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UNIT TRUST OF INDIA ACT, 1963
52 of 1963
30th, December, 1963
STATEMENT OF OBJECTS AND REASONS The question of establishing an institution in the public sector for carrying on the business which is transacted by unit trusts or mutual funds in other countries has been under consideration for some time. It is now proposed to establish such an institution, to be known as Unit Trust of India, with an initial capital of five crores of rupees. The Unit Trust of India will encourage saving by providing for various classes of investors the facility of investing their money in units of the Trust. The Trust will invest the initial capital and the capital obtained by the sale of units in shares and other securities and will distribute every year not less than ninety per cent, of the net income accruing to the unit-holders. It is expected that the risk of losses or of depreciation on account of the investments will be reduced or eliminated as a result of the proposed arrangement. The Trust will also be in a position to contribute, through its operations, to the growth and diversification of country's economy. The various provisions of the Bill are explained in detail in the notes on clauses.-Gaz. of Ind., 26-11-1963. Pt. II, S. 2. Ext. p. 802. Amending Act 10 of 1965.- The Unit Trust of India Act,
1963 provides at present for the sale of units by the Trust under a scheme, which was brought into force on July 1, 1964. Although the response from the public has been encouraging, it is considered desirable that the Trust should be enabled at this stage to offer, in addition, facilities for the acquisition of units by various classes of Investors under other schemes catering to their special preferences or requirements. It is also proposed that the Unit Trust should be in a position to formulate plans for the accumulation of saving by intending investors, for subsequent investment in units. 2. The Bill seeks to amend the Unit Trust of India Act, 1963 for these and for certain other purposes.-Gaz. of Ind., 10-12-1965 Pt. II S. 2, Ext., p. 1258. Amending Act 16 of 1975.- During the last few months there was a spurt in the redemption of the units issued by the Unit Trust of India causing a serious impact on the liquidity of the Unit Trust of India. To curb this trend and to provide incentive for fresh investments in units of the Unit Trust of India, the President promulgated an Ordinance on the 7th January. 1975 amending the Unit Trust of India Act, 1963 and the Indian Trusts Act, 1882. The amendments envisage the grant of further relief from income-tax to the extent of Rs. 2,000 for income from units over and above the existing limit of Rs. 3,000 already available under section 80 L of the Income-tax Act, 1961, in respect of certain approved investments including units, and also provide for further exemption upto Rs. 25.000 from Wealth-tax on investment in units over and above the existing exemption limit under section 5 of the Wealth- tax Act. 1957 in respect of the investments including units specified in that section. The ordinance specifies that the units of the Unit Trust of India will be eligible to be treated as trustee securities under the Indian Trusts Act, 1882, and the amounts payable to the nominees of the unit-holders will, subject to certain conditions, vest in the nominees. The Bill seeks to replace the above Ordinance with certain modifications specified in a separate memorandum appended to the Bill.-Gaz. of Ind., 10-3-1975. Pt. II. S. 2. Ext.. p. 204. Amending Act 3 of 1976.- Government have recently been examining various suggestions to mobilise the savings of non-resident Indians and aliens of Indian origin living abroad and to facilitate investment by them in India. At present investments made by nonresident Indians and aliens of Indian origin in fixed deposits with Commercial Banks out of the Non-Resident (External) Accounts are totally exempt from payment of Income-tax and Wealth-tax. In order to make the investments in units of the Unit Trust of India also attractive and to encourage the flow of foreign exchange into the country, the President promulgated the Unit Trust of India (Amendment) Ordinance, 1975 on 31st October, 1975 amending the Unit Trust of India Act 1963. 2. The ordinance provides that the income earned from units of the Unit Trust of India purchased by non-resident Indians and aliens of Indian origin from Non-Resident (External,) Ac- counts or through remittance of foreign exchange will be free of income-tax. The Ordinance further provides that investments in units by the above mentioned persons, either from Non-Resident (External) Accounts or through remittance of foreign exchange, will also be free of Wealth- tax. 3. The present Bill seeks to replace the said Ordinance-Gaz. of Ind., 12-1-1976, Pt. II, S. 2, Ext., p. 276.
