THE STATE FINANCIAL CORPORATIONS (AMENDMENT) ACT,2000
Substitution of new sections for sections 5 to 10

For sections 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-section (2), the shares of the Financial Corporation shall be freely transferable.

(2) Nothing contained in sub-section (1) shall entitle the parties referred in clauses (a), (b) and (c) of sub-section (3) of section 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 per cent. 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 the 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 anyhow for the time being in force.
(4) The  Board shall, before the expiry of two months from the date on which the instrument 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-section (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-section (3), intimate the transferor and the transferee by notice in writing.
(5) An appeal against the order of refusal of the Board under sub-section (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 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-section (1) shall be given by the Financial Corporation to every existing shareholder 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-section (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-section (1), within the time stipulated in sub-section (2), he shall be deemed to have exercised the first option.

(5) Nothing contained in sub-section (4) shall be deemed  to result in reduction of  the share capital and the Financial Corporation may, subject to the provisions of sub-section (3) of section 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.
(7) Notwithstanding anything contained in sub-section (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, 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 section 11 of the Depositories Act, 1996 shall be deemed to be a register of shareholders for the purposes of this Act.

(10) Notwithstanding anything contained in sub-sections (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 subsection shall apply to depository in respect of shares held by it as a registered owner on behalf of a beneficial owner.

Explanation.- For the purposes of sub-sections (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-section (1) of section 2 of the Depositories Act, 1996.

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

7.Additional capital of Financial Corporation and borrowing powers

(I) 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 Governments 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 to be included among the securities enumerated in section 20 of the Indian Trusts Act, 1882 and also to be approved securities for the purpose of the Insurance Act, 1938 and the Banking  Regulation Act, 1949.

(4) The Financial Corporation may, for the purposes of carrying out its function 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 authorise to invest trust money by any law for the time being in force 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 a 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 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-section (4) and sub-section (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 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 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-section (1), other than a 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 such conditions, if any, as may be specified by it, by 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-section (1) of section 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 by the Small Industries Bank; 
(d) two directors nominated in the prescribed manner by the parties mentioned in clause (c) of sub-section (3) of section 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-section (3) of section 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 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-section (1) of section 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.'.