THE STATE FINANCIAL CORPORATIONS ACT, 1951 
________ 

ARRANGEMENT OF SECTIONS 
________ 

CHAPTER I 

PRELIMINARY 

SECTIONS 

1.  Short title, extent and commencement. 
2.  Definitions. 

INCORPORATION OF STATE FINANCIAL CORPORATIONS THEIR CAPITAL AND MANAGEMENT 

CHAPTER II 

3.  Establishment of State Financial Corporations. 
3A. Establishment of Joint Financial Corporations. 
4.  Share capital and share-holders. 
4A. Special class of shares. 
4B. Transfer of share capital to Development Bank.  
4C. Payment of amount. 
4D. Issue of redeemable preference shares. 
4E. Reduction of share capital. 
4F. Restriction on exercising of voting right. 
4G. Proxy voting. 
4H. Transfer of share capital to Small Industries Bank. 
5.  Transfer of shares. 
6.  Conversion of shares guaranteed by State Government. 
7.  Additional capital of Financial Corporation and its borrowing powers. 
8.  Deposits with the Financial Corporation. 
9.  Managements. 
10.  Board of directors. 
10A. [Omitted.] 
11.  Term of office and retirement of directors. 
12.  Disqualifications for being a director. 
13.  Removal of director from office. 
14.  Resignation of office by director and filling up of casual vacancies. 
15.  Chairman of Board. 
16.  Remuneration of directors. 
17.  Managing director. 
18.  Executive Committee. 
19.  Meetings of the Board and Committee. 
20.  Powers of Executive Committee. 
21.  Advisory Committee. 
22.   Offices and agencies. 
23.  Officers and other employees of the Financial Corporation. 

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SECTIONS 

CHAPTER III 

POWERS AND DUTIES OF THE BOARD 

24.  General duty of the Board. 
25.  Business which Financial Corporation may transact. 
25A. Power to acquire rights. 
25B. Gifts, grants, etc. 
26.  Limit of accommodation. 
27.  Power to impose conditions for accommodation. 
28.  Prohibited business. 
29.  Rights of Financial Corporation in case of default. 
30.  Power to call for repayment before agreed period. 
31.  Special provisions for enforcement of claims by Financial Corporation. 
32.  Procedure of district judge in respect of applications under section 31. 
32A. Power of Financial Corporation to appoint directors or administrators of an industrial concern 

when management is taken over. 

32B. Effect of notified order under section 32A. 
32C. Powers and duties of directors and administrators. 
32D. No right to compensation for termination of contract of managing agent, managing director, etc. 
32E. Application of Act 1 of 1956. 
32F. Restriction on tiling of suite for dissolution, etc., of an industrial concern not being a company 

when its management is taken over. 

32G. Recovery of amounts due to the Financial Corporation as an arrear of land  revenue. 

CHAPTER IV 

INVESTMENT OF FUNDS, ACCONTS AND AUDIT 

33.  Funds of the Financial Corporation. 
34.  Investment of funds. 
35.  Disposal of profits. 
35A. Special reserve fund. 
36.  General meetings. 
37.  Audit. 
37A. Inspection. 
38.  Returns. 

CHAPTER V 

MISCELLANEOUS 

39.  Power to give instructions to Financial Corporation on questions of policy. 
40.  Declaration of fidelity and secrecy. 
41.  Indemnity of directors. 
41A. Protection of action taken by persons appointed under section 27 or section 32A. 
41B. Nomination in respect of deposits, bonds, etc. 
42.  Offences. 
43.  Provisions relating to income-tax and super-tax. 
43A. Delegation of powers. 
43B. Reports to the Board. 

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SECTIONS 

44.  Act 18 of 1891 to apply to the books of the Financial Corporation. 
45.  Liquidation of Financial Corporation. 
46.  Power to apply Act to certain financial institutions in existence at commencement of Act. 
46A. Extension of jurisdiction of the Financial Corporation to other States by   agreement. 
46B. Effect of Act on other laws. 
47.  [Omitted.] 
48.  Power of Board to make regulations. 
48A. Laying of rules and regulations before State Legislature. 
48B. Power to make rules. 
49.  Power to remove difficulty. 

THE SCHEDULE. 

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THE STATE FINANCIAL CORPORATIONS ACT, 19511 

ACT NO. 63 OF 1951 

[31st October, 1951.] 

An Act to provide for the establishment of State Financial Corporations. 

BE it enacted by Parliament as follows:— 

CHAPTER I 

PRELIMINARY 

1.  Short  title,  extent  and  commencement.—(1)  This  Act  may  be  called  the  State  Financial 

Corporations Act, 1951. 

(2) It extends to the whole of India 2***. 
(3) It shall come into force in any State on such date3  as the Central Government may, by notification 

in the Official Gazette, appoint. 