An Act to provide for the establishment of a Corporation with a view to encouraging saving and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities. BE it enacted by Parliament in the Fourteenth Year of the Republic of India as follows:-
SECTION 01: SHORT TITLE, EXTENT AND COMMENCEMENT
(1) This Act may be called, THE UNIT TRUST OF INDIA ACT, 1963.
(2) It extends to the whole of India.
(3) It shall come into force on such date2as the Central Government may, by notification in the Official Gazette, appoint.
SECTION 02: DEFINITIONS
In this Act, unless the contract otherwise requires, -
(a) "Board" means the Board of trustees constituted under S. 10-or S. 41-;
(b) "contributing institution" means an institution which is, for the time being, a contributory to the initial capital of the Trust under S. 4--
(c) "contribution certificate" means a certificate issued under S. 6-;
3[(ca) "Development Bank" means the Industrial Development Bank of India, established under the Industrial Development Bank of India Act, 1964--]
3[(cb] "first unit scheme" means the unit scheme made before the commencement of the Unit Trust of India (Amendment) Act, 1966];
6(cc) 'General Insurance Corporation' means the General Insurance Corporation of India formed under Section 9 of the General Insurance Business (Nationalisation) Act 1972 (57 of 1972)-;
(d) "initial capital" means the capital of the Trust referred to in S. 4-;
(e) "Life Insurance Corporation" means the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956-;
(f) "prescribed" means prescribed by regulations made under this Act;
7(fa)'public financial institution' means every financial institution, other than the Trust, specified by or under Section 4-A of the Companies Act, 1956 (1 of 1956)-;
(g) 'Reserve Bank" means the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934-;
(h) "Scheduled Bank" means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934 -;
8(i) 'security means-
(a) any share, stock, bond, debenture or debenture stock, of any body corporate;
(b) any unit or sub-unit issued by, or other participation in a unit scheme framed by, any body or authority (not being the Trust) outside India or a mutual fund established outside India; and includes -
(i) a government security as defined in Section 2 of the Public Debt Act, 1944 (18 of 1944) -;
(ii) a savings certificate to which the Government Savings Certificates Act, 1959 (46 of 1959) - applies;
(iii) any security issued by any local authority in India, or by the Government of, or a local authority in, any such country outside India as may be approved by the Reserve Bank; and
(iv) any foreign security as defined in Section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973) -, as may be approved by the Reserve Bank;".]
(j) "State Bank" means the State Bank of India constituted under the State Bank of India Act, 1955-;
5[(jj) "subsequent unit scheme" means any scheme made after the commencement of the Unit Trust of India (Amendment) Act,
1966];
(k) "subsidiary bank" has the same meaning as in S. 2 of the State Bank of India (Subsidiary Banks) Act, 1959-
(l) "Trust" means the Unit Trust of India established S. 3-;
(m) "trustee" means a trustee appointed, nominated or elected under S. 10-orS. 41-;
(n) "unit" means a unit issued under4[a unit scheme];
(o) "unit capital" means the aggregate of the face value of the units sold under4[a unit scheme] and outstanding for the time being;
(p) 'unit certificate" means a certificate issued to the purchaser of a unit under 4[a unit scheme];
(q) "unit holder" means a person for the time being recognised by the Trust as the holder of a unit certificate under4[a unit scheme];
(r) "unit scheme" means a scheme made under S. 21-.
SECTION 03: ESTABLISHMENT AND INCORPORATION OF UNIT TRUST OF INDIA
(1) The Central Government shall, by notification in the Official Gazette, establish a Corporation by the name of the Unit Trust of India which shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold or dispose of property and to contract, and may, by the said name, sue or be sued.
(2) The head office of the Trust shall be at Bombay or at such other place as the 10[Development Bank] may, by notification in the Official Gazette, specify.
