State Financial Corporation Act, 1951

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

(2) It extends to the whole of India.

(3) It shall come into force in any State on such date 1 as the Central Government may, by notification in the Official Gazette, appoint.

In this Act unless the context otherwise requires-

(a) "Board" means the Board of Directors of the Financial Corporation;

(aa) "Development Bank" means the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);

(b) "Financial Corporation" means a Financial Corporation established under section 3 and includes a Joint Financial Corporation established under section 3A;

(c) "industrial concern" means any concern engaged or to be engaged in-

(i) the manufacture, preservation or processing of goods;

2[(ii) mining or development of mines;]

(iii) the hotel industry;

(iv) the transport of passengers or goods by road or by water or by air 3[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;

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

(ix) fishing or providing shore facilities for fishing or maintenance thereof; 4[***]

(x) providing special or technical knowledge or other services for the promotion of industrial growth;

3[(xi) providing weighbridge facilities;

(xii) the research and development of any process or product in relation to any of the matters aforesaid; or

(xiii) such other activity as may be approved by the Development Bank.]

5[Explanation 1]: 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.]

3[Explanation 2: If any doubt arises as to whether a concern is an industrial concern or not, the same shall be referred to the Development Bank for its decision and the decision of the Development Bank thereon shall be final.]

(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 (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);

(ff) "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);

(fff) "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) 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 acquire, hold and dispose of property and shall by the said name sue and be sued.

(1) Notwithstanding anything contained in section 3, two or more States may, after consultation with the Development 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 and 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 authorized 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 the guarantee under section 6 or section 7 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;

(e) [Omitted by Act No. 43 of 1985]

(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) The authorized capital of the Financial Corporation shall be such sum as may be fixed by the State Government in this behalf, 2[but it shall be less than fifty lakh of rupees or exceed fifty crores of rupees:

PROVIDED that the Central Government may, on the recommendation of the Development Bank, by notification in the Official Gazette, increase the authorized capital up to one hundred crores of rupees.]

2[(2) The authorized capital shall be divided into such manner of fully paid up shares of the same face value and shall be issued to the parties mentioned in sub-section (3) at such times and in such manner as the State Government may, by notification in the Official Gazette, determine:

PROVIDED that no such notification shall be necessary when the shares are to be issued to the parties mentioned in clauses (a) and (ba) of sub-section (3).

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

(a) the State Government,

(b) the Reserve Bank,

(ba) the Development Bank,

(c) scheduled banks, insurance companies (including the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956)], investment trusts, co-operative banks, 2[other financial institutions or such other institutions as the Central Government may notify in this behalf in the Official Gazette], and

(d) parties other than those referred to in clauses (a), (b), (ba) 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.

2[(5) If any shares allocated to any of the parties referred to in clause (c) and (d) of sub-section (3) remain unsubscribed, they shall be subscribed for equally by the State Government and the Development Bank.]

(1) The State Government may, in consultation with the Development Bank, specify from time to time such part of the Unicode 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 Development Bank determine;

(b) subscribed by the State Government and the Development 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 the Development 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 in section 47 or 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-section (2) to (5) of section 4, section 5, and sub-section (1) of section 6, shall apply to the special class of shares.

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.

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) The shares of the Financial Corporation shall not be transferable except to the State Government, the Reserve Bank, the Development Bank] or any other financial institution or class of financial institutions recognized in this behalf by the State Government 3[for other institutions notified under clause (c) of sub-section (3) of section 4:

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.

(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, 2[the shares of the Financial Corporation, and such of the bonds and debentures issued by it 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 securities enumerated in section 20 of the Indian Trust Act, 1882 (2 of 1882) and also to be approved securities for the purposes of the Insurance Act, 1938 (4 of 1938) and the 7[Banking Regulation Act, 1949 (10 of 1949)].

