What Is a Producer Company Under Section 378A?
A producer company is a body corporate registered under Chapter XXIA of the Companies Act, 2013 whose objects relate to the primary produce of its Members. The form exists so that farmers and other producers can hold a company rather than a co-operative society, and the whole framework runs from section 378A, which is the definitions section the rest of the Chapter depends on.
Definition
A producer company
is a body corporate having objects or activities specified in section 378B and registered as a Producer Company under the Companies Act, 2013 or the Companies Act, 1956. On registration it is treated as a private limited company with no cap on Members, and cannot become a public limited company. Source: Companies Act, 2013, sections 378A(l) and 378C(5).
What does section 378A define for a producer company?
Section 378A carries fourteen definitions, clauses (a) to (n), and they are what makes Chapter XXIA read differently from the surrounding Act. The general provisions of the Act key membership rights to shares held. This Chapter adds patronage, which section 378A(h) defines as the use of services offered by the company to its Members by participation in its business activities.
| Defined term | What section 378A says |
|---|---|
| active Member, cl. (a) | A Member who fulfils the quantum and period of patronage required by the articles |
| Chief Executive, cl. (b) | An individual appointed under section 378W(1) |
| inter-State co-operative society, cl. (c) | A multi-State co-operative society as defined in clause (p) of section 3 of the Multi-State Co-operative Societies Act, 2002 (39 of 2002), and certain other societies that extended their objects beyond one State |
| limited return, cl. (d) | The maximum dividend as may be specified by the articles |
| Member, cl. (e) | A person or Producer Institution admitted as a Member who retains the qualifications for continuance |
| mutual assistance principles, cl. (f) | The principles set out in section 378G(2) |
| officer, cl. (g) | Includes any director, Chief Executive or Secretary, and any person on whose directions the business is carried on |
| patronage, cl. (h) | The use of services offered by the company to its Members by participation in its business activities |
| patronage bonus, cl. (i) | Payments out of surplus income to Members in proportion to their respective patronage |
| primary produce, cl. (j) | Five sub-clauses covering farm produce, handloom and cottage-industry produce, resulting products, ancillary output and production-increasing activity |
| producer, cl. (k) | Any person engaged in any activity connected with or relatable to any primary produce |
| Producer Company, cl. (l) | A body corporate with section 378B objects, registered under the 2013 Act or the 1956 Act |
| Producer Institution, cl. (m) | A producer company or other institution whose members are only producers or producer companies |
| withheld price, cl. (n) | Part of the price due and payable for goods supplied by a Member, withheld for payment on a subsequent date |
Two of these do the heaviest work later in the Chapter. Patronage is the measure that voting rights for Producer Institutions and the proportionality of shareholding both run on. Active Member is the narrower class that special user rights under section 378ZC attach to, and the class a company may confine voting to under section 378D(3).
When did Chapter XXIA come into the Companies Act, 2013?
Chapter XXIA was inserted by Act 29 of 2020, section 52, with effect from 11 February 2021. The footnote recording the insertion sits on printed page 201 of the India Code consolidation, on the page that carries the opening of section 378A.
Sections 378A to 378ZU
The span of Chapter XXIA, Producer Companies, in the Companies Act, 2013, inserted as a single block
Source: Companies Act, 2013, Chapter XXIA, inserted by Act 29 of 2020, s. 52, w.e.f. 11 February 2021
The date matters for reading older material. Before 11 February 2021 the Companies Act, 2013 carried no producer-company Chapter at all, yet producer companies existed: section 378A(l) defines a Producer Company as one registered as such under this Act or under the Companies Act, 1956 (1 of 1956), and section 465(1) of the 2013 Act repealed the 1956 Act. So a company incorporated as a producer company before this Chapter existed is inside the definition, and the operative provisions that now govern it are the sections 378A to 378ZU inserted in 2021. The 1956 Act itself is not reproduced in this consolidation, so nothing is said here about which of its sections carried the earlier framework.
How is a producer company different from an ordinary private company?
Three provisions carry the difference, and each one is a specific section rather than a general principle.
- Section 378C(5) makes the registered producer company a body corporate as if it is a private limited company, without, however, any limit to the number of Members thereof, and bars it from becoming or being deemed to become a public limited company. An ordinary private company is capped at its prescribed member limit.
- Section 378ZR applies all limitations, restrictions and provisions of the Act that apply to a private company, as far as may be, except those specified in Chapter XXIA, and only so far as they do not conflict with the Chapter.
- Section 378ZQ gives Chapter XXIA effect notwithstanding anything inconsistent in the Act or any other law, while leaving the unvaried parts of those laws to apply.
So the reading order for any producer-company question is Chapter XXIA first, then the private-company provisions of the rest of the Act, and only what survives both. The memorandum and articles provisions of the general Act, for instance, are read subject to the specific memorandum and articles requirements in sections 378F and 378G.
How does the producer company naming requirement work?
Section 378F(a) requires the memorandum to state the name of the company with "Producer Company Limited" as the last words of the name. The requirement is enforced from the other side too: section 378ZM(1) makes it punishable with fine for any person other than a producer company registered under the Chapter to carry on business under a name containing those words.
That pairing is why the suffix is a usable filter. A company name ending in "Producer Company Limited" is a registration claim the Act attaches a penalty to, which is different from a descriptive name choice.
Where the definitions section is read from
Section 378A is where every other Chapter XXIA question starts, because the terms it defines are the ones the operative sections use without re-defining. The objects a producer company may pursue are stated in terms of "primary produce" and "Members". The registration route counts "producers" and "Producer Institutions". The accounts and audit provisions turn on "officer". A producer company reading that skips section 378A will misread all three.
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Frequently asked questions
What is a producer company?
A body corporate having objects or activities specified in section 378B and registered as a Producer Company under the Companies Act, 2013 or under the Companies Act, 1956. On registration it is treated as a private limited company with no cap on the number of Members. Source: Companies Act, 2013, sections 378A(l) and 378C(5).
Which law governs producer companies in India?
Chapter XXIA of the Companies Act, 2013, sections 378A to 378ZU. The Chapter was inserted by Act 29 of 2020, section 52, with effect from 11 February 2021. Section 378A(l) also recognises a company registered as a Producer Company under the Companies Act, 1956, which section 465 of the 2013 Act repealed. Source: Companies Act, 2013, Chapter XXIA and section 378A(l), footnote to page 201 of the India Code consolidation.
Who is an active Member of a producer company?
A Member who fulfils the quantum and period of patronage of the producer company as may be required by the articles. The definition matters because special user rights under section 378ZC and any restriction of voting rights under section 378D(3) attach to active Members rather than to all Members. Source: Companies Act, 2013, section 378A(a).
Can a producer company become a public limited company?
No. Section 378C(5) provides that on registration the Producer Company becomes a body corporate as if it is a private limited company, without, however, any limit to the number of Members thereof, and shall not, under any circumstance, whatsoever, become or be deemed to become a public limited company under the Act. Source: Companies Act, 2013, section 378C(5).
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