Guidelines for declaring financial institution as Public Financial Institutions under Section 4A of the Companies Act,1956

Posted: 13/06/2011 in Company

Guidelines for declaring financial institution as Public Financial Institutions under Section 4A of the Companies Act, 1956.

General Circular No: 34/2011, dated- 02.06.2011
F No. 3/3/2010/CL.V, Government of India, Ministry of Corporate Affairs

Section 4A of the Companies Act, 1956 was inserted by the Companies (Amendment) Act, 1974 (41 of 1974) with effect from 01st February 1975. Sub-Section (2) of Section 4A of the Act empowers the Central Government that subject to the provision of sub-section (1) of the Act, to notify in the Official Gazette such other institutions as it may think fit to be a public financial institution (PR).

2. In the past, the Ministry was declaring an institution as PFI if it meets any one of clause (i) and (ii) of sub-section (2) of section 4A of the Act. Now, the Central Government has framed following criteria for declaring any financial institution as PFI under Section 4A of the Companies Act, 1956:-

(a) A company or corporation should be established under a special Act or the companies Act being Central Act;

(b) Main business of the company should be industrial/infrastructural financing;

(c) The company must be in existence for at least 3 years and their financial statement should show that their  income from industrial/ infrastructural financing exceeds 50% of their income;

(d) The net-worth of the company should be Rs one thousand crore;

(e) Company is registered as Infrastructure Finance Company (IFC) with RBI or as an Housing Finance Company (HFC) with National Housing Bank;

(f) In the case of CPSUs/SPSUs, no restriction shall apply with respect to financing specific sector(s) and net-worth.

3. In view of above, any financial institution applying for declaration as PFI shall fulfill the aforesaid criteria.

Click to download the above Circular- General Circular No. 34/2011 dated 02.06.2011.

Source: Ministry of Corporate Affairs.

Section 4A- Public Financial Institutions

(1) Each of the financial institutions specified in this sub-section shall be regarded, for the purposes of this Act, as a Public Financial Institutions, namely:-

(i) the Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913 (7 of 1913);

(ii) the Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948 (7 of 1948);

(iii) the Industrial Development Bank of India, established under section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964);

(iv) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);

(v) the Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963);

(vi) the Infrastructure Development Finance Company Limited, a company formed and registered under this Act.

(vii) the securitisation company or reconstruction company which has obtained a certificate of registration under sub-section (4) of section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.]

(2) Subject to the provisions of sub-section (1) the Central Government may, by notification in the Official Gazette, specify such other institution as it may think fit to be a public financial institution:

Provided that no institution shall be so specified unless-

(i) it has been established or constituted by or under any Central Act, or

(ii) not less than fifty-one per cent, of the paid-up share capital of such institution is held or controlled by the Central Government.

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