STATE FINANCIAL CORPORATIONS ACT, 1951
(1) This Act may be called the State Financial Corporations Act, 1951.
(2) It extends to the whole of India 1[***].
(3) It shall come into force in any State on such date2 as the Central Government may, by notification in the Official Gazette, appoint.
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1. The words “except the State of Jammu and Kashmir” omitted by Act 62 of 1956, sec. 2 and Sch. (w.e.f. 1-11-1956).
2. Came into force on 1-8-1952 (in the whole of India except the State of Jammu and Kashmir) see Notification No. S.R.O. 1317, dated the 28th July, 1952, Gazette of India, 1952, Pt. II, Sec. 3, p. 1163.
In this Act, unless the context otherwise requires,—
(a) “Board” means the Board of directors of the Financial Corporation;
1[(aa) “Development Bank” means the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);]
2[(b) “Financial Corporation” means a Financial Corporation established under section 3 and includes a Joint Financial Corporation established under section 3A;]
3[(c) “industrial concern” means any concern engaged or to be engaged in—
(i) the manufacture, preservation or processing of goods;
4[(ii) mini
(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 notified under sub-section (1), having perpetual succession and a common seal, with power, subject to the provisions of this Act, to 1[acquire, hold and dispose of] property and shall by the said name sue and be sued.
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1. Subs. by Act 56 of 1956, sec. 3, for "acquire and to hold" (w.e.f. 1-10-1956).
(1) Notwithstanding anything contained in section 3, two or more States may, after consultation with the 2[Small Industries Bank], enter into an agreement that there shall be one Financial Corporation for the group of States participating in the agreement and if the agreement is published in the Official Gazette of each of those States, the Central Government may, by notification in the Official Gazette, establish a Joint Financial Corporation to serve the needs of those States under such name as may be specified in the notification.
(2) An inter-State agreement under sub-section (1) among the participating States may—
(a) provide for the fixation of the authorised capital of the Joint Financial Corporation, the number of fully paid-up shares into which it shall be divided and the allocation among the participating States of the
1[(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 to 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
2[(1) The State Government may, in consultation with the 3[Small Industries Bank], specify from time to time such part of the unissued capital of the Financial Corporation as shall be allocated for the issue of a special class of shares.]
(2) The special class of shares so allocated under sub-section (1), shall be,—
(a) divided into such number of shares of the same face value as the State Government may, in consultation with the 3[Small Industries Bank], determine;
(b) subscribed by the State Government and the 4[Small Industries Bank] and they may do so in such proportion as may be agreed upon by and between them and the Financial Corporation shall make allotment of such shares accordingly.
(3) The funds representing the capital sub
On such date as the Central Government may, by notification in the Official Gazette, specify (hereinafter referred to as the specified date), all the shares of every Financial Corporation subscribed by the Reserve Bank as on the date immediately preceding the specified date, shall, stand transferred to, and vested in, the Development Bank.
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1. Ins. by Act 52 of 1975, sec. 27 (w.e.f. 16-2-1976).
The Reserve Bank shall be given by the Development Bank, in cash, for the transfer to, and vesting in, the Development Bank of the shares of every Financial Corporation which have been subscribed by the Reserve Bank, an amount equal to the face value of the shares of the Financial Corporation so subscribed.]
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1. Ins. by Act 39 of 2000, sec. 6 (w.e.f. 5-9-2000).
(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 shareholers:
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 pref
(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 s
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.]
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1. Ins. by Act 39 of 2000, sec. 6 (w.e.f. 5-9-2000).
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.]
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1. Ins. by Act 39 of 2000, sec. 6 (w.e.f. 5-9-2000).
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.]
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1. Ins. by Act 39 of 2000, sec. 6 (w.e.f. 5-9-2000).
Section 4(h) of the State Financial Corporations Act, 1951, pertains to the provisions related to the share capital and shareholders of a Financial Corporation established under the Act. It plays a crucial role in defining the structure, ownership, and capital management of these corporations, which are instrumental in financing industrial concerns and promoting economic development.
Section 4(h) specifies the authority of the State Government to issue and sell bonds and debentures for increasing the working capital of the Corporation. It also provides that the shares of the Corporation may be transferred to the Development Bank or other specified institutions, and outlines the procedures for such transfers and issuance of securities.
