Revival and rehabilitation of sick companies:
Determination of sickness:
Where on a demand by the secured creditors of a company representing fifty percent or more of its outstanding amount of debt, the company has failed to pay the debt within a period of thirty days of the services of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor may file the application to the tribunal in a manner along with the relevant evidence for such non-repayment, default or failure to offer the security or compound it, for the determination of the company be declared as a sock company.
Revival and rehabilitation:
The applicant under sub-section (1) may, along with an application under that sub-section or at any stage of the proceedings thereafter, make an application for the stay of any proceedings for the winding up of the company or distress or for execution against any property and assets of the company for the appointments of a receiver with respect thereof and that doesn’t suit for the recovery of any money or for the enforcement of any security against the company that may be proceeded with.
The tribunal may pass an order in respect of an application under sub-section (2) which shall be operative for a period of one hundred and twenty days.
The company referred to in sub-section(1) may also file an application to the tribunal on one or more of the grounds specified in sub-section(1) and (2) above.
Without prejudice to the provisions of sub-section (1) to (4), the central government or the reserve bank of India or 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 company has become, for the purposes of this act, a sick company, make a reference in respect of such company to the tribunal 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 company by-
- The government of any state unless all or any of the undertakings belonging to such company are situated in such state.
- 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.
Where an application under sub-section (1) or sub-section(4) has been filed-
- The company shall not dispose of or otherwise enter into any obligation with regard to, its properties or assets except as required in the normal course of business;
- The board of directors shall not take any steps likely to prejudice the interest of the creditors.
The tribunal shall, within a period of sixty days of the receipt of an application under sub-section(1) or sub-section(4), determine whether the company is a sick company or not;
Provided that no such determination shall be made in respect of an application under sub-section(1) unless the company has been given notice of the application and a reasonable opportunity to reply to the notice within thirty days of the receipt thereof.
If the tribunal got satisfied that the company has become a sick company, the tribunal may consider all the important facts and circumstances of the case, decide as soon as may be, by an order in writing.
If it is practicable for the company to make the repayment of the debts that are referred in sub-section (1) within a reasonable time period.
If the tribunal deems fit under the sub-section (8) which is practicable for a sick company to pay its debts which is referred to that in sub-section within a reasonable time period, the tribunal may by order in writing and subject to such restrictions or conditions which may be specified in the order, give such time to the company as it may deem fit to make the repayment of the debt.
Application for revival and rehabilitation:
An application for revival and rehabilitation have been discussed here.
On the determination of a company as a sick company by the tribunal under section 253, any secured creditor of that company or the company may make an application to the tribunal to determine the measures which may be adopted with respect to the revival and rehabilitation of such company.
In case any reference been made before the tribunal and a scheme for the revival and the rehabilitation submitted such reference may abate if the secured creditors represents three fourths in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub-section (4) of section 13 of the reconstruction and the securitisation of financial assets and enforcement of the security interest act.
Provided further that no reference shall be made under this section if the secured creditors representing three fourths in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub-section (4) of section 13th of the securitisation and reconstruction of enforcement and financial assets of the enforcement of securities interest act.
Provided also that where the financial assets of the sick company had been acquired by any securitisation or reconstruction company under sub-section (1) of section 5 of the reconstruction and securitisation of financial assets and enforcement of the security interest act, no such applications can be made without the consent of securitisation or reconstruction of a company which has acquired such assets.
An application under sub-section (1) shall be accompanied by –
- Audited financial statements of the company relating to the immediately preceding financial year;
- Such particulars and documents, duly authenticated in such manner, along with such fees as may be prescribed; and
- Revival and rehabilitation in a draft scheme of the company in such a manner has to be prescribed;
It has been provided that sick company has no draft scheme of rehabilitation and revival to offer, it may file a declaration to that effect along with the application.
An application which is under sub-section (1) can be made to the tribunal within a period of sixty days from the date of determination of the company as a sick company by the tribunal under section 253.
Exclusion of certain time in computing period of limitation:
Notwithstanding anything contained in the limitation act, 1963 or in any other law for the time being in force, computing the period of limitation which has been specified for any suit or application in the name and on behalf of the company for which an application has been made to the tribunal under sub-section (1) of section 253, a determination to be declared as a sick company or at any stage thereafter, the period during the stay order which is provided in sub-section (3) of section 253, was application may be excluded.
Appointment of interim administrator:
On the receipt of an application under section 254, the tribunal shall not later than seven days from such receipt.
- Fix a date for hearing not later than ninety days from the date of its receipt;
- Interim administrator have to be appointed to convene a meeting of creditors of the company accordance with the provisions of section 257 which is to be held not later than forty five days from the receipt of the order of the tribunal appointing him in order to consider whether on the basis of particulars and documents which are furnished with the application made under section 254, the draft scheme, if any, need to be filed along with the application or otherwise and any other material available, it is possible to rehabilitate and revive the sick company and such other matters, which the interim administrator may consider necessary for the purpose and to submit his report to the tribunal within a period of sixty days from the date of the order;
- No draft scheme is filed by the company and the declaration have to be made in effect by the board of directors, the tribunal can direct the interim administrator in order to take over the management of the company; and
Issue such other directions to the interim administrator as the tribunal may consider necessary to protect and preserve the assets of the sick company and for its proper management.
- The interim administrator has been directed to take over the management of the company, the directors and the management of the company can extend all the possible assistance and cooperation to the interim administrator in order to manage the affairs of the company.