavorable duty structure, including

imbalance between customs and excise duties, excessive import competition,
specifically dumping of similar products by foreign firms into the country,
unfavorable administered prices/subsidy policies/delayed disbursement of subsidies,
etc all contributed to the sickness.

Consequences to others due to industrial sickness

  Huge financial losses to the banks & financial institutions
 Loss to employment.
 Emergence of industrial unrest
 Adverse effect on perspective investors and entrepreneurs
 Wastages of scarce resources
 Loss of revenue to government

Need for revival/rehabilitation programme

A project that has gone sick would have already swallowed huge scarce resources. In
order to utilize the assets and infrastructure already created for the project, the project is
to be revived from sickness.

There is no doubt that the project would have had some weak areas which could have
been the cause for the sickness. In spite of this, rehabilitating the sick project is worth
considering since the cost of setting up a new unit might be substantially higher as
compared to the cost of rehabilitating a viable sick unit. Of course, having known the
factors that were responsible for leading the unit to sickness, they can be properly
addressed in the revival package. Revival of a sick unit may be necessitated or justified in
view of the under lying socio-economic objectives such as the following.

(a) The project may be in a sector that is vital to the economy. Abandoning the project
may lead to other socio-economic ill effects.
(b) Many ancillary units may be dependent on the unit that has gone sick. Unless the sick
unit is revived, it will have a chain effect of all such dependent ancillary units becoming
sick.
(c) Banks and financial institutions would have locked up their money in sick ventures.
In order to get back the investment of banks and financial institutions, the project is to be
revived and made to work again and generate surpluses. Though banks and financial
institutions that support a revival programme for the sick unit may be required to fund the
project again, they will be prepared to implement revival packages if they are convinced
that they will, apart from getting back their present investment with interest, also get back
their earlier investments that are locked up.

Viability study for rehabilitation proposal

Once bitten, twice shy! - Before attempting to rehabilitate a sick unit, a detailed and
thorough viability study is to be undertaken to ensure that the revival programme will
really bear fruits. It is not advisable to venture upon any revival programme if there are
gray areas that need further study. This proposition should be adopted for identifying
units to be put on a rehabilitation package. For this purpose viability is defined as under:

“A unit may be regarded as viable if it would be in a position, after implementing a relief

package spread over a period not exceeding seven years from the commencement of the
package, from banks, financial institutions, Government (Central/State), Government
agencies, shareholders, labour, suppliers of goods and services and other creditors, as
may be necessary, to continue to service its repayment obligations as agreed upon
including those forming part of the package, without the help of the concessions after the
aforesaid period. The repayment period for restructured debts should not exceed ten years
from the date of implementation of the package.”

The viability study shall enquire into the technical, commercial, managerial and financial
aspects.
Technical Appraisal

(a) Study the manufacturing process used by the unit. Ascertain if any new process has
since been developed. Explore the necessity of switching over to the latest manufacturing
process and study the cost, benefit aspects of such switchover.
(b) Study the production capacity of different production sections and checkup if the
production capacities of different sections are perfectly balanced. If there is any
production section, which has a lower capacity than that required for perfect balancing,
the overall capacity of the plant can be significantly increased without huge investments,
by adding the required balancing machinery.
(c) Explore the possibilities of adding additional/special features to the products that will
add competitive edge to the product. Also examine the need for changing the product-mix
that is in tune with the market requirement.
Rehabilitation of Sick Units 367
(d) Find out if any plant/equipment need major repair/overhauling to improve its
operating efficiency.
(e) If the location disadvantages outweigh all other factors, the scope for shifting the
location to an advantageous place may be examined and the consequent cost-benefit
analysis studied. This may be possible if the firm is functioning in leased premises and
owns only the plant and machinery. If the unit is located in own building, the proposal for
shifting the plant and machinery to a leased building in an advantages location may also
be studied. The building owned by the firm can be leased out to some other firms. The
long-term cost benefit analysis will give lead to the acceptability or otherwise of such a
proposal.
(f) Study the modifications required, if any in the plant layout so that the material
handling time can be reduced which may improve the efficiency of operations and
improve the output.
(g) Examine if any of the manufacturing operations that are done in house can be
entrusted to outside agencies, which may result in cost reduction.
Commercial Appraisal

(a) Commercial failure of a project will be mainly due to problems relating to the product
itself viz., defects/imperfections in product design which may lead to consumer
resistance. Such situations indicate that the products offered by competitors have better
features that attract consumers. Hence, the scope for product improvement and the cost
involved are to be studied.
(b) In spite of consumer acceptance of the product, if the project has gone sick, it is likely
that the profit margins might be low. Minor modifications in designing and packing the
product with upward revision in price may be accepted by the market which may bring
better returns to the company. This aspect may be studied by carrying out test marketing
for the improved product.
(c) Every product follows a life cycle which passes through four stages viz.,
Introduction.Rapid expansion.Maturity.and Decline.Profit margins shrink and signs of
sickness appear when the product is in its ‘decline’ stage.Product innovation can only
sustain the product at this stage. The decline once started can not be contained for long
inspite of product innovations. Product diversification may prove to be a feasible
solution. Hence for rehabilitating a unit whose product has already reached its ‘decline’
stage, the feasibility of switching over to diversified products making use of the existing
production facilities is to be studied. The cost-benefit analysis of additional investments
needed for product diversification and additional benefits that may accrue are to be
analysed.

Management Appraisal

A good project in the hands of an ineffective management turns the project bad. Similarly
a good management is capable making a not-so-good project, a success. Hence the first
thing under management appraisal is to study whether the sickness is due to reasons
beyond the control of the present management or due to ineffective management.
368 Project Management
If the sickness is due to reasons beyond the control of the management, for any revival
package to come out successful, it should be first ascertained if the management is still
committed to the project and is serious about reviving the unit. The management’s
commitment and seriousness may be indicated by,
 Its readiness to inject additional funds to revive the unit.
 Its readiness to strengthen the existing management by agreeing to induct
professionals as directors at various functional areas like
technical/finance/marketing/research and development etc.

The managerial appraisal shall suggest the required changes in the existing organisational
set up of the unit and also shall study the possible reduction in the man power that can be
achieved without affecting the organisiational efficiency, the likely compensation payable
for retrenchment etc.

Financial appraisal

Since appraisal of all other areas have a financial commitment in one form or the other,
financial appraisal assumes greater importance. All aspects of financial reconstruction
need to be considered and analysed.

When a project that has long term debt component in its capital structure becomes sick, it
becomes necessary to ease the burden of debt to enable the sick unit to recover from its
sickness. This necessitates restructuring of the debts. In general, banks and financial
institutions offer the following concessions in their package of rehabilitation assistance.

(a) Reduction in interest rate of existing loans.

(b) Conversion of short-term loans in to long-term loans.
(This gives the unit under revival the much-needed leeway to repay short term
borrowings.)
(c) Conversion of part of long term loans into equity.
(d) Funding of the overdue interest (un-paid interest) and making it repayable in easy
instalments. The funded interest component may carry concessional rate of interest or
even at times bears no interest.
(e) Offering a revised schedule of repayment for the principal components of term loan.
(f) Sanction of additional loan to meet the additional capital expenditure.
(g) Enhancement of working capital limits and regularising the irregular portion of
working capital finance already availed. If any asset is found not useful, the wise choice
would be to dispose off the asset and use the amount realised to support the rehabilitation
programme.

