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"' ,  -7 \1'-' " { y' -;'> i ,'t' ", f ~o ·'·;~'j";'i·'~)"'· ', • date  y"  ,-\-the state financial corpora (amendment) bill, 1961 (to bb introduced in lok salma)  the state pinancial corporations (amend- ment) bill, 19<>1 (to be introduced in lok sabra) a billfurther to amend the state financial corporatiom act, 1951 be it enacted by parliament in the twelfth year of the republie of india as follows:-1 (1) this act may be called the state financial corporations short aide (amendment) act, 1961 ::'acc::t s (2) it shall come into force on such date as the central government may, by notification in the official gazettt!, appoint " of 19,1 z in section 2 of the state financial corporations act, 1951 ameddjdent (hereinafter referred to as the principal act) ,_ of hctiod a (i) for clause (c), the following clause shall be substituted, 10 namely:-'(c) "industrial concern" means any concern engaged or to be engaged in the manufacture, preservation or pre>-cessing of goods or in mining or in the hotel industry or in the transport of passengers or goods by road or by water or in the generation or distribution of electricity or any other form of power or in the development of any contiguous area of land as an industrial estate erplanation~the expression ''processing 1m goods" includes any art or process for producing, preparing orr making an article by subjecting any material to a manual, mechanical, chemical, electrical or any other like operation;'; (ii) for clause (i), the following clauses shah be substituted, namely:-'(if) "state co-operative bank" shall have the meaning s assigned to it in clause (f) of section 2 of the reserve bank of india act, 1934; - of 1934· (fff) "state government", in relation to a union territory, means the administrator thereof;' ameodjdeat ofeection ~a 3 in section 3a of the principal act, in clause (b) of sub-section 10 (2), after the word and figure "section 7", the words and figure "or section 8" shall be inserted amendment 4 in section 4 of the principal act, in clause (c) of sub-section of aec:tion 4 (3), after -the words "insurance companies", the following shall be inserted, namely:-':" is "(including the life insurance corporation of india established under section 3 of the life insurance corporation act, 1956) " 31 or 1956• subititudod s for sections 7 and 8 of the principal act, the following of new icic- hct10ns shall be substituted namely:-tiona for icc-' 20 tionl 7 and so additionll c:apital of 1he fnaciil cm,raticid and ita bonowins powci''' "7 (1) the financial corporation may, in consultation with the reserve bank, issue and sell bonds and debentures carrying interest for the purpcse of increasing its working capital and such bonds and debentures shall be guaranteed by the state government as to the repayment of the principal and 2s the payment of interest at such rate as the state government may, on the recommendation of the board and with the approval of the central government fix at the time the bonds and debentures are issued (2) the financial corpcration may, for the purposes of carrying out its functions under this act borrow money from 30 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 -3s (i) stocks, funds and securities (other than irruno  vable property) -in which a trustee is authorised to invest trust money by any law for the time being in force in india, or 5 10 (ii) such bi1ns of exchange and  promissory notes as are e1i~ble for purchase or rediscount 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 any maturity or against bonds and debentures issued by the financial corporation and guaranteed by the state government and maturing within a period not exceeding eighteen months from the date on which the money is so borrowed: is provided that the amount borrowed by the financial corporation under clause (b) shan not at any time exceed in the aggregate sixty per cent of the paid-up share capital thereof 20 (3) the financial corporation may, for the purposes of c8t'-rying out its functions under this act, borr:ow money from the state government in consultation with the reserve bank on such terms and conditions as may be agreed upon (4) the financial corporation may, with the prior approval of the reserve bank also borrow money from any financial institution notified in this behalf by the central government on such terms and conditions as may be agreed upon 25 (5) the total amount of bonds and debentures issued and outstanding the amounts borrowed by the financial corporation under clause (b) of sub-section (2), sub-section (3) and subsection (4) and of the contingent liabilities of the financial corporation in the form of guarantees given by it or underwritting agreements entered into by it shall not at any time exceed ten time~ the amount of the paid-up share capital and the reserve fund of the financial corporation  35 8 (1) the financial corporation may accept from the d~~: state government or, with the prior approval of the state f:nancial government and the reserve bank a local authority or any corporation 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 it thinks fit:  ·provided that the total amount of such deposits shall net at any time exceed the paid-up share capital of the financial corporation (2) all deposits accepted under sub-section (1), other than the deposits from the state government, shall be guaranteed by the state government as to the repayment of the principal and the payment of interest"   t t in section 10 of the principal act,-f ieitiod 10 5 (i) in clause (b), the