State Financial Corporation Act, 1951

with

State Financial Corporations (Amendment) Act, 2000



Section 1. Short title, extent and commencement

No. LXIII OF 1951

[31st October, 1951]

An Act to provide for the establishment of State Financial Corporations.

BE it enacted by Parliament as follows:-

(1) This Act may be called the State Financial Corporations Act, 1951.

(2) It extends to the whole of India except the State of Jammu and Kashmir.

(3) It shall come into force in any State on such date as the Central Government may, by notification in the Official Gazette, appoint.

Section 2. Definitions

In this Act, unless the context otherwise requires,–

(a) “Board” means the Board of directors of the Financial Corporation

(b) “Financial Corporation” means the Financial Corporation established for the State under section 3;

(c) “Industrial concern” means any concern engaged in the manufacture, preservation or processing of goods or in mining or in the generation or distribution of electricity or any other form of power;

(d) “Prescribed” means prescribed by rules or regulations made under this Act;

(e) “Reserve Bank” means the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934 (II of 1934);

(f) “Schedule bank” means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934 (II of 1934);

(g) “Underwriting” means contract, with or without conditions, to subscribe for stocks, shares, bonds, or debentures of an industrial concern with a view to the resale of the whole or any part thereof.

Section 3. Establishment of State Financial Corporations

(1) The State Government may, by notification in the Official Gazette, establish a Financial Corporation for the State under such name as may be specified in the notification.

(2) The Financial Corporation shall be a body corporate by the name notification under sub-section (1), having perpetual succession and a common seal, with power, subject to the provisions of this Act, to acquire and to hold property and stall, by the said name sue and be sued.

Section 4. Share capital and shareholders

(1) The authorised capital of the Financial Corporation shall be such sum as may be fixed by the State Government in this behalf, but it shall in no case be less than fifty lakhs of rupees exceed five crores of rupees.

(2) The authorised capital shall be divided into such number of fully paid up shares as the state Government may determine and shall be issued to the parties mentioned in sub-section (3) at such times and in such manner as that Government may determine and each such share shall have the same face value.

(3) The State Government shall, with the approval of the Central Government, determine the number of shares which may, respectively, be distributed among—

(a) The State Government,

(b) The Reserve Bank,

(c) Scheduled banks, insurance companies, investment trusts co-operative banks or other financial institutions, and

(d) Parties other than those referred to in clauses (a), (b) and (c):

Provided that the number of shares which may be allocated to the parties referred to in clause (d) shall in no case exceed twenty-five per cent of the total number of shares.

(4) Subject to the other provisions contained in this section, the allocation of shares among the parties referred to in clauses (c) and (d) of sub-section (3) and the allotment of such shares shall be made by the Financial corporation in such manner as may be prescribed.

(5) If any shares allocated to any of the parties referred to in clauses (c) and (d) of sub-section (3) remain unsubscribed, they shall be subscribed for by the State Government, but the State Government may at any time thereafter dispose of the shares so subscribed for to any party who was eligible to subscribe for it in the first instance.

Section 5. Restrictions on transfer of shares

(1) The shares of the Financial corporation shall not be transferable except to the State Government the Reserve Bank or any other financial institution recognised in this behalf by the State Government.

Provided that the shares subscribed for by the parties referred to in clause (d) of sub-section (3) of section 4 shall be freely transferable.

(2) Nothing contained in this section shall affect the provisions of sub-section (5) of section 4.

Section 6. Shares to be guaranteed by the State Government and to be trust or approved securities

(1) The shares of the Financial Corporation shall be guaranteed by the State Government as to the repayment of principal and the payment of annual dividend at such minimum rate as the State Government may with the approval of the Central Government fix by notification published in the Official Gazette at the time of issuing the shares.

(2) Notwithstanding anything contained in the Acts hereinafter mentioned in this sub-section, the shares of the Corporation shall be deemed to be included among the securities enumerated in section 20 of the Indian Trusts Act, 1882 (II of 1882) and also to be approved securities for the purposes of the Insurance Act, 1938) (IV of 1938) and the Banking Companies Act, 1940 (X of 1949).

Section 7. Additional capital of the Financial Corporation

(1) The Financial Corporation may, in consultation with the Reserve Bank, issue and sell bonds and debentures carrying interest for the purpose of increasing its working capital

Provided that the total amount of the bonds and debentures issued and outstanding and of the contingent liabilities of the financial Corporation in the form of guarantees given by it or underwriting agreements entered into by it shall not at any time exceed five time the amount of the paid-up share capital and the reserve fund of the Financial Corporation.

(2) Bonds and debentures of the Financial Corporation shall be guaranteed by the State Government as to the repayment of the principal and the payment of interest at such rate as the State Government may, on the recommendation of the Board and with the approval of the Central Government, fix at the time of bonds and debentures are issued.

Section 8. Deposits with the Financial Corporation

The Financial Corporation may accept deposits from the public repayable after the expiry of a period which shall not be less than five years from the date of the making of the deposit, and on such other terms as it thinks fit:

Provided that the total amount of such deposits shall not at any time exceed the paid-up capital of the Financial Corporation.

Section 9. Management of Financial Corporation

The General superintendence, direction and management of the affairs and business of the Financial Corporation shall vest in a Board of directors which, with the assistance of the Executive Committee and a managing director may exercise all the powers and discharge al the functions which may be exercised or discharged by the Financial Corporation.

Section 10. Board of directors

The Board of directors shall consist of the following, namely:–

(a) Three directors nominated by the State Government:

(b) One director nominated by the Central Board of the Reserve Bank:

(c) One director nominated by the Board of Directors of the Industrial Finance Corporation of India established under the Industrial Finance Corporation Act, 1948 (XV of 1948);

(d) Three directors elected in the prescribed manner from among themselves by the parties referred to in clause (c) of sub-section (3) of section 4 one of whom shall be elected to represent scheduled banks, another to represent co-operative banks and the third to represent the remaining financial institutions;

(e) One director elected in the prescribed manner from among themselves by the parties referred to in clause (d) of sub-section (3) of section 4 who are shareholders of the Financial Corporation;

(f) One managing director appointed by the State Government, in consultation with the Board except in the case of the first appointment:

Provided that on the first constitution of the Board the directors referred to in clauses (d) and (e) shall be nominated by the State Government and the directors so nominated shall for the purposes of this Act, be deemed to be elected directors:

Provided further that all directors of the Board first constituted other than the managing director shall retire at the end of the first year.

Section 11. Term of once and retirement of directors

(1) A nominated director shall hold office during the pleasure of the authority nominating him.

(2) An elected director other than a director deemed to be elected under this first proviso to section 10 shall hold office for four years:

Provided that two out of the four directors so elected shall retire at the end of two years after the first election and the other two at the end of four years after such election, the directors so to retire being determined by lot.

(3) Notwithstanding anything contained in sub-section (2), an elected director shall continue in office until his successor is elected and shall also be eligible for re-election for not more than two full consecutive terms after the rotation of elected directors has begun.

Section 12. Disqualifications for being a director

no person shall be a director who—

(a) Except in the case of a managing director, is a salaried official of the Financial Corporation; or

(b) Is or at any time has been adjudged insolvent or has suspended payment of his debts or has compounded with his creditors; or

(c) Is found to be a lunatic or becomes of unsound mind; or

(d) Is or has been convicted of any offence involving moral turpitude.

Section 13. Removal of director from office

The State Government may removal from office any director who-

(a) Is, or has become, subject to any of the disqualifications mentioned in section 12; or

(b) Without excuse sufficient in the opinion of the State Government to exonerate it, is absent without leave of the board from more than three consecutive meetings of the Board.