2. Definitions.—In this Act unless the context otherwise requires,— 

(a) “Board” means the Board of directors of the Financial Corporation; 
4[(aa) “Development Bank” means the Industrial Development Bank of India established under 

the Industrial Development Bank of India Act, 1964 (18 of 1964);] 

5[(b)  “Financial  Corporation”  means  a  Financial  Corporation  established  under  section  3  and 

includes a Joint Financial Corporation established under section 3A;] 

6[(c) “industrial concern” means any concern engaged or to be engaged in— 

(i) the manufacture, preservation or processing of goods; 
7[(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 8[or by ropeway or by 

lift]; 

(v) the generation or distribution of electricity or any other form of power; 

(vi) the maintenance, repair, resting 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; 
9[(viii) the setting up or development of an industrial area or industrial estate;] 
(ix) fishing or providing shore facilities for fishing or maintenance thereof;  10*** 

1. This Act has been extended to Dadra and Nagar Haveli by Reg. 6 of 1963, s. 2 and the First Schedule; to Pondicherry by Reg. 
7  of  1963,  s.  3  and  the  First  Schedule;  to  Goa,  Daman  and  Diu  by  Reg.  11  of  1963,  s.  3  and  Schedule  and  to  the  State  of 
Sikkim on 24th October, 1975, vide notification No. S.O. 615(E), dated 23rd October, 1975. 

2. The words “except the State of Jammu and Kashmir” omitted by Act 62 of 1956, s. 2 and the Schedule. 
3. 1st August, 1952 (in the whole of India except the State of Jammu and Kashmir), vide notification No. S.R.O. 1317, dated  28th 

July, 1952, see Gazette of India, Part II, sec. 3. 
4. Ins. by Act 77 of 1972, s. 2 (w.e.f. 30-12-1972). 
5. Subs. by Act 56 of 1956, s. 2, for clause (b) (w.e.f. 1-10-1956). 
6. Subs. by Act 77 of 1972, s. 2, for clause (c) (w.e.f. 30-12-1972). 
7. Subs. by Act 43 of 1985, s. 2, for sub-clause (ii) (w.e.f. 21-8-1985) 
8. Ins. by s. 2, ibid. (w.e.f. 21-8-1985) 
9. Subs. by s. 2, ibid., for sub-clause (viii)  (w.e.f. 21-8-1985). 
10. The word “or” omitted by s. 2, ibid. (w.e.f. 21-8-1985). 

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1[(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  of  product, 
whether in relation to any of the matters aforesaid, including any activities approved by the Small 
Industries Bank; or 

(xxii) such other activity as may be approved by the Small Industries Bank;] 

2[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  4[Small  Industries  Bank]  for  its  decision  and  the  decision  of  the  4[Small 
Industries Bank] thereon shall be final.] 

 (d) “prescribed” means prescribed by rules or regulations made under this Act; 
5[(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 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);] 

(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); 

1.  Subs. by Act 39 of 2000, s. 2, for clauses (x) to (xiii) (w.e.f. 5-9-2000). 
2.  Explanation renumbered as Explanation 1 by Act 43 of 1985, s. 2 (w.e.f. 21-8-1985). 
3. Ins. by s. 2, ibid. (w.e.f. 21-8-1985). 
4. Subs. by Act 39 of 2000, s. 2, for “Development Bank” (w.e.f. 5-9-2000). 
5. Ins. by s. 2, ibid. (w.e.f. 5-9-2000). 

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1[(fa) “Small Industries Bank” means the Small Industries Development Bank of India established 

under  sub-section  (1)  of  section  3  of  the  Small  Industries  Development  Bank  of  India  Act,  1989              
(39 of 1989);] 

 2[ 3[(fb)] “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);] 

 4[(fc)] “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. 

CHAPTER II 

INCORPORATION OF STATE FINANCIAL CORPORATIONS, THEIR CAPITAL AND MANAGEMENT 

3. Establishment of State Financial Corporations.—(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 
5[acquire, hold and dispose of] property and shall by the said name sue and be sued. 

6[3A. Establishment of Joint Financial Corporations.—(1) Notwithstanding anything contained in 
section  3,  two  or  more  States  may,  after  consultation  with  the  7[Small  Industries  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 
the 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  authorised  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  me  guarantee  under  section  6  or  section  7  8[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; 

9* 

* 

* 

* 

* 

(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; 

1.  Ins. by Act 39 of 2000, s. 2 (w.e.f. 5-9-2000). 
2. Subs. by Act 6 of 1962, s. 2, for Clause (fb) (w.e.f. 16-4-1962). 
3. Clause (ff) re-lettered as clause (fb) thereof by Act 39 of 2000, s. 2 (w.e.f. 5-9-2000). 
4. Clause (fff) re-lettered as clause (fc) thereof by s. 2, ibid. (w.e.f. 5-9-2000). 
5.  Subs. by Act 56 of 1956, s. 3, for “acquire and to hold” (w.e.f. 1-10-1956). 
6.  Ins. by s. 4, ibid. (w.e.f. 1-10-1956). 
7.  Subs. by Act 52 of 1975, s. 24, for “Reserve Bank” (w.e.f. 16-2-1976). 
8.  Ins. by Act 6 of 1962, s. 3 (w.e.f. 16-4-1962). 
9. Omitted by Act 43 of 1985, s. 3 (w.e.f. 21-8-1985). 

