Eradi panel recommends repeal of SICA

By J. Venkatesan

NEW DELHI, SEPT. 2. The Justice Balakrishna Eradi committee on the insolvency law has recommended the repeal of the Sick Industrial Companies Act (SICA) and winding up of the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).

The committee, headed by Mr. Justice V. Balakrishna Eradi, which submitted its report to the Prime Minister on August 31, has instead suggested setting up of a National Tribunal with jurisdiction and powers of the Company Law Board. The Tribunal will consider rehabilitation and revival of companies - a mandate presently entrusted with BIFR/ AAIFR under the SICA. The committee has recommended an amendment to Article 323-B of the Constitution to vest the jurisdiction and powers of the High courts to the Tribunal to deal with cases relating to winding up of companies. While passing the order for winding up of a company, the Tribunal shall also have power to prescribe the timeframe for each step to be taken by the liquidator in the course of the winding-up process.

The Tribunal will have the power to prescribe the time limits for compliance of each step by parties while considering the reference for revival of sick companies. It will have the power to direct the sale of business of the company as a going concern or at its discretion to sell its asset in a piecemeal manner. The Committee wants the incorporation of a new substantive provision under Part VII of the Companies Act to adopt the UNCITRAL Model Law as approved by the United Nations and the Model law itself may be incorporated as a schedule to the Act which shall apply to all cases of cross-border insolvency. The committee has recommended the encouragement of voluntary winding up of companies. To achieve this object, a provision may be made to provide that a company having paid-up capital of Rs. 10 lakhs or more may submit a petition for its winding up before the Tribunal and companies with paid-up capital below that amount must resort to voluntary winding up.

Creditors may approach the Tribunal for winding up only if a company defaults in payment of undisputed debts exceeding Rs. 1 lakh and in other cases of default, creditors should resort to voluntary winding up. The Tribunal will have the jurisdiction for winding up under Sec. 433 of the Companies Act besides other grounds for winding up would cover the failure of companies to file returns for last three years on due dates or if the action of a company threatens the security or integrity of the country.

The other recommendations include expansion of the provisions of the Companies Act to take recourse to administrative order procedure on the lines of the U.K. Insolvency Act; creation of a `Fund for Revival and Rehabilitation', preservation and protection of companies under the Government, and appropriate legislative measures to ensure that the claims of all employees of a company and its secured creditors are ranked pari passu.

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