CHAPTER
3
POWERS
AND DUTIES OF THE BOARD
General
duty of 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.
3[Business
which Financial Corporation may transact.-
The
Financial Corporation may, subject to the provisions of this Act, carry
on and transact any of the following kinds of business, namely :-
guaranteeing,
on such terms and conditions as may be agreed upon,-
loans
raised by industrial concerns which are repayable within a period not exceeding
twenty years, and are floated in the public market;
loans
raised by industrial concerns from scheduled banks or State co-operative
banks 4[or other financial institutions];
guaranteeing,
on such terms and conditions as may be agreed upon, deferred payments due
from any industrial concern in connection with its purchase of capital
goods within India;
underwriting
of the issue of stock, shares, bonds or debentures by industrial concerns;
5[transferring
for consideration any instruments relating to loans and advances granted
by it to industrial concerns;]
acting
as agent of the Central Government or the State Government 5[or
the Development Bank] or the Industrial Finance Corporation of India established
under the Industrial Finance Corporation Act, 1948 (15 of 1948) or any
other financial institution notified in this behalf by the Central Government
6[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] 4[or relating to the business of the
Development Bank, Industrial Finance Corporation of India or financial
institution];
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1.
Added by Act 77 of 1972, sec. 14.
2.
Subs by Act 52 of 1975, sec. 34, for "Reserve Bank" (w.e.f 16-2-1976).
3.
Subs by Act 6 of 1962, sec. 10, for section 25.
4.
Ins. by Act 43 of 1985, sec. 15.
5.
Ins. by Act 77 of 1972, sec. 15.
6.
Subs. by Act 77 of 1972, sec. 15, for certain words.
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1[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;]
receiving
in consideration of the services mentioned in the preceding clauses such
commission as may be agreed upon;
2[retaining
as part of its assets any stock, shares, bonds or debentures which it may
acquire by subscription or in fulfilment of its underwriting liabilities
and disposing of the stock, shares, bonds or debentures so acquired;]
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 :3[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 : 4[Provided
also that] the Financial Corporation may, in the exercise of such option,
5[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):6[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;]
6[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;
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;
providing
technical and administrative assistance to any industrial concern or any
person for the promotion, management or expansion of any industry;
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1.
Subs by Act 43 of 1985, sec. 15, for clause (da).
2.
Subs by Act 43 of 1985, sec. 15, for clause (f).
3.
Subs by Act 43 of 1985, sec. 15, for "Provided that".
4.
Subs by Act 43 of 1985, sec. 15, for "Provided further that".
5.
Subs by Act 43 of 1985, sec. 15, for "convert such debentures or loans".
6.
Ins. by Act 43 of 1985, sec. 15.
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planning
and assisting in the promotion and development of industries;
doing
such other business as the Development Bank any authorise;]
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. 1[***]
Subject
to provisions of sub-section (5) of section 7, the aggregate of contingent
liabilities of the Financial Corporation under clauses (a), (b)2
[(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 3[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 pledgee, 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 an
free reserves. whichever is less.
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.]
5[Power
to acquire rights.-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.]
6[Limit
of accommodation.-
7[8[On
and from the commencement of the 9[State Financial corporation
(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 10[together
with the amount of the face value of the shares and stock of that concern
whether subscribed or agreed to be subscribed and the outstanding
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1.
Sub-Section (2) omitted by Act 43 of 1985, sec. 15.
2.
Subs by Act 77 of 1972, sec. 15, for "and (c)".
3.
Subs by Act 52 of 19755, sec. 35, for "Reserve Bank" (w.e.f. 16-2-1976).
4.
Ins. by Act 77 of 1972. sec. 15.
5.
Ins. by Act 43 of 1985. sec. 16.
6.
Subs by Act 6 of 1962, sec. 11. for section 26.
7.
Section 26 renumbered as sub-section (1) thereof by Act 77 of 1972, sec.
16.
8.
Subs. by Act 77 of 1972, sec. 16, for certain words.
9.
Subs. by Act 43 of 1985, sec. 17, for "State Financial Corporation (Amendment)
Act, 1972".
10.Subs
by Act 77 of 1972, sec. 16. for certain words.
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liabilities
on account of underwriting agreements and the deferred payments guarantees]
is more than-
1[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 92 of 1912) or any other law relating to Co-operative
Societies for the time being in force; and
2[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.]
4[***]
Power
to impose conditions for accommodation.-
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. 5[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 by the Financial Corporation in pursuance of the arrangement
as aforesaid.
Any
director appointed in pursuance of sub-section (2) shall-
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;
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;
not
be liable to retirement by rotation and shall not be taken into account
for computing the number of director liable thereto;
Prohibited
business.-
6[The
Financial Corporation shall not-
7[
except as provided in section 8, accept deposits;
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1.
Subs. by Act 43 of 1985, sec. 17, for certain words.
2.
Subs. by Act 43 of 1985, sec. 17 for "fifteen lakhs."
3.
Ins. by Act 43 of 1985, sec. 17.
4.
Sub-section (2) omitted by Act 43 of 1985, sec. 17.
5.
Subs. by Act 77 of 1972, sec. 17, for sub-section (2).
6.
Section 28 re--numbered as sub-section (1) thereof. by Act 77 of 1972,
sec. 18.
7.
Subs. Act 6 of 1962, sec. 13, for clauses (a) and (b).
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except
as provided in clause 1[(da)], (f) and (g) of sub-section (1)
of section 25. subscribe to the shares or stock of any company;]
grant
any loan or advance on the security of its own shares;
1[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 2[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].]
1[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-
is
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
is
elected on the Board of such concern by virtue of shares held in the concern
by 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 of 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.
The
provisions of sub-section (2)-
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;
shall
apply only so long as the conditions precedent to such disability as set
out in the sub-section continue.]
Rights
of Financial Corporation in case of default.-
Where
any industrial concern, which is under a liability to the Financial Corporation
under an agreement, makes any default in repayment of any loan or advance
or any instalment therof 3[or in meeting its obligations in relation to
any guarantee given by the Corporation] or otherwise fails to comply with
terms of its agreement with the Financial Corporation, the Financial Corporation
shall have the 4[right to take over the management or possession or both
of the
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1.
Ins. by Act 77 of 1972, sec. 18.
2.
Subs. by Act 43 of 1985, sec. 18, for "one crore of rupees."
3.
Ins. by Act 77 of 1972, sec. 19.
4.
Subs. by Act 77 of 1972, sec. 19, for "right to take over the management
of the industrial concern."
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industrial
concerns], as well as the 1[right to transfer by way of lease
or sale] and realise the property pledged, mortgaged, hypothecated or assigned
to the Financial Corporation.
Any
transfer of property made by the Financial Corporation, in exercise of
its powers 2[***] under sub-section (1), shall vest in the transferee
all rights in or to the property transferred 3[as if the transfer]
had been made by the owner of the property.
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 it as it had with respect to the original goods.
4[5[Where
any action has been taken against an industrial concern] under the provisions
of sub-section (1), all costs, 6[charges and expenses which
in the opinion of the Financial Corporation have been properly incurred]
by it 5[as incidental thereto] shall be recoverable from the
industrial concern and the money which is received by it 7[***]
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 purpose of suits by
or against the concern, and shall sue and be sued in the name of 8[the
concern].
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