words "the central board of" shall be omitted: (ii) in clause (c), the words "the board of directors or' shall be omitted; (iii) for clause <1), the following clause shall be' substitu- 10 ted, namely:-"(f) a managing director appointed by the state government in consultation with the reserve bank and, except in the case of first appointment, also with the board;" i, ~:::u:n 7 for seetion 16 of the principal act, the following section shall tiod for iee- be substituted, namely:-1iod 16 remuneration of dinc:ton "16 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, 20 if they are members of the executive committee, or any other committee appointed by the financial corporation, for attending meetings of such committee" 8 in section 17 of the principal act, in sub-section (1) ,-(i) for clause (c), the following clause shall be substituted, 25 name1!y:-"(c) hold office for such term not exceeding four years 8$ the state government may specify and be eligible for reappointment;" ; (ii) in the proviso, the wo'rds "shau hold oftlce for such 30 ~erm il\d" shall be omitted amrdlmdt t 'in aeetion 19 of the principal act,-r_dod i, (i) in sub-section (3a), for the words "the central board of the reserve bank or the board of directors of the industrial finance corporation of india", the words and figures "the 35 reserve bank or the industrial finance corporation of india established under the 1~\\stna1 fin~c:e corporation act, 1948" ihall be iu'bstitutedj l' of 1948 (ii) for sub-section (4), the following sub-sections shall be substituted, namely:-15 of 19<48 10 " (4) if for any reason a director nominated under clause (a) qr clause (b) or clause (e) of section 10 who ii a member of the executive committee or any other committee is unable to attend any meeting of the executive committee or other ccmmittee the state government, the reserve bank or the industrial finance corporation established under the industrial finance corporation act, 1948, as the case may be, depute anv other person to attend the said meeting- and such person sha11, for the purposes of the said meeting, be deemed to be a member of such committee (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,-20 (a) in the case of the meetinjt of the board, 8 director net beine: the manae:ing director authorised bv the chairman of the board in writin~ shall preside at such mepting hut if t'hp director 80 authorised is absent or if no such authorisation has heen made the board may elect a director to preside at that meeting: and (b) in the case' of the meeting of the executive committee a member authorised in writinll by the chairman of that committee shall preside at that meeting but if the member so authorised is absent or if no such authorisation hm been made the committee may elect any of its members to preside at that meeting" 30 10 for section 25 of the principal act, the following section shall ~~!tu~~ be substituted namely:-tiod for - 8ection zs ''25 (1) the financial corporation may, subject to the pro- !h~hess visions of thi::; act carrv on and transpct any of the fol\>wing financial kinds of business namely: _ corporation  , maf tranl-3s (a) ~aranteeing, on such terms and conditions as may act be agreed upon-(i) loans raised by industrial concerns which are repayable within a peried not exceeding twenty years, and are floated in the public market; (ii) loans raised by industrial concerns from scheduled banks or state co-operative banks; (b) guaranteeing, on such tenns and conditions as may be agreed upon, deferred payments due from any industrial eoncern in connection with its purchase of capital gocds within india: (c) underwriting of the issue of stock, shares, bonds or s debentures by industrial concerns; (d) acting as agent of the central government or the state government or the industrial finance corporation of india established under the industrial financ'e corporation act, 1948, or any ather financial institution notified in this 10 is of 1948 behalf by the central government in the transaction of any business with an industrial concern in respect of loans or advances granted, or debentures subscribed, by anyone of them; (e) receiving ~n consideration of the services mention- is ed in the preceding clauses such commission as may be agreed upon; (1) retaining wi part of its assets any stock, shares, bonds or debentures of an industrial concern which it may have to take in fulfilment of its underwriting liabilities, so how- 20 ever, that it dispc1les of the stock, shares, bonds or debentures so acquired as early as practicable, but in no case the stock, shares, bonds or debentures so acquired shall be retained beyond a period of seven years from the date of such acquisition, except with the prior permission of the reserve 25 bank: provided that the financial corporation may subscribe to stock or shares of the industrial concern if such concern increases its subscribed capital: by the issue of further stock or shares in accordance with, and subject to, the provisions 30 of section 81 of the ccmpanies act, 1956, but the stock or i of 19s6 shares so subscribed shall not be retained after the stock 9r shares of the industrial concern taken in fulfilment of its underwriting liabilities are disposed of; (g) granting loans or advances to, or subscribing to 35 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 nothing contained in this clause shall be deemed to preclude the financial corporation from grant- "0 ing loans or advances to, or subscribing to debentures of, an 1''''''''    l l    , industrial concern to wbich may be attached an