(3) The Trust may establish local offices, branches or agencies at any places in or outside India. SECTION 3A Prohibition against the use of the words "Unit Trust", "Unit" or "Unite" as a part of the name of any person other than the Trust
(1) No individual or group of individuals, or company, other than the Trust, who or which accepts money by way of any loan deposit, investment or similar other transaction, shall use the word or words "Unit Trust", "Unit" or "Units" as a part of his or its name.
Explanation.- For the removal of doubts it is hereby declared that nothing in this sub-section shall be deemed to prevent any individual or group of individuals, or company from describing any scrip or other security issued by him or it for any amount which has been received and repayable by him or it in the course of transaction of any business which is of the nature of a unit trust or mutual fund, as a unit certificate or units, as the case may be.
(2) If any provision of sub-section (1) is contravened, any person guilty of such contravention shall be punished with fine which may extend to two thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one hundred rupees for every day after the first during which the contravention continues.
(3) Where any provision of sub-section (1) has been contravened by company every person who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided herein if he proves that the contravention was made without his knowledge or that he had exercised all due diligence to prevent the contravention.
(4) Notwithstanding anything contained in sub-section (3), where any offence under this section has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer, such director, manager, secretary or other officer shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
(5) No Court shall take cognizance of any offence punishable under this section except upon a complaint in writing made by an officer of the Trust generally or specially authorized in writing in this behalf by the Trust and BO court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try such offence.
Explanation.- For the purposes of this section,-
(a) "company" means any body corporate and includes a firm or other association of individuals; and
(b) "director", in relation to a firm means a partner in the firm.]
SECTION 04: INITIAL CAPITAL OF TRUST
(1) Subject to the provisions of this Act, the initial capital of the Trust shall be five crores of rupees divided in the form of certificates each of which shall be of such face value as may be prescribed and contributed in the manner hereinafter provided.
(2) Before such date as the Central Government may, by notification in the Official Gazette, specify in this behalf-
(a) the Reserve Bank shall contribute two and a half crores of rupees;
(b) the Life Insurance Corporation shall contribute seventy-five lakhs of rupees;
(c) the State Bank and the subsidiary banks shall contribute seventy-five lakhs of rupees, the amount which the State Bank and each subsidiary bank shall con- tribute being determined by the State Bank;
(d) other institutions,12namely, scheduled banks other than those referred to in Cl. (c) and such classes of financial institutions as may be notified by the Central Government in the Official Gazette in this behalf may contribute one crore of rupees.
(3) If the aggregate of the contributions made by the institutions referred to in clause (d) of sub-section (2) exceeds one crore of rupees, the Board shall refund the excess amount to such institutions, so however, that the amount to be refunded to each such institution bears, as far as possible, the same proportion to the contribution made by it as the excess amount bears to the aggregate of the contributions made by such institutions.
(4) If the aggregate of the contributions made by the institutions referred to in clause (d) of subjection (2) is less than one crore of rupees, the Reserve Bank shall contribute the deficiency within thirty days of the date specified under sub-section (2): Provided that the Reserve Bank may, thereafter, transfer the whole or any part of its contribution under this sub-section to any institution referred to in clause (d) of sub-section (2).
(5) If at any time the Board is of opinion that the amount of the initial capital is in excess of the requirements of the Trust,14[the Board may, and if the Central Government being of like opinion so directs, the Board shall, refund the whole or as the case may be so much of such capital as is in excess of its requirements]12[any contributing institution, and in making any such refund the Board shall not make any discrimination between the institutions referred to in clause (c) of sub-section (2) or between, the institutions referred to in clause (d) of that sub-section]: Provided that where only a part is so refunded the amount to be refunded to each such institution shall bear, as far as possible, the same proportion to the contribution made by it as such part bears to the initial capital; Provided further that for the purpose of any refund the value of the initial capital shall be determined by the Board on such basis as the Central Government may specify in this behalf, regard being had to the real or exchangeable value thereof.
SECTION 04A: TRANSFER OF INITIAL CAPITAL TO DEVELOPMENT BANK
On such date as the Central Government may, by notification in the Official Gazette, appoint (herein - after referred to as the notified date), all the contributions made by the Reserve Bank to the initial capital of the Trust, as on the date immediately preceding the notified date, shall, stand transferred to, and vested in, the Development Bank.