Monitoring of nursing programme

For the growth of a healthy person it is enough if ordinary care is taken, while a sick
person who is in convalescent stage needs critical attention. He is prone to getting sick
again if proper care is not taken to monitor his health and to administer medicine at the
required intervals.

A sick unit that is under a nursing programme is similar to a sick person who is in
convalescent stage and needs continuous monitoring. A simple and practical monitoring
mechanism shall be devised.

REVIVAL AND RESTRUCTURING OF SICK UNITS

During the period of 70’s and 80’s, a number of companies are facing financial problems
and became sick. The steps taken for their revival proved ineffective due to complexity
and multiplicity of laws. Even where management was taken over by government, they
could not be revived and thus were forced to wound up. Thus there was a need for a law,
which can timely detect the sickness and take appropriate corrective measures. To
provide for this, sick industrial companies (special provision) act, 1985 i.e. SICA was
enacted. SICA has the overriding effect over all the existing laws, so that whenever an
industrial co becomes a sick, it need not comply with number of laws and compliance of
SICA will be sufficient.

SICA provides for establishment of:

 Board for industrial and financial reconstruction (BIFR) and

 Appellate authority for industrial and financial reconstruction (AAIFR)

Restructuring Industrial Sector

The problem of industrial sickness in India is not a recent one. Protected market
structures and policies reflected in high tariffs, quantity restrictions on imports, price
regulation on inputs and barriers to domestic competition have contributed to cost
inefficiencies and dampened the incentive to restructure.
Based on the recommendations of a Committee of Experts under the Chairmanship of
Shri T.T. Tiwari, the Government enacted a special legislation namely, Sick Industrial
Companies (Special Provisions) Act, 1985 commonly known as the SICA. The Board for
Industrial and Financial Reconstruction (BIFR) was established in January, 1987 which
became operational from May 15, 1987. The Appellate Authority for Industrial and
Financial Reconstruction (AAIFR) was established in April 1987 as the appellate
authority for the BIFR's decisions. The SICA was later 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. The main objective of SICA is to determine sickness, expedite the
revival of potentially viable units and effect closure of unviable units.
The SICA was enacted with a view to accelerating the process of restructuring through
the BIFR and imparting it with the much needed coherence and consistency. The BIFR
was visualised as a fast track facilitation agency with a single-point reference for rapid
disposal.
The Reserve Bank of India (RBI) has also been attaching a lot of importance to revival
of potentially viable sick industrial units. Detailed guidelines have been issued for
rehabilitation of these units and matters relating to better coordination between
commercial banks and term-lending institutions for formulation and implementation of
rehabilitation programmes. Certain broad parameters have been evolved for granting
reliefs or concessions by banks as part of the revival packages.
Banks have also been advised to set up cells which could make use of the information
system suggested by the Tandon Study Group and detect the early warning signals which
include non-submission/incorrect submission of stock statement, inability to make
stipulated margins, binding difference between outstanding balance and sanction limits,
diversion of sale proceeds through accounts with other banks and return of cheques.
Comprehensive half-yearly returns are to be submitted by the banks in respect of
sick/weak industrial units for monitoring their progress made by them in the matter of
rehabilitation.
The main reason for the good performance of the industrial sector during the eighties
was starting of the liberalization process and a number of policy measures including
changes in the areas of licensing and procedures, import of technology and capital goods
coupled with a reasonable rate of public investment and almost total protection to
domestic industries from international competition through quantitative restrictions on
imports as well as high tariff rates.
With the launching of the new economic policy during the nineties, the protective
barriers for the Indian industry started getting dismantled one by one. The average annual
growth rate of the industrial sector including mining, manufacturing and electricity
generation slumped to 0.6 per cent in 1990-91 as a short-term response to the reform
process. However, in a few years the overall rate of industrial growth gradually
recovered. It increased from 2.3 per cent in 1992-93 to 6.0 per cent in 1993-94, 9.4 per
cent in 1994-95 and 12.1 per cent in 1995-96. Since 1996-97, however, there was a
decline in the growth rate of industrial production and it may be less than 5 per cent
during the financial year 1998-99.

Rehabilitation of Sick Units

Within a reasonable time, the BIFR will direct the operating agency to prepare a suitable
revival package for the restoration of the health of the company. The operating agency
prepares a suitable revival package. The revival package may vary from case to case
depending on the nature of the problem and may include additional financial assistance,
postponement of recovery of loan already lent by banks and financial institutions, change
in management, amalgamation, and sale of redundant assets, lease of assets or any other
suitable measure. The revival package should be submitted to the BIFR within a time
limit of 90 days or such extended period as may be granted by the BIFR on submission of
the revival package by the operating agency, the BIFR sends the revival package in a
draft form to all the interested parties (i.e., the sick industrial company, the banks/
financial institutions who have given financial assistance to the sick company, the
operating agency, the transferee company (if there is a recommendation in the revival
package for amalgamation) etc., eliciting their views/suggestions on the revival package.
The BIFR will also publish particulars of the draft revival package in newspapers inviting
suggestions/objections, if any, from the shareholders of the sick company, creditors and
employees of the sick company, the transferee company and any other interested party.
On receipt of views/suggestions/objections on the draft revival scheme, the BIFR may, if
deemed fit, afford an opportunity to the interested parties to be heard. After careful
examination of all the aspects, the BIFR will sanction the revival scheme with or without
any modifications.
The scheme, as sanctioned, will come into force from the specified date and all the
concerned parties are required to abide by the provisions of the revival scheme. The
BIFR may also order the operating agency to implement the sanctioned revival scheme.
When the revival package as finalized by the BIFR contains further financial assistance
or reliefs, concessions, sacrifices etc. (for example, sanctioning of additional financial
assistance for the purchase of certain balancing equipments, waiving of penal
interest/compound interest charged, waiving of interest in part or full, waiver from sales
tax etc.) the scheme will be circulated to the concerned agencies for their consent to be
received within a period of 60 days. Once the various agencies involved in the revival
scheme give their consent to the scheme, it will become binding on the consenting parties
to implement the recommendations contained in the revival scheme. However, when any
of the involved agency does not give its consent to the scheme, the BIFR has no powers
to force the agency to accord its consent. If in the opinion of the BIFR, the revival
package can not be successful with out the consent from one or more of the agencies
involved, the BIFR has no other option but to recommend for winding up of the
company. In fact, the threat of actual winding up of the company is the only weapon in
the hands of the BIFR to make the various agencies to extend suitable relief and
concessions as may be deemed necessary by the BIFR. BIFR itself cannot initiate the
winding up proceedings. It can only forward its opinion to the concerned High Court and
the High Court will initiate the winding up proceedings.