(1) The Financial Corporation may, in consultation with the Development Bank and the Reserve Bank, issue and sell bonds and debentures carrying interest for the purpose of increasing its working capital and such bonds and debentures 8[shall, if so required by the Financial Corporation, 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 based on the advice of the Reserve Bank fix 6[***].

(2) The Financial Corporation may, for the purpose of carrying out its functions under this Act, borrow money from the Reserve Bank-

(a) repayable on demand or on the expiry of a fixed period not exceeding ninety days from the date on which the money is so borrowed against the security of-

(i) stocks, funds and securities (other than immovable property) in which a trustee is authorized to invest trust money by any law for the time being in force in India, or

(ii) such bills of exchange and promissory notes as are eligible for purchase or rediscount by the Reserve Bank or as are fully guaranteed as to the repayment of the principal and payment of interest by the State Government;

(b) repayable on the expiry of a fixed period not exceeding eighteen months from the date on which the money is so borrowed, against securities of the Central Government or of any State Government of the maturity, or subject to the previous approval of the State Government, against bonds and debentures issued by the Financial Corporation and maturing within a period not exceeding eighteen months from the date on which the money is so borrowed and every such bond and debenture shall be guaranteed by the State Government:

PROVIDED that the amount borrowed by the Financial Corporation under clause (b) shall not at any time exceed in the aggregate 9[twice] the paid up share capital thereof.

(2A) No money shall be borrowed by the Financial Corporation from the Reserve Bank under sub-section (2), except with the previous approval of the Development Bank.]

(3) The Financial Corporation may, for the purposes of carrying out its functions under this Act, borrow money from the State Government in consultation with the Development Bank and] the Reserve Bank on such terms and conditions as may be agreed upon.

(4) The Financial Corporation may, with the prior approval of the Development Bank, also borrow money from any financial institution notified in this behalf by the Central Government on such terms and conditions as may be agreed upon.

(5) The total amount of bonds and debentures issued and outstanding, the amounts borrowed by the Financial Corporation under clause (b) of sub-section (2), sub-section (3) and sub-section (4) 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 10[* * *] exceed ten times the amount of the paid up share capital and the reserve fund of the Financial Corporation:

3[PROVIDED that the Financial Corporation may, with the prior approval of the Development Bank, exceed the aforesaid limit up to thirty times the amount of the paid up capital and the reserve fund of the Financial Corporation.] 

The rights and interests of the Financial Corporation (including any other rights incidental thereto) in relation to any loan or advance granted or any amount recoverable by it, may be transferred by the Financial Corporation either in whole or in part, by the execution or issue of any instrument or by transfer of any instrument by endorsement or in any other manner in which the rights and interest in relation to such loan or advance may be lawfully transferred, and the Financial Corporation may, notwithstanding such transfer, act as the trustee for the transferee.

(1) The Financial Corporation may accept from the State Government or, with the prior approval of the State Government, the Development Bank and the Reserve Bank, 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 it thinks fit:

2[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 Central 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[(2) Any deposit accepted under sub-section (1), other than a deposit from the State Government shall, if so required by the Financial Corporation, be guaranteed by the State Government as to the repayment of the principal and the payment of interest.]

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 an Executive Committee and a Managing Director may exercise all the powers and discharge all the functions which may be exercised or discharged by the Financial Corporation.

The Board of Directors shall consist of the following, namely:-

(a) four 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 Director, who shall have special knowledge of, or experience in, small-scale industries, shall be nominated by that participating State which, according to the terms of agreement between the participating States, is entitled to make such nomination;

(b) one Director nominated by the Reserve Bank;

(c) two Directors nominated by the Development Bank;

(d) three Directors elected in the prescribed manner 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 11[financial institutions and other institutions];

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

(f) a Managing Director appointed by the State Government in consultation with and after obtaining the advice of the Development Bank and, except in the case of first appointment, also with the Board:

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 purpose 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.

The office of a Director elected under clause (d) of section 10 shall become vacant if he ceases to hold any office in the scheduled bank, insurance company, investment trust, co-operative bank, financial or other institution in which he held any office at the time of his election as such Director.]

