Sick Industrial Companies Act (SICA)

What was the 'Sick Industrial Companies Act (SICA)'

The Sick Industrial Companies Act (SICA) was a key piece of legislation dealing with the issue of rampant industrial sickness in India. The Sick Industrial Companies (Special Provisions) Act (SICA) of 1985 was enacted in India to determine the extent of sickness in industrial units, expedite the revival of potentially viable companies and close unviable units to release investment locked up in them for productive use elsewhere. SICA defined a sick industrial unit as one that had existed for at least five years and had incurred accumulated losses equal to or exceeding its entire net worth at the end of any financial year.

BREAKING DOWN 'Sick Industrial Companies Act (SICA)'

Industrial sickness has long been a chronic problem in in the Indian economy.

SICA identified a number of internal and external factors responsible for this epidemic. Internal factors within the organizations included mismanagement, overestimation of demand, wrong location, poor project implementation, unwarranted expansion, personal extravagance, failure to modernize and poor labor-management relationships. External factors included an energy crisis, raw materials shortage, infrastructure bottlenecks, inadequate credit facilities, technological changes and global market forces.

Widespread industrial sickness affects the economy in a number of ways, such as loss of government revenue, tying up scarce resources in sick units, increasing non-performing assets held by banks and financial institutions, increasing unemployment, loss of production and poor productivity. SICA was implemented to rectify these adverse socio-economic consequences.

An important SICA provision was establishing two quasi-judicial bodies – the Board for Industrial and Financial Reconstruction (BIFR), and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). BIFR was set up as an apex board to spearhead handling the industrial sickness issue, including reviving and rehabilitating potentially sick units and liquidating non-viable companies. AAIFR was set up to hear appeals against BIFR orders.

SICA was repealed and replaced by the Sick Industrial Companies (Special Provisions) Repeal Act of 2003, which diluted some SICA provisions and plugged certain loopholes. A key change in the new act was that apart from combating industrial sickness, it aimed to reduce its growing incidence by ensuring that companies did not resort to a sickness declaration merely to escape legal obligations and gain access to concessions from financial institutions.