The scope encompasses:- Capital augmentation through bonds and debentures.- Structural modifications involving share transfers to other financial institutions.- Regulation of ownership and control, especially in context of financial stability and development.- Ensuring the Corporation's capacity to fund industrial projects effectively.- Facilitating the transfer of shares to promote broader financial integration, such as with the Small Industries Bank or Development Bank.
Section 4(h) itself does not prescribe specific punishments. Its violations, such as unauthorized issuance or transfer of shares, could attract penalties under the broader provisions of the Act, including penalties for contravention of the Act or rules made thereunder. Penalties may include fines or imprisonment, depending on the nature of the contravention.
Capital Raising - Section 4(h) authorizes the Corporation to issue bonds and debentures to augment working capital, facilitating industrial financing. [Section 4(h), The State Financial Corporations Act, 1951]
Share Transfer Authority - Empowers the State Government to transfer share capital to the Small Industries Bank or other institutions, enabling capital restructuring and strategic alliances. [Section 4H, The State Financial Corporations Act, 1951]
State's Role - Highlights the active role of the State Government in capital management and strategic control over the Corporation’s financial structure. [Section 4(h), The State Financial Corporations Act, 1951]
Financial Stability - Ensures that the Corporation maintains adequate capital through issuance of bonds/debentures, supporting its financial stability and capacity to lend. [Section 4(h), The State Financial Corporations Act, 1951]
Ownership and Control - Clarifies that shareholding can be transferred to statutory bodies, affecting control and ownership patterns within the Corporation. [Section 4(h), The State Financial Corporations Act, 1951]
Legal Framework for Capital Transactions - Provides a statutory basis for issuing and transferring shares, ensuring transparency and compliance with regulatory norms. [Section 4(h), The State Financial Corporations Act, 1951]
Amendments and Updates - The section has been amended to include provisions for transfer of share capital to the Small Industries Bank, reflecting evolving financial policies. [Section 4H, The State Financial Corporations Act, 1951]
Implication for Shareholders - Shareholders' rights and obligations are influenced by these provisions, especially in terms of share transfer and capital infusion mechanisms. [Section 4(h), The State Financial Corporations Act, 1951]
Interplay with Other Laws - The section operates in conjunction with the Companies Act, 1956, and other financial regulations, ensuring a cohesive legal framework. [Section 4(h), The State Financial Corporations Act, 1951]
Regulatory Oversight - The provisions facilitate oversight by the State and Central Governments over financial and ownership transactions of the Corporation. [Section 4(h), The State Financial Corporations Act, 1951]
Funding and Development - Critical for mobilizing funds for industrial development, especially through bonds and share transfers to specialized banks. [Section 4(h), The State Financial Corporations Act, 1951]
Legal Certainty - Ensures legal certainty in the issuance and transfer of securities, which is vital for investor confidence and market stability. [Section 4(h), The State Financial Corporations Act, 1951]
Policy Alignment - Aligns with broader economic policies aimed at promoting small industries and infrastructure development via financial institutions. [Section 4(h), The State Financial Corporations Act, 1951]
Implication for Governance - Affects governance structures, including the composition of the Board, shareholding patterns, and capital management strategies. [Section 4(h), The State Financial Corporations Act, 1951]
Legal Precedents - Judicial decisions have upheld the validity of such provisions, emphasizing their role in financial regulation and corporate governance. [Section 4(h), The State Financial Corporations Act, 1951]
Potential for Disputes - Disputes may arise regarding the validity of share transfers or issuance of bonds, which courts resolve based on these statutory provisions. [Section 4(h), The State Financial Corporations Act, 1951]
In summary, Section 4(h) of the State Financial Corporations Act, 1951, provides a vital legal framework for the financial management and structural reorganization of State Financial Corporations, ensuring their capacity to mobilize funds, transfer shares, and align with developmental policies. It underscores the role of the State in maintaining the financial health and strategic control of these institutions, with implications spanning corporate governance, legal compliance, and economic development.
(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
(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 s
(1) The Financial Corporation may issue and sell bonds and debentures for the purpose of increasing its working capital.