(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 the 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 so, however, that no person elected as Director shall hold office for a continuous period exceeding eight years after the rotation of elected Directors has begun.

No person shall be a Director who-

(a) except in the case of 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.

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.

(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.

(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.

(1) The Chairman of the Board shall be one of the Directors 6[***], 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:

3[PROVIDED FURTHER that the same person may be appointed to function both as Chairman and as Managing Director.]

(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 renomination as Chairman.

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.

(1) The Managing Director shall-

(a) be a whole time officer of the Financial Corporation:

PROVIDED that the Board may, if in its opinion it is necessary in the public interest so to do, permit the Managing Director to undertake, at the request of the Central Government or the State Government or the Development Bank, or the Reserve Bank, such part-time honorary work as is not likely to interfere with his duties as Managing Director;

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

(c) hold office for such term not exceeding four years as the State Government may specify and be eligible for re-appointment;

(d) receive such salary and allowances and be subject to other terms and conditions of service as the Board, with the previous approval of the State Government, may determine:

PROVIDED that the first Managing Director shall receive such salary and allowances and be subject to other terms and conditions of service as the State Government may fix.

(2) The State Government may, after consulting the Board, remove the Managing Director from office:

PROVIDED that no Managing Director shall be so removed unless he has been given an opportunity of showing cause against his removal.

(1) The Executive Committee shall consist of the Managing Director who shall be the Chairman of the Committee, and the following other Directors, chosen as follows:-

(a) four Directors elected by the nominated Directors, of whom two shall be from among the Directors nominated by the State Government and two from among the Directors nominated by the Reserve Bank and the Development Bank:

PROVIDED that in the case of a Joint Financial Corporation, in addition to the two Directors elected from among the Directors nominated by the Reserve Bank and the Development Bank, as many Directors as there are participating States shall be elected by the nominated Directors, one each from among the Directors nominated by each of the participating State Government;

(b) one Director 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.

(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.

(3A) If, for any reason, a Director nominated under clause (a) or clause (b) or clause (c) of section 10 is unable to attend any meeting of the Board, the State Government, the Reserve Bank or the Development Bank, as the case may be may depute any other person to attend the said meeting and such person shall for all purposes of the said meeting, be deemed to be a Director nominated under clause (a) or clause (b) or clause (c), as the case may be, of the said section.

(4) If for any reason a Director nominated under clause (a) or clause (b) or clause (c) of section 10 who is a member of the Executive Committee or any other committee is unable to attend any meeting of the Executive Committee or other committee, the State Government, the Reserve Bank or the Development Bank as the case may be, may depute any other person to attend the said meeting and such person shall, for the purposes of the said meeting, be deemed to be a member of such committee.

(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 Executive Committee,-

(a) in the case of the meeting of the Board, a Director 6[***] authorized by the Chairman of the Board in writing shall preside at such meeting, but if the Director so authorized is absent or if no such authorization has been made, the Board may elect a Director to preside at the meeting; and

(b) in the case of the meeting of the Executive Committee, a member authorized in writing by the Chairman of that Committee shall preside at that meeting, but if the member so authorized is absent or if no such authorization has been made, the Committee may elect any of its members to preside at that meeting.

(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 12[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.

The Financial Corporation may appoint 2[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.

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.

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:

PROVIDED that the State Government may, in consultation with and after obtaining the advice of the Development Bank, specify the class or categories of posts in respect of which appointments may be made by the Board on such remuneration and other conditions of service as the Board may determine, and no regulation made under this Act shall apply to such posts in respect of matters so determined by the Board.

