KERLA LAW TIMES

The State Financial Corporations (Amendment) Act, 2000

(No.39 of 2000)

[5th September, 2000]

(Received the assent of line President on September 5, 2000 and published in the Gazette of India, Extra Part II, S.1. dated 6th September, 2000, pp. 1-16, No.48).

An Act further to amend the State Financial Corporations Act, 1951

Be it enacted by Parliament in the Fifty-first Year of the Republic of India as follows ;-

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

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

(a) in clause (c),-

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

"(x) providing weigh bridge facilities;

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

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

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

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

(xv) construction;

(xvi) development, maintenance and construction of roads;

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

(xviii) floriculture;

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

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

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

(xxii) such other activity as may be approved by the Small Industries Bank,"

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

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

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

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

'(fa) "Small Industries Bank" means die Small Industries Development Bank of India established under sub-s.(1) of S.3 of the Small Industries Development Bank Of India Act, 1989 (39 of l989);

3. Amendment of S.3-A.-In S.3-A of the principal Act, in sub-s.(1), for the words "Development Bank", the words "Small Industries Bank" shall be substituted.

4. Amendment of S.4.-In S.4 of the principal Act,-

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

"(1) The authorised capital of the Financial Corporation shall be such sum as may be fixed by the State Government in this behalf, but it shall not be less than fifty lakhs of rupees or exceed five hundred crores of rupees:

Provided that the State Government may, on the recommendation of the Small Industries Bank, by notification in the Official Gazette, increase the authorised capital up to one thousand crores of rupees.

(2) Subject to the provisions of S.4-D, 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-s.(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 S.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 percent of the issued equity capital of the Financial Corporation";

(b) in sub-s.(5), for the words "Development Bank", the words "Small Industries Bank" shall be substituted.

5. Amendment of S.4-A.-In S.4-A of the principal Act,-

(a) for the words "Development Bank", wherever they occur, the words "Small Industries Bank" shall be substituted;

(b) in sub-s.(3), the words and figures "S.47 or" shall be omitted;

(c) in sub-s.(5), for the words brackets and figures "sub-section (1) of S.6", the words, brackets and figures "sub-ss.(1) to (4) of S.6" shall be substituted.

6. Insertion of new Ss.4D to 4H.- After S.4-C of the principal Act, the following section shall be inserted, namely:-

"4-D. Issue of redeemable preference shares.-(1) On and after the commencement of the State Financial Corporations (Amendment) Act, 2000, the Financial Corporation may-

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

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

Provided that such conversion shall in no case reduce the equity shares held by the parties referred to in clauses (a), (b) and (c) of sub-s.(3) of S.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-s.(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-s.(1) shall be redeemed by the Financial Corporation in such installments and in such manner as the Board may determine.

4-E. 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.

4-F. 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-s.(3) of S.4, shall be entitled to exercise voting rights in respect of any equity share held by him in excess of ten per cent of the issued equity capital.

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

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

7. Substitution of new Sections for Sections 5 to 10-For Ss.5 to 10 of the principal Act, the following sections shall be substituted, namely;-

'5. Transfer of shares -(1) Save as otherwise provided in sub-s.(2), the shares of the Financial Corporation shall be freely transferable.

(2) Nothing contained in sub-s. (1) shall entitle the parties referred to in clauses (a), (b) and (c) of sub-s.(3) of S.4 to transfer any of the shares held by them in the Financial Corporation if such transfer will result in reducing the aggregate value of shares held by them to less than fifty-one percent of the issued equity capital of the Financial Corporation.

(3) The Board may refuse to register the transfer of any shares in the name of the transferee on any one or more of the following grounds, and on no other ground, namely:-

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

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

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

(4) The Board shall, before the expiry of two months from the date on which the instrument of transfer of shares of the Financial Corporation is lodged with it for the purpose of registration of such transfer, not only form, in good faith, its opinion as to whether such registration ought not or ought to be refused on any of the grounds referred to in sub-s.(3) but also,-

(a) if it has formed the opinion that such registration ought not to be so refused, effect such registration; and

(b) if it has formed the opinion that such registration ought to be refused on any of the grounds mentioned in sub-s.(3), intimate the transferor and the transferee by notice in writing.

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

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

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

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

(4) If, a shareholder exercise option for receiving the payment within the stipulated time, the Financial Corporation shall, on surrender of the share certificate held by him, pay him the amount paid in respect of such shares not exceeding the face value thereof:

Provided that if any shareholder fails to exercise the option given to him under sub-s.(1), within the time stipulated in sub-s.(2), he shall be deemed to have exercised the first option.

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

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

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

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

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

(iv) such other particulars as may be prescribed:

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

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

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

(9) The register of beneficial owners maintained by a depository under S.11 of the Depositories Act, 1996 (22 of 1996) shall be deemed to be a register of shareholders for the purposes of this Act.

