Section 4D of The State Financial Corporations Act, 1951 in hindi
1[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.]
Summary
- A Financial Corporation can issue redeemable preference shares on terms decided by its Board.
- The Corporation can convert equity shares into redeemable preference shares.
- To convert equity shares, the Corporation must obtain prior approval from the State Government and the Small Industries Bank, and pass a resolution at a general meeting of shareholders.
- The conversion must not reduce the combined equity held by the State Government, the Small Industries Bank, and public sector banks or other government institutions to less than fifty-one per cent of the total issued equity capital.
- These redeemable preference shares carry a fixed rate of dividend, cannot be transferred, and do not carry any voting rights.
- The Board determines the instalments and manner in which these shares are redeemed.
Practical examples
FAQ
1. What are redeemable preference shares under this Act?
They are a class of shares with a fixed dividend rate that the Corporation must buy back in instalments, carrying no voting rights and being non-transferable.
2. Whose approval is required to convert equity shares into redeemable preference shares?
Prior approval is required from both the State Government and the Small Industries Bank.
3. Can redeemable preference shares be transferred or sold to another person?
No, under Section 4D, these shares are strictly non-transferable.
4. Do holders of redeemable preference shares have the right to vote at general meetings?
No, redeemable preference shares do not carry any voting rights.
5. What is the minimum equity holding that must be maintained by government-related parties during conversion?
The conversion must not reduce the aggregate equity shares held by the State Government, the Small Industries Bank, and public sector banks or other government institutions to less than fifty-one per cent of the total issued equity capital.
Test yourself
Q1.Under Section 4D of The State Financial Corporations Act, 1951, which of the following is a key characteristic of the redeemable preference shares issued by a Financial Corporation?
Q2.Under Section 4D of The State Financial Corporations Act, 1951, who has the authority to decide the terms and manner of issuing redeemable preference shares?
Q3.Under Section 4D of The State Financial Corporations Act, 1951, when converting equity shares into redeemable preference shares, the total equity held by the State Government, the Small Industries Bank, and public sector banks or institutions under Section 4(3) must not fall below which threshold?
Q4.Under Section 4D of The State Financial Corporations Act, 1951, whose prior approval is required before converting equity shares into redeemable preference shares?