(2) The State Government may, on a request being made to it by the Financial Corporation, guarantee the bonds and debentures issued by the Financial Corporation as to the repayment of principal and the payment of interest at such rate as may be fixed by that Government.
(3) Notwithstanding anything contained in the Acts hereinafter mentioned in this sub-section, such of the bonds and debentures issued by the Financial Corporation as are guaranteed by the State Government as to the repayment of the principal and payment of interest and receipts issued by it for such of deposits as are guaranteed by the State Government as to the repayment of the principal and payment of interest shall be deemed to be included among the
(1) The Financial Corporation may accept from the State Government, or with the prior approval of the Reserve Bank, from a local authority or any other person deposits repayable after the expiry of a period which shall not be less than twelve months from the date of the making of the deposit and on such other terms as the Board thinks fit:
Provided that the total amount of such deposits shall not exceed twice the paid-up share capital of the Financial Corporation:
Provided further that the State Government may permit the Financial Corporation to accept deposits up to a higher limit not exceeding ten times the paid-up share capital of the Financial Corporation.
(2) Any depsoit accepted under sub-section (1), other than a deposit from the State Government may, if so required by the Financial Cor
(1) The general superintendence, direction and management of affairs and business of the Financial Corporation shall vest in a Board of Directors which may exercise all powers and do all such acts and things, as may be exercised or done by the Financial Corporation and are not by this Act expressly directed or required to be done by the Financial Corporation in general meeting.
(2) The Board may direct that any power exercisable by it under this Act shall also be exercisable in such cases and subject to such conditions, if any, as may be specified by it, by the chairman, managing director or the whole-time director.
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1. Subs. by Act 39 of 2000, sec. 7, for section 9 (w.e.f. 5-9-2000).
The Board of directors shall consist of the following, namely:—
(a) a director to be nominated as chairman under sub-section (1) of
section 15;
(b) two directors nominated by the State Government of whom one director shall be a person who has special knowledge of or experience in small-scale industries:
Provided that in the case of a Joint Financial Corporation, the number of directors shall be such as the State Governments of the participating States may, by agreement among themselves, think fit to nominate each participating State Government nominating not more than two directors:
Provided further that in the case of a Joint Financial Corporation, the di
(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.
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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 th
1[(1)] The State Government may remove 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.
2[(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 resonable 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 suc
(1) The Managing Director may, by giving notice in writing to the State Government, and any Director elected under clause (d) or clause (e) of section 10 may, by giving notice in writing to the Chairman of the Board, resign his office, and, on such resignation being accepted, shall be deemed to have vacated his office.
(1A) If the Managing Director is by infirmity or otherwise rendered incapable of carrying out his duties or is absent on leave or otherwise in circumstances not involving the vacation of his appointment, the State Government may, after consultation with the Board, appoint another person to act in his place during his absence.
(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.
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(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.]
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1. Subs. by Act 39 of 2000, sec. 12, for section 15 (w.e.f. 5-9-2000).
The directors other than the managing director and not being servants of the Government shall be paid such fees as may be prescribed for attending meetings of the Board and, if they are members of the Executive Committee, or any other committee appointed by the Financial Corporation, for attending meetings of such committee.]
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1. Subs. by Act 6 of 1962, sec. 7, for section 16 (w.e.f. 16-4-1962).
1[(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.]
2[(2) The State Government may, after consulting the
(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.]
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(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 regulation 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.
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3[(5) If for any reason the Chairman of the Board or the Chairman of the Executive Committee is unable to attend any meeting of the Board or, as the case may be, of the Exe
(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 1[shall, after confirmation thereof at the next meeting of the Executive Committee, be laid] before the Board at the next following meeting of the Board.
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1. Subs. by Act 43 of 1985, sec. 13, for "shall be laid" (w.e.f. 21-8-1985).
The Financial Corporation may appoint 1[one or more committee or committees consisting wholly of directors or wholly of other persons or partly of directors and partly of other persons] 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.
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1. Subs. by Act 43 of 1985, sec. 14, for "one or more advisory committee or committees" (w.e.f. 21-8-1985).
The Financial Corporation shall establish its head office and other offices and agencies at such places as the State Government may, from time to time specify and save as aforesaid, the Financial Corporation may establish additional offices or agencies in such other places within the State as it may consider necessary.]