REFERENCE TO TRIBUNAL

Application to be made by company

Having seen what constitutes a sick industrial company viz. losses amount to 50% or
more of the average net worth for four preceding years, or failure to pay it’s debts within
any three consecutive quarters on demand in writing by creditors, step to be taken for
rehabilitation of a sick company is the preparation of the scheme of revival and
rehabilitation by the board of directors of the company. The company should then submit
the scheme along with the application to the tribunal for determination of measures which
may be adopted

Auditor’s certificate

The aforesaid application shall be accompanied by a certificate from the auditor from a
panel of auditors constituted by tribunal, indicating:
a) The reasons of the net worth being =< acc losses OR
b) The default in repayment of its debts making such company a sick unit.
Reference by government and financial institutions

Government/bank/financial institution such as:

• RBI or
• State govt or
• Public financial institution or
• Scheduled bank

Can also make reference in respect of a co which has become sick to the BIFR for
determination of the measures to be adopted with respect to such company .A reference is
not required to be made in respect of Government Company. However, government co
can make such reference to tribunal with the prior approval of the Central Government or
State Government as the case may be.

Time period for making a reference

The reference has to be made within 180 from the date on which the
BOD/RBI/PFI/CG/SG/bank, come to know of relevant facts giving rise to causes of such
reference OR
Within 60 days of the final adoption of accounts, whichever is earlier.

Filing up of Forms

Form C: - This reporting form is to be filled when net worth is eroded by 50 per cent.
Form A:-This reporting form is to be filled when net worth is eroded by 100 per cent.

Tribunal to pass order whether co has become sick

On receipts of reference BIFR to pass order as to whether co in whose respect ref has
been made has become sick industrial company. BIFR order to be final .

Inquiry into working of sick industrial companies under section 16

Tribunal

• On receipt of reference or
• Upon any information received in respect of such co or
• Upon its own knowledge regarding financial condition of such co
May make such inquiry for determining whether industrial co has become sick or not.
The tribunal shall complete its enquiry within 60 days which can be extended to 90 days.

Report by operating agency

The tribunal may require, by order, any operating agency to enquire into the scheme for
revival and make a report with respect to such matters as may be specified in the order.
The operating agency shall submit its report to the tribunal within 21 days of such order
which can be extended to days.

Appointment of special directors under section16(4) and 17(3).

• During the course of enquiry,

• Tribunal can appoint one or more persons to be special directors on the board of sick co
• To safeguard its financial and other interest and in public interest
• Special director to submit a report to tribunal within 60 days from commencement of
enquiry.
• Appointment of special director (s) overrides entire act, MOA and AOA.

Power of tribunal to make suitable order on completion of enquiry

• On completion of enquiry
• Tribunal is satisfied about sick co ability to make its net worth exceed acc loses or pay
its debt. It will give such time to the co as it may deem fit to recover from its sick co
status.
• If tribunal decides that it is not practicable for co to recover from its sick co status
within reasonable time
•Will direct operating agency to formulate a scheme to revive such company.

 Preparation and sanction of schemesunder section 17(2), 17(3) & 18(4).

In compliance to order of tribunal

• Specified operating agency to formulate scheme

• In respect of such sick co
• Having regard to the guidelines framed by RBI
• Within 60 days from the date order of tribunal and can be extended to 90 days.
• Scheme provides for one or more of the measures specified in section 424D of co act.

The scheme prepared by the operating agency shall be examined by the tribunal and a
copy of the scheme with modification, if any made by the tribunal, shall be sent in draft
to the company and the operating agency, and be published in such daily newspapers as
the tribunal may consider necessary for inviting suggestions and objections if any
consider necessary for inviting suggestions and objections if any.

PREPRATION OF SCHEMES FOR REVIVAL

It becomes necessary, while drawing up rehabilitation packages in respect of potentially

viable sick units, to provide for various concessions and reliefs with respect to margins,
rates of interest, funding of cash losses, repayment schedules, etc. The packages which
are usually drawn up by the term lending institutions entrusted with this responsibility
take into account reliefs and concessions to be provided by the various agencies including
the commercial banks involved. In the absence of guidelines regarding the concept of
viability as well as the extent of reliefs/concessions which could be extended by the
banks, much time is lost in arriving at mutually acceptable packages and the packages are
drawn up on an ad-hoc basis. Consequently, there have been disparities between one case
and another inequitable sharing of sacrifices amongst the concerned agencies has
also been observed in rehabilitation packages drawn up for nursing sick units. Some
uniformity in the matter of concessions extended within a broad framework is thus
essential. Also, the availability of large concessions/reliefs from the banks and term
lending institutions has often tempted the borrowers to demand excessive concessions
with practically no contribution on their part in the rehabilitation measures. Therefore, in
order to cut down the delays as also to ensure that the concessions extended under
packages are within certain limits on a uniform basis, it has become necessary to lay
down broad parameters for grant of reliefs/concessions and additional working capital
assistance which may be extended by the banks. The various agencies which may grant
relief to the sick industries are:-

I. SACRIFICES FROM VARIOUS ORGANIZATIONS

i.) Sacrifices by the state government

a) Sales tax loans may be provided at nil or very low rate of interest) State government
guarantee may be made available where needed for fresh references.

c) Preferential treatment may be given to sick industrial units in respect of power supply,
exemption from power cuts may be made available for the sick unit.

d) Exemption of certain concessions in the rate of sales tax/octroi duty and other
duties/levies of the state/quasi government bodies may be considered.

e) Adequate market support for the products by strengthening the infrastructure may be
provided.
f) Equity contribution should be provided whenever necessary, even where the units are
not taken over by the government.

g) Speedier disposal of industrial disputes may be ensured.

ii.) Concessions from central government

a) Exemption from the central excise, wholly or partly, for a period of time/deferment of
collection or treating the dues as loan repayable on the lines of sales tax loans from the
state government.

b) Income tax relief to banks in respect of amounts placed in Interest suspense account.

c) Preferential allotment of canalized items to sick industrial units.

d) Deferment of provident fund/waiver of penalties, income tax and employee’s state

insurance dues and collection after suitable re phasing and ensuring at the same time that
there is no deprivation of benefits to the retiring or sick employees.

e) Exemption from payment of minimum bonus under the payment of bonus act for a
limited period, though the amount may continue to form a contingent liability to be
discharged when sick industrial unit is in position to do so.

f) Adequate marketing support may be given to the sick industrial units, if necessary, by
reserving a certain quota for a certain period of purchase by government/semi
government organizations. the sick industrial units may also be given price preference in
the same way as public sector industrial units, as a measure of the package.

iii). Concessions and sacrifices from the management

a) Waiver or reduction of remuneration.

b) Forgoing interest on any unsecured loans/deposits by self or friends and relatives.

c) Write-off of loans.
d) Bringing in fresh funds as may be decided under the package.

e) Agreeing to reconstitution of management at the board or operational level.

f) Agreeing to appointment of finance/commercial directors/controllers and current

auditors.

g) Agreeing to provide personal guarantees/pledge of shares.

h) Agreeing to discipline envisaged as part of the package.

iv). Concessions and sacrifices from the labour

a) Voluntarily agreeing to schemes of rationalization/retrenchment of surplus staff.

b) Deferring or phasing out retrenchment compensation.

c) Wage stabilization, if not reduction, without agreeing or increases.

d) Agreeing not to make any fresh demands for specified period.

e) Agreeing to increasing productivity lined incentives.