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(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.] 

4. Share capital and share-holders.—1[(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 section 4D, 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-section (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 section 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 per cent. of the issued equity capital of the Financial Corporation.] 

(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 clauses (c) and (d) of sub-section (3) 
remain  unsubscribed,  they  shall  be  subscribed  for  equally  by  the  State  Government  and  the  3[Small 
Industries Bank].] 

4[4A.  Special  class  of  shares.—5[(1)  The  State  Government  may,  in  consultation  with  the  3[Small 
Industries Bank], specify from time to time such part of the unissued capital of the Financial Corporation 
as shall be allocated for the issue of a special class of shares.] 

1.  Subs. by Act 39 of 2000, s. 4, for sections (1), (2) and (3) (w.e.f. 5-9-2000). 
2.  Subs. by Act 43 of 1985, s. 3, for sub-section (5) (w.e.f. 21-8-1985). 
3. Subs. by Act 39 of 2000, s. 4, for “Development Bank” (w.e.f. 5-9-2000). 
4.  Ins. by Act 77 of 1972, s. 4 (w.e.f. 30-12-1972). 
5.  Subs. by Act 52 of 1975, s. 26, for sub-section (1) (w.e.f. 16-2-1976). 

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(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 1[Small Industries Bank], determine; 

(b) subscribed by the State Government and the  1[Small Industries 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  1[Small 
Industries  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 2*** 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-sections (2) to (5) of section 4, section 5, and 3[sub-sections (1) to (4) of 

section 6], shall apply to the special class of shares.] 

4[4B. Transfer of share capital to Development Bank .—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. 

4C. Payment of amount.—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.] 

5[4D.  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 shareholers: 

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-section (3) of section 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-section (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-section (1) shall be redeemed by the Financial 

Corporation in such instalments and in such manner as the Board may determine. 

4E. 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. 

1. Subs. by Act 39 of 2000, s. 5, for “Development Bank” (w.e.f. 5-9-2000). 
2. Subs. by s. 5, ibid., for “section 47” (w.e.f. 5-9-2000). 
3. Subs. by s. 5, ibid., for “sub-section (1) of section 6” (w.e.f. 5-9-2000). 
4. Ins. by Act 52 of 1975, s. 27 (w.e.f. 16-2-1976). 
5. Ins. by Act 39 of 2000, s. 6 (w.e.f. 5-9-2000). 

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(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. 

4F.  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-section (3) of  section 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. 

4G. Proxy voting.—In a  general meeting referred to in  clause (b) of  sub-section (1) of  section 4D 
and  sub-section  (1)  of  section  4E,  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. 

4H. 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.] 

1[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 to 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 

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  

1. Subs. by Act 39 of 2000, s. 7, for sections 5 to 10 (w.e.f. 5-9-2000). 

9 

 
 
                                                           
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 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-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  exercises  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 name, 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-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 (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 section 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 

 
(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 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-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 (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 section 20 of 
that Act. 

7.  Additional  capital  of  Financial  Corporation  and  its  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 section 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). 1*** 

(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 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 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-section  (4)  and  sub-section  (5)  and  of  the  contingent 

1. The words and figures “and the Banking Regulation Act, 1949 (10 of 1949)” omitted by Act 4 of 2013, s. 17 and the Schedule 

(date to be notified). 

11 

 
                                                           
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 time 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-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 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-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 share-holders, 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 is more 
than ten per cent. but less than twenty-five per cent. of total issued equity capital, three directors; 

12 

 
(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.] 

10A.  [Board  of  directors.]  Omitted  by  the  State  Financial  Corporation  (Amendment)  Act,  2000              

(39 of 2000), s. 8 (w.e.f. 5-9-2000). 

1[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-section (1), a nominated director shall hold office for such term 

not exceeding three years and shall also 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 section 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-section  (3)  of  section  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, whether 
alone or jointly with others, and six months have elapsed from the last day fixed for the payment of 
the call.] 
13.  Removal  of  director  from  office.—2[(1)]  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. Subs. by Act 39 of 2000, s. 9, for sections 11 and 12 (w.e.f. 5-9-2000). 
2. Section 13 renumbered as sub-section (1) thereof by s. 10, ibid. (w.e.f. 5-9-2000). 

13 

 
                                                           
1[(2)  The  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,  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 
section 10 and elect in his place another person to fill the vacancy so caused.] 

14. Resignation of office by director and filling up of casual vacancies.—2[(1) Any director elected 
under clause (d) of section 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.] 

(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. 

3[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  remains  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.] 

4[16.  Remuneration  of  directors.—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.] 
 17. Managing director.—5[(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.] 
 6[(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. Ins. by Act 39 of 2000, s. 10 (w.e.f. 5-9-2000). 
2. Subs. by s. 11, ibid., for sub-section (1) and (1A) (w.e.f. 5-9-2000). 
3. Subs. by s. 12, ibid., for section 15 (w.e.f. 5-9-2000). 
4. Subs. by Act 6 of 1962, s. 7, for section 16 (w.e.f. 16-4-1962). 
5. Subs. by Act 39 of 2000, s. 13, for section 17 (w.e.f. 5-9-2000). 
6. Ins. by Act 56 of 1956, s. 9 (w.e.f. 1-10-1956) 

14 

 
 
 
                                                           
1[(3)  Notwithstanding  anything  contained  in  sub-section  (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-section (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-section (1) by giving to the State Government 
notice of not less than three months in writing.] 

