15. Reference to Board .-(1) Where an industrial company has become a sick industrial company, the Board of Directors of the company shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company:
Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company:
[Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under sub-section (1) of section 5 of that Act:
Provided also that on or after the] [commencement] [21st June, 2002. ][of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act.] [Inserted by Act 54 of 2002, Section 41 and Sch. (w.e.f. 21.6.2002). ]
(2)
Without prejudice to the provisions of sub-section (1), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Board for determination of the measures which may be adopted with respect to such company:
Provided that a reference shall not be made under this sub-section in respect of any industrial company by-
(a)
the Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State;
(b)
a public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to such company, an interest in such company.
16. Inquiry into working of sick industrial companies .-(1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company-
(a)
upon receipt of a reference with respect to such company under section 15; or
(b)
upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.
(2)
The Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order.
(3)
The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry.
[ Explanation .-For the purposes of this sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board.]
(4)
Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or, as the case may be, under sub-section (2), [it may appoint] [ Substituted by Act 12 of 1994, Section 5, for " it shall appoint" (w.e.f. 1.2.1994).] one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company or in the public interest.
[(4-A) The Board may issue such directions to a special director appointed under sub-section (4) as it may deem necessary or expedient for proper discharge of his duties.] [Inserted by Act 12 of 1994, Section 5 (w.e.f. 1.2.1994). ]
(5)
The appointment of a special director referred to in sub-section (4) shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company, and any provision, regarding share qualification, age limit, number of directorships, removal from office of directors and such like conditions contained in any such law or instrument aforesaid, shall not apply to any director appointed by the Board.
(6)
Any special director appointed under sub-section (4) shall-
(a)
hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board;
(b)
not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto;
(c)
not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement;
(d)
[ not be liable to be prosecuted under any law for anything done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company.] [ Inserted by Act 12 of 1994, Section 5 (w.e.f. 1.2.1994).]
17. Powers of Board to make suitable order on the completion of inquiry .-(1) If after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be, by order in writing, whether it is practicable for the company to [make its net worth exceed the accumulated losses] within a reasonable time.
(2)
If the Board decides under sub-section (1) that it is practicable for a sick industrial company to [make its net worth exceed the accumulated losses] [ Substituted by Act 12 of 1994, Section 6, for " make its net worth positive" (w.e.f. 1.2.1994).] within a reasonable time, the Board shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to [make its net worth exceed the accumulated losses] [ Substituted by Act 12 of 1994, Section 6, for " make its net worth positive' (w.e.f. 1.2.1994).].
(3)
If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to [make its net worth exceed the accumulated losses] [Substituted by Act 12 of 1994, Section 6, for " make its net worth positive' (w.e.f. 1.2.1994). ] within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company.
(4)
The Board may,-
(a)
if any of the restrictions or conditions specified in an order made under sub-section (2) are not complied with by the company concerned, [or if the company fails to revive in pursuance of the said order,] [ Inserted by Act 12 of 1994, Section 6 (w.e.f. 1.2.1994).] review such order on a reference in that behalf from any agency referred to in sub-section (2) of section 15 or on its own motion and pass a fresh order in respect of such company under sub-section (3);
(b)
if the operating agency specified in an order made under sub-section (3) makes a submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.
18. Preparation and sanction of schemes .-(1) Where an order is made under sub-section (3) of section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely:-
(a)
[ the financial reconstruction of the sick industrial company;]
(b)
the proper management of the sick industrial company by change in, or take over of, management of the sick industrial company;
(c)
[ the amalgamation of- [Substituted by Act 12 of 1994, Section 7, for Clauses (a) and (c)(w.e.f. 1.2.1994). ]
(i)
the sick industrial company with any other company; or
(ii)
any other company with the sick industrial company;
(hereafter in this section, in the case of sub-clause (i), the other company, and in the case of sub-clause (ii), the sick industrial company, referred to as "transferee company");
(d)
the sale or lease of a part or whole of any industrial undertaking of the sick industrial company;]
(da)
[ the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law;] [ Inserted by Act 12 of 1994, Section 7 (w.e.f. 1.2.1994).]
(e)
such other preventive, ameliorative and remedial measures as may be appropriate;
(f)
such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified in clauses (a) to (e).