option                                                                to convert such debentures or loans into stock or sbares of the industrial concern: 5 10 provided further that the financial corporation may in the exercise of such option, convert such debentures or loans into stock or shares of the industrial ~oncern and may also subscribe to stock or shares of the industrial concern if such concern increases its subscribed capital by the issue of further stock or shares in accordance with, &nd subject to, the provisions of section 81 of the companies act, 1956; llf 19s6 (h) 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 15 20 (2) no accommodat~on shall be given under clauses (0), (b) and (g) of sub-section (1) unless it is sufficiently secured by a pledge, mortgage, hypothecation, or assignment of government or other securities, stock, shares, or secured debentures, bullion, movable or immovable property or other tangible assets in the manner prescribed by regulations or unless it is guaranteed '3s to the repayment of the principal and the payment of interest by the state government, a scheduled bank or a state co-operative bank 30 (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)and (c) 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 reserve bank but in no case shall exceed thrice the paid-up share capital and reserve fund of the corporation" 11 for section 26 of the principal act, the shall be substituted, namely:-35 - following section subitituti<j" of new section for lcction 26 "26 the financial corporation shall not enter into any limit of arrangements under clauses (a) 35 and (g) of sub-section (1) of ~od­section 25 with any industrial concern so that the total emount tion outstanding against that concern in respect of all such arrangements is more than-(i) twenty lakhs of rupees in the case of a public limited company as defined in section 3 of the companies act, 1956 or a co-operative society registered under the i of lps6 co-operative societies act, 1912 or any other law relating 2 of 19l'l, to co-operative societies for the time being in force; and (ii) ten lakhs of rupees in any other case:' amendment 12 in section 27 of the principal act, in sub-section (2), the 5 ofaection27 following shall be added at the end, namely:-"and nothing in the said act or in any such law or instrument shall, in so far 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 rota- ie tion or removal from office, apply to any director appointed by the financial corporation in pursuance of this section" amendment 13 in section 28 of the principal act, for clauses (a) and (b), of section 28' the following clauses shall be substituted, namely:-"(a) except as provided in section 8, accept deposits; (b) except as provided in clauses (f> and (g) of subsection (1) of section 25, subscribe to the shares or stock of any company;" 14 in section 29 of the principal act,-amendment of section 29 (i) in sub-section (4), for the words "charges and expen- 20 ses properly incurred", the words "charges and expenses which in the opinion of the financial corporation have been properly incurred" shall be substituted; (ii) in sub-section (5), for the words "the owner of the concern", the words "the concern" shall be substituted 25 am dm 15 in section 32 of the principal act for sub-section (11) the en ent ofiectiod32 following sub-section shall be substituted, namely:-"(11) the functions of a district judge under this section  shall be exercisable-(a> in a presidency town, where there is a city civil 30 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" 16 in section 32a of the principal act, alter sub-section amendment of section the following sub-section shall be inserted, namely:-(2) , 32a 35 "(3) nothing in the companies act, 1956 or in any other i of 19s6 law for the time being in force or in any instrument relating to the industrial concern shall, in so far 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 5 director appointed by the financial corporation under this section" 17 in section 33 of the principal act, in sub-section (2), for the amendment words "or with any agency of the reserve bank other than a gov- of section ernment treasury", the words, brackets and figures "or the state 33 10 bank of india or a subsidiary bank as defined in the state bank of 38 of 1959 india (subsidiary banks) act, 1959" shall be substituted 18 in section 35 of the principal act, in the proviso to sub-sec- amendment tion (2), for the words brackets and figures "under any guarantee of section given in pursuance of sub-section (2) of section 7", the words ond 35· i, figures "section 7 or section 8" shall be substituted  20 19 after section 35 of the principal act, the following shall be inserted, namely:-section insertion of new section 3sa "35a (1) the financial corporation may establish a &pe- special cial reserve fund, to which shall be transferred such portion of reserve fund the dividends accruing to the state government and the reserve bank on the shares of the financial corporation as may be fixed by agreement between the state government and the reserve bank: provided that the total amount in the said fund shall at no time exceed ten per cent of the paid-up share capital of the financial corporation (2) no shareholder of the financial corporation, other than the state government and the reserve 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 reserve bank" 20 in section 37 of the principal act, in the proviso to sub- amendment section (6), for the words, brackets and figures "sub-section (2) of ofaection 31· 3s section 