2[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 section 10 represent different State Governments 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 of partly of directors and partly of other persons for such purpose or purposes as it may 
think fit.] 

19.  Meetings  of  the  Board  and  Committee.—(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. 
3[ 4* 
 (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 5***  authorised  by  the  Chairman  of 
the Board in writing shall preside at such meeting, but if the director so authorised is absent or if no 
such authorisation 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 authorised in writing by the 
Chairman of that Committee shall preside at that meeting, but if the member so authorised is absent 
or if no such authorisation has been made, the Committee may elect any of its members to preside at 
that meeting.] 
20. Powers of Executive Committee.—(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  6[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. 

21.  Advisory  Committee.—The  Financial  Corporation  may  appoint  7[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 

1. Ins. by Act 39 of 2000, s. 13 (w.e.f. 5-9-2000). 
2. Subs. by s. 14, ibid., for section 18 (w.e.f. 5-9-2000). 
3. Subs. by Act 6 of 1962, s. 9, for sub-section (4) (w.e.f. 16-4-1962). 
4. Omitted by s. 15, ibid. (w.e.f. 5-9-2000). 
5. The words “, not being the managing director” omitted by Act 43 of 1985, s. 12 (w.e.f. 21-8-1985). 
6. Subs. by s. 13, ibid., for “shall be laid” (w.e.f. 21-8-1985). 
7. Subs. by s. 14, ibid., for “one or more advisory committee or committees” (w.e.f. 21-8-1985). 

15 

 
 
 
 
 
 
 
 
                                                           
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. 

1[22.  Offices  and  agencies.—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.] 

23. Officers and other employees of the Financial Corporation.—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. 

2* 

* 

* 

* 

* 

CHAPTER III 
POWERS AND DUTIES OF THE BOARD 

 24. 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[25. Business which Financial Corporation may transact.—4[(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 cooperative banks 5[or 

other financial institutions]; 
(b)  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; 

(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 connected 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 its underwriting liabilities and disposing 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 to debentures of, and industrial concern to 

1. Subs. by Act 77 of 1972, s. 13, for section 22 (w.e.f. 30-12-1972). 
2. The proviso omitted by Act 39 of 2000, s. 16 (w.e.f. 5-9-2000). 
3. Subs. by Act 6 of 1962, s. 10, for section 25 (w.e.f. 16-4-1962). 
4. Subs. by s. 17, ibid., for sub-section (1) (w.e.f. 5-9-2000). 
5. Ins. by Act 43 of 1985, s. 15 (w.e.f. 21-8-1985). 

16 

 
 
 
 
 
 
 
 
 
                                                           
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 Section 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,  down,  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 trustee 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-section (1), such commission, brokerage, interest, remuneration or fee as may be agreed upon.] 

1*   

* 

* 

* 

* 

(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)  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[Small Industries Bank] but in no case shall exceed 
thrice the paid-up share capital and reserve fund of the Corporation.] 

1. Omitted by Act 43 of 1985, s. 15 (w.e.f. 21-8-1985). 
2. Subs. by Act 77 of 1972, s. 15, for “and (c)” (w.e.f. 30-12-1972). 
3. Subs. by Act 39 of 2000, s. 17, for “Development Bank” (w.e.f. 5-9-2000). 

17 

 
 
 
 
 
 
 
 
                                                           
1[(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 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.] 

2[25A.  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.] 

3[25B.  Gifts,  grants,  etc.—The  Financial  Corporation  may  receive  gifts,  grants,  donations  or 

benefactions from Government or any other source.] 

4[26.  Limit  of  accommodation.—On  and  from  the  commencement  of  the  State  Financial 
Corporations  (Amendment)  Act,  2000  (39  of  2000),  the  Financial  Corporation  shall  not  enter  into  any 
arrangements under clause (a), (d) or (h) 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) five hundred 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) 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) up to four times.] 

27. Power to impose conditions for accommodation.—(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. 

5[(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. 

1.  Ins. by Act 77 of 1972, s. 15 (w.e.f. 30-12-1972). 
2.  Ins. by Act 43 of 1985, s. 16 (w.e.f. 21-8-1985). 
3. Ins. by Act 39 of 2000, s. 18 (w.e.f. 5-9-2000). 
4. Subs. by s. 19, ibid., for section 16 (w.e.f 5-9-2000). 
5. Subs. by Act 77 of 1972, s. 17, for sub-section (2) (w.e.f. 30-12-1972). 

18 

 
                                                           
(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.] 
28. Prohibited business.—1[(1)] The Financial Corporation shall not— 

2[(a) except as provided in section 8, accept deposits; 
(b) except as provided in clauses 3[(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; 
4[(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.] 
5[(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) 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 

(ii) 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. 