(2)
The scheme referred to in sub-section (1) may provide for any one or more of the following, namely:-
(a)
the constitution, name and registered office, the capital assets, powers, rights, interests, authorities and privileges, duties and obligations of the sick industrial company or, as the case may be, of the [transferee company] [ Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994).];
(b)
the transfer to the [transferee company] [ Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994).] of the business, properties, assets and liabilities of the sick industrial company on such terms and conditions as may be specified in the scheme;
(c)
any change in the Board of Directors, or the appointment of a new Board of Directors, of the sick industrial company and the authority by whom, the manner in which and the other terms and conditions on which, such change or appointment shall be made and in the case of appointment of a new Board of Directors or of any director, the period for which such appointment shall be made;
(d)
the alteration of the memorandum or articles of association of the sick industrial company or, as the case may be, of the [transferee company] [ Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994).] for the purpose of altering the capital structure thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation;
(e)
the continuation by, or against, the sick industrial company or, as the case may be, the [transferee company] [ Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994).] of any action or other legal proceeding pending against the sick industrial company immediately before the date of the order made under sub-section (3) of section 17;
(f)
the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Board considers necessary in the interests of the reconstruction, revival or rehabilitation of the sick industrial company or for the maintenance of the business of the sick industrial company;
(g)
the allotment to the shareholders of the sick industrial company of shares in the sick industrial company or, as the case may be, in the [transferee company] [ Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994).] and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder the payment of cash to those shareholders in full satisfaction of their claims-
(i)
in respect of their interest in shares in the sick industrial company before its reconstruction or amalgamation; or
(ii)
where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced;
(h)
any other terms and conditions for the reconstruction or amalgamation of the sick industrial company;
(i)
sale of the industrial undertaking of the sick industrial company free from all encumbrances and all liabilities of the company or other such encumbrances and liabilities as may be specified, to any person, including a co-operative society formed by the employees of such undertaking and fixing of reserve price for such sale;
(j)
lease of the industrial undertaking of the sick industrial company to any person, including a co-operative society formed by the employees of such undertaking;
(k)
method of sale of the assets of the industrial undertaking of the sick industrial company such as by public auction or by inviting tenders or in any other manner as may be specified and for the manner of publicity therefor;
(l)
transfer or issue of the shares in the sick industrial company at the face value or at the intrinsic value which may be at discount value or such other value as may be specified to any industrial company or any person including the executives and employees of the sick industrial company;
(m)
such incidental, consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation or other measures mentioned in the scheme are fully and effectively carried out.
(3)
[(a) The scheme prepared by the operating agency shall be examined by the Board and a copy of the scheme with modification, if any, made by the Board shall be sent, in draft, to the sick industrial company and the operating agency and in the case of amalgamation, also to any other company concerned, and the Board shall publish or cause to be published the draft scheme in brief in such daily newspapers as the Board may consider necessary, for suggestions and objections, if any, within such period as the Board may specify.] [ Substituted by Act 12 of 1994, Section 7, for Clause (a)(w.e.f. 1.2.1994).]
(b)
The Board 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 the [transferee company] [ Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994).] and [any other company] [ Substituted by Act 12 of 1994, Section 7, for " any other industrial company" (w.e.f. 1.2.1994).] concerned in the amalgamation and from any shareholder or any creditors or employees of [such companies] [ Substituted by Act 12 of 1994, Section 7, for " such industrial companies" (w.e.f. 1.2.1994).]:
Provided that where the scheme relates to amalgamation [* * *] [ The words " of the sick industrial company" omitted by Act 12 of 1994, Section 7 (w.e.f. 1.2.1994).], the said scheme shall be laid before [the company other than the sick industrial company] [ Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994).] in the general meeting for the approval of the scheme by its shareholders and no such scheme shall be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the shareholders of [the company other than the sick industrial company] [Substituted by Act 12 of 1994, Section 7, for " transferee industrial company" (w.e.f. 1.2.1994). ].
(4)
The scheme shall thereafter be sanctioned, as soon as may be, by the Board (hereinafter referred to as the "sanctioned scheme") and shall come into force on such date as the Board may specify in this behalf:
Provided that different dates may be specified for different provisions of the scheme.
(5)
The Board may on the recommendations of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines as may be specified in the order, to prepare a fresh scheme providing for such measures as the operating agency may consider necessary.
(6)
When a fresh scheme is prepared under sub-section (5), the provisions of sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under sub-section (1).
[(6-A) Where a sanctioned scheme provides for the transfer of any property or liability of the sick industrial company in favour of any other company or person or where such scheme provides for the transfer of any property or liability of any other company or person in favour of the sick industrial company, then, by virtue of, and to the extent provided in, the scheme, on and from the date of coming into operation of the sanctioned scheme or any provision thereof, the property shall be transferred to, and vest in, and the liability shall become the liability of, such other company or person or, as the case may be, the sick industrial company.] [ Inserted by Act 12 of 1994, Section 7 (w.e.f. 1.2.1994).]
(7)
The sanction accorded by the Board under sub-section (4) shall be conclusive evidence that all the requirements of this scheme relating to the reconstruction or amalgamation, or any other measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the Board to be a true copy thereof shall, in all legal proceedings (whether in appeal or otherwise), be admitted as evidence.