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1. Subs. by Act 77 of 1972, sec. 13, for section 22 (w.e.f. 30-12-1972).
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:
1[***]
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1. Proviso added by Act 77 of 1972, sec. 14 (w.e.f. 30-12-1972) and omitted by Act 39 of 2000, sec. 16 (w.e.f. 5-9-2000).
The Board in discharging its functions under this Act shall act on business principles due regard being had by it to the interests of industry, commerce and the general public.
(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 concern 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 concerns in connection with its purchase of capital goods within India;
(c) underwriting of the issue of stock, shares, b
The Financial Corporation shall have the right to acquire, by transfer or assignment, the rights and interests of any such financial institution as may be notified by the Central Government (including any other rights incidental thereto) in relation to any loan or advance granted or any amount recoverable by such institution, either in whole or in part, by the execution or issue of any instrument or by the transfer of any instrument by endorsement or in any other manner:
Provided that such loan or advance or amount relates to any business which the Financial Corporation may transact under this Act.]
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1. Ins. by Act 43 of 1985, sec. 16 (w.e.f. 21-8-1985).
The Financial Corporation may receive gifts, grants, donations or benefactions from Government or any other source.]
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1. Ins. by Act, 39 of 2000, sec. 18 (w.e.f. 5-9-2000).
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 (l) 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, 1
(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.
1[(2) Where any arrangement entered into by the Financial Corporation with an industrial concern provides for the appointment by the Financial Corporation of one or more directors of such industrial concern, such provision and any appointment of directors made in pursuance thereof shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956) or in any other law for the time being in force or in the memorandum, articles of association or any other instrument relating to the industrial concern, an
1[(1)] The Financial Corporation shall not—
2[(a) except as provided in section 8, accept deposits;
(b) except as provided in clauses 3[(da)], (f) and (g) of sub-section (1) of section 25, subscribe to the shares or stock of any company;]
(c) grant any loan or advance on the security of its own shares;
4[(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.]
3[(2
(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof 1[or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the 2[right to take over the management orpossession or both of the industrial concerns], as well as the 3[right to transfer by way of lease or sale] 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 4[***] under sub-section (1), shall vest in the transferee all rights in or to the property transferred 5[as if the transfer] had been made by t
Notwithstanding anything 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
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(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof 1[or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails 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, 2[then, without prejudice to the provisions of section 29 of this Act and of section 69 of the Transfer of Property Act, 1882 (4 of 1882)] 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 follow
(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 injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment.
1[(1A) When the application is for the relief mentioned in clause (aa) of sub-section (1) of section 31, the district judge shall issue a notice calling upon the surety to show cause on a date to be specified in the notice why his liability should not be enforced.]
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(1) When the management of an industrial concern is taken over by the Financial Corporation, the Financial Corporation may, by order notified in the Official Gazette, appoint as many persons as it thinks fit,—
(a) in any case in which the industrial concern is a company as defined in the Companies Act, 1956 (1 of 1956) to be directors of that industrial concern; or
(b) in any other case, to be administrators of that industrial concern.
(2) The power to appoint directors or administrators under this section includes the power to appoint any individual, firm or company to be the managing agent or manager of the industrial concern on such terms and conditions as the Financial Corporation may think fit.]
2[(3) Nothing in the Companies Ac
On the issue of a notified order under section 32A.—
(a) in any case in which the industrial concern is a company as defined in the Companies Act, 1956 (1 of 1956) all persons holding office as directors of the industrial concern and in any other case, all persons holding any office having the powers of superintendence, direction and control of the industrial concern, immediately before the issue of the notified order, shall be deemed to have vacated their offices as such;
(b) any contract of management between the industrial concern and any managing agent or any director or manager thereof holding office as such immediately before the issue of the notified order shall be deemed to have terminated;
(c) in the case of an industrial concern which is a company as defined in
(1) Subject to the control of the Financial Corporation, the directors, or as the case may be, the administrators appointed under section 32A, shall take such steps as may be necessary for the purpose of efficiently managing the business of the industrial concern and shall exercise such powers and have such duties as may be prescribed.