(10) Notwithstanding anything contained in sub-ss.(6), (7) and (8), no notice of any trust, express, implied or constructive, shall be entered on the register of shareholders or be receivable by the Financial Corporation:

Provided that nothing in this sub-section shall apply to a depository in respect of shares held by it as a registered owner on behalf of a beneficial owner.

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

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

7. Additional Capital of Financial Corporation and borrowing powers.-(1) The Financial Corporation may issue and sell bonds and debentures for the purpose of increasing its working capital.

(2) The State Government may, on a request being made to it by the Financial Corporation, guarantee the bonds and debentures issued by the Financial Corporation as to the repayment of principal and the payment of interest at such rate as may be fixed by that Government.

(3) Notwithstanding anything contained in the Acts hereinafter mentioned in this sub-section, such of the bonds and debentures issued by the Financial Corporation as are guaranteed by the State Government as to the repayment of the principal and payment of interest and receipts issued by it for such of deposits as are guaranteed by the State Government as to the repayment of the principal and payment of interest shall be deemed to be included among the securities enumerated in S.20 of the Indian Trusts Act, 1882 (2 of 1882) and also to be approved securities for the purpose of the Insurance Act, 1938 (4 of 1938) and the Banking Regulation Act, 1949 (10 of 1949).

(4) The Financial Corporation may, for the purposes 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 authorised 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 re-discount 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 to 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 debentures 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 twice the paid-up share capital thereof.

(5) The Financial Corporation may, for the purpose of carrying out its functions under this Act, borrow money from the State Government, any financial institution, scheduled bank, insurance company or any other person approved by the Board on such terms and conditions as may be agreed upon.

(6) The total amount of bonds and debentures issued and outstanding, the amounts borrowed by the Financial Corporation under clause (b) of sub-s.(4) and sub-s.(5) 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 exceed ten times the amount of the paid up share capital and reserve fund of the Financial Corporation:

Provided that the Financial Corporation may, with the prior approval of the Small Industries Bank, exceed the aforesaid limit up to thirty times the amount of the paid up share capital and reserve fund of the Financial Corporation.

8. Deposits with Financial Corporation -(1) The Financial Corporation may accept from the State Government, or with the prior approval of the Reserve Bank, from a local authority or any other person deposits repayable after the expiry of a period which shall not be less than twelve months from the date of the making of the deposit and on such other terms as the Board thinks fit:

Provided that the total amount of such deposits shall not exceed twice the paid-up share capital of the Financial Corporation:

Provided further that the State Government may permit the Financial Corporation to accept deposits up to a higher limit not exceeding ten times the paid up share capital of the Financial Corporation.

(2) Any deposit accepted under sub-s.(1), other than an deposit from the State Government may, if so required by the Financial Corporation, be guaranteed by the State Government as to the repayment of the principal and payment of interest.

9. Management.-(1) The general superintendence, direction and management of affairs and business of the Financial Corporation shall vest in a Board of Directors which may exercise all powers and do all such acts and things, as may be exercised or done by the Financial Corporation and are not by this Act expressly directed or required to be done by the Financial Corporation in general meeting.

(2) The Board may direct that any power exercisable by it under this Act shall also be exercisable in such cases and subject to such conditions, if any, as may be specified by it, by the Chairman, Managing Director or the whole-time director.

10. Board of Directors.-The Board of Directors shall consist of the following namely:-

(a) a director to be nominated as chairman under sub-s.(1)of S.15;

(b) two directors nominated by the State Government of whom one director shall be a person who has special knowledge of or experience in small-scale industries:

Provided that in the case of a Joint Financial Corporation, the number of directors shall be such as the State Governments of the participating States may by agreement among themselves, think fit to nominate each participating State Government nominating not more than two directors:

Provided further that in the case of a Joint Financial Corporation, the 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:

(c) two directors nominated In the Small Industries Bank;

(d) two directors nominated in the prescribed manner by the parties mentioned in clause (c) of sub-s.(3)of S.4;

(e) such number of directors elected, in the prescribed manner, by shareholders, other than those mentioned in clauses (a), (b) and (c) of sub-s.(3) of S.4, whose names are entered on the register of shareholders of the Financial Corporation, ninety days before the date of the meeting in which such election takes place on the following basis, namely:-

(i) where the total amount of issued equity share capital held by such shareholders is ten per cent or less of the total issued equity capital, two directors;

(ii) where the total amount of issued equity share capital held by such shareholders is more than ten per cent but less than twenty-five per cent of total issued equity capital, three directors;

(iii) where the total amount of issued equity share capital held by such shareholders is twenty five per cent or more of total issued equity capital, four directors; and

(iv) where the total amount of issued equity share capital held by equity shareholders referred to in this clause does not permit election of all the four directors, the Board shall co-opt such number of directors as is required to make up the said number who shall retire in equal number on the assumption of charge by the elected directors in the order of their co-option;

(f) a managing director appointed in accordance with the provisions of sub-s.(1) of S.17:

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

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

8. Omission of S.10-A.-S.10-A of the principal Act shall be omitted.

9. Substitution of new Sections for Ss.11 and 12.- For Ss.11 and 12 of the principal Act, the following sections shall be substituted, namely:-

"11. Term of office and retirement of directors.- (1) A nominated director shall hold office during the pleasure of the authority nominating him.