7", the words and figures "section 7 or section 8" shall be lubltituted 21 after section 41 of the principal act, the following section shall be inserted, namely:-insertion of new section 4ia protection of tk:tion taken by persons appointed under section 27 or section 32a "41a 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 s pursuance of section 27 or section 32a for anything which is in good faith done orintended to be done by him as such director, administrator, managing agent or manager"  22 in section 43 of the principal act,-amendment of section 43 (i) in the first proviso,-10 (a) for the words, brackets and figures "under any guarantee given in pursuance of sub-section (2) of section 7", the words and figures "section 7 or sectiod 8" shall be substituted; (b) for the words "or bonds", the words "bonds or is deposits" shall be substituted; (ii) in the second proviso, for the words "declared to be income-tax free", the words "and the income-tax shall be payable thereon as if it were the interest receivable on ally security of a state government issued ~ome-tax free" shall be 20 substituted 23 after section 43 of the principal act, the following section shall be inserted, namely:-insertion of new section 43a delegation ofpawers "43a the board may, by general or special order, delegate to the managing director or to any other officer of the financial 2~ corporation 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"  statement of objects and reasonsthe working of the state financial corporations act, 1951 since 1956 when the act was last amended has brought to light the need to amend it in certain respects with the rising tempo of industrialisation of the country it has also become necessary to enlarge the field of operations of the state financial corporations to serve the growing needs of industry  2 under the existing provisions of the act the state financial corporations cannot provide financial assistance to the hotel or transport industry, nor can they help in the development of the industrial estates it is proposed to amend the act so as to enable the corporations to render financml assistance for the hotel and transport industries and also in the developmeilt of industrial estates 3 to meet the growing needs of industry for financial assistance, it is necessary to augment their resources sufticiently consequently, the borrowing p~ers of the corporations are proposed to be increased 4 it is also proposed to amend the act so as to enable a state financial corporation to transact the following kinds of new business, namely, the guaranteeing of loans raised by industrial concerns from scheduled banks or state co-operative banks, and the guaranteeing of deferred payments due from any industrial concern in connection with its purchase of goods within india besides, the corporations are also being enabled to retain underwritten shares beyond seven years and to convert loans and debentures into share capiml it is further proposed to enhance the limit of accommodation in the case of public limited companies and co-operative societies to twenty lakhs of rupees 5 the bill seeks to achieve these objects opportunity is also being taken to incorporate some other amendments which are found necessary for the smooth working of the corporations and are of a consequential, clarificatory or procedural nature the notes an c~auses appended to the bill explain the provisions thereof new delhi; morarji r desai the 27th november 1961  notes on clausesclause 2-this clause seeks to include industrial concerns engaged or to be engaged in hotel industry or in the transport of passengers or goods by road or by water or in the development of any contiguous area of land as an industrial estate clause 3-it is conseque'ntial to the amendment proposed to section 8 of the act clause 4-1t seeks to clarify that insurance companies include the life insurance corporation of india clause 5-this clause seeks to amend sections 7 and 8 of the act the amendment to section 7 enables a state financial corporation to borrow money from the reserve bank of india repayable on the expiry of fixed periods not exceeding eighteen months and also from the concerned state government and notified financial institutions the borrowing power has been enhanced from the existing multiple of five times to ten times the paid-up share capital and reserve fund of the corporation the amendment to section 8 envisages a state financial corporation accepting deposits from the state government concerned, the local authority or any person, repayable after the expiry of a period not less than twelve months instead of five years at present it also envisages the state government guaranteeing repayment of deposits other than its own and payment of interest thereon clause 6-this clause seeks to amend section 10 of the act in order to remove certain difficulties experienced in the nomination of directors by the reserve bank of india and the industril91 finance corporation of india and also provides for the appointment of the managing director in consultation with the reserve bank of india clause 7-this clause enables the state financie1 corporation to pay fees to the directors for attending meetings of any committee appointed by the corporation clause 8-this clause seeks to amend section 17 of the act enabling the state government to fix the term of office of a managing director for any period not exceeding four years clause 9-this clause seeks to amend section 19 of the act to remove the procedural difficulties in the nomination and attendance of directors at any