Friday, 10 June 2016


The provisions relating to the revival and rehabilitation of sick companies are contained in chapter XIX of the Company’s Act 2013. Which contains section 253 and 269 dealing with all types of companies as defined under the act and these provisions are more inclined towards the secured creditors which are empowered to make an application to the tribunal for the determination of the sick companies.

Reference of revival and rehabilitation of a company is divided in two stages;

  • ·         Determination of the sick company
  • ·         Determination of measures of the sick company.

Section 253 seeks to provide the manner in which the company can be declared as a sick company because the company in such cases fails to pay its debt, to its secured creditor representing the 50% or more of the outstanding debt. The creditors can file an application to tribunal to determine whether the company is being a sick company within the period of sixty days. Further, in such cases the company can also itself file an application to the tribunal to declare the company as a sick company. After an application for determination of the sick company has been made the company cannot dispose off its assets except required in the normal course of the business. If the company is being declared as a sick company by the tribunal then the order may be passed as to whether it is practicable for the company to repay its debts within a reasonable time period.

The references for revival and rehabilitation scheme are not absolute and hence have some restrictions on it i.e.

·         Where the creditors are representing three- fourth value in the outstanding amount against the financial assistance which is to be disbursed to the borrower have taken measure to recover the debt under section 13(4) of the securitization and reconstruction of financial assets and enforcement of the securities interest act 2002.

·         In cases where the financial assets of the sick company had been acquired by any securitization or reconstruction company, the application can be made only with the consent of the acquirer of such company.

After a receipt of an application, the tribunal shall fix a date of hearing within ninety days and as per Section 256 of the Act appoint an interim administrator from a databank which is to be maintained by the central government who shall act as a facilitator to convene the meeting of the creditors of the company to ascertain whether the sick company is possible for revival and rehabilitation scheme. 

However the interim administrator may also be entrusted with the powers to preserve and protest the assets of the company for the proper management of the company.

However, Where a company do not file a draft scheme, tribunal may direct the interim administrator to take over the management of the company.
Interim administrator shall appoint a committee of creditors having not more than seven members and there shall be a representative in every class who may attend the meeting of the committee of the creditors and furnish the necessary information.

The tribunal may order for the initiation of proceeding for the winding up of the company if it is satisfied with the report of the interim administrator and the voting has been resolved thatit’s not possible for the company to revive and rehabilitation.

Powers and duties of company administrator-Prepare a complete inventory of all assets and liabilities, books of accounts, list of shareholders and creditors, valuation report in respect of shares and assets, estimate of reserve price, lease rent, Performa of accounts, list of workman of the comp. and their dues.

Scheme of revival and rehabilitation- a company liquidator shall prepare a scheme of revival and rehabilitation of the sick company within the period of sixty days which may further extend to sixty days after taking into account the draft scheme which may provide the following:
·         Financial reconstruction of the sick comp.
·         Proper management of the sick company by any change in, or by taking over the management of such other company.
·         Amalgamation  of-
1.      Sick company with any other company.
2.      Any other company with the sick company.
·         Takeover of the sick company y a solvent company.
·         Sale or lease of a part or whole of any asset or business of the sick company.
·         Rationalisation of managerial personnel, supervisory staff and workmen in accordance with law.
·         Other preventive or remedial measures as may be appropriate
·         Repayment or rescheduling or restructuring of the debts or obligations of the sick company to any of its creditors or class of creditors
·         Such incidental, consequential, or supplemental measures as may be necessary or expedient.

The revival and rehabilitation scheme prepared by the company administrator shall be placed separately before the meetings of secured and unsecured creditors of the sick company. If the scheme is approved by the creditors then it shall be submitted to the tribunal for sanctioning it and the tribunal after reviewing it may pass any necessary orders for modification if required. Thus the scheme sanctioned by the tribunal shall act as an conclusive evidence and a copy of the sanction scheme shall be submitted to the registrar by the sick company which shall be binding on the sick company and the transferee company and also on the shareholders, employees, creditors and the guarantors of the said company.

The tribunal has the powers to enforce, modify, or even terminate any contract or agreement entered into by the sick company with any other person for the purpose of effective implementation.
If the scheme is not approved by the secured and unsecured creditors as per the requirements laid in section 262(2), in such circumstances the tribunal shall order for the winding up of the company.

Power of tribunal to assess damages against delinquent directors,etc- if in the course of scrutiny or 
implementation of any scheme if it appear to the tribunal that any person has been a part of misfeasance proceeding then he shall be liable for fraud under section 447 and tribunal by an order may direct him to repay or restore the money or property, with or without the interest, as it thinks just or to contribute to the assets of the company.

A punishment for such offence is an imprisonment for a term which may extend to seven years and with fine which may extend to ten lakh rupees.

Further ,no appeal shall lie in any court and no injunction will be granted by any other court or authority in respect of any action taken or proposed to be taken in pursuance of any power conferred under this chapter, civil court also do not have jurisdiction to entertain matters upon which the tribunal is being empowered.

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