Revival of the Company under Companies Act, 2013: A Second Chance at Survival

In the dynamic business environment of India, companies often face challenges that can jeopardize their financial stability and operational viability. However, not all is lost when a company finds itself in distress. The Companies Act, 2013 offers a structured and lawful route for the revival and rehabilitation of sick companies, ensuring they get a second chance to recover and thrive.

What Does ‘Revival of a Company’ Mean?

Revival of a company refers to the legal process of bringing a financially distressed or non-operational company back to life. This could include measures like restructuring debts, changing management, infusing capital, or merging with another healthy entity.

Key Provisions under Companies Act, 2013

The concept of revival is primarily addressed in Chapter XIX (Sections 253 to 269) of the Companies Act, 2013, which deals with the Revival and Rehabilitation of Sick Companies. Although the Insolvency and Bankruptcy Code, 2016 has now overtaken many provisions, the foundational structure remains vital for understanding corporate rescue frameworks.

1. Definition of Sick Company (Section 253)

A company is considered sick if:

It has failed to repay debts (secured or unsecured) within the specified period; and

It is unable to pay its debts and has accumulated losses equal to or more than its entire net worth.

2. Application to Tribunal (NCLT)

An application for revival can be made to the National Company Law Tribunal (NCLT) by:

The company itself

Any secured creditor

The registrar

The central or state government (in special cases)

3. Drafting a Revival and Rehabilitation Scheme (Section 261)

Once the NCLT admits the application, it may direct the preparation of a revival scheme. This plan could involve:

Change in or takeover of management

Amalgamation with another company

Sale or lease of assets

Financial restructuring (including debt rescheduling)

Any other measure for recovery

4. Sanctioning the Scheme

The revival plan must be approved by:

Secured creditors holding three-fourths in value of the total debt

Unsecured creditors holding one-fourth in value

After this, the scheme is sanctioned by the NCLT and becomes binding on all stakeholders.

5. Failure of Revival Plan

If revival is not feasible, the NCLT may order the winding up of the company under Section 271.

Transition to Insolvency and Bankruptcy Code (IBC), 2016

With the enactment of the Insolvency and Bankruptcy Code (IBC), 2016, many of the revival mechanisms under the Companies Act, 2013 have been subsumed under the new code. The IBC offers a time-bound and creditor-driven resolution process, making it more efficient and comprehensive for corporate rescue.

However, the revival provisions of the Companies Act still serve as a foundational understanding and can apply in specific non-IBC cases or for companies not covered under IBC.