(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; 

1. Section 28 renumbered as sub-section (1) thereof by Act 77 of 1972, s. 18 (w.e.f. 30-12-1972). 
2. Subs. by Act 6 of 1962, s. 13, for clauses (a) and (b) (w.e.f. 16-4-1962). 
3. Ins. by Act 77 of 1972, s. 18 (w.e.f. 30-12-1972). 
4. Subs. by Act 39 of 2000, s. 20, for clause (d) (w.e.f. 5-9-2000). 
5. Ins. by Act 77 of 1972, s. 18 (w.e.f. 30-12-1972). 

19 

 
                                                           
(ii)  shall  apply  only  so  long  as  the  conditions  precedent  to  such  disability  as  set  out  in                 

sub-section continue.] 

29. Rights of Financial Corporation in case of default.—(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 instalment thereof 1[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  2[right to take over the management or possession 
or both of the industrial concerns], as well as the 3[right to transfer by way of lease or sale] and realise 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 4*** under 
sub-section (1), shall vest in the transferee all rights in or to the property transferred  5[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. 

6[(4)  7[Where  any  action  has  been  taken  against  an  industrial  concern]  under  the  provisions  of               

sub-section (1), all costs, 8[charges and expenses which in the opinion of the Financial Corporation have 
been properly incurred] by it 9[as incidental thereto] shall be recoverable from the industrial concern and 
the money which is received by it  10*** 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)  7[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  11[the 
concern]. 

30.  Power  to  call  for  repayment  before  agreed  period.—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 

1. Ins. by Act 77 of 1972, s. 19 (w.e.f. 30-12-1972). 
2. Subs. by s. 19, ibid., for “right to take over the management of the industrial concern” (w.e.f. 30-12-1972). 
3. Subs. by Act 56 of 1956, s. 14, for “right to sell” (w.e.f. 1-10-1956). 
4. The words “of sale and relaisation” omitted by s. 14, ibid. (w.e.f. 1-10-1956). 
5. Subs. by s.14, ibid., for “as if the sale”(w.e.f. 1-10-1956). 
6. Subs. by s. 14, ibid., for sub-section (4) (w.e.f. 1-10-1956). 
7. Subs. by Act 77 of 1972, s. 19, for certain words (w.e.f. 30-12-1956). 
8. Subs. by Act 6 of 1962, s. 14, for “charges and expenses properly incurred” (w.e.f. 16-4-1962). 
9. Subs. by Act  77 of 1972, s. 19, for “as incidental to such management, or transfer and realization.” (w.e.f. 30-12-1956). 
10. The words “from such management, or transfer and realization” omitted by s.19, ibid. (w.e.f. 30-12-1972). 
11. Subs. by Act 6 of 1962, s. 14, for “the owner for the concern” (w.e.f. 16-4-1962). 

20 

 
                                                           
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. 

31.  Special  provisions  for  enforcement  of  claims  by  Financial  Corporation.—(1)  Where  an 
industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or 
any  instalment  thereof  1[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, 2[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 authorised 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  reliefs,               
namely:— 

(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the 

3[Financial Corporation] as security for the loan or advance; or 

4[(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. 

32.  Procedure  of  district  judge  in  respect  of  applications  under  section  31.—(1)  When  the 
application is for the reliefs 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 realise 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. 

5[(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. 

1. Ins. by Act 77 of 1972, s. 20 (w.e.f. 30-12-1972). 
2. Ins. by Act 56 of 1956, s. 15 (w.e.f. 1-10-1956). 
3. Subs. by s. 15, ibid., for “Corporation” (w.e.f. 1-10-1956) 
4. Ins. by Act 43 of 1985, s.  19 (w.e.f. 21-8-1985). 
5. Ins. by s. 20, ibid. (w.e.f. 21-8-1985). 

21 

 
                                                           
(3)  Before  passing  any  order  under  sub-section  (1)  or  sub-section  (2)  1[,  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 
injunction. 

(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) 
insofar 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; 3***; 
1[(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)  1[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  1[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 directs 
until the appeal is disposed of. 

(8) An order of attachment or sale of 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. 

4[(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 

1. Ins. by Act 43 of 1985, s. 20 (w.e.f. 21-8-1985). 
2. Subs. by s. 20, ibid., for sub-section (4) (w.e.f. 21-8-1985). 
3. The word “or” omitted by s. 20, ibid. (w.e.f. 21-8-1985). 
4. Ins. by Act 56 of 1956, s. 16  (w.e.f. 1-10-1956). 

22 

 
                                                           
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 degree, as if the Financial Corporation were the decree-holder.] 

(9) Any party aggrieved by an order 1[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. 

2[(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 3[or by any judge of the principal court of civil 

jurisdiction].] 
3[(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.] 

4[32A. Power of Financial Corporation to appoint directors or administrators of an industrial 
concern when management is taken over.—(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.] 