meeting of the board or the executive committee clause to-this clause seeks to enlarge the scope of the businesses undertaken by the state financial corporations the new businesses which are proposed to be undertaken by the corporations include, inter alia, the guaranteeing of loans raised by industrial concerns from scheduled banks or state co-operative banks, guaranteeing of deferred payments due from any industrial concern in connection with its purchase of capital goods within india, retention as part of their assets of stock, shares, bonds or debentures issued by any industrial concern and taken up by the corporation in fulfilment of under-writing liabilities for a period exceeding seven years from the date of acquisition with the prior permission of the reserve bank of india and also subscription to rights smres and the conversion of loans or advances or debentures into share capital of an industrial concern if the terms of the loans or advances provide for such conversion and also the power to subscribe to rights shares if such concern increases its subscribed capital this clouse also provides for the functioning of a state financial corporation as an agent of any financial in3titution notified by the central government to ensure that a state financial corporation does not lock up its funds in the form of guarantees or in underwritten shares this clause further seeks to impose a limit on the aggregate of contingent liabilities of the financial corporation in the form of guarantees given by it or underwriting agreements entered into by it at twice the paid-up share capital and reserve fund of the corporation, which limit may be exceeded up to three times with the prior approval of the state government and in consultation with the reserve bank of india clause h-this clause seeks to enhance the limit of accommodation to rupees twenty lakhs in the case of industrial concerns which are public limited companies or co-operative societies clause 13-the amendment -to section 28 of the act is consequential to the amendments proposed to section 25 of the act clause 14-the amendment to section 29 is clarificatory in nature clause 17-this clause seeks to amend section 33 of the act enabling the financial corporations to deposit their monies in the state bank of india or in any subsidiary bank of the state bank of india as defined in the state bank of india (subsidiary banks) act, 1959, without consulting the reserve bank of· india clause 18-the proposed amendment to section 35 of the act is consequential to the amendment to section 8 of the act clause 19-this clause seeks to provide for the establishment of a specit31 reserve fund to which the whole or a portion of the dividends accruing to the state government and the reserve babk of india on the share capital held by them in a state financial corporation shall be transferred by an agreement between the two this amendment is with a view to augment the reserve funds of the corporation and is similar to the provisions of section 32a of the industrial finance corporation act, 1948 clause 20-the amendment to section 37 is consequential to the amendment to st!ction 8 of the act clause 22-tbe amendments to section 43 of the act are of consequential and clarificatory nature  financial memorandumthe centml govern~nt will be liable to pay to a state financial corporation commission when the corporation acts as an agent of the central government ir any transaction with an industrial concern in respect of any loans or advances granted or debentures subscribed it is not possible to estimate at this s1jf1ge the exact amount of this expenditure  extracts from the state financial corporation act 1951(63 of 1951) - - - - - [)eftnitiodl 2 in this act, unless the context otherwise requires,-- - - - - (c) "industrial concern" means any concern engaged or to be engaged in the manufacture, preservation or processing of goods or' in mining or in the generation or distribution of electricity or any other form of power; explanation-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; - - - - - (6) "state government" in relation to a part c state, means the lieutenant-governor, or as the case may be, the chief commissioner; - - - - - bltabulhmeat of joint pidadcial corporationa 3a - - - - - (2) an inter-state agreement under sub-section (1) among the participating states may-- - - - - (b) provide or the sharing of the liability for the guarantee under section 6 or section 7; - - - - - 4 - - - - - (3) the state government shall, with the approval of the central government, determine the number of shares which may, respectively, be distributed among-- - - - - '-(c) scheduled banks, insurance companies, investment trusts, co-operatlve banks or other financial institutions, and - - - - - 7 (1) the financial corporation may, in consultation with the mditioaal reserve bank, issue and sell bonds and debentures carrying interest ~;~ for the purpose of increasing its working capital: corpozation provided that the total amount of bonds and debentures issued and outstanding and of the contingent liabilities of the financial corporation in the form of guarantees given by it or underwriting agreements entered into by it ,shall not at any time exceed five times the amount of the paid-up share cbpital and the reserve fund of the financial corporation (2) bonds 6ild debentures of the financial corporation shall be guaranteed by the state government as to the repayment of the principal and the payment of interest at such rate as the state government may, on the recommendation of the board and with the