New Guideline issued on Revival of Sick PSUs
Guidelines for Streamlining the mechanism for revival and restructuring of
sick/ incipient sick and weak Central Public Sector Enterprises: General
principles and mechanism of restructuring”
These guidelines are laid down for streamlining the mechanism for
restructuring / revival or closure of sick or incipient sick CPSEs and replace the
multiple process options available for the same purpose.
2. Multiple mechanisms for restructuring / revival of sick and incipient sick
CPSEs exist. Sick industrial companies as defined in Sick Industrial Companies Act
1985 are referred to Board for Industrial Financial Reconstruction (BIFR), which
suggest a restructuring plan and seek sacrifices & commitments from promoters and
stake holders. Board for Reconstruction of Public Sector Enterprises (BRPSE) has
been created to advise the government through the resolution No.16(25)2004-Fin.
dated 6th December, 2004 to consider the restructuring or revival plan of CPSEs
prepared by a CPSE itself under the guidance of its administrative ministry. The
administrative ministry may, in the public interest, prepare a revival or restructuring
plan for a CPSE which may involve comprehensive restructuring, disinvestment,
closure etc of the sick and incipient sick CPSE and take it directly to the competent
authority for appropriate decision.
3. Primary responsibility for supervision of a CPSE for its efficient functioning lies
in the administrative ministry and final view for restructuring and revival of sick and
incipient sick CPSEs or taking appropriate measures for CPSEs showing early
indications of weakness has to be taken by them with approval of the competent
authority after inter - ministerial consultation and concurrence of the Ministry of
Finance through PIB/ EFC mechanism as may be required. It is in the public interest
to make this process, time bound, comprehensive, performance driven and efficient
so that such decisions are taken and implemented in a time bound manner to
minimise further losses. Hence there is a need to lay down broad principles and
guidelines to be followed in such cases.
4.1 The Companies Act, 2013 Chapter XIX refers to Revival and Rehabilitation of
Sick Companies and Chapter XX to Winding up of the Companies. The decision
whether a company has become a sick company would be taken by the Tribunal
(National Company Law Tribunal). The Administrative Ministries/ Departments have
to keep a track of the debts of CPSEs and take advance action to avoid a situation
where the CPSEs may be considered fit to be declared sick entity as per provisions
of the Companies Act, 2013.
4.2 The administrative ministry shall, at the end of the each financial year, analyse
the performance of its CPSEs to classify them by a specific order in the following
categories within 6 months of the closure of the financial year or within one month
from finalisation of Annual Accounts, whichever is earlier.
4.2.1 Sick CPSEs: A CPSE shall be considered sick if it meets one of the following
a. If it is declared sick as per the provisions of the Companies Act, 2013.
b. If its net worth is negative.
4.2.2 Incipient sick CPSEs: A CPSE would be considered incipient sick if it meets
one of the following criteria:
a. If its net worth is less than 50% of its paid-up capital in any financial year.
b. If it had incurred losses consecutively for three years.
4.2.3 Weak CPSEs: A CPSE would be considered weak or sub optimally
performing if it meets one of the following criteria:
a. If its turnover or its operational profit has declined by more than an average of
10% in the last 3 years.
b. If its profit before tax is less than income from the other sources.
c. If its trade receivable and inventories are more than 50% of net worth of the
d. If the claims against the company, not acknowledged as debts, are more than
its net worth.
e. Any other criteria as may be prescribed to quantify early signs of weakness in
the performance of the CPSEs by the government.
4.3 In all the reference to Net worth, it would have the same meaning as defined
under Section 2 (57) of the Companies Act, 2013.
4.4 The administrative ministry will take the following action:
(a) The administrative ministry will put weak CPSEs under “observation and
intensive review” to arrest the early signs of weakness in such CPSEs. It may
include nomination of independent expert members on the board, quarterly intensive
review or special reviews for taking corrective business, operational and financial
measures at the board level, fixing the responsibility for declining performance or
non-performance or any other corrective step as may be appropriate and necessary
by the administrative ministry or department.
(b) The administrative ministry shall initiate the process for preparation of
restructuring/ revival plan, which may include disinvestment or privatisation or
closure options, for sick/ incipient sick CPSEs based on the classification as given
above within 6 months from the closure of the financial year or within one month
from finalisation of Annual Accounts, whichever is earlier.
(c) Restructuring and revival plan for the sick and incipient sick CPSEs shall be
prepared within nine months of the closure of the financial year.
(d) External expert agency which has experience and expertise of the business
environment, operational issues, technology option and financial viability of the
sector in which such CPSE is functioning may be engaged by the government and
shall function under the supervision of the administrative ministry for preparation of
the future road map.