Section 14. Resignation of office by director and filling up of casual vacancies

(1) The managing director or any other director may resign his office by giving notice thereof in writing to the State Government and, on such resignation being accepted, shall be deemed to have vacated his office.

(2) A casual vacancy in the office of an elected director shall be filled by election and a director so elected shall hold office for the unexpired portion of the term of his predecessor.

(3) No act or proceeding of the Board shall be questioned on the ground merely of the existence of any vacancy in, or any defect in the constitution of the Board.

Section 15. Chairman of the Board

(1) The Chairman of the Board shall be one of the directors, not being the managing director, nominated by the State Government, after considering, except in the case of the nomination of the first chairman, the recommendation of the Board:

Provided that the nomination of the Chairman for any period other than the first period shall be made only after the vacancies in the office of directors occurring by efflux of time in that period have been filled by nomination or election as the case may be.

(2) The Chairman shall hold office for two years or until his successor is nominated:

Provided that a Chairman shall so long as he remains a director be eligible for re-nomination as Chairman.

Section 16. Remuneration of directors

The directors other than the managing director and not being servants of the State Government shall be paid such fees for attending meetings of the Board and, if they are members thereof, of the Executive Committee, as may be prescribed.

Section 17. Managing director

The managing director shall—

(a) Be a whole-time officer of the Financial Corporation;

(b) Perform such duties as the Board may, by regulations, entrust or delegate to him;

(c) Hold office for four years and be eligible for reappointment;

(d) Receive such salary and allowances as the Board, with the previous approval of the State Government, may determine:

Provided that the first managing director shall hold office for such term and shall receive such salary and allowances as the State Government may fix.

Section 18. Executive Committee

(1) The Executive Committee shall consist of the managing director who shall be the Chairman of the Committee, and three other directors, chosen as follows:-

(a) Two directors elected by the nominated directors, one from among the directors nominated by the State Government, and one from among the directors nominated by the Reserve Bank and the Industrial Finance Corporation of India established under the Industrial Finance Corporation Act, 1948 (XV of 1948;

(b) One direction elected by the elected directors.

(2) A director elected to be a member of the Executive committee shall hold office as such for the rest of his term of office as director.

Section 19. Meetings of the Board and Committee

(1) The Board and the Executive Committee shall meet at such times and places and shall observe such rules of procedure in regard to transaction of business at its meetings as may be provided by regulations made under this Act.

(2) All questions at a meeting shall be decided by a majority of votes of the members present, and, in the case of equality of votes, the Chairman or in his absence, any other person presiding, shall have a second or casting vote.

(3) No director shall vote on any matter in which he is interested.

(4) If for any reason the Chairman is unable to be present at a meeting—

(a) Of the Board, a director other than the managing director, authorised by the Chairman in writing in this behalf, shall preside at that meeting or

(b) Of the Executive Committee, a member authorised in writing by the managing director shall preside at that meeting.

Section 20. Powers of Executive Committee

(1) Subject to such general or special directions as the Board may from time to time give, the Executive Committee may deal with any matter within the competence of the Board.

(2) The minutes of every meeting of the Executive Committee shall be laid before the Board at the next following meeting of the Board.

Section 21. Advisory committee

The Financial Corporation may appoint one or more advisory committee or committees for the purpose of assisting the Financial Corporation in the efficient discharge of its functions and, in particular, for the purpose of securing that those functions are exercised with due regard to the circumstances and conditions prevailing in, and the requirements of, particular areas or industries.

Section 22. Office and agencies

The Financial Corporation shall establish its head office at such place in the State as the State Government may specify and may, with the previous sanction of the State Government, establish offices or agencies in any other place in the State.

Section 23. Officers and other employees of the Corporation

The Financial Corporation may appoint such officers, advisers and employees as it considers necessary for the efficient performance of its functions, and determine, by regulations, their conditions of appointment and service and the remuneration payable to them.

Section 24. General duty of the Board

The Board in discharging its functions under this Act shall act on business principles, due regard being had by it be the interests of industry, commerce and the general public.

Section 25. Business which Financial Corporations may transact

(1) The Financial Corporation may, subject to the provisions of this Act carry on and transaction any of the following kinds of business namely:–

(a) The guaranteeing on such terms and conditions as may be agreed upon of loans raised by industrial concerns which are repayable within period not exceeding twenty years and are floated in the public market;

(b) The underwriting of the issue of stocks, shares, bonds, or debentures by industrial concerns;

(c) The receipt in consideration of the services mentioned in clauses (a) and (b) of such commission as may be agreed upon:

(d) The retention as part of its assets of any stocks, shares, bonds, or debentures which it may have to take up in fulfilment of its underwriting liabilities; provided that it disposes of the stocks, shares, bonds or debentures so acquired as early as practicable and in any case within the period of seven years from the date of such acquisition;

(e) The granting of loans or advances to, or the subscribing to debentures of, industrial concerns, repayable within a period not exceeding twenty years from the date on which they are granted or subscribed to, as the case may be; and

(f) Generally, the doing of all such acts and things as may be incidental to or consequential upon the exercise of its powers or the discharge of its duties under this Act.

(2) No accommodation shall be given under clauses (a) and (e) of sub-section (1), unless it is sufficiently secured by a pledge, mortgage, hypothecation or assignment of Government or other securities, stocks, shares or secured debentures, bullion, movable or immovable property or other tangible assets in the manner prescribed by regulations.

Section 26. Limit of accommodation

The Financial Corporation shall not enter into any arrangement under clauses (a) and (e) of sub-section (1) of section 25 with a single industrial concern for an amount equivalent in the aggregate to more than ten per cent, of the paid-up share capital of the Corporation, but in no case exceeding ten lakhs of rupees.

Section 27. Power to impose conditions for accommodation

(1) In entering into any arrangement under section 25 with an industrial concern, the Financial Corporation may impose such conditions as it may think necessary or expedient for protecting the interests of the Financial Corporation and securing that the accommodation granted by it is put to the best use by the industrial concern.

(2) Where one of the conditions imposed under sub-section (1) is that a director shall be appointed by the Financial Corporation on the board of directors of the industrial concern to protect the interests of the financial Corporation such condition shall be a valid condition notwithstanding anything contained in the Indian Companies Act, 1913 (VII of 1913), or in any other law for the time being in force or in any instrument relating to the industrial concern.

Section 28. Prohibited business

The Financial corporation shall not–

(a) Accept deposits, except as provided by this Act;

(b) Subscribe directly to the shares or stock of any company:

Provided that nothing in clause (b) shall affect the right of the Financial Corporation to acquire any shares, bonds or debentures of a company in fulfilment of any underwriting agreement entered into by the Financial Corporation;

(c) Grant any loan or advance on the security of its own shares.

Section 29. Rights of Financial Corporation in case of default

(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in re-payment of any loan or advance or any instalment thereof or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management of the industrial Corporation shall have the right to take over the management of the industrial concern, as well as the right to sell and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.

(2) Any transfer of property made by the Financial Corporation, in exercise of its powers of sale and realisation under sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the sale had been made by the owner of the property.

(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.

(4) Where any property is sold or realised by the Financial Corporation under the provisions of this section, the money which is received by it from such sale or realisation shall, in the absence of any contract to the contrary, be held by the Financial Corporation in trust to be applied, first, in payment of all costs, charges and expenses properly incurred by it as incident to the said sale or realisation and, secondly in discharge of the debt due to the financial Corporation and the residue of the money so received shall be paid to the person entitled thereto.

(5) Where the Financial Corporation takes over the management of an industrial concern under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the owner of the concern.

