End of SICA (The Sick Industrial Companies (Special Provisions) Act, 1985)

Thirteen long years after the enactment of  Sick Industrial Companies (Special Provisions) Repeal Act, in 2003, the Government has notified the Act, bringing to an end the era of the BIFR and AIFR regimes. The notification has come in the light of the enactment of the Insolvency and Bankruptcy Code, 2016. The Act was notified by the Ministry of Finance vide its notifications S.O.3568(E) and S.O. 3569 (E) which is available here.

SICA Regime

The SICA regime which was introduced as a hand holding measure facilitating the revival of sick industrial units by financial restructuring, it was quite often resorted by the promoters as a tool for delaying the recovery process. It seems that the Repeal Act was shelved these many years only for the lack of a machinery to effectively substitute it. With the establishment of the NCLT under the Companies (Amendment) Act, 2013 and with the Insolvency and Bankruptcy Code putting a totally new system to tackle the insolvency issues the SICA had lost its necessity leading to its present repeal. 

Present Position

Section 4(b) of the Repeal Act was in fact modified by Section 252 of the Insolvency and Bankruptcy Code 2016, to the effect that from the date notified by the Government all proceedings pending before the BIFR and AAIFR shall abate and will come to an end.

The amendment has given an option to the Company whose appeal, reference or inquiry has abated to initiate fresh proceedings 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.

This notification has opened a new, but brief window for the secured creditors whose recovery measures were stalled due to the restrains imposed by Section 22 (1) of the SICA: 

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.

The present notification has automatically removed the bar on all the legal recovery proceedings imposed by S.22 of SICA, 1985, making it possible for the secured creditors to adopt the recovery measures including SARFAESI steps against the Company whose appeal, reference or inquiry was pending before BIFR or AIFR.