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 3[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, bonds or debentures by industrial concerns;

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

(d) acting as agent of the Central Government or the State Government or the Development Bank or the Industrial Financial Corporation of India established under the Industrial Financial Corporation Act, 1948 (15 of 1948), 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] 3[or relating to the business of the Development Bank, Industrial Financial Corporation of India or financial institution];

2[(da) subscribing to, or purchasing of, the stock, shares, bonds or debentures of an industrial concern or any other concern with the prior approval of the Development Bank;]

(e) receiving in consideration of the services mentioned in the preceding clauses such commission as may be agreed upon;

2[(f) retaining as part of its assets any stock, shares, bonds or debentures which it may acquire by subscription or in fulfillment of its underwriting liabilities and disposing of the stock, shares, bonds or debentures so acquired;]

(g) granting loans or advances to, or subscribing to debentures of, an industrial concern, repayable within a period not exceeding 20 years from the date on which they are granted or subscribed to, as the case may be:

13[PROVIDED that the Financial Corporation may, with the prior approval of the Development 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, an industrial concern to which may be attached an option to convert such debentures or loans into stock or shares of the industrial concern:

14[PROVIDED ALSO that] the Financial Corporation may, in the exercise of such option 15[convert the amounts outstanding on such debentures or loans] into stock or shares of the industrial concern and may also subscribe to 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).

3[Explanation : In this clause, the expression "the amounts outstanding on such debentures or loans" shall means 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 stock or shares;]

3[(ga) 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;

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

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

(gd) planning and assisting in the promotion and development of industries;

(ge) doing such other business as the Development Bank may authorize;]

(h) 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) [Omitted by Act No. 43 of 1985]

(3) Subject to the provisions of sub-section (5) of section 7, the aggregate of contingent liabilities of the Financial Corporation under clauses (a), (b), (c) and (ca) of sub-section (1) shall not at any time exceed twice the paid up share capital and reserve fund of the Corporation except with the prior approval of the State Government and in consultation with the Development Bank but in no case shall exceed thrice the paid up share capital and reserve fund of the Corporation.

(4) Nothing contained in this Section shall entitle any Financial Corporation to hold shares in any company, whether as pledge, mortgagee or absolute owner, of an amount exceeding thirty per cent of the subscribed share capital of that company or thirty per cent of its own paid up share capital and free reserves, whichever is less.

(5) If, on the commencement of the State Financial Corporations (Amendment) Act, 1972 (77 of 1972), any Financial Corporation is holding shares in excess of the limits specified in sub-section (4), the Corporation shall report the matter forthwith to the Reserve Bank and shall, within such period as the Reserve Bank may allow, so reduce its share holding as to conform to the provisions of that sub-section. 

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.]

(1) On and from the commencement of the 16[State Financial Corporations (Amendment) Act, 1985 (43 of 1985), the Financial Corporation shall not enter into any arrangements under clause (a), (ca) or (g) 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) 2[Sixty 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) 17[thirty lakhs] of rupees in any other case:]

3[PROVIDED that the Financial Corporation may, with the prior approval of the Development Bank, exceed the limit under clause (i) or clause (ii) up to four times.]

(2) [Omitted by Act No. 43 of 1985.]

(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 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, and any provision regarding share qualification, age limit, number of Directorships, removal of office of Directors and such like conditions contained in any such law or instrument aforesaid shall not apply to any Director appointed by the Financial Corporation in pursuance of the arrangement as aforesaid.

(3) Any Director appointed in pursuance of sub-section (2) shall-

(a) hold office during the pleasure of the Financial Corporation and may be removed or substituted by any person by order in writing by the Financial Corporation;

(b) not incur any obligation or liability by reason only of his being a Director or for anything done or omitted to be done in good faith in the discharge of his duties as a Director or anything in relation thereto;

(c) not be liable to retirement by rotation and shall not be taken into account for computing the number of Directors liable to such retirement.

(1) The Financial Corporation shall not-

(a) except as provided in section 8, accept deposits;

(b) except as provided in clauses (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;

(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 18[three crores of rupees or such higher amount not exceeding thirty crores of rupees as the Central Government may by notification in the Official Gazette, specify].

