sick industrial hard copy for referance

7/27/2019 Sick Industrial Hard Copy for Referance

1/8

Sick industrial unit is defined as a unit or a company (having been in existence for not less than

five years) which is found at the end of any financial year to have incurred accumulated losses

equal to or exceeding its entire net worth. The net worth is calculated as sum total of paid up

capital and free reserves of a company less the provisions and expenses, as may be prescribed.

An industrial unit is also regarded as potentially sick or weak unit if at the end of any financial

year, it has accumulated losses equal to or exceeding 50 per cent of its average net worth in the

immediately preceding four financial years and has failed to repay debts to its creditor(s) in three

consecutive quarters on demand made in writing for such repayment. The two basic factors

which may result in sickness of an industrial unit are:-

Internal factors are those which arise within an organisation.1. Mismanagement in various functional areas of a company like finance, production,

marketing and personnel;

2. Wrong location of a unit;3. Overestimation of demand and wrong dividend policy;4. Poor implementation of projects which may be due to improper planning or managerial

inefficiency;

5. Poor inventory management in respect of finished goods as well as inputs;6. Unwarranted expansion and diversion of resources such as personal

extravagances,excessive overheads, acquisition of unproductive fixed assets,etc.;

7. Failure to modernise the productive apparatus, change the product mix and otherelements of marketing mix to suit the changing environment;

8. Poor labour-management relationship and associated low workers' morale and lowproductivity,strikes,lockouts, etc.

External factors are those which take place outside an organisation.1.

Energy crisis arising out of power cuts or shortage of coal or oil;

2. Failure to achieve optimum capacity due to shortage of raw materials as a result ofproduction set-backs in the supply industries, poor agricultural output because of natural

reasons,changes in the import conditions,etc.

3. Infrastructural problems like transport bottlenecks;4. Credit squeeze;


2/8

5. Situations like market recession, changes in technology,etc;6. International pressures or circumstances, etc.

Industrial sickness may be caused by a combination of all such factors.

Effects :-1. It leads to loss of substantial revenue to the Government and enhances its public

expenditure

2. It locks up necessary resources and funds in the sick unit. This also increases the non-performing assets (NPAs) of banks and financial institutions

3. It leads to loss of production and productivity in the economy4. It aggravates the problem of unemployment in the economy5. It vitiates the industrial atmosphere and leads to worker-management

disputes,strikes,lock-outs,etc

6. It undermines the public confidence in the functioning of the organised sector in thecountry which in turn affects the overall investment climate of the economy.

Symptoms of sickness :-

1. Delay or default in payment to suppliers2. Irregularity in bank A/C3. Delay or default in payment to banks & FI4. Non-submission of information to banks & FI5. Frequent requests to banks & FI for additional credit6. Decline in capacity utilization7. Poor maintenance of plant & machinery8. Low turnover of assets9. Accumulation of inventories10.Inability to take trade discount11.Excessive turnover of personnel12.Extension of accounting period13.Resort to creative accounting which seeks to present a better financial picture than what

it really is

14.Decline in the price of equity shares & debentures


3/8

In the light of the above consequences of sickness and its growing incidence by size, region and

industry followed by its far-reaching adverse socio-economic effects, the Government has been

taking many steps and remedial measures in order to tackle this problem in India. The most

significant measure has been the enactment of the Sick Industrial Companies (Special

Provisions) Act,1985 (SICA).

The most important piece of legislation dealing with industrial sickness was the Sick Industrial

Companies (Special Provisions) Act,1985 (SICA). It applies to industrial undertakings both in

the public and private sectors. SICA pertains to the industries specified in the First Schedule to

the Industries (Development and Regulation) Act, 1951, (IDR Act) subject to the exceptions

specified in the Act. SICA, including any rules or schemes made thereunder, had overriding

provisions over other laws except the provisions of the Foreign Exchange Regulation

Act,1973 and the Urban Land (Ceiling and Regulation) Act, 1976.