Section 30. Power to call for repayment before agreed period

Notwithstanding any thing in any agreement to the contrary, the Financial Corporation may, by notice in writing, require any industrial concern to which it has granted any loan or advance to discharge forthwith in full its liabilities to the Financial Corporation,

(a) If it appears to the Board that false or misleading information in any material particular was given by the industrial concern in its application for the loan or advance; or

(b) If the industrial concern has failed to comply with the terms of its contract with the Financial Corporation in the matter of the loan or advance; or

(c) If there is a reasonable apprehension that the industrial concern is unable to pay its debts or that proceedings for liquidation may be commenced in respect thereof; or

(d) If the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance is not insured and kept insured by the industrial concern to the satisfaction of the Financial Corporation or depreciates in value to such an extent that, in the opinion of the Board, further security to the satisfaction of the Board should be given and such security is not given; or

(e) If, without the permission of the Board, any machinery, plant or other equipment, whether forming part of the security or otherwise, is removed from the premises of the industrial concern without being replaced or

(f) If for any reason it is necessary to protect the interests of the Financial Corporation.

Section 31. Special provisions for enforcement of claims by Financial Corporation

(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof falls to comply with the terms of its agreement with the Financial corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 30 and the industrial concern fails to make such repayment, any officer of the financial Corporation generally or specially authorised by the Board in this behalf, may apply to the district judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of, the following reliefs, namely:-

(a) For an order for the sale of the property pledge, mortgaged, hypothecated or assigned to the Corporation as security for the loan or advance; or

(b) For transferring the management of the industrial concern to the Financial Corporation; or

(c) For an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.

(2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation the ground on which it is made and such other particulars as may be prescribed.

Section 32. Procedure of district judge in respect of applications under section 31

(1) When the application is for the reliefs mentioned in clauses (a) and (c) of sub-section (1) of section 31, the district judge shall pass an ad interim order attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equivalent in value to the outstanding liability of the industrial concern to the Financial Corporation, together with the costs of the proceedings taken under section 31, with or without an ad interim injuction restraining the industrial concern from transferring or removing its machinery, plant or equipment.

(2) When the application is for the relief mentioned in clause (b) of subsection (1) of section 31, the district judge shall grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment and issue a notice calling upon the industrial concern to show cause, on a date to be specified in the notice, why the management of the industrial concern should not be transferred to the Financial Corporation.

(3) Before passing any order under sub-section (1) or sub-section (2), the district judge may, if he thinks fit, examine the officer making the application.

(4) At the same time as he passes an order under sub-section (1), the district judge shall issue to the industrial concern a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it to show cause on a date to be specified in the notice why the ad interim order of attachment should not be made absolute or the injunction confirmed.

(5) If no cause is shown on or before the date specified in the notice under sub-sections (2) and (4), the district judge shall forthwith make the ad interim order absolute and direct the sale of the attached property or transfer the management of the industrial concern to the Financial Corporation or confirm the injunction.

(6) If cause is shown, the district judge shall proceed to investigate the claim of the Financial Corporation in accordance with the provisions contained in the Code of Civil Procedure, 1908 (Act V of 1908), in so far as such provisions may be applied thereto.

(7) After making an investigation under sub-section (6), the district judge may—-

(a) Confirm the order of attachment and direct the sale of the attached property;

(b) Vary the order of attachment so as to release a portion of the property from attachment and direct the sale of the remainder of the attached property;

(c) Release the property from attachment;

(d) Confirm or dissolve the injunction; or

(e) transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf.

Provided that when making an order under clause (c), the district judge may make such further orders as he thinks necessary to protect the interests of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit:

Provided further that unless the Financial Corporation intimates to the district judge that it will not appeal against any order releasing any property from attachment, such order shall not be given effect to, until the expiry of the period fixed under sub-section(9) within which an appeal may be preferred or, if an appeal is preferred. Unless the High Court otherwise directs until the appeal is disposed of.

(8) An order of attachment or sale of property under this section shall be carried into affect as far as practicable in the manner provided in the Code of Civil Procedure, 1908 (Act V of 1908) for the attachment or sale of property in execution of a degree as if the Financial Corporation were the decree holder.

(9) Any party aggrieved by an order under sub-section (5) or sub-section (c) may, within thirty days from the date of the order, appeal to the High Court, and upon such appeals the High Court may, after hearing the parties pass such orders thereon as it thinks proper.

(10) Where proceedings for liquidation in respect of an industrial concern have commenced before an application is made under sub-section (1) of section 31, nothing in this section shall be constructed as giving to the Financial Corporation any preference over the other creditors of the industrial concern not conferred on it by any other law.

(11) The functions of a district judge under this section shall, in a presidency town, be exercised by the principal judge of the City civil Court, if any, having jurisdiction or by the High Court.

Section 33. Funds of the Financial Corporation

(1) Every Financial Corporation shall have its own fund, and all receipts of the Financial Corporation shall be carried thereto and all payments by the Corporation shall be made therefrom.

(2) All moneys belonging to the found shall be deposited in the Reserve Bank or with any agency of the Reserve Bank other than a Government treasury or in a scheduled bank in consultation with the Reserve Bank.

Section 34. Investment of funds

The Financial Corporation may invest its fund in the securities of the Central Government or of any State Government.

Section 35. Disposal of profits

(1) The Financial Corporation shall establish a reserve fund.

(2) After making provision for bad and doubtful debts, depreciation of assets and all other matters which are usually provided for by banking companies the Financial Corporation may out of its net annual profits declare a dividend.

Provided that for so long as the reserve fund is less than the paid-up share capital of the Financial Corporation and until there has been repaid to the State Government such sum if any, as that Government may have paid under guarantee given in pursuance of section 6, or under any guarantee given in pursuance of sub-section (2) of section 7, the rate of such dividend shall not exceed the rate guaranteed by the State Government under section 6.

(3) Notwithstanding anything contained in this section, no dividend paid under this section shall under any circumstances exceed the rate of five percent.per annum and if, in respect of any financial year after the reserve fund becomes equal to the share capital of the Financial Corporation, there is a surplus in the net profits after declaring a dividend at the rate specified in this sub-section, such surplus shall be paid to the State Government.

Section 36. General meetings

(1) A general meeting (hereinafter referred to as the annual general meeting) shall be held annually at a place in the State where there is an office of the Financial Corporation within two months from the date on which the annual accounts of the Financial Corporation are closed, and a general meeting may be convened by the Board at any other time.

(2) The shareholder present at the annual general meeting shall be entitled to discuss the annual accounts, the report of the Board on the working of the Financial Corporation throughout the year and the auditor’s report on the annual balance-sheet and accounts.

Section 37. Audit

(1) The affairs of the Financial Corporation shall be audited by not less than two auditors duly qualified to act as auditors of companies under sub-section (1) of section 144 of the Indian Companies Act, 1913 (VII of 1913), one of whom shall be appointed by the State Government in consultation with the Controller and Auditor-General of India and the other elected in the prescribed manner by the parties mentioned in clauses (c) and (d) of sub-section (3) of section 4, and such remuneration as the State Government may fix shall be paid to the auditors by the Financial Corporation.

(2) Every auditor shall be supplied with a copy of the annual balance-sheet of the Financial Corporation, and it shall be his duty to examine it, together with the accounts and vouchers relating, and every auditor shall have a list delivered to him of all books kept by the Financial Corporation and shall at all reasonable times have access to the books, accounts and other documents of the Financial Corporation and may in relation to such accounts examine any director or officer of the Financial Corporation.

(3) The auditors shall make a report to the shareholders upon the annual balance-sheet and accounts, and in every such report they shall state whether in their opinion the balance- sheet is a full and fair balance-sheet containing all necessary particulars and properly drawn up so as to exhibit a true and correct view of the state affairs of the Financial Corporation, and in case they had called for any explanation or information from the Board, whether it has been given and whether it is satisfactory.