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

32B.  Effect  of  notified  order  under  section  32A.—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 there of holding office as such immediately before the issue of the notified order 
shall be deemed to have terminated; 

1. Subs. by Act 43 of 1985, s. 20, for “under sub-section (5)” (w.e.f. 21-8-1985). 
2. Subs. by Act 6 of 1962, s. 15 for sub-section (11) (w.e.f. 16-4-1962). 
3. Ins. by Act 77 of 1972, s. 21 (w.e.f. 30-12-1972). 
4. Ins. by Act 56 of 1956, s. 17 (w.e.f. 1-10-1956). 
5. Ins. by Act 6 of 1962, s. 16 (w.e.f. 16-4-1962). 

23 

 
                                                           
(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.] 

32C.  Powers  and  duties  of  directors  and  administrators.—(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  cancelling  or 
varying  any  contract  or  agreement  entered  into  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 cancelling 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. 

32D.  No  right  to  compensation  for  termination  of  contract  of  managing  agent,  managing 
director, etc.—(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. 

32E. Application of Act 1 of 1956.—(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. 

24 

 
(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. 

32F.  Restriction  on  filing  of  suite  for  dissolution,  etc.,  of  an  industrial  concern  not  being  a 
company when its management  is taken  over.—(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,  insofar  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.] 

1[32G.  Recovery  of  amounts  due  to  the  Financial  Corporation  as  an  arrear  of  land              

revenue.—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 authorised 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.] 

CHAPTER IV 

INVESTMENT OF FUNDS, ACCONTS AND AUDIT 

33. Funds of the Financial Corporation.—(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 therefrom. 

(2) All moneys belonging to the fund shall be deposited in the Reserve Bank   2[or the State Bank of 

India  or  a  subsidiary  bank  as  defined  in  the  State  Bank  of  India  (Subsidiary  Banks)  Act,  1959                 
(38  of  1959)]  3[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)    1[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)] 4[or, in consultation with the Reserve Bank, in a scheduled bank or 
a State  Co-operative Bank]. 

5[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.] 

35. Disposal of profits.—(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: 

6* 

* 

* 

* 

* 

1.  Ins. by Act 43 of 1985, s. 21 (w.e.f. 21-8-1985). 
2.  Subs.  by  Act  6  of  1962,  s.  17,  for  “or  with  any  agency  of  the  Reserve  Bank  other  than  a  Government  treasury”                     

(w.e.f. 16-4-1962). 

3.  Ins. by Act 77 of 1972, s. 22 (w.e.f. 30-12-1972). 
4. Subs. by Act 56 of 1956, s. 18, for “or in a scheduled bank in consultation with the Reserve Bank” (w.e.f. 1-10-1956). 
5. Subs. by Act 39 of 2000, s. 21, for section 34 (w.e.f. 5-9-2000). 
6. The proviso omitted by s. 22, ibid. (w.e.f. 5-9-2000). 

25 

 
 
 
 
 
 
 
 
 
                                                           
* 

1* 
2[35A. 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 accounting 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.] 

36. General meetings.—(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 
3[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. 

4[(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 accounts are closed and balanced; 

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

(c) the auditor’s report on the balance-sheet and accounts; and 

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

(3) 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 this Act.] 

37.  Audit.—5[(1)  The  accounts  of  the  Financial  Corporation  shall  be  audited  by  auditors  duly 

qualified  to  act  as  the  auditors  under  sub-section  (1)  of  section  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.] 

(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 auditors 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. 

1. Omitted by Act 39 of 2000, s. 22 (w.e.f. 5-9-2000). 
2. Subs. by s. 23, ibid., for section 35A (w.e.f. 5-9-2000). 
3. Subs. by Act 43 of 1985, s. 24, for “three months” (w.e.f. 21-8-1985). 
4. Subs. by Act 39 of 2000, s. 24, for sub-section (2) (w.e.f. 5-9-2000). 
5. Subs.  by s. 25, ibid., for sub-section (1) (w.e.f. 5-9-2000). 

26 

 
 
 
 
 
 
 
 
 
                                                           
(4) The State Government may, in consultation with the Comptroller and Auditor-General of India, at 
any  time  issue  directions  to  the  auditors  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: 

1* 

* 

* 

* 

* 

(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. 

37A.  Inspection.—(1)  The 2[Small  Industries  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 2[Small  Industries  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 2[Small Industries 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.] 

38.  Returns.—3[(1)  The  Financial  Corporation  shall  furnish  to  the  State  Government,  the  4[Small 
Industries Bank] and the Reserve Bank such statements and returns in such form as the State Government, 
the 4[Small Industries Bank] or the Reserve Bank may require from time to time.] 

(2) The Financial Corporation shall furnish  5[to the State Government, the  4[Small Industries Bank] 
and  the  Reserve  Bank]  within  6[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. The proviso omitted by Act 39 of 2000, s. 25 (w.e.f. 5-9-2000). 
2.  Subs. by s. 26, ibid., for “Development Bank” (w.e.f. 5-9-2000). 
3. Subs. by Act 43 of 1985, s. 25, for sub-sections (1) and (2) (w.e.f. 21-8-1985). 
4. Subs. by Act 39 of 2000, s. 27, for “Development Bank” (w.e.f. 5-9-2000). 
5. Subs. by Act 52 of 1975, s. 38, for “to the State Government and to the Reserve Bank” (w.e.f. 16-2-1976). 
6. Subs. by Act 56 of 1956, s. 22, for “three months” (w.e.f. 1-10-1956). 