II Relief’s and concessions on existing outstanding as also sharing of

cash losses

(i) Term loans

Interest on term loans may be reduced where considered necessary, by not more than two
per cent below the prevailing rate, by both banks and term lending institutions, within this
range of two per cent, however, the extent of reduction by the banks and the term lending
institutions need not necessarily be equal. Any further reduction would require the
Reserve Bank’s prior clearance in respect of term loans from banks.
(ii) Irregularity in cash credit account

The irregular portion of the cash credit account may be segregated with reference to the
first date of the accounting year from which the unit started incurring cash losses
continuously.

Penalty and damages: Since the financial structure of sick units would already be
distorted, levy of penal rate of interest or damages would further aggravate their
problems. It would, therefore, be necessary to waive penalties and damages applied in the
cash credit account.

(iii) Funded interest: It is usual for the packages to make a provision for segregating and
funding the unrealised bank interest debited to the cash credit account (which is one of
the factors rendering the account irregular). The normal period of repayment of such
funded interest should be 3 to 5 years. In exceptional cases, this period could be
elongated to 6 to 7 years at the discretion of the banks and term lending institutions. As
funded interest is generally on a clean basis (i.e., unsecured and will bear a rate of interest
well below the normal rate on cash credit (please see sub-paragraph below), banks may
ensure as far as possible that the repayment of funded interest gets precedence over, or is
spread over shorter duration than, the repayment of institutional loans.

Funded interest should not be free of interest. Interest may be charged on funded interest
at the rate of 10 per cent per annum subject to actual review. Where a lower rate of
interest is felt necessary in exceptional cases it should be referred to the Reserve Bank for
prior approval.

Since a drastic reduction would affect the profitability of banks, their specific
concurrence to the reduction envisaged in the package would be necessary. There will
normally be no write off. Exceptional cases where write off is considered absolutely
unavoidable, should be referred to the Reserve Bank.

(iv) Working capital term loan (WCTL):

The irregular portion of cash credit, other than unadjusted interest (on both cash credit
and institutional loans) and after excluding penal interest/damages should be converted
into a working capital term loan (WCTL) with a definite repayment schedule. Interest
shall be charged on the WCTL at a rate ranging between 15% and 13.5%.

(v) Sharing of cash losses:

The interest portion representing interest on term loans and working capital facilities
should be segregated from the irregularity in the cash credit account. The interest portion
so segregated should be funded, as pointed out earlier, and borne by the bank/s or
institution/s, according to their respective shares. The remaining irregularity after
segregating the interest portion as above would represent the cash loss of the unit already
borne by the bank. Past cash losses would be normally reflected not only in the
irregularity in the cash credit account of the banks, but also in non-payment of statutory
dues, workers’ dues and overdue creditors. Further, cash losses are also likely to be
incurred during the initial period of implementation of the rehabilitation programme till
the unit reaches the break-even level. Past cash losses, as reflected in the irregularity in
the cash credit account would have to be funded separately into a Working Capital Term
Loan and should be borne by the banks themselves. The cash inputs required for meeting
a part of overdue statutory liabilities, workers’ due and pressing creditors forming part of
the package may be shared between the participating banks and institutions on 50:50
basis. Future cash losses, i.e., losses from the time of implementation of the package up
to the point of cash break-even as projected, would be borne by the financial institutions
which will also provide the margin money for additional working capital. In cases where
no term-lending institutions are already involved , the cash inputs mentioned above as
also the projected cash losses would be borne/shared by the Industrial Reconstruction
Bank of India. Thus, all cash inputs required for revival of the unit, other than those that
will be shared with the banks as set out above, and in addition, future cash losses up to
the point of break-even as projected in the rehabilitation package, will be taken care of by
the concerned term lending institutions/IRBI. Additional cash losses arising on account of
any deviation from the projections accepted in the package will be shared in an agreed
manner as may be decided at the time of review of the package.
III. Additional Assistance:

(i) Need-based working capital

Besides the funding of the existing irregularity in the accounts, need-based working
capital would require to be provided to sustain further operating requirements of the unit.
The requirements for working capital must be worked out strictly according to norms
relating to inventory and receivables and should not exceed permissible bank finance as
computed under Method I, as far as sick units are concerned. Interest on working capital
should be charged at the commercial rate, viz., between 16.5% and 17.5% at present, and
the package should be prepared taking into account the rate of interest currently being
charged by the banks. However, wherever concessions are forthcoming from the State
Government, the banks may reduce the rate of interest to 15 per cent where necessary.

In order that there is no delay in the implementation of the package due to non-release of
working capital funds, in cases where State Governments are willing to extend assistance,
banks may release their share on getting a firm commitment from them regarding their
contribution towards the relief’s and concessions, provided the agreed contribution of
promoters is forthcoming.

(ii)Statutory liabilities:

As indicated earlier, the term lending institutions, while determining the long term
requirements in the package, will make adequate provision to meet the payments to
pressing creditors such as suppliers of goods, that may be necessary to ensure continued
availability of supplies on reasonable terms so that the operations of the unit are not
hampered. These will be shared by the banks and institutions, or borne by the institutions

(iii) Margin money:

These two items will be borne by the term lending institutions, as indicated earlier.

(iv)Cost of rationalisation of labour:

This should be shared between the banks and term lending institutions on a 50-50 basis.

IV.Time span:

As may be seen from the definition of viability given earlier, the period of rehabilitation
packages should have an outer limit of seven years. If, within the framework of the
parameters for concessions and relief’s as indicated above, a unit cannot be expected to
regain health within seven years, then it should not be regarded as commercially viable.
Where a unit is considered viable and a rehabilitation package has been drawn up, the
period of repayment of restructured debts may, however, extend up to a maximum period
of ten years. The rehabilitation packages should invariably provide for the right of annual
review of the relief’s and concessions extended.

V. Promoters’ contribution:

Promoter’s contribution should comprise fresh injection of funds as distinct from internal
generation and proceeds from sale of assets already charged. Proceeds from sale of assets
not charged, may be taken into account as promoter’s contribution. In the cases involving
change of management and professional management, the promoters should be required
to bring in 15% of the additional long term requirements envisaged under the package. In
other cases, the promoters’ contribution shall be 20%. Of the above, at least 10% should
be brought in immediately and the balance of 20% or 5% as the case may be, within six
months. Such funds will be on non-interest bearing basis. If there is indication that there
has been siphoning off of funds from the unit by the promoters/management, the package
should stipulate that these funds should be brought back within a specified time limit. If
this is not complied with, the further implementation of the package should be reviewed
by the banks and term lending institutions.

VI. RBI approval:

So long as the packages are drawn up within the framework of the parameters indicated
above, the prior approval of the Reserve Bank will not be required. The details of
packages evolved should be reported to the Reserve Bank where the units enjoy working
capital limits of Rs. 1 crore and above from the banking system. In addition, in the case
of borrowers coming under the purview of the Credit Authorisation Scheme,
enhancements in the credit limits sanctioned by the banks should be referred to the
Reserve Bank for prior authorisation. The Reserve Bank may also be associated in the
joint meetings convened for finalising the packages.