approval of the central government, fix at the time the bonds and debentures are issued (3) the financial corporation may, for the purpose of carrying out its functions under this act, borrow money from the reserve bank, repayable on demand or on the expiry of fixed periods not exceeding ninety days from the date on which the money is so borrowed, against securities of the central government or of any state government 8 the financiel corporation may a~cept deposits from the pub- ~ lie repayable after the expiry of a period which shall not be less ptinanc~  than five years from the date of the making of the deposit, and on corporation such other tenns as it thinks flt: provided that the total amount of sw:h deposits shall not at any time exceed the paid-up capital of the financial corporation  - - - - - 10 the board of directors shall consist of the following namely: -board of - - - - - directorl (b) one director nominated by the central board of the reserve bank; (c) one directoj:' nominated by the board of directors of the industrial finance corporation of india established under the industrial finance corporation act, 1948 (15 of 1948); - - - - - - (i) one managing director appointed by the state government, in consultation with the board except in the case of the ftrst appointment: remunera· cion of clirec:ton :provided that on the first constitution of the board the directors referred to in clauses (d) and (e) shall be nominated by the state government and the directors so nominated shall, for the purposes of this act, be deemed to be elected directora: provided further that all directors of the board first constituted other than the managing director shall retire at the end of the first year - - - - - - 16 the directors other than the managing director and not ·being servants of the state government shall be paid such fees for attending meetings of the board and, if they are member thereof of the executive committee, as may be prescribed ~d' irector 17 (1) the managing director shall-- - - - - - (c) hold oftlce for four years and be eligible for reappointment;  (d) receive such salary and allowances as the board, with the previous approval of the state government, may determine: provided that the ftrst managing director shall hold ofl\ce for such term and shall receive such  salary and allowanees rj the state government may fix -  - - - , medin  01 the board and com· jdiuec 19 - - - - - - (3a) if, for any reason, a director nominated under clause (a) or clause (b) or clause (e) of section 10 is unable to attend any meeting of the board, the state government, the central board of the reserve bank or the board of directors of the industrial finance corporation of india, as the' case may be, may depute any other person to attend the said meeting and such person shall, for all purposes of the said meeting, be deemed to be a director nominated under clause (4) or clause (b) or clause (e), as the cue may be, of· the said section (4) if for any reason the chairman is unable tot p~t at - meeting-(4) of the board, a director other the the madaglng director, authoris~d by the chairman in writing in thja behalf, shall preside at that meeting, or (b) of the executive· committee, ii member authorised in writing by the managing director shan preside t that meeting - - - - - - ••• 25 (1) the financial corporation may, subject to the provisions ~!~cllp' w--· ididoo of this act, carry on and transact any of the following kinds of cial corpobwluieu, namely:- ~y (a) the guaranteeing on such terms and conditions as iday be agreed upon of loans raised by industrial concerns which are repayable within a period not exceeding twenty years and are floated in the public market; (b) the underwriting of the issue of stocks, share&, bonds, or debentures by industrial concerns; ee) the receipt in consideration of the services mentioned, in clauses (a) and (b) of such commission as may be agreed  upon: (d) the retention as part of its assets of any stocks, shares, bonds, or debentures which it may have to take up in fulfilment of its underwriting liabilities: provided that it' disposes of the stocks, shares, bonds or debentures so ac:quired as elrly as practicable and in any case within a period of seven years from the date of such aequisition;   ", (e) the granting of loans or advances to, or the subscribing to' debentures of, industrial concerns, repayable within a period 'not exceeding twenty years from the date on which they al'e granted or subscribed to, as the case may be; (ee) acting as an agent for the central government or the state government or the industrial finance corporation' of india established under the industrial finance corporation act,  1948 (15 of 1948), in the transaction of any business with an industri,:" al concern in respect of loans or advances granted, or debentures subscribed, by anyone of them; and (f) generally, the doing of all 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) no aceommodatiod shall be given under clauaes (a) and (e) ot'subsection (1), unless it is sufticiently secured by a pledge, mo~ gap, bypothecation or assignment of gbvemment or other aecuritiel, stocb, hares or secured debentures, bullion, movable or un movable property or' other tangible anets in' the manner prescribed by regulations or 'unless it is guaranteed 88 to the repayment of principal and the payment of interest by the state government, a' acheduled bank or a state co-operative bank, 26 the financial corporation shall not enter into any arrangetiod ment under clauses (4) and (e) of sub-section (1) of sectioq 2& with