(4) The State Government may, in consultation with the Controller and Auditor-General of India at any time issue directions to the auditors requiring them to report to it upon the adequacy of measures taken by the Financial Corporation for the protection of its shareholders and creditors or upon the sufficiency of their procedure in auditing the affairs of the financial Corporation and may enlarge or extend the scope of the audit or direct that a different procedure in audit be adopted, or direct that any other examination be made by the auditors, if in its opinion public interest so requires.

(5) The Financial Corporation shall send a copy of every report of the auditors to the Controller and Auditor-General of India at least one month before it is placed before the shareholders.

(6) Notwithstanding anything contained in the preceding sub-sections, the controller and Auditor-General of India may, either of his own motion or on a request received in this behalf from a State Government, undertake such audit and at such times as he may consider necessary:

Provided that where the State Government is required to make any payment on account of the guarantee given by it under section 6 or sub-section (2) of section 7, as the case may be, such audit shall be undertaken by the Controller and Auditor-General of India.

(7) Every audit report under sub-section (6) shall be forwarded to the State Government and the Government shall cause the same to be laid before the Legislature of the State.

Section 38. Returns

(1) The Financial Corporation shall furnish a statement, in the prescribed form, of its assets and liabilities as at the close of business on the last Friday of each month or, if that day is a public holiday under the Negotiable Instrument Act, 1881 (XXVI of 1881), as at the close of business on the preceding working day to the State Government and to the Reserve Bank within ten days from the date which the statement relates.

(2) The Financial Corporation shall furnish in the prescribed form to the State Government and to the Reserve Bank once every three months, or as frequently as the State Government or the Reserve Bank may require, a statement showing the classification of its loans and investments and of all loans guaranteed by it and underwriting agreements entered into by it.

(3) The Financial Corporation shall furnish to the State Government and to the Reserve Bank within three months of the close of each financial year a statement in the prescribed form of its assets and liabilities as at the close of that year, together with a profit and loss account for the year, the auditors report and a report of the working of the Financial Corporation during the year and copies of the said statement, account and reports shall be published in the Official Gazette and shall also be laid before the Legislature of the State.

Section 39. Power to give instructions to Financial Corporation on questions of policy

(1) In the discharge of its functions, the Board shall be guided by such instructions on questions of policy as may be given to it by the State Government.

(2) If any dispute arises between the State Government and the Board as to whether a question is or is not a question of policy, the decision of the State Government shall be final.

(3) If the Board fails to carry out the instructions on the question of policy laid down by the State Government, the State Government shall have the power to supersede the Board and appoint a new Board in its place to function until a properly constituted Board is set up, and the decision of the State Government as to the grounds for superseding the Board shall not be questioned in any court.

Section 40. Declaration of fidelity and secrecy

Every director, auditor, officer or other employee of the Financial Corporation shall, before entering upon his duties, make a declaration of fidelity and secrecy in the form set out in the Schedule.

Section 41. Indemnity of directors

(1) Every director shall be indemnified by the Financial Corporation against all losses as are caused by his own wilful act or default.

(2) A director shall not be responsible for any director or for any officer or other employee of the Financial Corporation or for any loss or expenses resulting to the Financial Corporation by the insufficiency or deficiency of value of or title to any property or security acquired or taken on behalf of the Financial Corporation or by the wrongful act of any person under obligation to the Financial Corporation or by anything done in good faith in the execution of the duties of his office or in relation thereto.

Section 42. Offences

(1) Whoever, in any bill of lading, warehouse receipt or other document given to the Financial Corporation whereby security is given or is purported to be given to the Financial Corporation for any accommodation granted by it under this Act, wilfully makes any false statement or knowingly permits any false statement to be made shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to two thousand rupees, or with both.

(2) Whoever without the consent in writing of the Financial Corporation uses the name of the Financial Corporation in any prospectus or advertisement shall be punishable with imprisonment which may extend to six months, or with fine which may extend to one thousand rupees, or with both.

(3) No court shall take cognizance of any offence punishable under this Act, otherwise than on a complaint in writing signed by an officer of the Financial Corporation authorised by the Board in this behalf.

Section 43. Provisions relating to income-tax and super tax

For the purposes of the Indian Income-tax, Act, 1922 (XI of 1992), the Financial Corporation shall be deemed to be a company within the meaning of that Act and shall be liable to income-tax and super-tax accordingly on its income profits and gains:

Provided that any sum paid by the State Government under the guarantee given in pursuance of section 6 or under any guarantee given in pursuance of sub-section (2) of section 7 shall not be treated as the income, profits and gains of the Financial Corporation and any interest on debentures or bonds paid by the financial Corporation out of such sum shall not be treated as expenditure incurred by it:

Provided further that in the case of any shareholder such portion of a dividend as has been out of any such sum advanced by the State Government shall be deemed to be its income from “interest on securities” declared to be income-tax free within the meaning of section 8 of that Act.

Section 44. Act XVIII of 1891 to apply to the books of the Financial Corporation

The Financial Corporation shall be deemed to be a bank for the purposes of the bankers Books Evidence Act 1891 (XVIII of 1891).

Section 45. Liquidation of Financial Corporation

No provision of law relating to the winding-up of companies or corporations shall apply to the Financial Corporation and the Financial Corporation shall not be placed in liquidation, save by order of the State Government and in such manner as it may direct.

Section 46. Power to apply Act to certain financial institutions in existence at commencement of Act

(1) The Central Government may, by notification in the Official Gazette direct that all or any of the provisions of this Act shall, subject to such exceptions and restrictions as may be specified, apply to any institution existence at the commencement of this Act which has for its object the financing of industrial concerns, and on the issue of such notification, the institution shall be deemed to be a Financial Corporation established by the State Government for the State within the meaning of this Act, and the provisions of this Act shall become applicable thereto according to the tenor of the notification.

(2) Any notification issued under sub-section (1) may suspend the operation of any enactment applicable to any such institutions immediately before the issue of the notification.

Section 47. Power of State Government to make rules

The State Government may makes rules not inconsistent with the provisions of this Act to give effect to the provisions of this Act and in particular, such rules may provide for the limitation on the voting rights of a shareholder and the manner in which such voting rights may be exercised and where there is any inconsistency between the rules and the regulations made under this Act, the rules shall prevail.

Section 48. Power of Board to make regulations

(1) The Board may, after consultation with the Reserve Bank and with the previous sanction of the State Government make regulations not inconsistent with this Act and the rules made thereunder to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act.

(2) In particular and without prejudice to the generality of the forgoing power, such regulations may provide for—

(a) The holding and conduct of elections under this Act, including the final decision on doubts or disputes regarding the validity of elections;

(b) The manner in which, and the conditions subject to which, the first allotment of the shares of the Financial Corporation shall be made;

(c) The manner in which, and the conditions subject to which, the shares of the Financial Corporations may be held and transferred and generally all matters relating to the rights and duties of shareholders;

(d) The manner in which general meetings shall be convened the procedure to be followed thereat and the manner in which voting rights may be exercised;

(e) The calling of meetings of the Board and of the Executive Committee, fees for attending meetings thereof and the conduct of business thereat;

(f) The manner and terms of issue and repayment of bonds and debentures by the Financial Corporation;

(g) The conditions which the Financial Corporation may impose in granting loans or advances;

(h) The manner of determining the sufficiency of the security taken under sub-section (2) of section 25;

(i) The forms of returns and statements required under this Act;

(j) The duties and conduct of officers, other employees, advisers and agents of the Financial Corporation;

(k) The establishment and maintenance of provident or other benefit funds for employees of the Financial Corporation;

(l) The taking over of the management of any industrial concern on breach of its agreement with the Financial Corporation;

(m) The appointment of advisory committees for technical and other advice for the purposes of this Act; and

(n) Generally, the efficient conduct of the affairs of the Financial Corporation.

