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STATE FINANCIAL CORPORATIONS ACT

Ministry of Law and Justice

Act nº 63 of 1951


  • Chapter I
  • Chapter II
  • Chapter III
  • Chapter IV
  • Chapter V
  • Schedules
  • Act nº 63 of 1951

Preamble

THE STATE FINANCIAL CORPORATIONS ACT, 19511

[Act, No. 63 of 1951]

[31st October, 1951]

PREAMBLE

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

Be it enacted by Parliament as follows:--

1. This Act has been extended to Dadra and Nagar Naveli by Reg. 6 of 1963, section. 2 and Schedule I; to Pondicherry by Reg. 7 of1963, section. 3 and Sch. I; to Goa, Daman and Diu by Reg. 11 of 1963, section. 3 and Schedule And to the State of Sikkim on 24-10-1975, vide Notification No. S.O. 615 (E), dated 23rd October, 1975.


Chapter I

Section 1. Short title, extent and commencement

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

(2) It extends to the whole of India1[* * *].

(3) It shall come into force in any State on such date2as the Central Government may, by notification in the Official Gazette, appoint.

1.The words "except the State of Jammu and Kashmir" omitted by Act 62 of 1956, section. 2 and Sch. (w.e.f. 1-11-1956).

2.Came into force on 1-8-1952 9in 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, Part. II, Section. 3, p.1163.


Section 2. Definitions

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) mining or development of mines;]

(iii) the hotel industry;

(iv) the transport of passengers or goods by road or by water or by air5[or by ropeway or by lift];

(v) the generation or distribution of electricity or any other form of power;

(vi) the maintenance, repair, testing or servicing of machinery of any description or vehicles or vessels or motor boats or trailers or tractors;

(vii) assembling, repairing or packing any article with the aid of machinery or power;

6[(viii) the setting up or development of an industrial area or industrial estate;]

(ix) fishing or providing shore facilities for fishing or maintenance thereof;7[* * *]

8[(x) providing weight bridge facilities;

9[(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 or electronics including satellite linkage and audio or visual cable communication;]]

8[(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 of 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;]

10[Explanation I.--The expression "processing of goods" includes any art or process for producing, preparing or making an article by subjecting any material to a manual, mechanical, chemical, electrical or any other like operation.]

11[If any doubt arises as to whether a concern is an industrial concern or not, the same shall be referred to the12[Small Industries Bank] for its decision and the decision of the12[Small Industries Bank) thereon shall be final;]

(d) "prescribed" means prescribed by rules or regulations made under this Act;

13[(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 under 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);]

(e) "Reserve Bank" means the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934 (2 of 1934);

(f) "scheduled bank" means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);

13[(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);]

14[(fb) "State Co-operative Bank" shall have the meaning assigned to it in Clause (f) of Section 2 of the Reserve Bank of India Act, 1934 (2 of 1934);

14[(fc) "State Government", in relation to a Union Territory, means the Administrator thereof;]

(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.

1. Inserted by Act 77 of 1972, section. 2 (w.e.f. 30-12-1972).

2. Substituted by Act 56 of 1956, section. 2, for clause (b) (w.e.f. 1-10-1956).

3. Substituted by Act 77 of 1972, section. 2, for clause (c) (w.e.f. 30-12-1972).

4. Substituted by Act 43 of 1985, section. 2, for sub-clause (ii) (w.e.f. 21-8-1985).

5. Inserted by Act 43 of 1985, section. 2, (w.e.f. 21-8-1985).

6. Substituted by Act 43 of 1985, section. 2, for sub-clause (viii) (w.e.f. 21-8-1985).

7. The word "or" omitted by Act 43 of 1985, section. 2 (w.e.f. 21-8-1985).

8. Substituted by Act 39 of 2000, section. 2, for clauses (x) to (xiii) (w.e.f. 5-9-2000).

9. Clauses (xi) (xiii) Inserted by Act 43 of 1985, section. 2 (w.e.f. 21-8-1985) and Substituted by Act 39 of 2000, section. 2 (w.e.f. 5-9-2000).

10. Explanation renumbered as Explanation 1 by Act 43 of 1985, section. 2 (w.e.f. 21-8-1985). Explanation 2.--

11.Inserted by Act 43 of 1985, section 2 (w.e.f.21-8-1985).

12.Substituted by Act 39 of 200, section. 2 (w.e.f. 5-9-2000).

13. Inserted by Act 39 of 2000, section. 2 (w.e.f. 5-9-2000).

14. Clauses (ff) and (fff) Substituted by Act 6 of 1962, section. 2, for clause (f) (w.e.f. 16-4-1962) and relettered as clauses (fb) and (fc) by Act 39 of 2000, section. 2 (w.e.f. 5-9-2000)


Chapter II

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 notified under Sub-section (1), having perpetual succession and a common seal, with power, subject to the provisions of this Act, to1[acquire, hold and dispose of] property and shall by the said name sue and be sued.

