Trade unions seek separate mechanism to deal with sick PSUs
Representatives of all the central trade unions (CTUs) will be meeting Prime Minister I K Gujral shortly to urge him to completely redraft the Sick Industrial Companies (special provision) Act (Sica) Bill which is expected to be introduced during the current session of Parliament.
The CTUs have also sought inclusion of a separate mechanism for public sector undertakings to deal with sickness under the Act. They also plan to seek the help of members of Parliament to stall the Bill from being introduced in Parliament.
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The Bill is currently before the standing committee of Parliament.
The decision to oppose the Bill was taken at a meeting of the CTUs at a meeting on July 27. According to All India Trade Union Congress (AITUC) general secretary T Mahendra, the revised Bill would facilitate an easy exit policy.
The CTU representatives plan to discuss the following points with the Prime Minister:
As per the Bill, the definition of the sick industrial company is based on debt default instead of erosion of net worth. According to the CTUs, such a change is an attempt to protect the interests of the secured creditors including financial institutions and banks instead of workers.
As there is a possibility that even profitable companies can default on debt repayment, healthy companies could end up under the sick company category. There could be other ways of funding the losses such as diversion of long term funds for short term purposes, raising further loans, running down of current assets and disposal of fixed assets.
Sickness itself may be on account of a number of factors such as the uneconomic size of the plant, mismanagement and misuse of funds, old and obsolete plant and machinery, outdated technology, lack of infrastructure facilities, demand constraints etc. Therefore, the new interpretation can make one lose sight of the real factors which might have caused sickness in an industrial undertaking.
The companies which are genuinely sick may not be sick as per the new definition, if they have not taken loans from financial institutions and banks due to their operation on job-work basis or procurement of raw material.
The definition of sick industrial company in clause 3(p) of the Bill is founded on the very limited and unrealistic concept of debt default or irregularity in cash credit for specified period. Under Section 12 of the Bill on the erosion of 50 per cent of the net worth, the board of directors of the company, within 60 days from the date of finalisation of the audited balance sheet, will make a reference to the board for determination of the measures which shall be adopted with respect to the company. There are, thus, voluntary and obligatory references with different conditions.
The new Bill instead of ensuring early revival, will ensure early detection for early closure.
Under Section (16), the Bureau of Industrial and Financial Reconstruction (BIFR) is allowed to mediate and attempt to formulate a viable restructuring scheme and under Section (17), the secured creditors of the sick company will be allowed to formulate a viable restructuring scheme. This does not allow any role for the workers or unions, and instead protects secured creditors.
Under Section (20) of the Bill, other things being equal, professional management or cooperative society formed by the employees of the sick industrial company shall be preferred. This clause equates workers cooperatives with the companies which have made the industry sick. This will deny certain concessions usually accorded to the workers co-operatives.
Corresponding to Section (26) of the Sica, clause 32 of the Bill provides for bar on civil courts with respect to matters which the board is empowered to determine. Hence, under this Bill, AAFIR stands abolished.