New Industrial Policy Scheme for Rehabilitation of Small Scale and Non-BIFR Sick Viable Industries

 

Government of Gujarat Industries and Mines Department

Government Resolution No. SIU-1098-668-CH

Sachivalaya, Gandhinagar

Date : 13th August, 1998.

 

Read: IM&ED Resolution No. SIU-1091/3224-CH dated 20th June 1991

 

 RESOLUTION

PREAMBLE

 

●Industrial sickness causes unemployment, non-payment of State and Central Government dues, blocking of institutional finance and non-utilisation of productive assets. There are various factors that can be identified as being responsible for causing sickness. These can be broadly categorised into internal and external factors. The internal factors include

 

·          Technical causes such as obsolete technology and non-availability of skilled labour,

 

·          Financial causes such as poor resource management, diversion of funds and deficiency of working capital and other funds, and,

 

·          Managerial causes such as lack of entrepreneurship, lack of professionalism and marketing problems. The external factors include

 

• economic causes such as high cost of inputs, uneconomic size of  the project, over estimation of demand and high break even point, and,

 

• socio-political causes such as government controls and its fiscal policies such as taxation and non-payment of subsidies and incentives in time, and, lack of physical and social infrastructure.

 

●Industrial sickness is an inherent part of the process of development. However, concerted efforts are to be initiated by the Govt. and other concerned agencies for timely detection of sickness at its incipient stage. There is need for a body of experts to expeditiously determine the preventive, ameliorative and remedial measures that need to be put into force for the rehabilitation of viable sick industrial units, and, enforce the measures considered appropriate for the rehabilitation. At the same time, it needs to take active measures for expeditious winding up of non-viable sick industrial units.

 

● To facilitate the revival of viable sick industrial units as also the winding-up of non-viable sick units, Government of India have set up a statutory board viz. Board for Industrial and Financial reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. Small Scale Industries do not, however, come under the purview of BIFR. Government of Gujarat had, therefore, introduced a Scheme for rehabilitation of SSI and non-BIFR sick industries vide Government of Gujarat IM&ED Resolution No. SIU-1091/3224-CH dated 20th June 1991. The Scheme has been in operation for nearly seven years.  As the impact of the Scheme in tackling the problem of sickness in the SSI sector was not found satisfactory, the State Government have reviewed the Scheme and decided to modify it suitably for effective rehabilitation of Small Scale and non-BIFR Sick Industries.

 

● In a meeting with the bankers held on 22nd May 98 by Hon. Chief Minister, the issue of revival and rehabilitation of the SSI units was discussed in detail. The bankers unanimously agreed about the imperative need to initiate proactive measures in this direction and assured the State of their total commitment in view the RBI guidelines. Two important decisions that were arrived at in this meeting were:

 

● A State level body would be set up on the lines of BIFR and the bankers agreed to comply with its recommendations regarding financial sacrifices for the rehabilitation of the sick unit.

 

● RBI also expressed its commitment to comply with the recommendations of this state level body for effective revival of non-BIFR viable sick industrial units.

 

Further, the Hon. Minister, Industries held a series of consultative meetings with the members of trade and industry and experts in the field to understand the reasons for sickness and policy that needs to be adopted for addressing these concerns. Accordingly, the State Government has decided to approve the following Scheme in supercession of IM&ED Resolution No. SIU-1091/3224-CH dated 20th June 1991.

 

● Title: This Scheme shall be known as "Scheme for Rehabilitation of Small Scale and non-BIFR Sick Viable Industries".

 

1.Operative Period: This Scheme shall come into operation with effect from the date of issue of this order.

 

2. Applicability of the Scheme: The Scheme shall be applicable only to Small Scale      plant and machinery   exceeds Rs.5 lacs. The Scheme would not be applicable to Small Scale Service/Business Enterprises with investment upto Rs. 5 lacs in fixed assets excluding land and building as defined by the Ministry of Industry, Government of India.

 

  ●Definitions

 

1. Sick Unit: A unit is considered sick when any of its borrowal accounts has become a doubtful advance as defined by Reserve Bank of India i.e. principal or interest in respect of any of its borrowal accounts has remained overdue for a period exceeding two and a half years and  there is an erosion in the net worth due to accumulated cash losses to the extent of 50% or more of its peak net worth in the preceding two accounting years.

 

2. Net Worth: In case of a limited company net worth means the sum total of paid up capital and free reserves. In case of a partnership/proprietary concern net worth means the sum total of  partners'/proprietor's capital and free reserves.