Only in cases where it is felt that concessions larger than those envisaged in these
guidelines might be required to be provided to rehabilitate a unit on account of the
already substantial involvement of banks/institutions, a reference should be made to the
Reserve Bank of India, when the matter would be examined with reference to the special
circumstances of the case vis-à-vis the prevailing policy.

VI. Right of recompense :

In regard to concessions and relief’s made available to sick units, a clause could be added
whereby, when the units turn the corner and the rehabilitation is successfully completed,
the sacrifices undertaken by the institutions and banks should be recouped from the
companies out of their future profits/cash accruals. Alternatively, there may be provision
for equity participation to the extent of the sacrifices made.

RBI guide lines…

• RBI has constituted a standing coordination committee to consider issues relating

to coordination between commercial banks and lending institutions.

• A special cell has been set up within the rehabilitation finance division of IDBI to
attend the case of sickness.

• RBI has issued suitable guidelines to the banks to ensure the potentially viable
sick units receive attention and timely support from banks.
 • RBI has clarified that units becoming sick on account of willful mis-
management, willful default should not be considered for rehabilitation.

• Rehabilitation programmes:

a) Change management
b) Development of a suitable management information system
c) A settlement with the creditors for payment of their dues in a phased manner,
taking into account the expected cash generation as per viability study
d) Determination of the sources of additional funds needed to refinance.
e) Modernization of plant and equipment or expansion of an existing programme or
even diversification of the products being manufactured.
f) Concession or relief’s or assistance to be allowed by the state level corporation,
financial institutions and central government.

Draft Rehabilitation Scheme

A) PREPRATION AND SCOPE OF SCHEME

The operating agency would prepare the scheme within the frame work of guidelines
issued by the board ,as expeditiously as possible within a period of sixty days from the
date of order the scheme shall provide for any one or more of the following measures:-

i) The financial reconstruction of such company.

ii) The proper management of such industrial company by change in, or take
over of, the management of such industrial company.
iii) The amalgamation of
 a) Such industrial company with any other company; or
b) Any other company with such industrial company;
iv) The sale or lease of a part or whole of any industrial undertaking of such
industrial company;
v) The rationalization of managerial personnel, supervisory staff and workmen in
accordance with law.
vi) Such other preventive, ameliorative and remedial measures as may be
appropriate.
vii) Repayment of debt;

B) FORWARDING OF REHABILITATION SCHEME BY TRIBUNAL

The tribunal shall examine the scheme prepared by the operating agency and send a draft
copy of the scheme with modifications, if any, made by it to the sick industrial company
and the operating agency in case of amalgamation, also to any other company concerned.

C) PUBLICATION OF SCHEME BY TRIBUNAL

The BIFR shall publish or cause to be published particulars of draft scheme so prepared
in periodicals and news papers for inviting suggestions and objections within a stipulated
period from the following categories of person.:-

--shareholders
--creditors
-- Employees of sick industrial company, or also from Transferee Company in case of
amalgamation.

The complete draft scheme shall be kept at the place where registered office of the
company is situated or at the places as mentioned in the advertisement.
D) MODIFICATION IN THE DRAFT SCHEME

The tribunal may make such modifications, if any, in the draft scheme as it may
consider necessary in the light of the suggestions and objections received from the
sick industrial company and the operating agency and also from Transferee Company
and any other company concerned in the amalgamation and from any shareholder or
any creditors or employees of such companies.

E) SANCTION AND FILING UP OF SANCTIONED SCHEME

The board after receipt of suggestions/objections shall consider the same in case of
Amalgamations’ BIFR shall proceed ahead once the company has placed the scheme
Before general meeting of shareholders and they have approved the same with or without
any modifications. They shall after these formalities, by an order in writing, sanction
the scheme.
A copy of sanctioned scheme shall be filed with the registrar within the prescribed time
by the company in respect of which scheme relates.
CHAPTER-5
CASE STUDY
ON
ANUSIKA INDUSTRIES LIMITED
(ASIL)
BACKGROUND OF THE COMPANY
M/s Anusika Industries Limited (hereinafter referred to as ASIL) was incorporated in
the year 1992 as a public limited company in the state of Rajasthan for
manufacturing, assembling, designing, fabricating, processing, buying, selling,
import, exporting fluorescent lamps, luminers, glasses, assemblies, halogen bulbs,
head light, ASIL light etc. ASIL has its registered office and works at SP-115, RIICO
Industrial Area, Bindayaka, Sirsi Road, Jaipur. ASIL was promoted by first
generation entrepreneurs Shri Dharam Pal Gupta along with his associates. The
company commenced its commercial production on 15.05.1992 with an installed
capacity of manufacturing 24 lacs number of headlamps, sealed beams, reflectors,
horn and their spares. ASIL's performance was satisfactory and it earned profit till
1999-2000.From the year 2000 ASIL started incurring losses mainly due to low
capacity utilization because of shortage of working capital funds etc.

ANALYSIS OF PAST WORKING RESULTS

ASIL is engaged in manufacturing of automotive headlamps and horns. A summarized
analysis of the working result of ASIL for the last three years as per Audited a/c up to
31.03.2009 is given below.

ANALYSIS OF BALANCE SHEET ( ` in lakhs)

As On As On As On
PARTICULARS 31.03.07 31.03.08 31.03.09
SOURCES OF FUNDS
Share capital 280.00 280.00 280.00
Reserve & surplus 165.00 165.00 165.00
Loan funds
Secured loans 0.00 0.00 0.00
Unsecured loans 12.43 11.41 11.30
TOTAL SOURCES OF FUNDS 457.43 456.41 456.30
APPLICATION OF FUNDS
Gross Block 1016.33 1108.15 1109.84
Less: Depreciation 671.87 714.89 753.93
Net Fixed Assets 344.46 393.25 355.92
Capital Work in Progress 0.00 0.00 8.32
Investments 7.94 7.94 7.94
Current Assets , Loans & Advances
Inventories 19.56 15.99 15.58
Sundry Debtors 3.94 6.36 3.23
Cash & Bank Balance 25.22 4.77 1.31
Loans & Advances 17.07 91.03 185.28
Other Current Assets 12.61 17.93 23.93
Total Current Assets 78.40 136.08 229.33
Less: Current Liabilities & Provisions
Current Liabilities 705.52 856.54 947.95
Net current Assets -627.12 -720.46 -718.62
Profit & Loss a/c 732.15 775.68 802.74
TOTAL 457.43 456.41 456.30

3.2 ANALYSIS OF PROFIT & LOSS ACCOUNT

(`. in lakhs)
PARICULARS Audited Audited Audited
As on As on As on
31.03.07 31.03.08 31.03.09
INCOME
Sales 4.68 0.00 0.00
Other revenue (incl job work) 167.08 192.84 164.69
Total Income 171.76 192.84 164.69

EXPENDITURE
Consumption of raw material 3.91 2.41 1.21
Payment of Employee 33.07 50.68 46.75
 Manufacturing expenses 97.30 125.44 99.54
Admn..expenses 8.40 11.64 10.76
Selling expenses 4.62 2.09 1.09
Financial charges 0.53 0.07 0.31
Depreciation 47.08 43.02 39.04
Increase/(Decrease) in Stock (2.83) (0.00) 0.00
TOTAL EXPENDITURE 192.09 235.74 198.70
NET PROFIT/(LOSS) BEFORE (20.33) (42.91) (34.01)
INCOME TAX
Income Tax & Other Adjustments 3.92 (0.62) 6.95
NET PROFIT/(LOSS) FOR THE YEAR (16.41) (43.53) (27.06)
PROFIT/(LOSS) B/F FROM (715.74) (732.15) (775.68)
PREVIOUS YEAR
PROFIT/(LOSS) CARRIED TO (732.15) (775.68) (802.74)
BALANCE SHEET

4. PROMOTERS

ASIL was promoted by first generation entrepreneurs Shri Dharam Pal Gupta
along with his associates.