(2) Subject to the provisions of sub-s. (1), a nominated director shall hold office for such term not exceeding three years and shall not be eligible for re-nomination:

Provided that no such director shall hold office continuously for a period exceeding six years.

(3) An elected director other than a director deemed to be elected under the first proviso to clause (d) of S.10 shall hold office for three years and shall also be eligible for re-election:

Provided that no such director shall hold office continuously for a period exceeding six years.

12. Disqualifications for being a director.-No person shall be a director, if he-

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

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

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

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

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

10. Amendment of S.13.-S.13 of the principal Act shall be re-numbered as sub-s.(1) thereof and after sub-section as so renumbered, the following sub-section shall be inserted, namely:-

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

11. Amendment of Section 14.-For S.14 of the principal Act, for sub-ss.(1) and (1-A), the following sub-sections shall be substituted, namely;-

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

12. Substitution of new Section for S.15.- For S.15 of the principal Act, the following sections shall be substituted, namely:-

"15. Chairman of Board.-(1) The Small Industries Bank shall, in consultation with the State Government nominate a director as a Chairman of the Board for such period not exceeding three, years and on such terms and conditions as the Small Industries Bank may specify:

Provided that the Chairman shall not be a whole-time director unless he is also appointed to function as the managing director:

Provided further that the Chairman shall so long as he retains a director be eligible for re-appointment as-Chairman.

(2) The Chairman shall preside over the meetings of the Board and the general meetings of the Financial Corporation".

13. Amendment of Section 17.- In S.17 of the principal Act,-

(a) for sub-s.(1), the following sub-section shall be substituted, namely:-

"(1) The managing director shall-

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

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

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

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

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

(b) after sub-s.(2), the following sub-section shall be inserted, namely:-

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

14. Substitution of new Sections for S.18.-For S.18 of the principal Act, the following sections shall be substituted, namely:-

"18. Executive Committee.-(1) The Board shall constitute an Executive Committee consisting of the chairman and managing director, the whole time directors and such other directors as it may deem fit;

Provided that in the case of a Joint Financial Corporation, if the directors nominated under clause (b) of S.10 represent different State Government then, all of them shall be members of the Executive Committee.

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

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

15. Amendment of S.19.-In S.19 of the principal Act, sub-ss.(3-A) and (4) shall be omitted.

16. Amendment of S.23.-In S.23 of the principal Act, the proviso shall be omitted.

17. Amendment of S.25,-InS.25 of the principal Act,-

(a) for sub-s.(1), the following sub-sections shall be substituted, namely:-

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

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

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

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

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

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

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

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

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

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

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

Provided that the Financial Corporation may, with the prior approval of the Small Industries Bank, exceed the said limit of twenty years up to a further period of ten years:

Provided further that nothing contained in this clause shall be deemed to preclude the Financial Corporation from granting loans or advances to, or subscribing or debentures of, and industrial concern to which may be attached an option to convert such debentures or loans into stock or shares of the industrial concern:

Provided also that the Financial Corporation may, in the exercise of such option, convert the amounts outstanding on such debentures or loans into stock or shares of the industrial concern if such concern increases its subscribed capital by the issue of further stock or shares in accordance with and subject to, the provisions of S.81 of the Companies Act, 1956 (1 of 1956).

Explanation.In this clause, the expression "the amounts outstanding on such debentures or loans" shall mean the principal, interest and other charges payable on such debentures or loans as at the time when the amounts are sought to be converted into stock or shares;

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

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

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

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

(m) providing consultancy and merchant banking services:

(n) acting as the trustees for the holders of debentures or other securities;

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

(p) factoring;

(q) providing export related credit and services;

(r) undertaking money market related activities;

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

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

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

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

(2) The Financial Corporation may receive, in consideration of any of the services mentioned in sub-s.(1), such commission, brokerage, interest, remuneration or fee as may be agreed upon.":

(b) in sub-s.(3), for the words "'Development Bank", the words "Small Industries Bank" shall be substituted, namely:-

18. Insertion of new section S.5-B.-After S 25-A of the principal Act, the following section shall be inserted, namely:-

"25-B. Gifts, grants, etc.-The Financial Corporation, may receive gifts, grants, donations or benefactions from Government or any other source."

