An Act of Parliament enacted with the short title as ‘The State Financial Corporations Act, 1951’ (Act no. 63 of 1951). A Central Industrial Finance Corporation was set up under the Industrial Finance Corporation Act, 1948 for providing medium and long term credit to Industrial Undertakings, which is not normal activity of Commercial Banks. Similar corporations were sought to be set up in the different States by the State Governments for supplementing the work of the aforesaid Industrial Finance Corporation. And on consideration by the State Governments that such State Corporations should be established under a special Statute a Bill was introduced before house of parliament as the matter of incorporation, regulation and winding up of such Corporations fall within the purview of Parliament as per Entry No.43 of the Union List, under the Indian Constitution. The enactment of present legislation was requested from the State Governments to the Government of India. The Act was assented on 31st October, 1951 by the President of India, after it was passed by both houses of the Parliament. Its extension is provided to the entire India however, originally, the State of Jammu and Kashmir was exempted from its application. Act was brought into operation on 1st August, 1952 and in the State of Jammu and Kashmir, the same was extended on 1st November, 1956. The Act was amended several times by the Amending Acts including, the Act of 1952, 1955, 1956, 1962, 1972, etc. and recently, the same was amended in the year 2000.
Chapter II of the Act deals with establishment of such Financial Corporation for the State by the State Government, which should be treated as a corporate body having similar feature as that of registered Company. Even by the Amendment in the year 1965, a new provision of section 3A was inserted to provide establishment of joint financial corporation for the two or more States coming together to have such financial corporation. The State Governments concerned is authorized to fix the authorized capital of such financial corporations, subject to the minimum level i.e. 50 lakh rupees and maximum limit i.e. 500 crores of rupees. And all provisions regarding shares and other relevant aspects the subsequent sections provide for. Even section 7 of the Act, as a substituted provision provides that such Financial Corporation for increasing its working capital can issue and also sale Bonds, Debentures on the guarantee of State Government. Also such Corporation can borrow the amounts from the RBI for aforesaid development of its working capital. Such corporations can also accept the term deposits repayable on expiry of the term i.e. minimum provided under section 8 as 1 year.
The Board of Directors is vested with the power to superintend, direct and manage the affairs as well as business of the corporation. Such Board’s composition, term of office of Directors, their disqualifications, removal, etc. provisions are contained under subsequent sections of the Act. Moreover, as per section 18 there should be an Executive committee which the Board should constitute comprising of the Chairman and Managing Director, etc. as per Board’s decision. And so far as the meetings of such Board and Committee and other relevant provisions as to time, place, procedure of such meeting are concerned the Regulations made under this Act should provide for the same. Besides, there can an advisory committee for the corporation and such corporation can appoint its officers and employees for efficient performance of its functions. Moreover, chapter III of the Act contains all provisions regarding powers, functions, etc. of such Board.
Further Chapter IV of the Act makes provisions as to Fund investments, accounts and audit of such Financial Corporations. The Corporations under this Act are authorized under section 33 to possess its own Fund which is to be credited with all receipts by such corporations and it should be utilized by it for making all payments. Such funds can be invested by the Corporation.
Last chapter being chapter V of the Act makes miscellaneous provisions under the Act and in which more particularly, section 39 provides the State Governments to provide for instructions, guidelines, etc. to the Board for efficiently discharging its functions and obligations under Act specifically on the questions of policy. Further the actions of such directors, agents, etc. concerned, are protected against legal sanctions if they are in good faith and done in pursuance of the provisions of this Act. Section 42 makes giving false information in relation to any relevant documents, an offence under this Act. The punishment is extended to 2 years imprisonment or with fine extended to 2000 INR or even with both. Using without permission, the name of Financial corporation is also an offence for which maximum punishment is given as 6 months’ imprisonment of 1000 INR fine or both. For taking cognisance the written complaint from the Finance Corporation’s authorized officer is necessary. Further, the Board is empowered to delegate its powers and functions to the officers, employees of the Corporation. Moreover, the Board is further empowered to make regulations under section 48 of the Act on the given matters. And section 48A provides the Central Government’s power to make rules on the given matters. All afore discussed provisions are being most important, there are other more provisions which are also making relevant aspects clear with the view to provide the efficient running of the Financial Corporations constituted under this Act.
by Faim Khalilkhan Pathan.