5. MANGEMENT & ORGANISATION SET UP

(A) BOARD OF DIRECTORS

The overall management of the company vests with the Board of

Directors, comprising of highly qualified and experienced individuals.

The company is managed by Board of Directors comprising as under:

(1) Smt. Lata Gupta Director

(2) Smt Uma Gupta Director
 (3) Smt Laxmi Gupta Director
(4) Smt. Usha Gupta Director
(5) Smt. Sheela Gupta Director
(6) Shri M.S.Rathore Director

B) TECHNICAL & PROFESSIONAL STAFF

ASIL has adequate technical and professional personnel who are looking
after the production, marketing, finance and administrative departments
of the company.

C) Shareholding Pattern (As on 31.03.2009)

Paid up value % of holding

(`. In lacs)
Promoters’ Holding:
Individuals 195.15 69.70%
Body corporate 69.79 24.93%
Total Promoters’ Holding 264.94 94.63%

Public 15.06 5.37%

------------- ---------------
Total 280.00 100.00%
======== ==========

PRESENT INFRASTRUCTURAL FACILITIES

ASIL is engaged in the manufacturing, assembling, designing, fabricating,

processing, buying, selling etc. of fluorescent lamps, luminers, glasses,
assemblies, halogen bulbs, head light, tail-light etc.. The details of present
infrastructure facilities are given below:

6.1 LAND:
The Company owns land measuring approx. 16500 sq. mtrs. at SP-115, RIICO
Industrial Area, Bindayaka, Sirsi Road, Jaipur (Rajasthan). Jaipur being well
connected with Delhi and NCR region and with available infrastructure
facilities has become a hub for major industries in Northern India.

6.2 BUILDING:
The built-up area is approx. 40000 sq. ft The factory and administrative
building is in good condition having adequate storage facility. It is adequate
for present and future operations.

6.3 PLANT AND MACHINERY:

At present the Company has installed capacity of manufacturing 24 lakh
number of head lamps, sealed beams, reflectors, horn and their spares. The
company is well equipped with major items of plant & machinery such as
Press Machines, Metallizing Plant, Tool Room Machines, Lacquer Machines,
Painting & Other Machines.

6.4 UTILITIES:

POWER : ASIL has a sanctioned power load of 250 KVA from Rajasthan
State Electricity Board which is sufficient for running the plant at its present
installed capacity. ASIL has also a D.G.Set of 250 KVA as a standby
arrangement.
 WATER : The Company has its own tubewells to meet the day to day water
requirements of the unit. Water is required only for the routine of activity ie.
Drinking,Cleaning etc.

6.5 Effluent Treatment

ASIL is not generating any effluent and therefore no Effluent Treatment Plant
(ETP) is required. ASIL has already taken NOC from Pollution Control
Board.

6.6 MANPOWER

The skilled, semi-skilled and un-skilled labour required for the smooth
functioning of both the plants are available locally and the unit foresees no
difficulty in getting additional manpower, if required, at any point of time.

6.7 RAW MATERIAL

The major raw material consists of CRCA sheet, Lens, paints and chemicals
etc. The company sources its requirements of Lens from Firozabad in U.P.
Rest of the raw materials are easily available locally.

The company does not foresee any problem in sourcing the raw material.
7.0 MANUFACTURING PROCESS
The manufacturing process consists of the following steps:

SHEET CUTTING

PRESS PARTS

PHOSPHATING

BUFFING

LACQUIRING

METALIZING

PAINTING/ POLISHING

GLASS POLISHING
 ASSEMBLYING

TESTING/ QC CHECK

PACKING

FINISHED GOODS
GODOWN

DESPATCH TO
DEALERS/
DISTRIBUTORS

8. MARKETING & SELLING ARRANGEMENT

Auto component manufacturers supply their products to two types of buyers

-original equipments (OE) manufacturers and the replacement market. The
relative importance of the OE and replacement market varies across product
depending upon the factors like life of Auto component, quality and materials
used in to component average age of vehicle etc. Automobile sector is presently
on growth path and as such the OE segment and replacement market holds goods
prospects for the product of ASIL.

ASIL has appointed dealer and distributor for marketing its product in the
domestic market.
9. REASONS FOR SICKNESS

The main reasons for sickness have been identified as under:

1. Lack of adequate working capital

2. Prolonged labor strike which continued for more than 3 years

3. Low capacity utilization due to prolonged strike of workers.

4. Roadblock to execute the orders which were sufficient in hands.

5. Heavy burden of interest payments.

10 PROPOSED REHABILITATION STRATEGY

The proposed strategy for revival of the company is as under:

1. Settlement with the secured creditor.
2. Capital expenditure for repairs/upgradation/ replacement of old plant &
machinery.
3. Re-start of Operations
4. Payment of Other unsecured creditors
5. Induction of fresh funds by the promoters.
6. Relief’s and concessions from various concerned parties.

1 Settlement with the secured creditors.

ASIL has already settled and paid dues of its secured creditor viz: Punjab
National Bank. All the secured creditors have already released the charge on all
 security (including collateral securities), personal guarantee held by them in
connection with the loan/facility granted by them to ASIL.

2 Capital expenditure for repair/ refurbishing/ renovation/ replacement

of old plant & machinery.
The scheme envisages incurring of additional capital expenditure for improving
the operational efficiency. The same would be required for repair/ renovation/
replacement of some plant & machinery which has become old and
technologically obsolete.

2. Re-start of Operations
ASIL will re-start its own operations w.e.f. 1.4.2010

3. Payment of other creditors

ASIL has proposed to settle the dues of old sundry creditors and other old
unsecured liabilities at 15% of their dues, to be paid in 5 years in 5 equal
interest free installments, from the cut-off date.
4. Induction of fresh funds by the promoters/co-promoters
Promoters/ co-promoters of the company propose to induct/ arrange Rs.100.00
lacs in the form of equity/ preference share capital/ unsecured loan towards the
cost of scheme.
5. Relief and concessions from various concerned parties
ASIL proposes to seek relief and concessions from various parties, such as
State and Central Government and other agencies for its revival. The details of
relief and concessions sought are given in the forthcoming Para 12.
11.0 Cost of Scheme and Means of Finance

1 COST OF SCHEME (`. in Lakhs)

Capital Expenditure 50.00

 Payment of unsecured creditors * 137.58
Payment of workers dues 3.68
Addl. Working capital requirement (Ist year) 78.74
TOTAL 270.00

2 MEANS OF FINANCE

Promoters' contribution - Equity 100.00

Internal Accruals 170.00

TOTAL 270.00

Cut-Off Date 31.03.2010

* Payments to be made over a period of 5 years from C.O.D.