a single industrial concern for an amount equivalent in the aggregate to more than ten per cent of the paid-up share capital of the corporation, but in no case exceeding ten lakhs of rupees 27              -                            -                                            -                                                            -                                                                            - power to impoic ccm-clition for accommoda-tion    (2) where one of the conditions imposed under sub-section (1) is that a director shall be appointed by the financial corporation on the board of directors of the industrial concern to protect the interests of the financial corporation, such condition shall be a valid condition notwithstanding any thing contained in the com-panies act, 1956 (1 of 1956), or in any other law for the time being in force or in any instrument relating to the industrial roncern 28 the financial corporation shall not-prohibited bulinen (4) accept deposits, except as provided by this act:     (b) subscribe directly to the shares or stock of any com-pany:   provided that nothing in clause (b) shall affect the right of the financial corporation to acquire any aaares, bonds or deben-tures of a company in fulfilment of lelily underwriting agreement entered into by the financial corporation;      (c) grant any loan or advance on the security of its own shares 29             -                           -                                          -                                                         -                                                                        - ltipttof piaanclal corporation ideate of default    (4) where the management of an industrial concern is taken over by the financial corporation or any property is transferred and realised by it under the provisions of sub-section                                                    (1), all costs, charges and expenses properly incurred by it as incidental to such management, or transfer and realisation shall be recoverable from the industrial concern and the money which is received by it from such management or transfer and realisation shall, in the absence of any contract to the contrary, be held by it in trust to be applied ftrstly, in payment of such costs, charges and expenses and, second-ly, in discharge of the debt due to the financial corporation, and the residue of the money 80 received shall be paid to the person entitled thereto (5) where the financml corporation takes over the mana  ment of an industrial concern under the provisions of sub-section (1), the financial corporation shall be deemed to be the owner of uch concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the owner of the concern  - - -  - fundi olebe flnancfal corporation 32 - - - - - 11 proc:eclare of diltricl' judie in ra-(11) the functions of a district judge under this section shall, in :;:u:tiodi a presidency-town be exercised by the principal judge of the city under ~ civil court, if any, having jurisdicton or by the high court don 31  - - - - - 33 - - - - - (z) all moneys belonging to the fund shall be' deposited til the reserve bank or with any agency of the reserve bank other than a government treasury or, in consultation with the reserve bank, itl a scheduled bank or a state co-operative bank " - - - - ,  '  35 (1) the financial corporation shall establish a reserve fund diitxiial f6 pra!1i (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: provided that for so long as the reserve fund is tess than the paidup share capital of the financial corporation and until there has been repaid to the state government such sum, if any, as that government may have paid under guarantee given in pursuance of section 6, or under any guarantee given in pursuance of sub-section (2) of section 7, the rate of such dividend shan not exceed the rate guaranteed by the state government under section 6  - -  - - 37 - -  - - (6) notwithstanding anything contained in the preeeding subsections, the comptroller and auditor-general of india may, either of his own motion or on a request received in this behalf from  state· govemment, undertake such audit and at such times as he ',may eonsider necessary: , provided that where the state government is required to make lilly payrdentojl account of the guarantee gived by it under section 8 or sub-section (2) of section 7 as the case may be such audit shall be undertaken by the comptroller and auditor-general of india  - - - - - - proridodl· _tiill_: inc)ni·  mid ii&per~ iu,  43 :ror the purposes of the indian income-tax act 1822 (11 of 1922), 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 govemment under the guar8lltee given in pursuance of section 6 or under any guarantee ",1;''·" given in pursuance of sub-section (2) of section 7 shwl not be treated  the income, profits and gains of the financial corporation and any interest on debentures or bonds paid by the financial corpora-,tion out of such sum shall not be t,reated as upenditul'e mcurred by it: 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 govemment shall be deemed to be his income from > - , "interest on securities" declared to be income-tax free within the meaning of section 8 of that act - - - - -  a bill funher to amend the state financial corporations act 1951the president has, in pursuance of clauses (1) and (3) of snicle ii7 and clause (1) of atticle 274 of the constitution of india, recommended to lok sabha the introduction and consideration of the bill m n kaul, secretary (shri morarji desai, minister of fi1llj1ll:l) 