Objects of a Producer Company: Section 378B
The objects of a producer company are set by section 378B of the Companies Act, 2013, and the section does two separate things. Sub-section (1) lists the matters the objects may relate to. Sub-section (2) then restricts whose produce the company may deal in while carrying those objects out. A memorandum that copies the list without observing the restriction is only half compliant.
Definition
The objects of a producer company
are the matters listed in section 378B(1) of the Companies Act, 2013, in eleven clauses running from (a) to (k). They cover the production, processing, marketing and financing of the primary produce of Members, and the company must deal primarily with the produce of its active Members. Source: Companies Act, 2013, section 378B.
What are the eleven objects of a producer company in section 378B?
Section 378B(1) states that the objects shall relate to all or any of the following matters, then lists them. Counted on printed page 202 of the India Code consolidation, the list runs to eleven clauses, (a) to (k).
| Clause | Object |
|---|---|
| (a) | Production, harvesting, procurement, grading, pooling, handling, marketing, selling and export of the primary produce of the Members, or import of goods or services for their benefit |
| (b) | Processing, including preserving, drying, distilling, brewing, vinting, canning and packaging of the produce of its Members |
| (c) | Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members |
| (d) | Providing education on the mutual assistance principles to its Members and others |
| (e) | Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members |
| (f) | Generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce |
| (g) | Insurance of producers or their primary produce |
| (h) | Promoting techniques of mutuality and mutual assistance |
| (i) | Welfare measures or facilities for the benefit of Members as may be decided by the Board |
| (j) | Any other activity ancillary or incidental to clauses (a) to (i), or other activities promoting the principles of mutuality and mutual assistance among Members |
| (k) | Financing of procurement, processing, marketing or other activities specified in clauses (a) to (j), including extending credit facilities or other financial services to its Members |
Clause (a) carries its own proviso: the company may carry on any of the activities specified in this clause either by itself or through other institution. That permission is limited to clause (a) and is not repeated for the other ten.
A note on the printed text, because it affects anyone counting the clauses from an extracted copy. The text layer of the consolidation wraps clause (k) so that its internal cross-reference to "clauses (a) to (j)" begins a new line, which reads like a twelfth clause labelled (j). The direct page render shows one clause (j) and one clause (k). The count is eleven.
What does section 378B(2) restrict?
Sub-section (2) is the operative limit: every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects specified in the section.
11 objects, and one restriction
Section 378B(1) lists eleven permitted objects in clauses (a) to (k); section 378B(2) requires the producer company to deal primarily with the produce of its active Members
Source: Companies Act, 2013, section 378B, inserted by Act 29 of 2020, s. 52, w.e.f. 11 February 2021
The restriction runs on a defined term rather than on membership at large. An active Member under section 378A(a) is one who fulfils the quantum and period of patronage the articles require. So the articles are what settle whether a given Member's produce counts toward the primary-dealing test, which is one reason section 378G(3)(b) requires the articles to state the manner of ascertaining patronage.
How do the objects bind the memorandum and later alterations?
Two provisions connect section 378B to the constitutional documents.
Section 378F(c) requires the memorandum of association of every producer company to state that the main objects of the Producer Company shall be one or more of the objects specified in section 378B. The memorandum cannot reach outside the list.
Section 378G(2) requires the articles to contain the mutual assistance principles, and section 378A(f) defines that phrase by reference to section 378G(2). Two of those principles bear directly on the objects: voluntary and available membership for all eligible persons who can participate in or avail of the facilities or services of the company, and equitable distribution of surplus through business development, common facilities and distribution among Members in proportion to participation.
Alteration is not free either. Section 378H(1) restricts alteration of the memorandum conditions, and a producer company may alter its objects only by special resolution not inconsistent with section 378B. The general alteration of memorandum machinery in the Act applies as far as it does not conflict with Chapter XXIA, per section 378ZR.
Which object clause supports lending, and on what terms?
Clause (k) is the financing clause, and it is the one that gives a producer company a credit function its Members can use. The terms are not in section 378B. They are in section 378ZK, which allows the Board, subject to the articles, to provide financial assistance to Members by way of a credit facility for a period not exceeding six months, or loans and advances against security specified in the articles repayable within a period exceeding three months but not exceeding seven years from disbursement. A loan or advance to a director or a director's relative is granted only after approval by the Members in general meeting, per the proviso to section 378ZK. Loans to directors of companies at large are dealt with separately, by section 185, which is outside this Chapter.
Reading the objects of a producer company
Four checks cover the objects of a producer company. Which of the eleven section 378B(1) clauses the memorandum adopts. Whether the memorandum states them as main objects, per section 378F(c). Whether the articles set out the manner of ascertaining patronage, per section 378G(3)(b), because the section 378B(2) primary-dealing test depends on it. And whether any alteration was made by special resolution consistent with section 378B, per section 378H. The powers of the Board then operate inside whatever the objects clause permits.
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Frequently asked questions
What are the objects of a producer company?
Section 378B(1) lists eleven permitted matters in clauses (a) to (k), covering production and marketing of the primary produce of Members, processing, supply of machinery, education, technical services, power and water, insurance, mutuality techniques, Member welfare, ancillary activity, and financing of those activities. Source: Companies Act, 2013, section 378B(1).
Must a producer company pursue all eleven objects in section 378B?
No. Section 378B(1) says the objects shall relate to all or any of the listed matters, so a company may adopt one clause or several. Section 378F(c) then requires the memorandum to state that the main objects are one or more of the objects specified in section 378B. Source: Companies Act, 2013, sections 378B(1) and 378F(c).
Can a producer company lend money to its Members?
Clause (k) of section 378B(1) allows financing of procurement, processing, marketing or other activities specified in clauses (a) to (j), including extending credit facilities or other financial services to Members. Section 378ZK then sets the terms: credit facility up to six months, and loans repayable in over three months and up to seven years. Source: Companies Act, 2013, sections 378B(1)(k) and 378ZK.
Whose produce may a producer company deal in?
Section 378B(2) requires every producer company to deal primarily with the produce of its active Members for carrying out any of its objects. An active Member is one who fulfils the quantum and period of patronage required by the articles under section 378A(a). Source: Companies Act, 2013, sections 378B(2) and 378A(a).
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