(3) All regulations made under this section shall be published in the Official Gazette and shall come into force on such publication.

Schedule

(See section 40)

DECLARATION OF FIDELITY AND SECRECY

I…………………do hereby declare that I will faithfully, truly and to the best of by skill and ability execute and perform the duties required of me as a director, officer, employee or auditor (as the case may be) of the Financial Corporation and which properly relate to any office or position in the said Financial Corporation held by me.

I further declare that I will not communicate or allow to be communicated to any person not legally entitled thereto any information relating to the affair of the Financial Corporation, nor will I allow any such person to inspect or have access to any books or documents belonging to or in the possession of the Financial Corporation and relating to the business of the Financial Corporation.

Signature

Signed before me:


The State Financial Corporations (Amendment) Act, 2000


Section 1. Short title

ACT NO. 39 OF 2000 [5th September, 2000.]

An Act further to amend the State Financial Corporations Act, 1951. BE it enacted by Parliament in the Fifty-first Year of the Republic of India as follows:-

1. Short title.-This Act may be called the State Financial Corporations (Amendment) Act, 2000.

This Act may be called the State Financial Corporations (Amendment) Act, 2000

Section 2. Amendment of section 2

In section 2 of the State Financial Corporations Act, 1951 (63 of 1951) (hereinafter referred to as the principal Act),-

(a) In clause (c),-

(i) For sub-clauses (x) to (xiii), the following sub-clauses shall be substituted, namely:-

“(x) Providing weigh bridge facilities;

(xi) Providing engineering, technical, financial, management, marketing or other services or facilities for industry;

(xii) Providing medical, health or other allied services;

(xiii) Providing software or hardware services relating to information technology, telecommunications orelectronics including satellite linkage and audio or visual cable communication;

(xiv) Setting up or development of tourism related facilities including amusement parks, convention centres, restaurants, travel and transport (including those at airports), tourist service agencies and guidance and counselling services to the tourists;

(xv) construction;

(xvi) Development, maintenance and construction of roads;

(xvii) Providing commercial complex facilities and community centres including conference halls;

(xviii) Floriculture;

(xix) Tissue culture, fish culture, poultry farming, breeding and hatcheries;

(xx) Service industry, such as altering, ornamenting, polishing, finishing, oiling, washing, cleaning or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal;

(xxi) Research and development of any concept, technology, design, process or product, whether in relation to any of the matters aforesaid, including any activities approved by the Small Industries Bank; or

(xxii) Such other activity as may be approved by the Small Industries Bank;”;

(ii) In Explanation 2, for the words “Development Bank”, in both the places wherever they occur, the words “Small Industries Bank” shall be substituted;

(b) After clause (d), the following clause shall be inserted, namely:-

‘(da) The expression ”public sector bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted unde section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);';

(c) Clauses (ff) and (fff) shall be re-lettered as clauses (fb) and (fc) thereof and before clause (fb) as so re-lettered, the following clause shall be inserted, namely:-

‘(fa) “Small Industries Bank” means the Small Industries Development Bank of India established under sub-section (1) of section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989);';

Section 3. Amendment of section 3A

In section 3A of the principal Act, in sub-section (1), for the words “Development Bank”, the words “Small Industries Bank” shall be substituted

Section 4. Amendment of section 4.In section 4 of the principal Act

(a) for sub-sections (1), (2) and (3), the following sub-sections shall be substituted, namely:-

“(1) The authorised capital of the Financial Corporation shall be such sum as may be fixed by the State Government in this behalf, but it shall not be less than fifty lakhs of rupees or exceed five hundred crores of rupees: Provided that the State Government may, on the recommendation of the Small Industries Bank, by notification in the Official Gazette, increase the authorised capital up to one thousand crores of rupees.

(2) Subject to the provisions of section 4D, the authorised capital shall be divided into such number of fully paid-up shares of the same face value and such number of fully paid-up redeemable preference shares of the same face value and shall be issued o the parties mentioned in clauses (a), (b) and (c) of sub-section (3) and in the case of parties referred to in clause (d) of that sub-section, such shares shall be issued at such times and in such manner as the State Government may, by notification i the Official Gazette, determine

(3) Subject to the approval of the State Government and the Small Industries Bank, the Board shall determine the number of shares which may, respectively, be distributed among-

(a) The State Government;

(b) The Small Industries Bank;

(c) Public sector banks, the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956), other insurance companies owned or controlled by the Central Government, other institutions owned or controlled by t e Central Government or the State Government, as the case may be; and (d) parties other than those referred to in clause (a) or clause (b) or clause (c):

Provided that the number of shares which may be allocated to parties referred to in clause (d) shall in no case exceed forty-nine per cent of the total number of issued equity shares:

Provided further that no increase in the issued equity capital shall be made in such a manner that the parties referred to in clause (a) or clause (b) or clause (c) hold in aggregate, at any time less than fifty-one per cent. of the issued equity capital of the Financial Corporation.”; (b) in sub-section (5), for the words “Development Bank”, the words “Small Industries Bank” shall be substituted

Section 5. Amendment of section 4A

In section 4A of the principal Act,-

(a) For the words “Development Bank”, wherever they occur, the words “Small Industries Bank” shall be substituted;

(b) In sub-section (3), the words and figures “section 47 or” shall be omitted;

(c) In sub-section (5), for the words, brackets and figures “sub-section (1) of section 6″, the words, brackets and figures “sub-sections (1) to (4) of section 6″ shall be substituted

Section 6. Insertion of new section 4D

After section 4C of the principal Act, the following sections shall be inserted, namely:-

“4D. Issue of redeemable preference shares.

(1) On and after the commencement of the State Financial Corporations (Amendment) Act, 2000, the Financial Corporation may-

(a) Issue redeemable preference shares on such terms and in such manner as the Board may decide; and

(b) convert, such number of equity shares as it may decide into redeemable preference shares, with the prior approval of the State Government and the Small Industries Bank, by a resolution passed in the general meeting of the shareholders:

Provided that such conversion shall in no case reduce the equity shares held by the parties referred to in clauses (a), (b) and (c) of sub-section (3) of section 4 to less than fifty-one per cent. of the issued equity capital of the Financial Corporation

(2) The redeemable preference shares referred to in sub-section (1) shall-

(a) Carry such fixed rate of dividend as the Financial Corporation may specify at the time of such issue or conversion; and

(b) Neither be transferable nor carry any voting rights

(3) The redeemable preference shares referred to in sub-section (1) shall be redeemed by the Financial Corporation in such instalments and in such manner as the Board may determine

4E. Reduction of share capital.

(1) The Financial Corporation, with the prior approval of the State Government and the Small Industries Bank, may, by resolution passed in a general meeting of the shareholders, reduce its share capital in any way (2) Without prejudice to the generality of the foregoing power, the share capital may be reduced by-

(a) Extinguishing or reducing the liability on any of its equity shares in respect of share capital not paid-up; or

(b) Either with or without extinguishing or reducing liability on any of its equity shares, cancelling any paid-up share capital which is lost or is unrepresented by available assets; or

(c) Either with or without extinguishing or reducing liability on any of its equity shares, paying off any paid-up share capital which is in excess of the wants of the Financial Corporation

4F. Restriction on exercising of voting right.

Every shareholder of the Financial Corporation holding equity shares shall have a right to vote in respect of such shares on every resolution and his voting right on a poll shall be in proportion to his share of the paid-up equity capital of the Financial Corporation:

Provided, however, that no shareholder, other than a shareholder referred to in clauses (a), (b) and (c) of sub-section (3) of section 4, shall be entitled to exercise voting rights in respect of any equity share held by him in excess of ten per cent. of the issued equity capital

4G. Proxy voting.