(2) The Financial Corporation shall not enter into any kind of business with any industrial concern, of which any of the Directors of the Financial Corporation is a proprietor, partner, Director, manager, agent, employee or guarantor, or in which one or more Directors of the financial Corporation together hold substantial interest:

PROVIDED that this section shall not apply to any industrial concern if any Director of the Financial Corporation-

(i) in nominated as a Director of the Board of such concern by the Government or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956), or by a Corporation established by or under any other law; or

(ii) is elected on the Board of such concern by virtue of shares held in the concern by the Government or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or by a Corporation established by or under any other law, by reason only such nomination or election, as the case may be.

Explanation: "Substantial interest" in relation to an industrial concern means the beneficial interest held by one or more of the Directors of the Financial Corporation or by any relative as defined in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956) of such Director whether singly or taken together, in the shares of the industrial concern, the aggregate amount paid-up on which either exceeds five lakhs of rupees or five per cent, of the paid-up share capital of the industrial concern, whichever is less.

(3) The provisions of sub-section (2) �

(i) shall not apply to any transaction relating to the business entered into prior to the commencement of the State Financial Corporations (Amendment) Act, 1972 (77 of 1972), and all such business and any transaction in relation thereto may be implemented or continued as if that Act had not come into force;

(ii) shall apply only so long as the conditions precedent to such disability as set out in the sub-section continue.

(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 installment thereof 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 right to take over the management or possession or both of the industrial concern, as well the right to transfer by way of lease or sale and realize 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 under sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the transfer 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 action has been taken against an industrial concern under the provisions of sub-section (1), all costs charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses 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 has taken any action against 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 concern.

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

(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.

(1) Where an industrial concern, in breach of any agreement, make any default in repayment of any loan or advance or any installment thereof 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, 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 authorized 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 relief�s, namely,-

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

3[(aa) for enforcing the liability of any surety; 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.

(1) When the application is for the relief�s 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 realize 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.

3[(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.]

(2) When the application is for the relief mentioned in clause (b) of sub-section (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) 3[or issuing a notice under sub-section (1A),] the District Judge may, if he thinks fit, examine the officer making the application.

2[(4) At the same time as he passes an order under sub-section (1), the District Judge shall issue to the industrial concern or to the owner of the security attached a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it or him 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.

(4A) If no cause is shown on or before the date specified in the notice under sub-section (1A), the District Judge shall forthwith order the enforcement of the liability of the surety.]

(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 injunctions.

(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 (5 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; 4[***]

3[(da) direct the enforcement of the liability of the surety or reject the claim made in this behalf; 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) 3[or making an order rejecting the claim to enforce the liability of the surety under clause (da) or making an order rejecting the claim to transfer the management of the industrial concern to the Financial Corporation under clause (e),] 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 4[or rejecting the claim to enforce the liability of the surety or rejecting the claim to transfer the industrial concern to the Financial Corporation], 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 direct until the appeal is disposed of.

(8) An order of attachment or sale or property under this Section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure, 1908 (5 of 1908), for the attachment or sale of property in execution of a decree as if the Financial Corporation were the decree-holder.

(8A) An order under this section transferring the management of an industrial concern to the Financial Corporation shall be carried into effect, as far as may be practicable, in the manner provided in the Code of Civil Procedure, 1908 (5 of 1908), for the possession of immovable property or the delivery of movable property in execution of a decree, as if the Financial Corporation were the decree-holder.

(9) Any party aggrieved by an order 19[under sub-section (4A), sub-section (5)] or sub-section (7) may, within thirty days from the date of the order, appeal to the High Court, and upon such appeal 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 construed 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 be exercisable-

(a) in a presidency town, where there is a city civil court having jurisdiction, by a Judge of that court and in the absence of such court, by the High Court; and

(b) elsewhere, also by an additional District Judge or by any Judge of the principal court of civil jurisdiction.