 

3. Free Reserves: Means all reserves created out of profit and share  premium account but does not include reserves created out of revaluation of assets, written back depreciation under malgamation provisions.

 

 

4. Bank: Means any public sector bank, District Co-operative Bank, Urban Co-operative Bank and any other bank which is a scheduled bank in terms of the second Schedule to the Reserve Bank of India Act.

 

5. Financial Institution: Means Industrial Development Bank of India, Industrial Finance orporation of India, Industrial Credit and Investment Corporation of India, Industrial Investment Bank of India, Small Industries Development Bank of India, Gujarat Industrial Development Corporation, Gujarat Industrial Investment Corporation Ltd., Gujarat State Financial Corporation or any other institution which is authorised under any law to advance term loans to industrial units.

 

 

6. Viable Sick Unit: Means a small scale or ancillary unit in the manufacturing sector with Investment in plant and machinery over Rs.5 lacs that would be in a position, after the implementation of rehabilitation package spread over a period not exceeding five years, to repay the restructured loans and interest fully to the banks/financial institutions as well as the dues of the State Govt./Central Govt. and Gujarat Electricity Board/Electricity Company etc. within a period of ten years from the date of implementation of the package.

 

7. Dues Payable: Means amounts outstanding as dues to all statutory authorities like Commissioner of Sales Tax, Collector of Customs and Central Excise, Commissioner of Electricity Duty, Commissioner of Income Tax, Regional Provinent Fund Commissioner, Gujarat Electricity Board or such other authorities which have legal claims to receive payment from the unit.

 

 

8. GITCO: Means Gujarat Industrial and Technical Consultancy Organisation Ltd.

 

9. State Government: Means Government of Gujarat.

 

 

10. Special Cell: Means a cell specially created by the Industries Commissioner for purpose of operation of this Scheme.

 

11. Urban Land Ceiling Act: Means the Urban Land (Ceiling and Regulation) Act, 1976 (Act No. 33 of 1976) enacted by the Government of India as amended from time to time.

 

 

12. Gujarat Board for Industrial and Financial Reconstruction (GBIFR): Means the board appointed by the State Government for the implementation of this scheme.

 

13. Eligible Assets: Means the assets created during the period of two years from the date of sanction of the rehabilitation package subject to limit of additional investment as approved by GBIFR for rehabilitation of the sick unit. No assets acquired, created and/or paid for after the period as mentioned above shall be considered eligible.

 

 

14. Eligible Fixed Capital Investment:  Means investment in:

 

1. Land: The actual price paid for the land to the extent needed for the industrial unit excluding land development charges but including expansion and modernisation within the period of and as part of the project for rehabilitation.

 

2. New Building: Means additional building constructed to accommodate additional machinery acquired for the purpose of balancing, expansion and modernisation within the period of and as part of the project for rehabilitation.

 

 

3. Other Construction: Means other civil work required for installing plant and machinery or required for effluent treatment plant.

 

4. Plant and Machinery: Means new plant and machinery and imported second hand machinery and installation expenditure capitalised for plant and machinery, capital interest during construction cost not exceeding 5% of the total fixed capital investment.

 

 

5. Technical Know-how Fee: Technical know-how fees or drawing fees paid in lump sum to foreign suppliers as approved by Govt. of India in accordance with the policy in force from time to time or paid to laboratories recognised by the State Govt. or Central Govt.

 

 

6. The amount spent on rationalisation and other dues of workers.

 

7. Amount spent on plant for pollution control measures including facility for collection and treatment of effluents and hazardous wastes.

                                                                                                          

 

8. Amount spent on captive power generating sets for the connected load including the connected load for original plant.

 

9. Assets acquired under DPG scheme, Hire Purchase Scheme or Instalment System would be considered eligible excluding the cost of interest subject to condition that the industrial unit gives a specific legal undertaking that within the eligibility period the unit shall not return the said assets to the organisation from whom it was acquired, failing which the amount of subsidy and sales tax deferment amount becomes refundable and recoverable with penal interest at 24% p.a. within one month from the date of discontinuation of agreement under DPG, Hire Purchase Scheme or Instalment System.

 

 

10. Items specifically excluded: Working capital (whether raised through Bank or otherwise and including working capital margin), goodwill fees, engineering fees, commissioning fees, commissioning expenses, royalties (capitalised or otherwise), pre-operative expenses, expenditure on trucks, cars, vans, trailers, tractors and transport vehicles and catalysts will not be considered as eligible fixed investment for the purpose of this Scheme.  Plant and machinery used or installed anywhere in India and shifted, purchased, leased, hired, licensed or transferred in any manner will not be considered as fixed capital investment eligible for these incentives.