(8)
[ On and from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on the shareholders, creditors and guarantors and employees of the said companies.] [ Substituted by Act 12 of 1994, Section 7, for sub-Section (8)(w.e.f. 1.2.1994).]
(9)
If any difficulty arises in giving effect to the provisions of the sanctioned scheme, the Board may, on the recommendation of the operating agency [or otherwise] [Inserted by Act 12 of 1994, Section 7 (w.e.f. 1.2.1994). ], by order do anything, not inconsistent with such provisions, which appears to it to be necessary or expedient for the purpose of removing the difficulty.
(10)
The Board may, if it deems necessary or expedient so to do, by order in writing, direct any operating agency specified in the order to implement a sanctioned scheme with such terms and conditions and in relation to such sick industrial company as may be specified in the order.
(11)
Where the whole of the undertaking of the sick industrial company is sold under a sanctioned scheme, the Board may distribute the sale proceeds to the parties entitled thereto in accordance with the provisions of section 529-A and other provisions of the Companies Act, 1956 (1 of 1956).
(12)
[ The Board may monitor periodically the implementation of the sanctioned scheme.] [Inserted by Act 12 of 1994, Section 7 (w.e.f. 1.2.1994). ]
19. Rehabilitation by giving financial assistance .-(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government, bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company.
(2)
Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given.
(3)
Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.
[(3-A) On the sanction of the scheme under sub-section (3), the financial institutions and the banks required to provide financial assistance shall designate by mutual agreement a financial institution and a bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned.
(3-B) The financial institution and the bank designated under sub-section (3-A) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard.]
(4)
Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.
[19-A. Arrangement for continuing operations, etc., during inquiry
.-(1) At any time before completion of the inquiry under section 16, the sick industrial company or the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank or any other institution, bank or authority providing or intending to provide any financial assistance by way of loans or advances or guarantees or reliefs or concessions to the sick industrial company may make an application to the Board-
(a)
agreeing to an arrangement for continuing the operations of the sick industrial company; or
(b)
suggesting a scheme for the financial reconstruction of the sick industrial company.
(2)
The Board may, within sixty days of the receipt of the application under sub-section (1), pass such orders thereon as it may deem fit.]
20. Winding up of sick industrial company .- [(1) Where the Board, after making inquiry under section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court.]
(2)
The High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956 (1 of 1956).
(3)
For the purpose of winding up of the sick industrial company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sick industrial company and the officer so appointed shall for the purposes of the winding up of the sick industrial company be deemed to be, and have all the powers of, the official liquidator under the Companies Act, 1956 (1 of 1956).
(4)
Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529-A, and other provisions of the Companies Act, 1956 (1 of 1956).
21. Operating agency to prepare complete inventory, etc .-Where, [for the proper discharge of the functions of the Board under this Act], the circumstances so require, the Board may, through any operating agency, cause to be prepared-
(a)
with respect to [a company] [ Substituted by Act 12 of 1994, Section 11, for " an industrial company" (w.e.f. 1.2.1994).], a complete inventory of-
(i)
all assets and liabilities of whatever nature;
(ii)
all books of account, registers, maps, plans, records, documents of title or ownership of property and all other documents of whatever nature relating thereto;
(b)
a list of shareholders and a list of creditors showing separately in the list of creditors, the secured creditors and the unsecured creditors;
(c)
a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of a part or whole of the industrial undertaking of the company or for fixation of the lease rent or share exchange ratio;
(d)
an estimate of reserve price, lease rent or share exchange ratio; and
(e)
pro forma accounts, where no up-to-date audited accounts are available.
22. Suspension of legal proceedings, contracts, etc .-(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof [and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.
(2)
Where the management of the sick industrial company is taken over or changed [in pursuance of any scheme sanctioned under section 18] [Substituted by Act 12 of 1994, Section 12, for certain words (w.e.f. 1.2.1994). ], notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law-
(a)
it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;
(b)
no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board.
(3)
[Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period] [ Substituted by Act 12 of 1994, Section 12, for certain words (w.e.f. 1.2.1994).] of consideration of any scheme under section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board:
Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.
(4)
Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a Court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,-
(a)
any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any Court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
(b)
on the declaration ceasing to have effect-
(i)
any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and
(ii)
any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.
(5)
In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded.
[22-A. Direction not to dispose of assets
.-The Board may, if it is of opinion that any direction is necessary in the interest of the sick industrial company or creditors or shareholders or in the public interest, by order in writing, direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets-
(a)
during the period of preparation or consideration of the scheme under section 18; and
(b)
during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) of section 20 and upto commencement of the proceedings relating to the winding up before the concerned High Court.]