(12) For the removal of doubts it is hereby declared that any court competent to grant an ad interim injunction under this section shall also have the power to appoint a Receiver and to exercise all the other powers incidental thereto.

(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.

(3) Nothing in the Companies Act,1956 (1 of l956) or in any other law for the time being in force or in any instrument relating to the industrial concern shall, in so far as it makes in relation to a Director, any provision for the holding of any share qualification, age limit, restriction on the number of Directorship, retirement by rotation or removal from office, apply to any Director appointed by the Financial Corporation under this section.

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 the Companies Act, 1956 (1 of 1956), the managing agent, if any, appointed under section 32A shall be deemed to have been duly appointed in pursuance of the said Act and the Memorandum and Articles of Association of the industrial concern and the provisions of the said Act and the Memorandum and Articles shall, subject to the other provisions contained in this Act, apply accordingly, but no such managing agent shall be removed from office except with the previous consent of the Financial Corporation;

(d) the Directors or the administrators appointed under section 32A shall take such steps as may be necessary to take into their custody or under their control all the property, effects and actionable claims to which the industrial concern is, or appears to be, entitled and all the property and effects of the industrial concern shall be deemed to be in the custody of the Directors or administrators, as the case may be, as from the date of the notified order;

(e) the Directors appointed under section 32A shall, for all purposes, be the Directors of the industrial concern duly constituted under the Companies Act, 1956 (1 of 1956), and such Directors or as the case may be, the Administrators appointed under section 32A, shall alone be entitled to exercise all the powers of the Directors or as the case may be, of the persons exercising powers of superintendence, direction and control, of the industrial concern, whether such powers are derived from the said Act or from the Memorandum or Articles of Association of the industrial concern or from any other source whatsoever.

(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 canceling 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 had been entered into in bad faith and is detrimental to the interests of the industrial concern, make an order canceling or varying (either unconditionally or subject to such conditions as it may think fit to impose) that contract or agreement and the contract or agreement shall have effect accordingly.

(1) Notwithstanding anything to the contrary contained in any contract or in any law for the time being in force, no Managing agent, Managing Director or any other Director or a manager or any person in charge of management of an industrial concern shall be entitled to any compensation for the loss of office or for the premature termination under this Act of any contract of management entered into by him with such concern.

(2) Nothing contained in sub-section (1) shall affect the right of any such managing agent or Managing Director, or any other Director or manager or any such person in charge of management to recover from the industrial concern, moneys recoverable otherwise than by way of such compensation.

(1) Where the management of an industrial concern, being a company as defined in the Companies Act, 1956 (1 of 1956), is taken over by the Financial Corporation, then, notwithstanding anything contained in the said Act or in the Memorandum or Articles of Association of such concern,-

(a) it shall not be lawful for the shareholders of such concern or any other person to nominate or appoint any person to be a Director of the concern;

(b) no resolution passed at any meeting of the shareholders of such concern shall be given effect to unless approved by the Financial Corporation;

(c) no proceeding for the winding up of such concern or for the appointment of receiver in respect thereof shall lie in any court, except with the consent of the Financial Corporation.

(2) Subject to the provisions contained in sub-section (1) and to the other provisions contained in this Act and subject to such other exceptions, restrictions and limitations, if any, as the Central Government in consultation with the State Government may, by notification in the Official Gazette, specify in this behalf, the Companies Act, 1956 (1 of 1956), shall continue to apply to such concern in the same manner as it applied thereto before the issue of the notified order under section 32A.

(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, in so far 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.

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 authorized 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.]

(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 there from.

(2) All moneys belonging to the fund shall be deposited in the Reserve Bank or the State Bank of India or a subsidiary bank as defined in the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959) 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) or, in consultation with the Reserve Bank, in a scheduled bank or a State Co-operative Bank.]

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

(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 section 7 or section 8, the rate of such dividend shall not exceed the rate guaranteed by the State Government under section 6.