1. Substituted by Act 56 of 1956, section 3, for "acquire and to hold" (w.e.f. 1-10-1956).


Section 3A. Establishment of Joint Financial Corporations

1[3A. Establishment of Joint Financial Corporations

(1) Notwithstanding anything contained in Section 3, two or more States may, after consultation with the2[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 shares to be distributed under Clause (a) of Sub-section (3) of Section 4;

(b) provide for the sharing of the liability for me guarantee under Section 6 or Section 73[or Section 8];

(c) provide for the number of directors to be nominated to the Board by each participating State Government;

(d) provide for the apportionment among the participating States of expenditure in connection with the Joint Financial Corporation;

4[* **]

(f) determine which of the participating State Governments shall exercise the several functions of the State Government under this Act, and references in this Act to the State Government, in relation to the Joint Financial Corporation, shall, save as otherwise expressly provided, be construed accordingly;

(g) provide for consultation among the participating States either generally or with reference to particular matters arising under this Act;

(h) make such incidental and consequential provisions, not inconsistent with this Act, as may be deemed necessary or expedient for giving effect to the agreement.

(3) The Joint 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 acquire, hold and dispose of property and shall by the said name sue and be sued.

(4) Any reference in this Act to "State" in relation to a Joint Financial Corporation established for two or more States, shall be construed as a reference to each such State.]

1. Inserted by Act 56 of 1956, section 4 (w.e.f. 1-10-1956).

2. Substituted by Act 52 of 1975, section 24, for "Reserve Bank" (w.e.f. 16-2-1976) and again Substituted by Act 39 of 2000, section 3, for "Development Bank" (w.e.f. 5-9-2000).

3. Inserted by Act 6 of 1962, section 3 (w.e.f. 16-4-1962).

4. Clause (e) omitted by Act 43 of 1985, section 3 (w.e.f. 21-8-1985).


Section 4. Share capital and share-holders

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 issued at such times and in such manner as the State Government may, by notification in 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 the 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.]

(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.

2[(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 equally by the State Government and the3[Small Industries Bank].]

1. Substituted by Act 39 of 2000, section 4, for sub-sections (10, (2) and (3) (w.e.f. 5-9-2000).

2. Substituted by Act 43 of 1985, section 4, for sub-section 95) (w.e.f. 21-8-1985).

3. Substituted by Act 39 of 2000, section 4 for "Development Bank" (w.e.f. 5-9-2000).


Section 4A. Special class of shares

1[4A. Special class of shares.]

2[(1) The State Government may, in consultation with the3[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 the4[Small Industries Bank], determine;

(b) subscribed by the State Government and the4[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 subscribed as aforesaid shall be used only for such purposes, in such manner and for rendering assistance to such class or category of industrial concerns, as the4[Small Industries Bank] may, in consultation with and after obtaining the advice of the State Government, specify in this behalf from time to time and nothing contained in5[***] Section 48 shall apply thereto.

(4) The rate of dividend declared on the special class of shares in respect of any accounting year of a Financial Corporation shall not exceed the rate of dividend in respect of its other shares.

(5) Nothing contained in Sub-sections (2) to (5) of Section 4, Section 5, and6[Sub-sections (1) to (4) of Section 6], shall apply to the special class of shares.]

1. Inserted by Act 77 of 1972, section 4 (w.e.f. 30-12-1972).

2. Substituted by Act 52 of 1975, section 26, for sub-section (1) (w.e.f. 16-2-1976).

3. Substituted by Act 39 of 2000, section 5, for "Development Bank" (w.e.f. 5-9-2000)

4. Substituted by Act 52 of 1975, section 26, for "Reserve bank" (w.e.f. 16-2-1976) and again Substituted by Act 39 of 2000, section 5, for "Development Bank" (w.e.f. 5-9-5000).

5. The words "section 47 of" omitted by Act 39 of 2000, section 5 (w.e.f. 5-9-2000).

6. Substituted by Act 39 of 2000, section 5, for "sub-section (1) of section 6" (w.e.f. 5-9-2000).


Section 4B. Transfer of share capital to Development Bank

1[4B. Transfer of share capital to Development Bank

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.]

1. Inserted by Act 52 of 1975, section 27 (w.e.f. 16-2-1976).


Section 4C. Payment of amount

1[4C. Payment of amount--

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.]

1. Inserted by Act 52 of 1975, section 27 (w.e.f. 16-2-1976).


Section 4D. Issue of redeemable preference shares

1[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 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 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.

1. Inserted by Act 39 of 2000, section 6 (w.e.f. 5-9-2000).


Section 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.

Section 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 (o exercise voting rights in respect of any equity share held by him in excess of ten per cent, of the issued equity capital.

Section 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 voles, if any, cast against the resolution by shareholders so entitled and voting.