In a general meeting referred to in clause (b) of sub-section (1) of section 4D and sub-section (1) of section 4E, the resolution for conversion or reduction of share capital shall be passed by shareholders entitled to vote, voting in person, or, where proxies are allowed, by proxy, and the votes cast in favour of the resolution are not less than three times the number of votes, if any, cast against the resolution by shareholders so entitled and voting

4H. Transfer of share capital to Small Industries Bank.

On such date as the Central Government may, by notification in the Official Gazette, notify (hereinafter referred to as the notified date) all the shares of every Financial Corporation subscribed by the Development Bank and the amount outstanding in respect of loans in lieu of capital provided by the Development Bank as on the date immediately preceding the notified date, shall stand transferred to, and vested in, the Small Industries Bank, such transfer shall be at such rate and be paid in cash or such other manner as may be mutually agreed upon between the Development Bank and the Small Industries Bank.”

Section 7. Substitution of new sections for sections 5 to 10

For sections 5 to 10 of the principal Act, the following sections shall be substituted, namely:-

‘5. Transfer of shares.

(1) Save as otherwise provided in sub-section (2), the shares of the Financial Corporation shall be freely transferable (2) Nothing contained in sub-section (1) shall entitle the parties referred to in clauses (a), (b) and (c) of sub-section (3) of section 4 to transfer any of the shares held by them in the Financial Corporation if such transfer will result in reducing the aggregate value of shares held by them to less than fifty-one per cent. of the issued equity capital of the Financial Corporation (3) The Board may refuse to register the transfer of any shares in the name of the transferee on any one or more of the following grounds, and on no other ground, namely:-

(a) The transfer of the shares is in contravention of the provisions of the Act or regulations made thereunder or any other law;

(b) The transfer of the shares, in the opinion of the Board, is prejudicial to the interests of the Financial Corporation or to the public interest;

(c) The transfer of shares is prohibited by an order of a court, tribunal or any other authority under any law for the time being in force

(4) The Board shall, before the expiry of two months from the date on which the instrument of transfer of shares of the Financial Corporation is lodged with it for the purpose of registration of such registration ought not or ought to be refused on any of the grounds referred to in sub-section (3) but also,- transfer, not only form, in good faith, its opinion as to whether such (a) if it has formed the opinion that such registration ought not to be so refused, effect such registration; and (b) if it has formed the opinion that such registration ought to be refused on any of the grounds mentioned in sub-section (3), intimate the transferor and

(5) An appeal against the order of refusal of the Board under sub-section (4) shall lie to the Central Government and the procedure for filing and hearing of such appeal shall be in accordance with the rules made by the Central Government in this behalf

“6. Conversion of shares guaranteed by State Government.

(1) On the commencement of the State Financial Corporations (Amendment) Act, 2000, every shareholder shall be given by the Financial Corporation an option to require the Financial Corporation to convert the shares held by him into shares of the same nominal value without the State Government guarantee and issue fresh share certificate or to pay the amount paid in respect of such shares not exceeding the face value of the shares held by him

(2) The option referred to in sub-section (1) shall be given by the Financial Corporation to every existing shareholder before the expiry of three months from the commencement of the State Financial Corporations (Amendment) Act, 2000 and shall be exercised by the shareholder within three months from the date of receipt of such option

(3) The option exercised under sub-section (2) shall be final and shall not be altered or rescinded after it has been exercised

(4) If, a shareholder exercise option for receiving the payment within the stipulated time, the Financial Corporation shall, on surrender of the share certificate held by him, pay him the amount paid in respect of such shares not exceeding the face value thereof: Provided that if any shareholder fails to exercise the option given to him under sub-section (1), within the time stipulated in sub-section (2), he shall be deemed to have exercised the first option

(5) Nothing contained in sub-section (4) shall be deemed to result in reduction of the share capital and the Financial Corporation may, subject to the provisions of sub-section (3) of section 4, allot the shares surrendered by any shareholder, to any other person

(6) The Financial Corporation shall keep at its head office a register, in one or more books, of shareholders and shall enter therein the following particulars so far as they may be available, namely:-

(i) The names, addresses and occupations, if any, of the shareholders and a statement of the shares held by each shareholder, distinguishing each share by its denoting number;

(ii) The date on which each person is so entered as a shareholder;

(iii) The date on which any person ceases to be a shareholder; and

(iv) Such other particulars as may be prescribed:

Provided that nothing in this sub-section shall apply to the shares held with a depository under the Depositories Act, 1996 (22 of 1996)

(7) Notwithstanding anything contained in sub-section (6), it shall be lawful for the Financial Corporation to keep the register of the shareholders in computer floppies or diskettes, compact disk or any other electronic form subject to such safeguards a may be prescribed

(8) Notwithstanding anything contained in the Indian Evidence Act, 1872 (1 of 1872), a copy of, or extract from, the register of shareholders, certified to be a true copy under the hand of an officer of the Financial Corporation authorised in this behalf, shall, in ll legal proceedings, be admissible in evidence

(9) The register of beneficial owners maintained by a depository under section 11 of the Depositories Act, 1996 (22 of 1996) shall be deemed to be a register of shareholders for the purposes of this Act (10) Notwithstanding anything contained in sub-sections (6), (7) and (8), no notice of any trust, express, implied or constructive, shall be entered on the register of shareholders or be receivable by the Financial Corporation: Provided that nothing in this sub-section shall apply to a depository in respect of shares held by it as a registered owner on behalf of a beneficial owner

Explanation

For the purposes of sub-sections (6), (9) and this sub-section, the expressions “beneficial owner”, “depository” and “registered owner” shall have the meanings respectively assigned to them in clauses (a), (e) and (j) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996)

(11) Notwithstanding anything contained in the Indian Trusts Act, 1882 (2 of 1882), the shares of the Financial Corporation shall be deemed to be included among the securities enumerated in section 20 of that Act

“7. Additional capital of Financial Corporation and borrowing powers.

(1) The Financial Corporation may issue and sell bonds and debentures for the purpose of increasing its working capital.

Section 8. Omission of section 10A

Section 10A of the principal Act shall be omitted

Section 9. Substitution of new sections for sections 11 and 12

For sections 11 and 12 of the principal Act, the following sections shall be substituted, namely:-

“11. Term of office and retirement of directors.

(1) A nominated director shall hold office during the pleasure of the authority nominating him

(2) Subject to the provisions of sub-section (1), a nominated director shall hold office for such term not exceeding three years and shall also be eligible for re-nomination: Provided that no such director shall hold office continuously for a period exceeding six years

(3) An elected director other than a director deemed to be elected under the first proviso to clause (d) of section 10 shall hold office for three years and shall also be eligible for re-election: Provided that no such director shall hold office continuously for a period exceeding six years

“12. Disqualifications for being a director.

No person shall be a director, if he-

(a) Has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force; or

(b) Is or at any time has been, adjudicated as insolvent or has suspended payment of his debts or has compounded with his creditors; or

(c) Has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment of not less than six months and a period of five years has not elapsed from the date of expiry of the sentence; or

(d) Is elected by the persons referred to in clause (d) of sub-section (3) of section 4 but not registered as shareholder in his own right of unencumbered shares of a nominal value of not less than ten thousand rupees in the Financial Corporation; or

(e) has not paid any call in respect of shares of the Financial Corporation held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call.”

Section 10. Amendment of section 13

Section 13 of the principal Act shall be re-numbered as sub-section (1) thereof and after sub-section as so re-numbered, the following sub-section shall be inserted, namely:-

“(2) The shareholders, other than those mentioned in clauses (a), (b) and (c) of sub-section (3) of section 4, whose names are entered on the register of shareholders, may, after giving to the director a reasonable opportunity of being heard in the manner as may be prescribed, by resolution passed by majority of the votes of such shareholders holding in the aggregate not less than one-half of the total issued equity share capital held by all such shareholders, remove any director elected under clause (d) of section 10 and elect in his place another person to fill the vacancy so caused.”