19. Substitution of new Section for S.26.- For S.26 of the principal Act, the following section shall be substituted, namely:-

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

(i) five hundred lakhs of rupees in the case of a corporation established by or under any other law or any company as defined in S.3 of the Companies Act, 1956 (1 of 1956) or a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or any other law relating to co-operative societies for the time being in force: and

(ii) two hundred lakhs of rupees in any other case:

Provided that the Financial Corporation may, with the prior approval of the Small Industries Bank, exceed the limit under clause (i) or clause (ii) upto four times.".

20. Amendment of S.28.-In S.28 of the principal Act, in sub-s.(1) for clause (d) following clause shall be substituted, namely:-

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

21. Substitution of new Section for S.34.-For S.34 of the principal Act, the following section shall be substituted, namely:-

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

22. Amendment of S.35.-In S.35 of the principal Act, sub-s.(2), the proviso shall be omitted.

23. Substitution of new Section for S.35-A.-In S.35-A of the principal Act, the following section shall be substituted, namely:-

"35-A. Special reserve fund.- (1) The Financial Corporation may establish a special reserve fund, to which shall be transferred such portion of the dividends accruing to the State Government, Development Bank and the Small Industries Bank on the shares of the Financial Corporation as may be fixed by agreement between the State Government, Development Bank and the Small Industries Bank:

Provided that after the notified date this sub-section shall have effect as if for the words "the State Government, the Development Bank and the Small Industries Bank", the words "the State Government and the Small Industries Bank have been substituted except as regards all dividends accruing in respect of any completed account period prior to the notified date.

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

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

24. Amendment of S.36.-In S.36 of the principal Act, for sub-s.(2), the following sub-sections shall be substituted, namely:-

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

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

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

(c) the auditors report on the balance-sheet and accounts: and

(d)' proposals for declaration of dividend and capitalisation of reserves.

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

25. Amendment of S.37.- In S.37 of the principal Act,-

(a) for sub-s. (1), the following sub-section shall be substituted, namely:-

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

(b) in sub-s.(6), the proviso shall be omitted.

26. Amendment of S.37-A.-In S.37-A of the principal Act, for the words "Development Bank", wherever they occur, the words "'Small Industries Bank" shall be substituted.

27. Amendment of S.38.-In S.38 of the principal Act, for the words 'Development Bank", wherever they occur, the words "Small Industries Bank" shall be substituted.

28. Amendment of S.39.- In S.39 of the principal Act,-

(a) in sub-s.(1), for the words "Development Bank", the words "Small Industries Bank" shall be substituted;

(b) after sub-s.(2), the following sub-sections shall be inserted, namely:-

"(2-A) Nothing contained in sub-s.(1) and sub-s.(2) shall apply in a case where a State Government holds less than fifty one per cent of the equity shares in the Financial Corporation.

(2-B) Notwithstanding the equity share holding of a Financial Corporation by a State Government, the State Government may advise the Financial Corporations on the matters of policy.'.

29. Amendment of S.40.-In S.40 of the principal Act, in sub-s.(2), in clause (b), for the words "State Co-operative Bank or the Development Bank", the words "State Co-operative Bank, the Sin ill Industries Bank or the Development Bank" shall be substituted.

30. Insertion of new S.41-B.-After S.41-A of the principal Act, the following section shall be inserted, namely;-

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

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

31. Amendment of S.43.-In S.43 of the principal Act, in the first proviso, the words and figure “Section 6 or” shall be omitted.

32. Amendment of S.43-B.-In S.43-B of the principal Act, sub-s.(2) shall be omitted.

33. Amendment of S.46-A.-In S.46-A of the principal Act. in sub-s.(1), for the words "Development Bank", the words "Small Industries Bank" shall be substituted.

34. Omission of S.47.-S.47 of the principal Act. shall be omitted.

35. Amendment of S.48.-In S.48 of the principal Act.

(i) in sub-s.(1), for the words "Development Bank", the words "Small Industries Bank" shall be substituted.

(ii) in sub-s.(2),-

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

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

(cb) the manner of nomination of directors under clause (d) of S.10;

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

(cd) the functions of Executive Committee under sub-s.(2) of S.18;

(ce) the guidelines and prudential norms in accordance with which investment may be made under S.34;

(cf) the manner in which nomination may be made under S.41-B; and

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

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

"(o) the form and manner in which the balance-sheet and the accounts of the Financial Corporation shall he prepared;

(p) any other matter which is to be, or may be, prescribed."

36. Amendment of S.48-A.-In S.48-A of the principal Act, the words "Every rule made under S.47 and" shall be omitted.

37. Insertion of n v S.48-B.-After S.48-A of the principal Act, the following section shall be inserted, namely:-

"48-B. Power to make rules.-(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power such rules may provide for the procedure for filing and hearing of appeals under sub-s.(5) of S.5.

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