The Government policy towards sick units has been laid down in the Industrial Policy Statement, 1980 and further elaborated in the Policy Guidelines issued in June, 1981. The salient features of the guidelines are as follows:
i. The administrative ministries will have specific responsibility for prevention and remedial action in relation to sickness in the industrial sector within their respective charge.
They will have a central role in monitoring sickness and co-ordination action for revival and rehabilitation of sick units.
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In suitable cases they will also establish Standing Committees for major industrial sectors where sickness is widespread.
ii. The financial institutions will strengthen the monitoring system so that it is possible to take timely corrective action to prevent incipient sickness.
They will obtain periodical returns from the assisted units and from the directors nominated by them on the Boards of such units. These will be analysed by the IDBI and results of the analysis conveyed to the financial institutions concerned and the government.
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iii. The financial institutions and banks will initiate necessary corrective action for sick or incipient sick units based on a diagnostic study. In case of growing sickness, the financial institutions will also consider assumption of management responsibility where they are confident of restoring a unit to health. The Ministry of Finance will issue suitable guidelines for takeover of management.
iv. Where the banks and financial institutions are unable to prevent sickness or ensure revival of a sick unit, they will deal with their outstanding dues to the unit in accordance with the normal banking procedures.
However, before doing so, they will report the matter to the Government who will decide whether the unit should be nationalised or whether any other alternatives including workers’ participation in the management can revive the undertaking.
v. Where it is decided to nationalise the undertaking, its management may be taken over under the provisions of the Industries (Development and Regulation) Act, 1951 for a period of six months to enable the Government to take necessary steps for nationalisation.
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Government has taken over management of a number of sick industrial undertakings under the provisions of Industries (Development and Regulations) Act with a view to reviving them by providing management support and financial assistance through banks and financial institutions, including the Industrial Reconstruction Bank of India.
Take-over of management has not proved to be a very effective instrument for revival of sick units. The present policy does not favour management takeover, except as a stop-gap arrangement for units to be nationlised.
The Sick Industrial Companies (Special Provisions) Act, 1985, provides for establishment of a Board for Industrial and Financial Reconstruction (BIFR). The BIFR came into existence in 1987. It is obligatory on the part of the Board of Directors of a company to report its sickness to BIFR.
The BIFR has been vested with powers to institute the necessary enquiries to determine whether or not a company is sick.
If the BIFR comes to the conclusion that the company has become sick, it can either give reasonable time to the company concerned to make its net worth positive or it can devise suitable measures including change of management, reconstruction of share capital, sale or leasing out of a part of the undertaking or its merger with the healthy unit.