The Centre of Indian Trade Unions is wrong in terming the Centre’s decision to dissolve the Board of Industrial Finance and Reconstruction as destructive. The trade union, affiliated to the CPI(M), has based its criticism on an under-informed understanding of the effectiveness of BIFR to turn around ailing companies and preserve jobs. The truth is the BIFR, its appellate tribunal, and the Sick Industrial Companies (Special Provisions) Act 1985, the law under which they operate, have failed miserably in carrying out their mandate. Proceedings before the BIFR benches took inordinately long because managements succeeded in using delaying and blocking tactics. Even where orders for revival and rehabilitation were pronounced, implementation was poor — on an average, revival and rehabilitation of sick industrial unit took 5-7 years after BIFR proceedings, and several years more to go through the appeals process. In many instances, while proceedings were on, managements were known to strip the company of useful and valuable assets and siphoning out funds, hastening the final collapse. As a result, there was usually very little of value left that was useful for restructuring and nursing the company back to health.

A major concern of CITU is job losses in these ailing companies when they are referred to the National Company Law Tribunal (NCLT) or the Insolvency and Bankruptcy Board of India (IBBI) because they may inevitably face closure. The trade union claims these companies became sick mostly due to faulty policies of the Government as well as deliberate non-enforcement of statutory regulatory mechanisms. While it is true many ailing companies may remain operative for many years and thus keep some jobs going, it is also true that sick companies make very inefficient use of resources, including human resources. Restructuring would often help in putting these resources to better use. However, CITU must understand that industrial units become sick for a variety of reasons — change in government policies is only one. Other causes include a change in demand caused by the introduction of better products, the changing tastes of consumers, the inability of the company to keep costs down and adapt to changes in the market, as well as product safety concerns and regulations. CITU should understand that the interest of workers is better served where failed businesses are allowed to die and their resources reinvested in a new venture.

Now that SICA has been repealed and both the BIFR and the Appellate Authority for Industrial and Financial Reconstruction have been dissolved, the onus is on the Centre, the NCLT, the IBBI as well as companies to ensure that the new framework delivers on rescuing ailing companies effectively and quickly in the best interest of all stakeholders, including workers. The Companies Act 2013 and the Insolvency and Bankruptcy Code of 2016 provide a new framework to rescue ailing businesses and protect the interests of affected workers. All businesses will not succeed, and it is only prudent that those that fail are closed and their assets and other resources reassigned to more effective ends.

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