As per section 4A(2) of the Act, any institution, which is established or constituted by or under any Central Act or not less than 51% of the paid-up share capital of such institution is held or controlled by the Central Government, would become a PFI, if so notified by the Central Government.

Now, the MCA has issued criteria for qualification as Public Financial Institution

  • It should be a company or corporation established under Special Act or formed under the Companies Act 1956;
  • It should be engaged in industrial / infrastructural financing;
  • It should be in existence for at least 3 years and at least 50% of its income should be from financing activities;
  • Its net worth should be at least Rs. 1,000 crores;
  • The Company should be registered with Reserve Bank of India as Infrastructure Financing Company or as Housing Financing Company with National Housing Board ;
  • These conditions shall not apply to Central or State PSUs.

PRESS RELEASE

The government today amended guidelines vide General Circular No: 34/2011 Dated- 02.06.2011 for Public Financial Institutions (PFIs) permitting private companies, primarily engaged in infrastructure funding , to attain the status of a PFI and, seek tax and other benefits. Under the new norms notified by the Ministry of Corporate Affairs, any company which has been in existence for more than three years and earns more than 50 per cent income from industrial and infrastructural financing can opt to be a PFI.

According to the guidelines, “a company should be established under a special Act or the Companies Act; main business should be industrial/ infrastructural financing; (it) must be in existence for at least 3 years and their financial statement should show that their income from the area exceeds 50 per cent of their income”, to be declared as a PFI.

Besides, the company should have a net-worth of Rs 1,000 crore and should be registered as a infrastructure finance company with the RBI or as a housing finance company.

Earlier, companies needed to fulfill just two criteria for qualifying as a PFI — if it has been established or constituted by or under any Central Act, or if the government held more than 51 per cent of the paid-up share capital of such institution.

However, the ministry said in case of central public sector undertakings, the “restrictions” would not apply “with respect to financing specific sector(s) and net-worth”.

The PFIs enjoy certain benefits under the Companies Act, Recovery of Debts due to Banks and FIs Act, and the Income Tax Act, among others.

The PFI status helps companies to raise funds by issuing bonds to insurance companies, provident funds, mutual funds and RNBCs.

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General Circular No: 34/2011 Dated- 02.06.2011

F No. 3/3/2010/CL.V

Government of India

Ministry of Corporate Affairs

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

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.

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Posted Under

Category : Company Law (3484)
Type : Circulars (7560) Notifications/Circulars (30670)

0 responses to “Guidelines for declaring financial institution as Public Financial Institutions under Section 4A of the Companies Act, 1956”

  1. H.R.Sampath Kumar says:

    Waht are the benefits enjoyed by a PFI under Companies Act 1956 and income-Tax Act, 1961, in brief, pl?

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