Section 11. Amendment of section 14

In section 14 of the principal Act, for sub-sections (1) and (1A), the following sub-section shall be substituted, namely:-

“(1) Any director elected under clause (d) of section 10 may, by giving notice in writing to the Chairman of the Board, resign from his office and on such resignation being accepted, shall be deemed to have vacated his office.”

Section 12. Substitution of new section for section 15

For section 15 of the principal Act, the following section shall be substituted, namely:-

“15. Chairman of Board.

(1) The Small Industries Bank shall, in consultation with the State Government nominate a director as a Chairman of the Board for such period not exceeding three years and on such terms and conditions as the Small Industries Bank may specify: Provided that the Chairman shall not be a whole-time director unless he is also appointed to function as the managing director: Provided further that the Chairman shall so long as he remains a director be eligible for re-appointment as Chairman (2) The Chairman shall preside over the meetings of the Board and the general meetings of the Financial Corporation.”

Section 13. Amendment of section 17

In section 17 of the principal Act,-

(a) For sub-section (1), the following sub-section shall be substituted, namely:-

“(1) The managing director shall-

(a) Be appointed, in consultation with the Small Industries Bank, by the State Government;

(b) Be a whole-time officer of the Financial Corporation;

(c) Perform such duties as the Board, by regulations, entrust or delegate to him;

(d) Hold office for such term not exceeding three years as the State Government may specify and shall be eligible for re-appointment;

(e) Receive such salary and allowances and be subject to other terms and conditions of service as the Board may, with the previous approval of the State Government, determine.”; (b) after sub-section

(2), the following sub-section shall be inserted, namely:-

“(3) Notwithstanding anything contained in sub-section (1), the State Government, with prior consultation of the Small Industries Bank, shall have the right to terminate the term of office of the managing director at any time, before the expiry of the germ specified under clause (d) of sub-section (1) by giving him notice of not less than three months in writing or three months salary and allowances in lieu of such notice and the managing director shall also have right to relinquish his office at a y time before the expiry of term specified under clause (d) of sub-section (1) by giving to the State Government notice of not less than three months in writing.”

Section 14. Substitution of new section for section 18

For section 18 of the principal Act, the following section shall be substituted, namely:-

“18. Executive Committee.

(1) The Board shall constitute an Executive Committee consisting of the chairman and managing director, the whole-time directors and such other directors as it may deem fit: Provided that in the case of a Joint Financial Corporation, if the directors nominated under clause (b) of section 10 represent different State Governments then, all of them shall be members of the Executive Committee

(2) The Executive Committee shall discharge such functions as may be prescribed or as may be delegated to it by the Board

(3) The Board may constitute such other committees whether consisting wholly of directors or wholly of other persons or partly of directors and partly of other persons for such purpose or purposes as it may think fit

Section 15. Amendment of section 19

In section 19 of the principal Act, sub-sections (3A) and (4) shall be omitted

Section 16. Amendment of section 23

In section 23 of the principal Act, the proviso shall be omitted

Section 17. Amendment of section 25

In section 25 of the principal Act,-

(a) For sub-section (1), the following sub-sections shall be substituted, namely:-

”(1) The Financial Corporation may, subject to the provisions of this Act, carry on and transact any of the following kinds of business, namely:-

(a) Guaranteeing, on such terms and conditions as may be agreed upon,-

(i) Loans raised by industrial concerns which are repayable within a period not exceeding twenty years, and are floated in the public market;

(ii) Loans raised by industrial concerns from scheduled banks or State co-operative banks or other financial institutions;

(b) Guaranteeing, on such terms and conditions as may be agreed upon, deferred payments due from any industrial concern in connection with its purchase of capital goods within India;

(c) Underwriting of the issue of stock, shares, bonds or debentures by industrial concerns;

(d) Transferring for consideration any instruments relating to loans and advances granted by it to industrial concerns;

(e) Acting as agent of the Central Government or the State Government or the Development Bank or the Small Industries Bank or the IFCI Limited formed and registered under the Companies Act, 1956 (1 of 1956), or any other financial institution notified in this behalf by the Central Government in respect of any matter connected with, or arising out of, the grant of loans or advances to an industrial concern, or subscription to debentures of an industrial concern or relating to the business of the Development Bank, Small Industries Bank, IFCI Limited or financial institution;

(f) Subscribing to, or purchasing of, the stock, shares, bonds or debentures of an industrial concern or any other concern;

(g) Retaining as part of its assets any stock, shares, bonds or debentures which it may acquire by subscription or in fulfilment of its underwriting liabilities and disposing of the stock, shares, bonds or debentures so acquired;

(h) Granting loans or advances to, or subscribing to debentures of, an industrial concern, repayable within a period not exceeding twenty years from the date on which they are granted or subscribed to, as the case may be: Provided that the Financial Corporation may, with the prior approval of the Small Industries Bank, exceed the said limit of twenty years up to a further period of ten years: Provided further that nothing contained in this clause shall be deemed to preclude the Financial Corporation from granting loans or advances to, or subscribing to debentures of, and industrial concern to which may be attached an option to convert such debentures or loans into stock or shares of the industrial concern:

Provided also that the Financial Corporation may, in the exercise of such option, convert the amounts outstanding on such debentures or loans into stock or shares of the industrial concern if such concern increases its subscribed capital by the issue of further stock or shares in accordance with and subject to, the provisions of section 81 of the Companies Act, 1956 (1 of 1956) . Explanation.In this clause, the expression “the amounts outstanding on such debentures or loans” shall mean the principal, interest and other charges payable on such debentures or loans as at the time when the amounts are sought to be converted into stick or shares;

(i) Accepting or discounting promissory notes and bills of exchange made, drawn, accepted or endorsed by industrial concerns or by any person selling capital goods manufactured by one industrial concern to another industrial concern;

(j) Undertaking research and surveys for evaluating or dealing with marketing or investments or undertaking and carrying on techno-economic studies or other activities in connection with the development of any industry;

(k) Providing technical and administrative assistance to any industrial concern or any person for the promotion, management or expansion of any industry;

(l) Planning and assisting in the promotion and development of industries;

(m) Providing consultancy and merchant banking services;

(n) Acting as the trustee for the holders of debentures or other securities;

(o) Leasing, sub-leasing or giving on hire or hire-purchase of industrial plant, equipment, machinery or any other asset;

(p) Factoring;

(q) Providing export related credit and services;

(r) Undertaking money market related activities;

(s) Setting up of mutual funds and undertaking asset management activity;

(t) Promoting, forming or conducting or assisting in the promotion, formation, or conduct of companies, subsidiaries, societies, trusts or such other associations of persons as it may deem fit;

(u) Opening or confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn thereunder;

(v) Doing such other business as the Small Industries Bank may authorise, and or generally the doing of such acts and things as may be incidental to or consequential upon, the exercise of its powers or the discharge of its duties under this Act

(2) The Financial Corporation may receive, in consideration of any of the services mentioned in sub-section (1), such commission, brokerage, interest, remuneration or fee as may be agreed upon.”; (b) in sub-section (3), for the words ”’Development Bank”, the words ”Small Industries Bank” shall be substituted

Section 18. Insertion of new section 25B

After section 25A of the principal Act, the following section shall be inserted, namely:-

“25B. Gifts, grants, etc.

The Financial Corporation may receive gifts, grants, donations or benefactions from Government or any other source.”

Section 19. Substitution of new section for section 26

For section 26 of the principal Act, the following section shall be substituted, namely:-

“26. Limit of accommodation.

