Brief Introduction of BIFR and its functioning

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.

A knock-down kit is a kit containing the parts needed to assemble a product. The parts are

typically manufactured in one country or region, then exported to another country or region for

final assembly. Variant names include knockdown kit, knocked-down kit, or simply

knockdown, and the abbreviated KD or CKD.

A common form of knock-down is a complete knock-down (CKD), which is a complete kit

needed to assemble a product. It is also a method of supplying parts to a market, particularly in

shipping to foreign nations, and serves as a way of counting or pricing.[1]

CKD is a common

practice within the automotive industry, the bus and heavy truck industry, and the rail vehicle

industry, as well as electronics, furniture, and in other products. Businesses sell knocked down

kits to their foreign affiliates or licensees for various reasons, including to avoid import taxes, to

receive tax preferences for providing local manufacturing jobs, or even to be considered as a

bidder at all (for example, in public transit projects with "buy national" rules).

An incompletely disassembled kit is known as SKD for semi-knocked-down. Both types of

KDs, complete and incomplete, are collectively referred to within the auto industry as KDX (for

knocked-down export), and cars assembled in the country of origin and exported whole to the

destination market are known as BUX (for built-up export).

Technically, the terms "knockdown" or "kits of parts" are both misnomers, because the

knockdowns were never built up in the first place, and the shipments of parts are often not in the

form of kits,[1]

but rather bulk-packed by type of part into shipping containers. The degree of

"knockdown" depends on the desires and technical abilities of the receiving organization or on

government import regulations.[1]

Developing nations may pursue trade and economic policies

that call for import substitution or local content regulations. Companies with CKD operations

help the country substitute the finished products it imports with locally assembled substitutes.

Knockdown kit assembling plants are less expensive to establish and maintain, because they do

not need modern robotic equipment, and the workforce is usually much less expensive in

comparison to the home country. They may also be effective for low-volume production. The

CKD concept allows firms in developing markets to gain expertise in a particular industry. At the

same time, the CKD kit exporting company gains new markets that would otherwise be closed.[2]

Board for Industrial and Financial

Reconstruction

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Board for Industrial and Financial

Reconstruction

Formation 1987

Type GO

Purpose/focus Sick company remedies

Location New Delhi

Coordinates

28.625846°N

77.220299°ECoordinates:

28.625846°N 77.220299°E

Region served India

Chairman Nirmal Singh

Parent organization Ministry of Finance (India)

Website www.bifr.nic.in

The Board for Industrial and Financial Reconstruction (BIFR) is an agency of the

government of India, part of the Department of Financial Services of the Ministry of Finance. Its

objective is to determine sickness of industrial companies and to assist in reviving those that may

be viable and shutting down the others.[1]

History

The BIFR was established under the The Sick Industrial Companies (Special Provisions) Act,

1985 (SICA). The board was set up in January 1987 and became functional as of 15 May 1987.[1]

A new industrial policy was tabled in Parliament on 24 July 1991, aiming to maintain growth in

productivity and gainful employment and to encourage the growth of entrepreneurship and

upgrades to technology.[2]

That year the SICA was amended to include public sector enterprises

in the board's purview.[3]

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest

(SARFAESI) Act of 2001-02 placed corporate debt outside the purview of the BIFR.[4]

By

preventing reference to the BIFR, which had become a haven for the promoters of sick

companies, the act gives banks and financial institutions a better tool for recovering bad debt. It

was complemented by the corporate debt restructuring package under which lenders and

borrowers would meet to agree on a way of recasting stressed debt.[5]

The Companies (Amendment) Bill 2001 proposed to set up a National Company Law Tribunal

(NCLT) and a National Company Law Appellate Tribunal (NCLAT). These would take over the

functions of the BIFR and other bodies and speed up the process of winding down sick

companies. The Bill was introduced because the government considered that the BIFR had not

met its objective of preventing industrial sickness.[6]

The Sick Industrial Companies (Special

Provisions) Repeal Act, 2003 replaced SICA and sought to dissolve the BIFR and the Appellate

Authority for Industrial and Financial Reconstruction (AAIFR), replacing them by the NCLT

and NCLAT. However, legal hurdles prevented the NCLT from being constituted.[7]

==Structure and objectives==-------

The Board has a Chairman and from two to fourteen other members, all to be qualified as High

Court judges or else to have at least fifteen years of relevant professional experience.[8]

The

Board only handles large or medium sized sick industrial companies in which large amounts

have been sunk.[3]

Under the Sick Industrial Companies Act the Board of a sick industrial

company is legally obliged to report it to the BIFR, and the BIFR has the power to make

whatever inquiries are needed to determine if the company is in fact sick.[9]

Among other objectives the act was to provide a way to revive sick industrial companies and

release public funds.[10]

If a company is found to be sick, the BIFR can give the company

reasonable time to regain health (bring total assets above total liabilities) or it can recommend

other measures.[9]

The board can take other actions including changes to management,

amalgamation of the sick unit with a healthy one, sale or financial reconstruction.[3]

The Board

can recommend a sick industrial company for winding up.[11]

The BIFR was intended to bridge the legal gap between sickness and revival. It would impose

time schedules for revival related activities to be completed, oversee their implementation and

conduct periodic reviews of sick accounts. The BIFR would provide a forum for sharing views,

coordinating effort and developing a unified approach to dealing with sick companies, speeding

up the start of corrective action.[12]

The BIFR was meant to either turn companies around within

six months or order closure.[13]

Activity and results

EPCG means, Export Promotion Capital Goods. You (exporter) are a manufacturer exporter, you

would like to import machineries in your factory from foreign country. As I have explained

previously, government supports exporters who earn foreign currency in various levels of

financial assistance, exemption of import duty etc. In this case, the machineries you are

importing is used for manufacturing of goods which are required to be exporter where in you

earn foreign exchange. However, you need to pay good amount at a time and you will get benefit

of the imported machineries in coming years only. Apart from many other financial assistance

for exporters, you can get exemption of 100% import duty amount while importing such

machineries. While obtaining EPCG license from government, you guarantee that you will

export required amount or quantity of goods for next 5 years.

The importer has to approach for EPCG license from

licensing authority – Director General of Foreign Trade

(DGFT). Application for EPCG with necessary supporting

documents are filed with DGFT and based the value of

machineries the value addition is fixed up and export

obligation has to be fulfilled accordingly. If you could not

complete the export obligation in time specified by

licensing authority, you can request them to get extended

the export obligation period. However, if you have already finished export obligation, you can

sell the goods locally also in domestic tariff area (DTA).

What is your opinion. Please comment.