 

 

   ● Reliefs and Concessions

 

The State Government has accepted in principle that the parameters applicable to medium and large-scale units for the purpose of BIFR would also apply to small-scale or ancillary sick industrial units while formulating rehabilitation package. Accordingly, the following reliefs and concessions are being made available.

 

 

• Non-Fiscal

 

1. Relaxation from power cuts vide Govt. Notification: E&PD No. GHH/ 92 /ELC/ 1492/ 494(1)/K1 dated 16-10-1992.
2. Grant of permission to mortgage surplus land that has been exempted under Sec. 20 of Urban Land Ceiling Act in favour of banks/financial institutions.
3. State Government shall not insist upon bank guarantees against arrears due to it.
4. Labour Department would take proactive action for amicable settlement of disputes between management and representatives of labour so as to ensure success of the rehabilitation package with the co-operation of the workers.

 

• Fiscal Concessions
• Eligible units under the Scheme will be entitled to the following reliefs and concessions from various Departments/agencies of the State Govt.
• Reliefs in Payment of Sales Tax

 

Deferment of Arrears: Arrears of payment of purchase tax, sales tax and interest towards non-payment of sales tax, shall be deferred for two years from the date of grant of revival package. The amount so deferred will be recovered in four equal half-yearly instalments and will carry interest at 12% p.a. from the date of deferment till the date of final payment of the deferred amount.

 

Sales Tax Deferment: Recovery of sales tax collected by the unit on sale of goods manufactured by it including intermediate products, by-products and scrap generated as incidental to manufacturing

 

activities shall be deferred for a period of two years from the date of sanction of the rehabilitation package.

 

This relief/concession may be extended after a review for a further period of two years and for one more year after another review by the GBIFR. The amount so deferred will be recovered in six to ten equal half-yearly instalments beginning from the financial year subsequent to the year in which the relevant period expires.

 

This is in line with the guidelines of BIFR for rehabilitation of sick industrial companies under SICA.

 

The deferred amount will attract interest at 12% if repaid as per the above schedule. However, in case of default, interest at 24% p.a. will be charged. In order to obviate the adverse effects of Section 43-B of the Income Tax Act, (whereby the deferred amount of sales tax is included in the taxable income of the respective unit), the units which are granted deferment of Sales Tax dues shall be eligible for interest free deemed loan in lieu of sales tax deferment, through GIIC or GSFC on the same lines as indicated in Industries & Mines Department G.R. No.INC-1087-143-I dated the 21st March, 1988 as amended from time to time.

 

 

● Reliefs from the Energy Department

 

Electricity duty payable by the unit in respect of energy consumed will be deferred for a period of two years from the date of sanction of the rehabilitation package. This relief/concession may be extended after a review for a further period of two years and for one more year after another review by the GBIFR. The amount so deferred will be recovered in six to ten equal half-yearly instalments beginning from the financial year subsequent to the year in which the relevant period of two years

expires. The deferred amount will not attract interest if repaid as per the above schedule. However in case of default, interest at 24 % p.a. will be charged.

                                                                 

 

● Reliefs from G.E.B./Electricity Company

 

1. An eligible unit under the scheme would be granted the following  reliefs by GEB/Electricity Company.

 

2. Minimum charges would be exempted during the closure period. However, there shall not be any refund of minimum charge if the  unit has already paid it.

 

3. In cases where power has been disconnected due to non-payment of bills or the agreement being terminated ex-parte, no fresh security deposit would be insisted upon.

 

 

● Continuation of Incentives sanctioned earlier

 

A unit which has been closed due to sickness during the pendency of the Incentive Scheme of the State Government normally faces recovery of the incentives enjoyed by it. However the GBIFR may waive the recovery and consider rehabilitation package under this Scheme provided the unit resumes production for at least 5 years and the remaining period of incentives under the Incentive Scheme is built into the rehabilitation package with or without modification.

 

 

● Additional Concessions

 

In addition to the above fiscal concessions, the GBIFR may recommend to the concerned authorities for granting of following additional concessions.

 

1. Deferment of arrears of water charges either by Irrigation Department or Gujarat Water Supply and Sewerage Board. However, the current dues are required to be paid in time as a part of the rehabilitation package.

2. Reduction of interest on delayed payment by Gujarat Electricity Board/Electricity Company to 12% and waiver of extra service charges for reconnection of power supply.