12. PROPOSED RELIEFS & CONCESSIONS:
The following relief’s and concessions have been envisaged from various
agencies as a part of rehabilitation scheme for the company. Cut-off date for
the purpose of the said rehabilitation proposal has been considered as
31.03.2010. All projections have been drawn on financial year basis i.e. from
April to March.

12.1 FROM FINANCIAL INSITUTIONS / BANK

ASIL has already settled and paid dues of its secured creditor viz: Punjab
National Bank. All the secured creditors have already released the charge on all
security (including collateral securities), personal guarantee held by them in
connection with the loan/facility granted by them to ASIL.

There is no any further relief sought from FI/Banks.

12.2 FROM THE STATE GOVERNMENT OF RAJASTHAN

1) To declare the company as a “Relief Undertaking” and grant all benefits and
concessions as per the State Government policy guidelines for sick industrial units.
2) To exempt the unit from the payment of Sales Tax / VAT and Purchase Tax
for a period of five years from the date of sanction of the Scheme.
3) To exempt the unit from the payment of Electricity Duty and Octroi on
Electricity for a period of five years from the date of sanction of the Scheme and to
waive minimum demand charges on Electricity for a period of five years from the
date of sanction of the Scheme.
4) To waive surcharge/interest levied on late payments of electricity/power
charges up to cut-off date.
5) To exempt the units of the company from power cuts for a period of five years
from the date of sanction of the Scheme.
6) To exempt the company / its directors / officers from the penal provisions of
any State Act for the defaults, if any, committed by the company / directors till the
cut-off date.
7) To provide any other relief allowable to sick company as per policy of State
Govt. for rehabilitation of the Company.
8) To exempt / grant relief’s on account of land and building tax amounting to `
12.99 Lacs.
9) To exempt old maintenance / service charges of RIICO up to cut-off date.

12.2.1 Sales Tax Department, State Government of Rajasthan

a) To waive penal interest, simple interest, compound interest, damages on the

liability of the company as on the date of sanction of the Scheme.
b) To exempt the unit from the payment of Sales Tax / VAT and Purchase Tax
for a period of five years from the date of sanction of the Scheme.

12.2.2 State Electricity Board / Power Supply Company

a) To exempt the unit from the payment of Electricity Duty and Octroi on
Electricity for a period of five years from the date of sanction of the Scheme and to
waive minimum demand charges on Electricity for a period of five years from the
date of sanction of the Scheme.
b) To waive surcharge/interest levied on late payments of electricity/power
charges upto cut-off date.
c) To exempt the units of the company from power cuts for a period of five years
from the date of sanction of the Scheme.

12.3 FROM CENTRAL GOVERNMENT

1) To exempt the company from penal provisions of Income Tax Act,
Companies Act, Central Sales Tax and any other law.
2) To provide any other relief allowable to the sick company as per the policy of
the Central Govt. for the rehabilitation of the sick companies.

12.3.1 CBDT

a) To exempt / grant relief to the company from the provisions of Section 41(1),
45, 72 (3), 43-B, 79, 80 read with 139, 115JB and provisions of Chapter XVII
of the Income Tax Act.

12.3.2 Provident fund

a) To exempt / grant relief to ASIL from the penal provisions of PF Act and
waiver of penal damages/ interest amounting to Rs.39.56 lakhs levied on
ASIL due to late payment of PF dues.
b) To withdraw criminal cases lodged by PF authorities on account of delayed
payment of PF dues.

12.4 FROM WORKERS

a) To accept the payment of dues outstanding as on cut off date, i.e., `. 3.68 Lacs
towards old dues during the first year i.e 2010-11 on interest-free basis.
b) To extend necessary cooperation to the promoters / management of ASIL for
its revival.

12.5 FROM PROMOTERS

1) To bring in additional funds of `. 100.00 Lakhs as equity share capital to meet
the cost of the scheme. The promoters shall be entitled to bring the above funds in the
form of equity irrespective of provisions of Section 81(1) (a) / 372A / any other
provision of Companies Act, 1956 or any other SEBI Guidelines / listing Agreement
with Stock Exchanges.
2) To undertake to bring in further funds in the form of equity / interest free
unsecured loans to finance any shortfall in cash generation to meet the repayment
obligations.

12.6 Other terms and conditions

(a). The existing equity share capital of the company shall be reduced by 90 % and
then every ten equity shares of Re. 1.00 each shall be consolidated into one equity
share of `. 10/- each fully paid-up of in terms of Section 18 (2) (f) of the SICA
without the requirement of following the provisions of section 100-103 of the
Companies Act, 1956 and without following any other SEBI or Other Guidelines.
(b). After the reduction of capital, an amount of `. 100 Lac to be inducted by the
promoters/associates shall be converted into equity without the requirement of
following the provisions of Section 81(1 A), 295, 372A and other applicable
provisions of the Companies Act, 1956, SEBI Guidelines for Preferential
Allotment of Shares and without the requirement of following provisions of SEBI
(Substantial Acquisition of Shares & Takeovers) Regulations 1997, SEBI
(Disclosure & Investor Protection) Guidelines, 2000, SEBI (Central Listing
Authority) Regulations, 2003 and ceiling on promoters holding from the
applicability of which the company is exempted.
(c). The statutory liabilities (including those which are under litigation / appeal shall,
on crystallization after exercise of all the legal remedies available to ASIL) shall
be paid over a period of five years, in equal installments, on interest-free basis.
All the penal interest, interest, damages, penalties charged or chargeable on the
same shall be waived.
(d). The unsecured liabilities (including those which are under litigation / appeal shall,
on crystallization after exercise of all the legal remedies available to ASIL) shall
be paid only 15% of the principal amount, over a period of five years from cut-off
date, on interest-free basis. All the penal interest, interest, damages, penalties
 charged or chargeable on the same and balance of the principal amount shall be
waived.
(e). ASIL shall be allowed to set-off the balance in Share Premium account against its
accumulated losses (as per books) irrespective of provisions of Section 78 of the
Companies Act’ 1956.
(f). The balance sheet of the company as on the cut-off date shall stand restructured as
per Annexure of the Financial Projections attached.

13. CONCLUSION:
The rehabilitation strategy envisages relief and concessions from Central & State
Government and also induction of fresh funds by the promoters to finance the cost
of the scheme. Financial projections of the company as per the rehabilitation
scheme are enclosed herewith. The Projected Profitability Statement reveals that
the company starts earning profits from the first year of rehabilitation itself, net
worth of the company becomes positive in the first year of rehabilitation due to
induction of fresh funds by promoters and the entire losses will be wiped out in
the second year of rehabilitation. The Projected Cash & Fund Flow Statement
reveals that the company has surplus cash flows, which can be used for its
modernization / expansion programs taken up subsequently.
Therefore the company can be considered to be commercially and techno-
economically viable.
CHAPTER-6 FINDINGS
 Number of registered cases of sick industries in BIFR are

 X number companies have been revived out of total y no: of sick units.