On and from the commencement of the State Financial Corporations (Amendment) Act, 2000, the Financial Corporation shall not enter into any arrangements under clause (a), (d) or (h) of sub-section (1) of section 25 with any industrial concern so that the total amount outstanding against that concern in respect of all such arrangements together with the amount of the face value of the shares and stocks of that concern whether subscribed or agreed to be subscribed and the outstanding liabilities on account of underwriting agreements and the deferred payments guarantees is more than-

(i) five hundred lakhs of rupees in the case of a corporation established by or under any other law or a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) or a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or any other law relating to co-operative societies for the time being in force; and (ii) two hundred lakhs of rupees in any other case: Provided that the Financial Corporation may, with the prior approval of the Small Industries Bank, exceed the limit under clause (i) or clause (ii) up to four times.”

Section 20. Amendment of section 28

In section 28 of the principal Act, in sub-section (1), for clause (d), the following clause shall be substituted, namely:-

“(d) Grant any form of assistance to any industrial concern in respect of which the aggregate of the paid-up share capital and free reserves exceeds ten crores of rupees or such higher amount not exceeding thirty crores of rupees as the State Government, on the recommendation of the Small Industries Bank, may, by notification in the Official Gazette, specify.”

Section 21. Substitution of new section for section 34

For section 34 of the principal Act, the following section shall be substituted, namely:-

“34. Investment of funds.

The Financial Corporation may invest its funds in accordance with applicable guidelines and prudential norms as may be prescribed and in such securities as the Board may decide from time to time.”

Section 22. Amendment of section 35

In section 35 of the principal Act, in sub-section (2), the proviso shall be omitted

Section 23. Substitution of new section for section 35A

For section 35A of the principal Act, the following section shall be substituted, namely:-

“35A. Special reserve fund.

(1) The Financial Corporation may establish a special reserve fund, to which shall be transferred such portion of the dividends accruing to the State Government, Development Bank and the Small Industries Bank on the shares of the Financial Corporate on as may be fixed by agreement between the State Government, Development Bank and the Small Industries Bank: Provided that after the notified date this sub-section shall have effect as if for the words “the State Government, the Development Bank and the Small Industries Bank”, the words “the State Government and the Small Industries Bank” have been substituted except as regards all dividends accruing in respect of any completed accounting period prior to the notified date

(2) No shareholder of the Financial Corporation, other than the State Government or the Small Industries Bank, shall have any claim to the special reserve fund

(3) The amount standing to the credit of the special reserve fund may be utilised by the Financial Corporation for only such purposes as are approved by the State Government and the Small Industries Bank.”

Section 24. Amendment of section 36

In section 36 of the principal Act, for sub-section (2), the following sub-sections shall be substituted, namely:-

“(2) The shareholders present at the annual general meeting shall be entitled to discuss and adopt-

(a) The balance-sheet and profit and loss account of the Financial Corporation made up to the date on which its accounts are closed and balanced;

(b) The report of working of the Financial Corporation for the period covered by the accounts;

(c) The auditor’s report on the balance-sheet and accounts; and

(d) Proposals for declaration of dividend and capitalisation of reserves

(3) The shareholders present at an annual general meeting may also discuss any other matter to be transacted at such meetings in accordance with the provisions of this Act.”

Section 25. Amendment of section 37

In section 37 of the principal Act,-

(a) For sub-section (1), the following sub-section shall be substituted, namely:-

“(1) The accounts of the Financial Corporation shall be audited by auditors duly qualified to act as the auditors under sub-section (1) of section 226 of the Companies Act, 1956 (1 of 1956), who shall be appointed by the Financial Corporation in general meeting of shareholders out of the panel of auditors approved by the Reserve Bank of India for such terms and on such remuneration as the Reserve Bank may fix.”; (b) in sub-section (6), the proviso shall be omitted

Section 26. Amendment of section 37A

In section 37A of the principal Act, for the words “Development Bank”, wherever they occur, the words “Small Industries Bank” shall be substituted

Section 27. Amendment of section 38

In section 38 of the principal Act, for the words “Development Bank”, wherever they occur, the words “Small Industries Bank” shall be substituted

Section 28. Amendment of section 39

In section 39 of the principal Act,-

(a) In sub-section (1), for the words “Development Bank”, the words “Small Industries Bank” shall be substituted;

(b) After sub-section (2), the following sub-sections shall be inserted, namely:-

”(2A) Nothing contained in sub-section (1) and sub-section (2) shall apply in a case where a State Government holds less than fifty-one per cent. of the equity shares in the Financial Corporation (2B) Notwithstanding the equity share holding of a Financial Corporation by a State Government, the State Government may advise the Financial Corporations on the matters of policy.”

Section 29. Amendment of section 40

In section 40 of the principal Act, in sub-section (2), in clause (b), for the words “State co-operative Bank or the Development Bank”, the words “State co-operative Bank, the Small Industries Bank or the Development Bank” shall be substituted

Section 30. Insertion of new section 41B

After section 41A of the principal Act, the following section shall be inserted, namely:-

“41B. Nomination in respect of deposits, bonds, etc.

(1) Notwithstanding anything contained in any other law for the time being in force, where a nomination in respect of any deposits, bonds or other securities is made in the prescribed manner, the amount due on such deposits, bonds or securities shall, on the death of the depositor or holder thereof, vest in, and be payable to, the nominee subject to any right, title or interest of any other person to such deposits, bonds or securities

(2) Any payment by the Financial Corporation in accordance with the provisions of sub-section (1) shall constitute a full discharge to the Financial Corporation of its liability in respect of such deposits, bonds or securities.”

Section 31. Amendment of section 43

In section 43 of the principal Act, in the first proviso, the words and figure “section 6 or” shall be omitted

Section 32. Amendment of section 43B

In section 43B of the principal Act, sub-section (2) shall be omitted

Section 33. Amendment of section 46A

In section 46A of the principal Act, in sub-section (1), for the words “Development Bank”, the words “Small Industries Bank” shall be substituted

Section 34. Omission of section 47

Section 47 of the principal Act shall be omitted

Section 35. Amendment of section 48

In section 48 of the principal Act,-

(i) In sub-section (1), for the words “Development Bank”, the words “Small Industries Bank” shall be substituted;

(ii) In sub-section (2),-

(a) After clause (c), the following clauses shall be inserted, namely:-

“(ca) The maintenance of register of shareholders, particulars to be entered in such register, the safeguards to be observed in the maintenance of register of shareholders on computer floppies or diskettes, compact disk or any other electronic form the inspection and closure of the register of shareholders and all other matters connected therewith under section 6;

(cb) The manner of nomination of directors under clause (d) of section 10;

(cc) the entrusting or delegation of duties to the managing director by the Board under clause (c) of sub-section (1) of section 17;

(cd) The functions of Executive Committee under sub-section (2) of section 18;

(ce) The guidelines and prudential norms in accordance with which investment may be made under section 34;

(cf) The manner in which nomination may be made under section 41B; and

(cg) The investments (whether by way of deposits in bank or otherwise) of the amounts which are not for the time being required for transaction of business.”

(b) After clause (n), the following clauses shall be inserted, namely:-

“(o) The form and manner in which the balance-sheet and the accounts of the Financial Corporation shall be prepared;

(p) Any other matter which is to be, or may be, prescribed.”

Section 36. Amendment of section 48A

In section 48A of the principal Act, the words “Every rule made under section 47 and” shall be omitted

Section 37. Insertion of new section 48B

After section 48A of the principal Act, the following section shall be inserted, namely:-

“48B. Power to make rules.

(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Act

(2) In particular, and without prejudice to the generality of the foregoing power such rules may provide for the procedure for filing and hearing of appeals under sub-section (5) of section 5 (3) Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.”