1. On the determination of a company as a sick company by the Tribunal under section 253, any secured creditor of that company or the company may make an application to the Tribunal for the determination of the measures that may be adopted with respect to the revival and rehabilitation of such company:
Provided that: in case any reference had been made before the Tribunal and a scheme for revival and rehabilitation submitted, such reference shall abate if the secured creditors representing three-fourths in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub-section (4 ) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002:
Provided further that: no reference shall be made under this section if the secured creditors representing three-fourths in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub-section (4 ) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002:
Provided also that where the financial assets of the sick company had been acquired by any securitisation company or reconstruction company under sub-section (1 ) of section 5 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, no such application shall be made without the consent of securitization company or reconstruction company which has acquired such assets.
2. An application under sub-section (1 ) shall be accompanied by—
a. audited financial statements of the company relating to the immediately preceding financial year;
b. such particulars and documents, duly authenticated in such manner, along with such fees as may be prescribed; and
c. a draft scheme of revival and rehabilitation of the company in such manner as may be prescribed:
Provided that: where the sick company has no draft scheme of revival and rehabilitation to offer, it shall file a declaration to that effect along with the application.
3. An application under sub-section (1 ) shall be made to the Tribunal within a period of sixty days from the date of determination of the company as a sick company by the Tribunal under section 253.
Legal Commentary & Landmark Judgments: Section 254
Section 254 historically regulated the filing of applications for revival and rehabilitation of sick companies before the NCLT; omitted by the Insolvency and Bankruptcy Code, 2016, its revival framework has been superseded by the Corporate Insolvency Resolution Process under IBC.
In corporate restructuring practice, distressed debtors can no longer apply for rehabilitation under Section 254. Counsel should advise boards to file Form 6 under Section 10 of the IBC, backed by a special resolution of shareholders and complete books of account demonstrating default.