Repeal of SICA

[The following guest post is contributed by Mani Gupta, who is a partner at Sarthak Advocates &
Solicitors, New Delhi. Views expressed here are personal and do not reflect the
firm’s views.]
By way of two
notifications
dated November 25, 2016 (“Repeal Notification”), the
Ministry of Finance has appointed December 1, 2016 as the date on which the
provisions of Sick Industrial Companies (Special Provisions) Repeal Act, 2003
(“SICA Repeal Act”) shall come into effect and Section 4(b) of the SICA
Repeal Act shall be enforced. With the effectiveness of the SICA Repeal Act,
the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”)
shall stand repealed and the Board for Industrial and Financial Reconstruction
(“BIFR”) and the Appellate Authority
for Industrial and Financial Reconstruction (“AAIFR”) shall stand dissolved. SICA was a special legislation that
was enacted to identify sick and potentially sick companies owning industrial
undertakings and for implementation of suitable measures to revive such sick
companies, and to ensure expeditious enforcement proceedings against such
companies. BIFR was established under SICA as a specialized body for revival,
rehabilitation and even winding up of sick industrial companies and wherever
necessary, for providing them with financial assistance.   
As the year of SICA Repeal Act suggests, the repeal of SICA has
been on the cards for a very long time. Originally, separate provisions were inserted
in Companies Act, 1956 (sections 424A to 424L) through the Companies (Second
Amendment) Act, 2002 to deal with the revival and rehabilitation of sick
industrial companies. These provisions were never notified. The Companies Act,
2013 also contained a new Chapter XIX (sections 253 to 269) to
replace SICA as and when the SICA Repeal Act would have been notified. However, these provisions have been deleted with effect from
November 15, 2016 by way of Notification No. S.O. 3453(E), 30/7/2016-Insolvency Section, which inter alia notified section 255 of the Insolvency
and Bankruptcy Code, 2016 (“Insolvency Code”). The relevant provisions of
the Insolvency Code, which provide an alternative mechanism in place of SICA,
are yet to be made effective.
It is instructive to note that section 4(b) of the SICA Repeal Act
was also amended by section 252 of the Insolvency Code. Section 252 of the
Insolvency Code came into effect on November 1, 2016, by way of Notification No. S.O. 3355(E), 30/7/2016-Insolvency Section.[1] The
effect of the amended section 4(b) is that from the date notified by the
Government all proceedings pending before the BIFR and AAIFR shall abate and
will come to an end.  However, it shall
be open to the company whose appeal, reference or inquiry has abated to
initiate fresh proceedings (that is, the corporate insolvency resolution
process under the Insolvency Code) before the National Company Law Tribunal (“NCLT”) in accordance with the
provisions of Insolvency Code, within 180 days of the commencement of the
Insolvency Code. The Insolvency Code is being notified in a piecemeal manner,
with the bulk of the operational provisions yet to be notified. Therefore, it
is unclear when sick or potentially sick companies will be able to approach the
NCLT and seek the initiation of the ameliorative process and the protection of section
14 of the Insolvency Code.  
It is important to note that the proceedings under the Insolvency
Code envisage the role of Insolvency Resolution Professionals. The Insolvency and Bankruptcy Board of India (Insolvency Professionals)
Regulations, 2016
, notified on
November 23, 2016, provide that an individual enrolled with an insolvency
professional agency as a professional member may make an application to seek
registration as an insolvency professional. The Insolvency and Bankruptcy Board of India (Insolvency Professional
Agencies) Regulations, 2016
(“IPA
Regulations
”) provide that only a company registered under section 8 of the
Companies Act, 2013, with the sole object of functioning as an insolvency
professional agency under the Insolvency Code shall be entitled to be
registered as an insolvency professional agency (“IPA”). Since the IPA
Regulations have come into effect only on November 21, 2016, it may still be
some time before IPAs are incorporated and registered as such. They process of
enrolling professionals as members of the IPA and the subsequent registration
of insolvency professionals with the Insolvency and Bankruptcy Board may take
some more time. Until then, it appears unlikely that the relevant provisions of
the Insolvency Code, which could have effectively replaced the operational
provisions of SICA, will be brought into effect. In fact, given the tight
timelines under the Insolvency Code for the insolvency resolution process, it
will be important that sufficient numbers of insolvency professionals are
registered before the Insolvency Code is effectively operationalized. Given the
workload that the insolvency professionals may face, if their numbers are
limited, then they may find it difficult to meet the timelines prescribed in
the Insolvency Code, or they may not able to do justice to their task.
This creates a peculiar situation: with the repeal of SICA, the
protections that were available to companies under the provisions of SICA, in
particular under section 22 of SICA, are no longer available. At the same time,
the corresponding provisions of the Insolvency Code under which the relevant
proceedings could have been initiated are yet to be notified. Such companies whose
references/ appeals will abate on December 1, 2016 may face uncertainties as
various proceedings initiated against such companies in various forums (such as
recovery suits in civil courts or Debt Recovery Tribunals or winding up
proceedings), which were suspended in view of section 22 of SICA may get
revived or filed fresh. The problems of the sick/ potentially sick companies
will be compounded if courts/ tribunals pass orders against them while the
uncertainty around notification of the remaining provisions of Insolvency Code continues.
The confusion and uncertainty could have been avoided if the SICA Repeal Act
was brought into effect simultaneously with the provisions of Insolvency Code.   
– Mani Gupta



[1] The amended Section 4(b) of the SICA
Repeal Act provides as follows:
“(b) On such date as may be notified by
the Central Government in this behalf, any appeal preferred to the Appellate
Authority or any reference made or inquiry pending to or before the Board or
any proceeding of whatever nature pending before the Appellate Authority or the
Board under the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of
1986) shall stand abated:
Provided that a company in respect of
which such appeal or reference or inquiry stands abated under this clause may
make reference to the National Company Law Tribunal under the Insolvency and
Bankruptcy Code, 2016 within one hundred and eighty days from the commencement
of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions
of the Insolvency and Bankruptcy Code, 2016:
Provided further that no fees shall be payable for making such
reference under the Insolvency and Bankruptcy Code, 2016 by a company whose
appeal or reference or inquiry stands abated under this clause.”

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

4 comments

  • The first read is too complex for a layman!!! A lot of people know that Promoters used SICA as an umbrella. How is this new code different? Looks the same! First NCLT, then NCALT and then Supreme Court. Till all this is done Creditors are held at bay. Looks as if Promoters will continue to enjoy. Also, in most cases, Banks who have doled out loans under dubious circumstances get away!!!!!

    Is it possible to decode this new code for a layman?

  • Under the IBC, the corporate debtor's business will be in the possession of the committee of creditors (made up of the financial creditors) headed by the insolvency professional, this will prevent abuse by debtors as under SICA.

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