(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, the Reserve Bank and the Development Bank on the shares of the Financial Corporation as may be fixed by agreement between the State Government, the Reserve Bank and the Development Bank;

20[***] PROVIDED FURTHER that after the specified date this sub section shall have effect as if for the words "the State Government, the Reserve Bank and the Development Bank", the words "the State Government and the Development Bank" have been substituted except as regards all dividends accruing in respect of any completed accounting period prior to the specified date.

(2) No shareholder of the Financial Corporation, other than the State Government, the Reserve Bank and the Development Bank, shall have any claim to the special reserve fund.

(3) The amount standing to the credit of the special reserve fund may be utilized by the Financial Corporation for only such purposes as are approved by the State Government, the Reserve Bank and the Development Bank.

(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 21[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) The shareholders 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.

(1) The affairs of the Financial Corporation shall be audited by auditors duly qualified to act as auditors of companies under sub-section (1) of section 226 of the Companies Act, 1956 (1 of 1956), who shall be appointed by the State Government in consultation with the Comptroller and Auditor General of India and the Financial Corporation shall pay to the auditors so appointed such remuneration as the State Government 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 Director or officer of the Financial Corporation.

(3) The auditor 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 of 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 Comptroller and Auditor General of India, at any time issue directions to the auditor 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 Comptroller 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 Comptroller 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 section 7 or section 8, as the case may be, such audit shall be undertaken by the Comptroller 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.

(1) The Development 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 Development 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 specify.

(3) Notwithstanding anything contained in the Indian Evidence Act, 1872 (1 of 1872), or in any other law for the time being in force, no court, tribunal or other authority shall have power to require the Development Bank or any of its officers to produce before such court, tribunal or other authority the report of the inspection made by it under sub-section (1) or any copy thereof.

(4) The State Government may, after considering any report sent to it under sub-section (1), give such instructions to the Board as it considers necessary and it shall be the duty of the Board to comply with such instructions. 

2[(1) The Financial Corporation shall furnish to the State Government, the Development Bank and Reserve Bank such statements and returns in such form as the State Government, the Development Bank or the Reserve Bank may require from time to time.

(2) The Financial Corporation shall furnish to the State Government, the Development Bank and the Reserve Bank within 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 in consultation with and after obtaining the advice of the Development 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.

(3) If the Board fails to carry out the instructions on the question of policy laid down by the State Government under sub-section (1) of this section or the instructions given to the Board under sub-section (4) of section 37A, 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, the decision of the State Government as to the grounds for superseding the Board shall not be questioned in any court.

22[(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 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) any other scheduled bank, any State co-operative bank or the Development Bank, such credit information or other information as it may consider useful for the purpose, in such manner and at such time as it may think fit.

Explanation : For the purposes of this sub-section, the expression "credit information" shall have the same meaning as in clause (c) of section 45A of the Reserve Bank of India Act, 1934 (2 of 1934) subject to the modification that the banking company referred to therein shall mean a bank referred to in clause (b) of this sub-section.] 

23[(3) 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.

(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 willful 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 anything done in good faith in the execution of the duties of his office or in relation thereto.

No suit, prosecution or other legal proceeding shall lie against any person appointed as Director, administrator, managing agent or manager by the Financial Corporation in pursuance of section 27 or section 32A for anything which is in good faith done or intended to be done by him as such Director, administrator, managing agent or manager.

(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, willfully 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 authorized by the Board in this behalf.

For the purposes of the 24[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 section 6 or section 7 or section 8 shall not be treated as the income, profits and gains of the Financial Corporation and any interest on debentures, 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 shareholders such portion of a dividend as has been paid out of any such sum advanced by the State Government shall be deemed to be his income from "interest on securities" and the income tax shall be payable thereon as if it were the interest receivable on any security of a State Government issued income-tax free within the meaning of section 8 of that Act.

The Board may, by general or special order, delegate to the Managing Director or to any other officer of the Financial Corporation 3[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. 

