The Centre approved a Rs 111.59 crore financial assistance to Bharat Pumps & Compressors, Allahabad, as non-plan loan.
The Cabinet Committee on Economic Affairs (CCEA) cleared the proposal of the Department of Heavy Industry.
CCEA also accorded an "in principle" approval for strategic disinvestment of the company.
It said the financial assistance will be used to clear statutory dues like Provident Fund and Gratuity of retired employees.
"The statutory dues such as Provident Fund and Gratuity of retired employees will be discharged and the outstanding dues of CISF (Central Industrial Security Force) will be cleared," the statement said.
"It will motivate the employees and improve the performance of the company. This will put an end to further legal complications and penal action against the company."