The basic rationale of enacting SICA was to determine sickness in the industrial units. It also

aimed at expediting the revival of potentially viable units so as to make the investments in such

units profitable. At the same time, to ensure the closure of unviable units so as to release the

investments locked up in such units for productive use elsewhere.

Thus, the broad objectives of SICA were:-

Timely detection of sick and potentially sick companies. Speedy determination by a body of experts of the preventive, ameliorative, remedial and

other measures which need to be taken with respect to such companies.

The expeditious enforcement of the measures so determined and for all matters connectedtherewith or incidental thereto.

It provided for the constitution of two quasi-judicial bodies, that is, Board for Industrial

and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and FinancialReconstruction (AAIFR). BIFR was set up as an apex board to tackle industrial sickness and

was entrusted with the work of taking appropriate measures for revival and rehabilitation of

potentially sick undertakings and for liquidation of non-viable companies. While, AAIFR

was constituted for hearing the appeals against the orders of the BIFR.


4/8

When an industrial unit is defined as sick unit, a viability study is conducted

Viability study generally covers the following:

1. Market analysis.2. Production/technical analysis.3. Finance4. Environment.5. Personnel and organization

Revival Programme

1. Settlement with creditors2. Provision of additional capital3. Divestment & disposal4. Reformulation of product market strategy5. Modernization of plant & machinery6. Reduction in manpower7. Strict control over costs8. Streamlining of operations9. Improvement in managerial systems

a. Environmental monitoringb. Organizational structurec. Responsibility accountingd. Management information systeme. Budgetary control

7. Workers participation8. Change of management


5/8

Case Study

Nicco Corporation Limited(NCL) is the flagship company of the Nicco Group

For nearly over 6 decades, NCL has been one of the pioneers in cable

manufacturing industry

It produces a wide range of power, control, instrumentation & telecom cables &

provides a spectrum of engineering services & executes turnkey projects

Established in 1942, the US$ 67 million Nicco Group is a widely respected Indian

industrial powerhouse

NICCOs PRODUCT

Aircraft & Air Field Cables

Fire Retardant Low Smoke Cables (FRLS)

Automobile Cables

Oil Rig Cables

Copper Conductors

Cables For Cranes

Elevator Cables (lift Cables)

Furnace & High Temperature Cables

Marine Cable


6/8

Power CablesNICCO BATTARIES LTD(NBL) amalgamated with NICCO Corporation LTD

(NCL) with effect from 1 April 1994 as per amalgamation scheme

In amalgamation scheme entire undertaking of NBL shall be transferred to NCL &

transferee company i.e. NCL shall issue & allot shareholder of NBL share in

transferor company in proportion of 2 share of face value of Rs.10 each of the

transferee company for 13 equity share of face value Rs.10

The rehabilitation Cum amalgamation scheme envisages settlement of dues of the

bank & institution, payment to pressing creditors besides capital expenditure of Rs

163 lakhs

Cost of the scheme (Rs in lakhs)

Capital expenditure 163.00 Settlement of dues of the banks 619.00 Payment of unsecured loans from 20.00 Payment of pressing creditors 18.00 Margin money for working capita 57.00

TOTAL 877.00

B) Means of finance (Rs in lakhs)

Promoters contribution out of internal accruals of NCL 477.00 Benefit under section 72 A of IT Act,1961 400.00

TOTAL 877.00


7/8

The scheme for amalgamation of NBL, with NCL was under section 72A of the ITAct,1961 and shall be effective from 1 April ,1994

The carried forward accumulated loss of NBL is estimated at Rs 1896 lakhs as on 31

March 1994

The estimated tax set off at the current rates of IT Act , 1961 is restricted to Rs.

400 lakhs

Benefits in the merger of sick

Synergistic operating economies

Diversification

Taxation advantages

Growth advantage

Production capacity reduction

Managerial motivate

Acquisition of specific asset

Risks in the Merger of Sick Unit

Dilution of competition in the market

Actual or a potential competitor, may get eliminated

Efficient & growing medium or small-sized undertaking

May exercise a market power to the detriment of its customers & suppliers


8/8

sick industrial hard copy for referance

Documents