27 

 
 
 
 
 
 
 
 
 
 
 
                                                           
CHAPTER V 

MISCELLANEOUS 

39.  Power  to  give  instructions  to  Financial  Corporation  on  questions  of  policy.—(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 1[in consultation with 2[and after obtaining the advice of,] the 3[Small 
Industries 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. 

4[(2A)  Nothing  contained  in  sub-section  (1) and  sub-section  (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. 

(2B) 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.] 

(3)  If  the  Board  fails to  carry  out the instructions  on the  question  of policy  laid  down  by  the  State 

Government 5[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, and the decision 
of the State Government as to the grounds for superseding the Board shall not be questioned in any court. 
40.  Declaration  of  fidelity  and  secrecy.—6[(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 7[State Co-operative Bank, the Small Industries 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.] 

8[(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. Ins. by Act 56 of 1956, s. 23 (w.e.f.1-10-1956). 
2. Inserted by Act 77 of 1972, s. 26 (w.e.f. 30-12-1972). 
3. Subs. by Act 39 of 2000, s. 28, for “Development Bank” (w.e.f. 5-9-2000). 
4. Ins. by s. 28, ibid. (w.e.f. 5-9-2000). 
5. Subs. by Act 56 of 1956, s. 23, for certain words (w.e.f. 1-10-1956). 
6. Ins. by Act 48 of 1983, s. 6 (w.e.f. 30-12-1983). 
7. Subs. by Act 39 of 2000, s. 29, for “State co-operative Bank or the Development Bank” (w.e.f. 5-9-2000). 
8. Section 40 re-numbered as sub-section (3) thereof by Act 48 of 1983, s. 6 (w.e.f. 30-12-1983). 

28 

 
                                                           
1[(4) Nothing contained in this section shall apply to the credit information disclosed under the Credit 

Information Companies (Regulation) Act, 2005 (30 of 2005).] 

41. Indemnity of directors.—(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 wilful 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  the  wrongful  act  of  any  person  under  obligation  to  the  Financial 
Corporation or by anything done in good faith in the execution of the duties of his office or in relation 
thereto. 

2[41A.  Protection  of  action  taken  by  persons  appointed  under  section  27  or  section  32A.—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.] 

3[41B. 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-section (1) 
shall  constitute  a  full  discharge  to  the  Financial  Corporation  of  its  liability  in  respect  of  such  deposits, 
bonds or securities.] 

42. Offences.—(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,  wilfully  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  authorised  by  the  Board  in  this 
behalf. 

43.  Provisions  relating  to  income-tax  and  super-tax.—For  the  purposes  of  the 4[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 5*** 6[section  7  or  section  8]  shall  not  be  treated  as  the  income,  profits  and  gains  of  the  Financial 
Corporation and any interest on debentures, 7[bonds or deposits] paid by the Financial Corporation out of 
such sum shall not be treated as expenditure incurred by it: 

1. Ins. Act 30 of 2005, s. 34 and the Schedule (w.e.f. 14-12-2006). 
2. Ins. by Act 6 of 1962, s. 21 (w.e.f. 16-4-1962). 
3. Ins. by Act 39 of 2000, s. 30 (w.e.f. 5-9-2000). 
4. Subs. by Act 43 of 1985, s. 26, for “Indian Income-tax Act, 1922 (11 of 1922)” (w.e.f. 21-8-1985). 
5. The words and figure “section 6 or” omitted by Act 39 of 2000, s. 31 (w.e.f. 5-9-2000). 
6. Subs. by Act 6 of 1962, s. 22, for certain words (w.e.f. 16-4-1962). 
7. Subs. by s. 22, ibid., for “or bonds” (w.e.f. 16-4-1962). 

29 

 
                                                           
Provided further that in the case of any shareholder such portion of a dividend as has been paid out of 
any such sum advanced by the State Government shall be deemed to be 1[his] income from “interest on 
securities” 2[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. 

3[43A.  Delegation  of  powers.—The  Board  may,  by  general  or  special  order,  delegate  to  the 
managing director or to any other officer of the Financial Corporation  4[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.] 

4[43B. Reports to the Board.—(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. 

5* 

* 

* 

* 

*.] 

44.  Act  18  of  1891  to  apply  to  the  books  of  the  Financial  Corporation.—The  Financial 

Corporation  shall  be  deemed  to  be  a  bank  for  the  purposes  of  the  Bankers  Books  Evidence  Act,  1891                 
(18 of 1891). 

45.  Liquidation  of  Financial  Corporation.—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. 

46.  Power  to  apply  Act  to  certain  financial  institutions  in  existence  at  commencement  of              

Act.—(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 6[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: 

7[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. 

