State Financial Corporations Act, 1951
28. Prohibited business
(1) The Financial Corporation shall not-
(a) except as provided in section 8, accept deposits;
(b) except as provided in clauses (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;
(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 18[three crores of rupees or such higher amount not exceeding thirty crores of rupees as the Central Government may by notification in the Official Gazette, specify].
(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) in 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 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, by reason only 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;
(ii) shall apply only so long as the conditions precedent to such disability as set out in the sub-section continue.
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