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Revival and Rehabilitation of Sick Companies

Chapter XIX of the Companies Act, 2013 throws light on the revival and rehabilitation of sick companies. It exclusively covers the provisions for the determination of sickness, application for revival and rehabilitation, appointment of interim administrator, committee of creditors, appointment of administrator, powers and duties of company administrator, scheme for revival and rehabilitation, sanction of scheme, implementation of scheme, winding up of company on the report of certain administrators, punishment for certain offences, assessment of damages against delinquent directors, etc[1]. This article deals with the certain provisions related to revival and rehabilitation of the sick companies.

Determination of Sickness

The determination of the sickness of a company has been discussed under Section 253 of the Companies Act, 2013. According to it when any secured creditor of a company who represents 50% or more of outstanding amount of debt, the company has failed to pay the debt within a period of thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor shall file an application to the tribunal in the manner prescribed along with the references of all such evidence for such default, non-payment, etc.[2]

After receiving the application from the secured creditor, the tribunal shall decide within a time period of sixty days on to the merit of the application that regarding the company being sick or not.

On satisfaction of the Tribunal that a company has become a sick company, and it is in a position to repay its debts, within a reasonable time, it shall order the company to repay its debts. The tribunal shall give a reasonable time to the company to make payment of its debts.[3]

Application for revival and rehabilitation

Section 254 of the Companies Act, 2013 deals with the application for revival and rehabilitation and according to it, any company that has been determined as sick company under section 253 of the Act is allowed to make an application to the tribunal to order for necessary steps to be taken for its revival and rehabilitation and the application shall be accompanied by-

1. Audited financial statements of the company relating to the immediately preceding financial year;

2. Such particulars and documents, duly authenticated in such manner, along with such fees as may be prescribed.

3. A draft scheme for revival and rehabilitation of the company in such manner as may be prescribed.

The application has to be made to the tribunal within sixty days from the date on which the company has been considered sick by the tribunal under section 253 of the Companies Act, 2013.

Pazaniappa Chettiar v. South Indian Planting and Industrial Co Ltd,(1953), it was held that even after the company is been considered as sick by the tribunal, the rights and liabilities will remain the same. As if there has been no interruption in the life of the company.[4]

Appointment of Interim Administrator

Section 256 of the Act says that after an application is made under section 254 of the Act, the Tribunal shall fix a date of hearing and it shall also provide appointment to an interim administrator who shall within 45 days of his appointment fix a meeting with the creditors of the company. He shall prepare a draft scheme for revival and present it before the tribunal within sixty days from the meeting.

Where no draft scheme has been provided the tribunal shall direct the interim administrator to take over the management of the business and where an interim administrator is directed to take over the management of the company, it is the duty of the director and the management of the company to provide full assistance and cooperation to the interim administrator.

Committee of Creditors

According to section 257, a committee of creditors shall be appointed by an Interim Administrator and there shall be such number of creditors as he may determine. However, it shall not exceed seven and these members shall meet in all the meetings and the interim administrator may order all the promoters, directors, key managerial personnel of the company to come in any meeting and furnish any information which is required and necessary.

Order of tribunal

On the date of hearing which is fixed by the tribunal, if the resolution is passed by the three-fourth members of the company which says it is impossible to revive and rehabilitate the sick company or by adoption of such measures the sick company shall be revived and rehabilitated, the tribunal shall pass such orders. If it is considered necessary it may appoint a company administrator who shall discharge his functions as enumerated in the Act.

Scheme of Revival and Rehabilitation

The company administrator shall prepare a scheme for revival and rehabilitation as per the provision of section 261 and it has to following measures –

1. Financial reconstruction of the sick company

2. Proper management of the sick company

3. Amalgamation of the sick company with other company or other company with the sick company

4. Takeover of the sick company by solvent company

5. Sale or lease of a part of any assets

6. Rationalization of managerial personnel

Any such other preventive measure as may be necessary .The scheme shall be sanctioned according to section 262 of the Act. It shall be binding on the party and shall be implemented by the tribunal by taking all necessary steps.

Winding up of Company on the report of Company Ddministrator

According to the provisions of the section 263 of the Act, the company shall be wound up if the creditors do not approve the scheme. The administrator has to submit the report within fifteen days and the tribunal shall order for the winding up of the company.

Rehabilitation and Insolvency Fund

Section 269 says that a fund shall be formed under section 269 which shall be called as the Rehabilitation and Insolvency Fund. It shall be used for the revival, rehabilitation, and liquidation of the sick companies.


Different measures are taken by the Act to revive and rehabilitate of the sick companies and tribunal are given immense powers to administer the proceedings to of reviving and rehabilitation of sick companies. While it also provides an opportunity for creditors to get involved in the schemes that has to be submitted to the tribunal .


[1] [2] Section 253, The Companies Act, 2013 [3] [4] Avtar Singh, Company Law (2018), page no. 644

Submitted by:

Soumya Ranjan Barwa & Anwesa Mohanty

(Images used for representative purpose only)


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