What Is the Sick Industrial Companies Act (SICA)?

The Sick Industrial Companies Act of 1985 (SICA) was a key piece of legislation dealing with the issue of rampant industrial sickness in India. The Sick Industrial Companies Act (SICA) was enacted in India to detect unviable ("sick") or potentially sick companies and to help with their revival, if possible, or their closure, if not. This measure was taken to release investment locked up in unviable companies for productive use elsewhere.

Key Takeaways

  • The Sick Industrial Companies Act of 1985 (SICA) was an Indian law enacted to detect unviable ("sick") companies that could pose systematic financial risk.
  • SICA was repealed and replaced in 2003 by the Sick Industrial Companies (Special Provisions) Repeal Act of 2003, which watered down some aspects of the original Act and fixed some problematic factors.
  • SICA was then fully repealed in 2016, in part because some of its provisions overlapped with the provisions of a separate Act, the Companies Act of 2013.

Understanding the Sick Industrial Companies Act (SICA)

The Sick Industrial Companies Act (SICA) was enacted in 1985 to address a chronic problem in the Indian economy: industrial sickness. 

The act 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.

Causes of Industrial Sickness

The Sick Industrial Companies Act (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.

Industrial Sickness and the Economy

Widespread industrial sickness impacts the economy in a number of ways. It can result in 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 socioeconomic consequences.

SICA Legislation and Provisions

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.

Repeal of the Sick Industrial Companies Act

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. 

The repeal of SICA came into full effect on December 1, 2016. It was fully repealed, in part, because some of its provisions overlapped with the Companies Act of 2013. The Companies Act included the creation of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The NCLT can hear cases related to the management of a company, mergers, and rehabilitations of companies, among other issues. Adding to the NCLT's authority is the Insolvency and Bankruptcy Code of 2016, which states that corporate insolvency processes can be initiated before the NCLT.