(2) Without prejudice to the generality of the powers vested in them under sub-section (1), the directors or as the case may be, the administrators appointed under section 32A, may, with the previous approval of the Financial Corporation, make an application to a court for the purpose of cancelling or varying any contract or agreement entered into at any time before the issue of the notified order under section 32A, between the industrial concern and any other person and the court may, if satisfied after due inquiry that such contract or agreement
(1) Where the management of an industrial concern not being a company as defined in the Companies Act, 1956 (1 of 1956) is taken over by the Financial Corporation, no suit or proceedings for dissolution or for partition shall, insofar as it relates to that industrial concern, lie in any court or before any tribunal or other authority except with the consent of the Financial Corporation.
(2) No proceeding for the appointment of any official assignee or receiver in relation to any industrial concern the management of which has been taken over by the Financial Corporation shall lie in any court except with consent of the Financial Corporation.]
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1. Ins. by Act 56 of 1956, sec. 17 (w.e.f. 1-10-1956).
Where any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorised by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it, and if the State Government or such authority, as that Government may specify in this behalf, is satisfied, after following such procedure as may be prescribed, that any amount is so due, it may issue a certificate for that amount to the Collector, and the Collector shall proceed to recover that amount in the same manner as an arrear of land revenue.]
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1. Ins. by Act 43 of 1985, sec. 21 (w.e.f. 21-8-1985).
(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 fund shall be deposited in the Reserve Bank 1[or the State Bank of India or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959)] 2[or in any of the banks specified in column 2 of the First Schedule to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) 3[or any of the banks specified in column 2 of the First Schedule to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980)] 4[or, in consultation with the Reserve Bank, in a scheduled bank or a State Co-operative Bank].
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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.]
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1. Subs. by Act 39 of 2000, sec. 21, for section 34 (w.e.f. 5-9-2000).
(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:
1[***]
2[***]
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1. The proviso omitted by Act 39 of 2000, sec. 22 (w.e.f. 5-9-2000).
2. Sub-section (3) omitted by Act 77 of 1972, sec. 23 (w.e.f. 30-12-1972).
(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 Coporation 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 a
(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 1[four 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[(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 auditors report on the balanc
1[(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.]
(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 thereto, 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 directo
(1) The 3[Small Industries Bank] at any time may, with the approval of the Central Government, and on being directed so to do by that Government shall cause an inspection to be made by one or more of its officers of the working of any Financial Corporation and its books and accounts; and the 2[Small Industries Bank] shall send the report of such inspection to the Central Government and to the State Government and shall supply a copy thereof to the Financial Corporation.
(2) It shall be the duty of every director or every officer of the Financial Corporation to produce to any officer making an inspection under sub-section (1) all such books, accounts and other documents in his custody or power and to furnish him with any statement and information relating to the affairs of the Financial Corporation as the said officer may require of him within such time as the said officer may sp
1[(1) The Financial Corporation shall furnish to the State Government, the 2[Small Industries Bank] and the Reserve Bank such statements and returns in such form as the State Government, the 2[Small Industries Bank] or the Reserve Bank may require from time to time.]
(3) The Financial Corporation shall furnish 3[to the State Government, the 2[Small Industries Bank] and the Reserve Bank] within 4[four 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.
(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 1[in consultation with 2[and after obtaining the advice of,] the 3[Small Industries Bank]].
(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.
4[(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 poli
(1) Every director shall be indemnified by the Financial Corporation against all losses and expenses incurred by him in the discharge of his duties except such as are caused by his own wilful act or default.
(2) A director shall not be responsible for any other 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.
(1) Notwitstanding 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 depsoitor 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 depsoits, bonds or securities.]
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1. Ins. by Act 39 of 2000, sec. 30 (w.e.f. 5-9-2000).
(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 oth
For the purposes of the 1[Income-tax Act, 1961(43 of 1961)], 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 2[***] 3[section 7 or section 8] shall not be treated as the income, profits and gains of the Financial Corporation and any interest on debentures, 4[bonds or deposits] 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 paid out of any such sum advanced by the State Government shall be deemed to be 5[his] income from “interest on securities” 6[and the income-tax sha
The Board may, by general or special order, delegate to the managing director or to any other officer of the Financial Corporation 2[or to any committee appointed under section 21] subject to such conditions and limitations, if any, as may be specified in the order such of its powers and duties under this Act as it may deem necessary.]
