Sick Industrial Companies Act (SICA)
Categories: Econ
If you go too fast, you might spin out. That’s what happened to some industrial businesses in India in the '80s.
If you didn’t know, India is huge, and has a lot of room to grow their economy upward. Industrial businesses popped up right and left, all ready to take a cut of the economic pie, and contribute even more to the economy.
But sometimes the tortoise beats the hare. Many industrial businesses grew too fast. There was internal mismanagement, overestimation of market demand (with so many entering the market), sloppy project management...lots of problems. And all of these problems created one big problem: sick companies.
A sick company is one that’s at least five years old and has lost its full net worth (or more) by the end of the year. So many of these industrial companies became sick that it was considered an epidemic. Plus, it took its toll on the Indian economy via tied-up resources and low productivity for the economy.
To address this issue, India created the Sick Industrial Companies Act (SICA) in 1985 to tackle these struggling businesses. SICA led to the creation of the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), the right and left hands of SICA.
BIFR was the helpful (but ruthless) bulldozer. BIFR helped sick companies that still had some fight in them, and liquidated the ones that were already too gone to function. AAIFR was for appeals against BIFR actions, in case a sick company wanted to make its case to try to save itself from being bulldozed by BIFR.
SICA was updated in 2003 to close a loophole. Some companies would use SICA to get out of legal obligations...the update said you can’t do that. In 2016, SICA was repealed altogether. The industrial triage center closed, since it was not needed so much anymore.