8[46A.  Extension  of  jurisdiction  of  the  Financial  Corporation  to  other  States  by             

agreement.—(1)  Where  a  Financial  Corporation  has  been  established  for  any  State  9[and  one  or  more 
other  States  not  served  in  whole  or  in  part  by  a  Financial  Corporation]  desires  that  the  Financial 
Corporation  10[should  serve  the  needs  of  those  States  or  of  any  area  therein],  and  the  States,  after 
consultation with the 11[Small Industries 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 a notification in the 
Official Gazette by the Central Government, serve the needs of those States 12[or, as the case may be, of 
the area therein] in terms of the agreement  12[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]. 

1. Subs. by Act 48 of 1952, s. 3 and second Schedule, for “its” (w.e.f. 2-8-1952). 
2. Subs. by Act 6 of 1962, s. 22, for “Declared to be income-tax free” (w.e.f. 16-4-1962). 
3. Ins. by s. 23, ibid. (w.e.f. 16-4-1962). 
4. Ins. by Act 43 of 1985, s. 27 (w.e.f. 21-8-1985). 
5. Omitted by Act 39 of 2000, s. 32 (w.e.f. 5-9-2000). 
6. Subs. by Act 43 of 1985, s. 29, for “Any institution in existence at the commencement of this Act” (w.e.f. 21-8-1985). 
7. Ins. by s. 29, ibid. (w.e.f. 21-8-1985).  
8. Ins. by Act 56 of 1956, s. 24 (w.e.f. 1-10-1956). 
9. Subs. by Act 77 of 1972, s. 27, for “and any other State” (w.e.f. 30-12-1972). 
10. Subs. by s. 27, ibid., for “should serve its needs” (w.e.f. 30-12-1972). 
11. Subs. by Act 39 of 2000, s. 33, for “Development Bank” (w.e.f. 5-9-2000). 
12. Ins. by Act 77 of 1972, s. 27 (30-12-1972). 

30 

 
 
 
 
 
 
 
 
 
                                                           
1[(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. 

46B.  Effect  of  Act  on  other  laws.—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.] 

47. [Power of Board to make regulations.] Omitted by the State Financial Corporations (Amendment) 

Act, 2000 (39 of 2000), s. 34 (w.e.f. 5-9-2000). 

48. Power of Board to make regulations.—(1) The Board may, after consultation with the 2[Small 
Industries  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; 

3[(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 section 6; 

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

(cc) the entrusting or delegation of duties to the managing director by the Board under clause (c) 

of sub-section (1) of section 17; 

(cd) the functions of Executive Committee under sub-section (2) of section 18; 

(ce)  the  guidelines  and  prudential  norms  in  accordance  with  which  investment  may  be  made 

under section 34; 

(cf) the manner in which nomination may be made under section 4IB; 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;] 

(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; 

1. Ins. by Act 77 of 1972, s. 27 (w.e.f. 30-12-1972). 
2. Subs. by Act 39 of 2000, s. 35, for “Development Bank” (w.e.f. 5-9-2000). 
3. Ins. by s. 35, ibid. (w.e.f. 5-9-2000). 

31 

 
                                                           
(f)  the  manner  and  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; 
1* 

* 

* 

* 

* 

(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,  3[fees for attending meetings 

thereof and the conduct of business thereat]; and 

(n) generally, the efficient conduct of the affairs of the Financial Corporation. 
4[(o)  the  form  and  manner  in  which  the  balance-sheet  and  the  accounts  of  the  Financial 

Corporation shall be prepared; 

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

5[(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.] 

6[48A.  Laying  of  rules  and  regulations  before  State  Legislature.  —7***  and  every  regulation 

made under section 48 shall be laid, as soon as may be after it is made, before the State Legislature.] 

8[48B.  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-section (5) of section 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.] 

49. Power to remove difficulty.—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.] 

1. Omitted by Act 43 of 1985, s. 30 (w.e.f. 21-8-1985). 
2. Subs. by s. 30, ibid., for “advisory committees for technical and other advice” (w.e.f. 21-8-1985) 
3. Ins. by act 56 of 1956, s. 25 (w.e.f. 1-10-1956). 
4. Ins. by Act 39 of 2000, s. 35 (w.e.f. 5-9-2000). 
5. Subs. by Act 77 of 1972, s. 28, for sub-section (3) (w.e.f. 30-12-1972). 
6. Ins. by Act 4 of 1986, s. 2 and Schedule (w.e.f. 15-5-1986). 
7. The words “Every rule made under section 47 and” omitted by Act 39 of 2000, s. 36 (w.e.f. 5-9-2000). 
8. Ins. by s. 37, ibid. (w.e.f. 5-9-2000). 

32 

 
 
 
 
 
 
 
 
                                                           
THE SCHEDULE 

1[See section 40 (3)] 

DECLARATION OF FIDELITY AND SECRECY 

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. 

Signature. 

Signed before me: 

1. Subs. by Act 48 of 1983, s. 6, for “(See section 40)” (w.e.f. 30-12-1983). 

33 

 
 
 
 
                                                           