4.5 Restructuring and revival plan with the help of the agency and other experts, as
may be required, shall be prepared by the administrative ministry/department and
shall specifically include:
4.5.1 Perspective of Relevance and Functioning:
a) Background and purpose of the formation of the CPSE.
b) Economic and regulatory environment along with their impact on the growth of
c) Liberalisation and its impact on its business operation
d) Ability of the CPSE in adapting new business strategies, technology to regain
and sustain its economic viability.
e) Efforts and special interventions made for its revival or avert early sickness
and its impact on the health of the CPSE.
4.5.2 Strategic Plan for Restructuring/Revival:
(a) The concerned administrative ministry/department should clearly bring out the
national and strategic interest served by the CPSEs in the light of the sectoral
business environment, domestic as well as global.
(b) Prevailing market need to be analysed for supply of goods or services through
other providers in the private sector, domestic or from other countries, to bring
out if there is a specific role of the CPSE in this segment to serve the national
strategic or defence interests.
(c) Keeping the business environment other relevant facts in mind, a CPSE may
be categorised as a high priority or priority CPSE to meet the strategic
interest of the country. For this purpose, a report of the 14th Finance
Commission may also be referred to.
(d) All other sick CPSEs which are not required to serve the strategic national/
defence interests should be categorised as non priority CPSEs.
4.5.3 Business Plan for Restructuring/ Revival Plan:
A. High Priority or Priority CPSE.
a) For high priority CPSEs, the business plan has to be made keeping in
mind the strategic national interest and economically viable business
b) For strategic business model, requirement for Government policy
convergence should be clearly spelt out to meet the economic viability
of such enterprises. Also, viability gap funding, if required for such
strategic operations have to be brought out.
c) For high priority sector, the business plan may be drawn seeking
specific financial and non financial support from the Government. It
may include strategic disinvestments or joint ventures etc.
B. Non-priority CPSE.
a) For CPSEs in the non-priority category, the business plan is to be
made on business and economic viability model to attain self
sufficiency in short or medium term.
b) Business plan should be based on performance efficiency bench
marks, viable scale of economic operation and road map for
technology adoption/ upgradation to support business strategy for
viability and sustainability over period of time.
c) Business reorganisation through merger, demerger or closure of
various business activities.
d) It should support desirable market share to be sustainable in the
medium and long term.
e) All the presumptions underlying the business plan with respect to their
business environment, economic viability and mechanism of funding
should be market validated and credibly established.
4.5.4 Operational Restructuring:
a) Keeping in mind the business plan, the required human resource needs are to be
assessed and rationalised.
b) It may be seen whether sectoral efficiency benchmarks as are existing globally/
domestically can be achieved by the CPSE in short or medium term through
implementation of this plan in shortest period of time.
c) Options for adopting requisite technology and up-gradation of the same as per
requirement through various management options including JV, disinvestment or
privatisation to be factored into the operational restructuring plan.
d) The options of merger or de-merger of various operations in line with the
proposed business plan to ensure continuous procurement of new technology
and its up-gradation.
4.5.5 Financial Restructuring Plan:
a) For high priority and priority CPSEs, a comprehensive financial restructuring plan
should be drawn comprising various methods of financing with minimum and
unavoidable viability gap funding in the strategic national/defence interest.
Limited private investment through disinvestment within permissible limits may
also be considered under financial plan.
b) In case of other (non priority) CPSEs financing plan should be based on
economic viability of operations. Various options of leveraging private and/or
institutional funding may be explored.
c) Details of projected profitability/cash flow for the next five years. These
presumptions should be pragmatic and market validated.
4.6 Mechanism and Methodology to be followed for restructuring/
revival/closing of sick CPSEs
(a) The concerned administrative ministry/ department would classify the CPSE as
sick CPSE, incipient sick or with early indications of weakness as per para 4.2
above. The concerned Administrative Ministry/ Department will also inform DPE
about the status of CPSE accordingly.
(b) The concerned administrative ministry/ department will be responsible for
formulating revival/ restructuring/ closure road map for sick CPSEs as per the
principles outlined above. This would be done within three months from the issue of
these guidelines in case of existing sick CPSEs and within nine months from the end
of the financial year for a CPSE becoming sick subsequently.
(c) Administrative Ministry/ Department may engage credible expert organisation for
drawing of business, operational and financial restructuring plans. Such expert entity,
if appointed, should function under the direct control of administrative ministry/
department so as to draw a professionally credible, implementable and realistic
restructuring plan. Suitable mechanism for market validation should be incorporated
during the Request for Proposal (RFP) stage of engagement of expert(s)/ expert
organisation(s) and the market validation should be cross checked and confirmed by
the administrative ministry/department as well.
(d) Implementation plan with specified time line for various stages should be
objective, quantifiable and supported with the monitoring mechanism.