 The external factors responsible for industrial sickness include : unexpected

adverse marketing conditions for a prolonged period; changes on government
policies in respect of excise duty, import/ export restriction and subsidies;
disequilibrium between demand and supply; recessionary trend; rise in cost of
production; scarcity of critical resources like raw materials, power and skilled
labour etc.

 Internal factors responsible for industrial sickness are: management structure and
prevailing work culture; economically in viable price structure; level of capacity
utilization; technological up gradation ; resource mobilization; socio–economic
factors related to workers, management and business environment; environmental
degradation etc.

 The survey findings demonstrate that most of the entrepreneurs use intermediate
and traditional technology of production. They also face problems in getting
timely supply of raw materials since they do not have institutional arrangements
for raw material supply. More than half of the entrepreneurs have received
 financial assistance; however, there is gap between amount of loan applied and
loan received. Again, most of the entrepreneurs do not advertise their product and
conduct marketing research. Thus, they face marketing problems.

 The factors affecting business are ranked by the surveyed entrepreneurs in the
following manner : (i) adverse market conditions, (ii) erratic supply of power, (iii)
labour problem, (iv) management problem, (v) technological upgradation, (vi)
government policy in respect of excise duty, (vii) pollution and environmental
legislations, (viii) recessionary trend, (ix) rise in cost of production, (x) scarcity
raw materials, (xi) global corruption, (xii) delayed/ inadequate availability of raw
materials, (xiii) delayed payment and recovery, (xiv) inadequate infrastructure,
(xv) disequilibrium between demand and supply, and (xvi) low quality standards.
CHAPTER-7 SUGGESTIONS AND RECOMMENDATIONS

 A Financial reorganisation may involve some sacrifices by the creditors and

shareholders of the undertaking which can be in several forms:-
1. Reduction of the par value of shares.
2. Reduction in rates of interest.
3. Postponement of maturity of debt.
4. Conversion of debt into equity.
5. Change in the nature of claim or obligation such as from secured to unsecured.
6. Concession by the Government in the form of reduction or waiving of indirect
taxes, electricity dues etc.

 Monitoring and nursing the sick units during infancy.

 Incentives should be provided to professional managers helping in reviving sick
units
 Issuing guidelines on major aspects that affect the image of the company
 Brain storm with a select group to get creative ideas for improvement
 Adopt better practices, right technology, better work culture and professional
management so that the sick industries can improve their health as well as the
economy.
 Indian manufacturing capabilities should be developed to a level where Indian
products are competitive across global markets in terms of price, quality, technology,
delivery of services. To achieve this, Indian firms should be enabled to access the
latest technology from across the globe, indigenous research and development
innovation need to be encouraged and a passion for manufacturing needs to be
created while infrastructure, public services and utilities should be improved and
made more efficient to assist manufacturing growth.

77
 Government, industry, research institutions and academicians should be facilitated
and encouraged to work in collaboration to improve industry capabilities. Moreover,
firms should be able to obtain funds easily and cheaply, and be encouraged to invest
in developing technology.
 To improve standard of living through manufacturing growth, workers should be
enabled to move from lower value added to higher value added jobs.
 Education should focus on fostering a culture that encourage innovation and
manufacturing so that people are training for alternate avenues of employment.
 India should be developed into a strong player in global market. To achieve this,
trade barriers should be further reduced progressively while FDI should be
encouraged actively through creating business climate and attracting NRIs for
industrial investment.
 Government must eliminate all reservations in SSI sector, standing with 63 items
which constitute over 80 per cent of the total output of SSI sector. State governments
and industry bodies have to take a lead to identify SSI clusters, promote cooperation
between business and local authorities for cluster development, and formulate
policies that attract investment to these clusters.
 100 per cent FDI should be allowed in all except a few strategic sectors. FDI
restrictions in retail need to removed to support by actions in associated areas like
granting tax benefits, enabling ease of technology transfer, easing labour regulations,
removing SSI restrictions, facilitating easy setting up of business and enabling
infrastructure in the country.
 India needs priority in development strategy for development of infrastructure such as
power, roads, highways, railways, ports, transportation etc. For this, India needs
priority in foreign/ private participation that permits formation of joint ventures for
strengthening and growth of network of national and state highways, power
generation, communications and economic zones.
 Considering The urgency of taking an early lead in attaining technological
competitiveness of SSIs, both in the domestic and international markets, it is
important to stimulate and usher in a technological revolution among SSIs to
assimilate new technologies though appropriate utilization and modification and also
to strengthen indigenous technological infrastructure including R & D institutions

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 and enterprise linkages, industrial engineering design, consultancy services etc. It can
be very useful if it deals with identification of new products and technologies and
proper transfer of the same, advice and information of product innovation, design,
better management practices, financial resources, marketing research, process
automation and last but not the least tying up with MNCs and large Indian companies
as ancillaries for outsourcing their requirement from SSIs along with technology
packages.
 It is recommended that a State Technology Development Fund for small industries be
established in the state to act as the main conduct of transmission mechanism of the
Sate Mission on Technology. The fund should be routed through SIDBI because it is
the principal financial institution for SSIs. The fund should support SSI units in
absorbing technology transfer costs, meeting with initial ground work related
expenditure. The fund should initiate efforts at the earliest to set up technology
packages, clusters for SSIs in important zones to promote induction of new
technologies, incremental innovations and effective transfer.
 For improving productivity, imparting knowledge for the employees in SSIs is also
suggested. Further, artisans are to be trained to develop their skills and also equip
themselves to design according to the tastes and preferences of consumers in different
markets such as rural and urban, national and international.
 To motivate the first generation entrepreneurs and to encourage industrialization,
management institutions and government must extend help in marketing the products.
 The following promotional measures are suggested for SSI sector (i) ban on entry of
medium and large units into the manufacture of such products which are served for
small scale sector, (ii) excise duty and sales tax exemptions/ concession; (iii)
government and PSU should make their purchase for SSI sector, (iv) adequate
infrastructure facilities like land and building, technical consultancy and finance, (v)
small units can adopt a group approach to ensure efficient management with a view
to reduce the cost of production.

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CHAPTER-8 SUGGESTIONS AND RECOMMENDATIONS
To keep oneself updated is what should be the priority of a COMPANY. Some of the
suggestions and recommendations which are to be made by skimming and scanning
through the whole report could be as follows:

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BIBLIOGRAPHY

 SICK INDUSTRIAL COMPANIES, BY P.S KAICKER,TAXMAN

 SICK INDUSTRIAL COMPANIES,6TH EDITION , BY H.P.S
PAHWA,BHARAT
 MERGERS AND AMALGAMATIONS, TAKEOVERS AND
CORPORATE RESTRUCTURE, BY K.R SAMPATH, SNOW WHITE

WEBSITES:

 WWW.SCRIBD.COM
 WWW.BIFR.NIC.IN
 WWW.DOCSTOCK.COM
 WWW.ARTICLESBASE.COM
 WWW.MGU.ERNET.IN
 WWW.NEWAGEPUBLISHERS.COM
 WWW.PIB.NIC.IN

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