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1. Ins. by Act 6 of 1962, sec. 23 (w.e.f. 16-4-1962).
2. Ins. by Act 43 of 1985, sec. 27 (w.e.f. 21-8-1985).
(1) The minutes of every meeting of the committee appointed under section 21 shall, after confirmation thereof at the next meeting of the committee, be laid before the Board at the next following meeting of the Board.
2[***]]
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1. Ins. by Act 43 of 1985, sec. 28 (w.e.f. 21-8-1985).
2. Sub-section (2) omitted by Act 39 of 2000, sec. 32 (w.e.f. 5-9-2000).
The Financial Corporation shall be deemed to be a bank for the purposes of the Bankers Books Evidence Act, 1891 (18 of 1891).
No provision of law relating to 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 45 of the State Financial Corporations Act, 1951, deals with the liquidation of the Corporation, explicitly stating that provisions related to the winding up of companies or corporations shall not apply to the Financial Corporation. This section underscores the unique status and functions of the Corporation, emphasizing its immunity from general liquidation laws and highlighting its special statutory framework.
Section 45 establishes that no law concerning the winding up of companies or corporations shall be applicable to the Financial Corporation. It further stipulates that the Corporation shall not be placed in liquidation except by order of the State Government and in the manner directed by it. Essentially, the section provides that the Corporation is immune from the usual winding-up procedures and is governed by its specific statutory provisions.
While Section 45 itself does not specify penalties, violation of its provisions—such as attempting to wind up the Corporation contrary to the section—could lead to legal consequences, including contempt of statutory authority or invalidation of proceedings. Any attempt to wind up the Corporation in contravention of Section 45 would be void and subject to legal challenge.
In conclusion, Section 45 of the State Financial Corporations Act, 1951, provides the Corporation with a unique legal status, exempting it from the general winding-up provisions, and conferring exclusive authority on the State Government to order liquidation. This ensures the operational stability and financial autonomy of the Corporation, aligning with its purpose of promoting industrial development and financial stability.
(1) Where a Financial Corporation has been established for any State 2[and one or more other States not served in whole or in part by a Financial Corporation] desires that the Financial Corporation 3[should serve the needs of those States or of any area therein], and the States, after consultation with the 4[Small Industries Bank], enter into an agreement which is published in the Official Gazettes of each of those States, then the Financial Corporation shall, on the issue of a notification in the Official Gazette by the Central Government, serve the needs of those States 5[or, as the case may be, of the area therein] in terms of the agreement 5[and any Financial Corporation or any State may enter into separate or successive agreements as aforesaid with one another or with other Financial Corporations of States and in relation to different areas of the States].
4[(1A) Any agree
The State Government may [by notification in the Official Gazette,] make 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.
(1) The Board may, after consultation with the 1[Small Industries 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 foregoing 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;
&n
2[***] and every regulation made under section 48 shall be laid, as soon as may be after it is made, before the State Legislature.]
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1. Ins. by Act 4 of 1986, sec. 2 and Sch. (w.e.f. 15-5-1986).
2. The words "Every rule made under section 47 and "omitted by Act 39 of 2000, sec. 36
(w.e.f. 5-9-2000)
(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 su
If any difficulty arises in giving effect to the provisions of this Act, as amended by the Public Financial Institutions Laws (Amendment) Act, 1975 (52 of 1975), the Central Government may, by order, do anything, not inconsistent with such provisions, for the purpose of removing the difficulty:
Provided that no such order shall be made after the expiration of three years from the commencement of the said Amendment Act.]
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1. Ins. by Act 52 of 1975, sec. 39 (w.e.f. 16-2-1976).
1[(1) The Financial Corporation shall not, except as otherwise required by this Act or any other law for the time being in force, divulge any information relating to, or to the affairs of, its constituents except in circumstances in which it is, in accordance with the law or practice and usage, customary among bankers, necessary or appropriate for the Financial Corporation to divulge such information.
(2) The Financial Corporation may, for the purpose of efficient discharge of its functions under this Act, collect from, or furnish to--
(a) the Central Government;
(b) the State Bank of India constituted under Section 3 of the State Bank of India Act, 1955 (23 of 1955), any subsidiary bank within the meaning of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), any corresponding
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