SECTION 04B: PAYMENT OF AMOUNT
The Reserve Bank shall be given by the Development Bank, in cash, for the transfer to, and vesting in, the Development Bank of the Contributions made to the initial capital of the Trust by the Reserve Bank, an amount equal to the contributions to the initial capital so transferred.]
SECTION 05: MAINTENANCE OF REGISTER OF CONTRIBUTORIES
The Board shall maintain in such manner as may be prescribed a register containing the names of the contributing institutions, the amount contributed by each institution and such other particulars as may be prescribed.
SECTION 06: ISSUE OF CONTRIBUTION CERTIFICATES
(1) As soon as may be after the contribution has been made by any contributing institution under S. 4, the Board shall issue to such contributing institution a contribution certificate or contribution certificates in such form and containing such particulars as may be prescribed.
(2) Where the whole or any part of the contribution has been refunded to any institution under sub-section (5) of section 4-, that institution shall, as soon as may be after the refund has been made, forward the contribution certificate or certificates to the Board for cancellation or amendment, as the case may be, and the Board shall cancel or amend the certificate or certificates accordingly.
SECTION 07: Right of transfer of contribution certificates in certain cases
(1) Any contributing institution referred to in clause (d) of sub-section (2) of section 4-may, in the prescribed manner, transfer a contribution certificate to any other institution referred to in that clause and thereupon such other institution shall be deemed to be a contributing institution for the purposes of this Act.
(2) Save as provided in sub -section (1), a contribution certificate shall not be transferred.
"Clauses 7 and 8 provides for the transfer of the certificates of contribution. The Reserve Bank, the Life Insurance Corporation and the State Bank and its subsidiaries will not be able to transfer their contributions to other institutions. The other contributories will however be able to do so among themselves." -S.O.R. (1963).
SECTION 08: RIGHTS AND LIABILITIES OF HOLDERS OF CONTRIBUTION CERTIFICATES
Every holder of a contribution certificate shall have all the rights and be subject to all the liabilities conferred or imposed on a contributing institution by or under this Act.
SECTION 09: MANAGEMENT
(1) The general superintendence, direction and management of the affairs and business of the Trust shall vest in a Board of trustees which may exercise all powers and do all acts and things which may be exercised or done by the Trust.
(2) The Board shall, in discharging its functions under this Act, act on business principles regard being had to the interest of the unit holders.
SECTION 10: BOARD OF TRUSTEES
The Board of trustees shall consist of the following namely-
(a) the Chairman to be appointed by the16[Central Government in Consultation with the Development Bank];
17[(aa) one trustee to be nominated by the Reserve Bank;]
(b) four trustees to be nominated by the16[Development Bank], of whom not less than three shall be persons having special knowledge of, or experience in, commerce, industry, banking, finance or investment;
(c) one trustee to be nominated by the Life Insurance Corporation;
(d) one trustee to be nominated by the State Bank;
(e) two trustees to be elected in the prescribed manner by the contributing institutions referred to in clause (d) of sub-section (2) of section 4-, and
(f) an executive trustee to be appointed by the16[Development Bank]. Provided that if the appointment of the Chairman is whole -time it shall not be necessary to appoint an executive trustee: Provided further that on the first constitution of the Board, the trustees referred to in clause (e) shall be nominated by the Reserve Bank and shall hold office for a period of twelve months from the date of their nomination, or until two trustees are elected under the said clause, whichever may be earlier.
SECTION 10A: TRANSITIONAL PROVISION FOR CONTINUANCE OF CHAIRMAN AND CERTAIN TRUSTEES OF THE BOARD
Every person holding office, immediately before the notified date, as Chairman under clause (a) of section 10 -or as trustee, not being an officer of the Reserve Bank, nominated under clause (b) of that section or as executive trustee appointed under clause (f) thereof shall, notwithstanding the amendment of this Act by the Public Financial Institutions Laws (Amendment) Act, 1975, continue, subject to the same conditions, to hold office for the unexpired portion of his term.]
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