THE STATE
FINANCIAL CORPORATION ACT, 1951
When the
economy was in the rudimentary stage, self-financing was the one method
of financing. With the growth of economy, a tendency to rely less and less
on self-financing and more and more on external financing began to gain
importance. Growth of capital has been the normal feature of economic expansion.
The State has always been in an advantageous position to mobilize resources
and place them, to some extent at the disposal of private sector through
industrial financing institutions. Such institutions play a major role
in pooling the resources and placing them for investment. Almost all the
developed and developing countries of the world have established special
institutions to mobilize their capital resources and put them into productive
economy. In the last four decades Governments of under-developed countries
have established and encouraged institutions such as development corporations,
development banks or development finance companies. India is also not lagging
behind, various financial institutions have been established. The Industrial
Finance Corporation of India was the first to be established under the
Industrial Finance Corporation Act. 1948. On the lines of the Industrial
Finance Corporation Act, 1948 the State Financial Corporation Act. 1951
has been enacted to finance medium and small scale industries, which fall
outside the ambit of operation of the Industrial Finance Corporation of
India.
Statement Of Objects
And Reasons
In
order to provide medium and long term credit to industrial undertakings,
which fall outside the normal activities of Commercial Banks, a Central
Industrial Finance Corporation was set up under the Industrial Finance
Corporation Act. 1948 (XV of 1948). The State Government wish that similar
Corporations should also be set up in States to supplement the work of
the Industrial Finance Corporation. The intention is that the State Corporation
will confine their activities to financing medium and small scale industries
and will, as far as possible, consider only such cases as are outside the
scope of the Industrial Finance Corporation. The State Governments also
consider that the State Corporations should be established under a special
Stature in order to make it possible to incorporate in the Constitution
necessary provisions in regard to majority control by the Government, guaranteed
by the State Government in regard to the repayment of principal, and payment
of a minimum rate of dividend on the shares, restriction on distribution
of profits and special powers for the enforcement of its claims and recovery
of dues. Since the incorporation, regulation and winding up of such Corporations
fall within the purview of Parliament vide Entry No. 43 of the Union List.
The State Government have requested the Government of India to enact the
necessary enabling legislation, which is sought to be effected by this
Bill.
THE
MAIN FEATURES OF THE BILL ARE AS FOLLOWS
-
The Bill
provides that the State Government may, by notification in the Official
Gazette, establish a Financial Corporation for the State.
-
The share
capital shall be fixed by the State Government but shall not exceed Rs.
2 crores. the issue of the shares to the public will be limited to 25 percent
of the share capital and the rest will be held by the State Government,
the Reserve Bank, Scheduled Banks, Insurance Companies, Investment Trusts,
Co-operative Banks and other Financial Institutions.
-
Shares
of the Corporation will be guaranteed by the Government as to the re-payment
of principal and the payment of a minimum divided to be prescribed consultation
with the Central Government.
-
The Corporation
will be authorized to issue bonds and debentures for amounts which together
with the contingent liabilities of the Corporation shall not exceed five-times
the amount of the paid-up share capital and the reserve fund of the Corporation.
These bonds and debentures will be guaranteed as to the payment of the
principal and the payment of interest at such rate as may be fixed by the
State Government.
-
The Corporation
accept deposits from the public repayable after not less than five years,
subject to the maximum not exceeding the paid-up capital.
-
The corporation
will be managed by a Board consisting of majority of Directors nominated
by the State Government, the Reserve Bank and the Industrial Finance Corporation
of India.
-
The Corporation
will be authorized to make long-term loans to industrial concerns and to
guarantee loans raised by industrial concerns which are repayable within
a period not exceeding 25 years. The Corporation will be further authorized
to underwriting the issue of stocks, shares, bonds or debentures by industrial
concerns, subject to the provision that the Corporation will by required
to dispose of any shares, etc., acquired by it in fulfilment of its underwriting
liability with a period of 7 years.
-
Until
a reserve fund is created equal to the paid-up share capital of the Corporation
and until the State Government has been repaid all amounts paid by them,
if any, in fulfilment of the guarantee liability, the rate of dividend
shall not exceed the rate guaranteed by the State Government. Under no
circumstances shall the dividend exceed 5 percent per annum and surplus
profits will be re-payable to the State Government.
-
The Corporation
will have special privileges in the matter of enforcement of its claims
against borrowers.
ACT
63 OF 1951
The
State Financial Corporation Bill was passed by both the Houses of Parliament
and assent of the President was accorded on 31st October, 1951. It came
on the Statute Book with the title the State Financial Corporation Act,
1951 (63 of 1951)
LIST
OF AMENDING ACTS
-
The Repealing
and Amending Act, 1952 (48 of 1952)
-
The Industrial
and State Financial Corporations (Amendment) Act, 1955 (28 of
1955)
-
The State
Financial Corporations (Amendment) Act, 1956 (56 of 1956)
-
The Jammu
and Kashmir (Extension of Laws) Act, 1956 (62 of 1956)
-
The State
Financial Corporation (Amendment) Act, 1962 (6 of 1962)
-
The State
Financial Corporation (Amendment) Act, 1972 (77 of 1972)
-
The Public
Financial Institutions Laws (Amendment) Act, 1975 (52 of 1975)
-
The Public
Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983
(48 of 1983)
-
The State
Financial Corporation (Amendment) Act, 1985 (43 of 1985)
-
The Delegated
Legislation Provisions (Amendment) Act, 1985 (4 of 1986)
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