(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) Every action taken by the Managing Director and any other officer of the Financial Corporation shall, as soon as may be after it is taken by them, be reported to the Board.]

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 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.

(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 2[any institution established by a State Government] 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:

3[PROVIDED that no notification shall be issued under this sub-section in respect of any institution unless a request is made in that behalf by the State Government concerned.]

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

(1) Where a Financial Corporation has been established for any State and one or more other States not served in whole or in part by a Financial Corporation desires that the Financial Corporation should serve the needs of those States or of any area therein, and the States, after consultation with the Development 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 notification in the Official Gazette by the Central Government, serve the needs of those States or, as the case may be, of the area therein in terms of the agreement 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.

(1A) Any agreement entered into under sub-section (1) may be modified or rescinded by mutual agreement between the parties thereto and every such mutual agreement shall also provide for the apportionment of assets and liabilities.

(2) An inter-State agreement among the participating States may, as far as may be, make all such provisions as are referred to in sub-section (2) of section 3A.

The provision of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the Memorandum or Articles of Association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern.

The State Government may 25[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 Development 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;

(c) the manner in which, and the conditions subject to which, the shares of the Financial Corporation 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 the 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;

26[***] (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 a breach of its agreement with the Financial Corporation;

(m) the appointment of 2[committees] for the purposes of this Act, fee for attending meetings thereof and the conduct of business thereat; 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 any such regulation shall have effect from such earlier or later date as may be specified in the regulations.

Every rule made under section 47 and every regulation made under section 48 shall be laid, as soon as may be after it is made, before the State Legislature.]

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.

THE SCHEDULE : Declaration of Fidelity and Secrecy

²²[Section 40(3)]

I, __________________ do hereby declare that I will faithfully, truly and to the best of my 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 affairs 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.

Signed before me:

Signature

1 The appointed date is 1st. August, 1952 (in the whole of India except the State of Jammu and Kashmir), vide Notification No. SRO 1317, dated 28th. July, 1952.

2 Substituted by Act No. 43 of 1985.

3 Inserted by Act No. 43 of 1985.

4 The word "or" omitted by Act No. 43 of 1985.

5 Former Explanation renumbered as Explanation 1 by Act No. 43 of 1985.

6 Omitted by Act No. 43 of 1985.

7 Substituted for the words "Banking Companies Act, 1949" by Act No. 43 of 1985.

8 Substituted for the words "shall be guaranteed by the State Government" by Act No. 43 of 1985.

9 Substituted by Act No. 43 of 1985, for the words "ninety per cent of".

10 The words "at any time" omitted by Act No. 43 of 1985.

11 Substituted for the words "financial institutions" by Act No. 43 of 1985.

12 Substituted for the words "shall be laid" by Act No. 43 of 1985.

13 Substituted by Act No. 43 of 1985, for the words "Provided that".

14 Substituted by Act No. 43 of 1985, for the words "Provided further that".

15 Substituted by Act No. 43 of 1985, for the words "convert such debentures or loans".

16 Substituted by Act No. 43 of 1985, for the words "State Financial Corporations (Amendment) Act, 1972".

17 Substituted for the words "fifteen lakhs" by Act No. 43 of 1985.

18 Substituted for the words "one crore of rupees" by Act No. 43 of 1985.

19 Substituted for the words and number "under sub-section 5" by Act No. 43 of 1985.

20 The first proviso omitted by Act No. 43 of 1985.

21 Substituted for the words "three months" by Act No. 43 of 1985.

22 Inserted by Act No. 48 of 1983.

23 Section 40 renumbered as sub-section (3) thereof by Act No. 48 of 1983.

24 Substituted by Act No. 43 of 1985, for the words "Indian Income Tax Act, 1922 (11 of 1922)"

25 Inserted by Act No. 4 of 1986, w.e.f. 15th. May, 1986.

26 Clause (h) omitted by Act No. 43 of 1985.