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When the doctor is sick...

THERE IS SOME irony in that a specialist body set up to decide the fate of sick corporate entities should itself face the prospect of being wound up. That is the predicament confronting the Board for Industrial and Financial Reconstruction (BIFR), the ag ency set up to adjudicate on corporate sickness.

The Group of Ministers headed by the Finance Minister, Mr Yashwant Sinha, has resolved to go ahead with the repeal of the Sick Industrial Companies (Special Provisions) Act and with it the authority of the BIFR constituted under it. The decision is hardl y surprising. It is in line with the recommendation of the Eradi Committee which went into the legal framework of liquidation of companies including those that come up before the BIFR.

For quite some time now, the BIFR has been criticised by creditors, labour and even promoters for its inordinate delay in deciding on the viability or otherwise of companies referred to it. The pendency of cases has shown no signs of stabilising, much le ss coming down, the problem being compounded by difficulties inherent in the very nature of its mandate. The BIFR is required to ensure that `it is just and equitable' before ruling that a company referred to it be wound up. Quite apart from the intrinsi cally judicial nature of the decision, the BIFR has to pass the litmus test in having to ensure that the interests of the company's employees and the financial institutions (FIs) are safeguarded. Add to this the diffidence of FIs to grant concessions to ailing units lest they be hauled up before vigilance agencies. In short, the situation is tailor-made for delays. The BIFR must necessarily walk the tightrope against such odds as any summary judgement about unviability might dilute the `equity' standard s that it is mandated to employ.

However, if the instrument is seen as a failure, which it undoubtedly has been, the problem lies not in the mechanics of the BIFR's functioning but in the balancing of the inherently conflicting nature of class interests _ creditors versus workers or pro moters versus creditors. It is in this context that a question must be raised: whether the alternative prescription before the Government is going to be any better. The Government appears to favour the creation of a national tribunal on the lines of the Eradi Committee's recommendation. The committee has proposed that the tribunal would take over not only the functions of the relevant High Courts entrusted with the task of overseeing liquidation of companies under law, but also the revival/rehabilitatio n of sick and potentially sick companies. But, as there is no significant change in the objectives of revival/rehabilitation of sick units or in the procedural aspects of review, it is not clear how the tribunal marks an improvement over the BIFR.

It would be difficult for the Government to enforce the norms of liquidation applicable to developed countries with all their social security safety nets. Within the constraint of protecting the interests of labour, the Government can do two things. Wher e an enterprise is inherently viable but suffers from mismanagement, a stipulation allowing for conversion of loan into equity should trigger a market for corporate control involving rival promoters. Where an enterprise does not attract rival promoter bi ds, the message should be clear: the enterprise is unviable. That is after all a manifestation of the principle that the market is the best judge of the viability of an enterprise.