Strike Off of a Producer Company: Section 378ZP

Strike off of a producer company is governed by section 378ZP of the Companies Act, 2013, and the section holds two different routes rather than one. Sub-section (1) is an order the Registrar makes himself on three producer-company grounds. Sub-section (2) sends one particular failure across to the general strike-off provision in section 248. The consequences and the remedies differ between them.

What are the grounds for strike off of a producer company?

Three, and they are alternatives rather than cumulative conditions:

1. The producer company fails to commence business within one year of its registration.
2. The producer company ceases to transact business with the Members.
3. The Registrar is satisfied, after making such inquiry as he thinks fit, that the Producer Company is no longer carrying on any of its objects specified in section 378B.

On any of these the Registrar shall make an order striking off the name of the producer company, which shall thereupon cease to exist forthwith.

Grounds 2 and 3 have no counterpart in section 248(1), whose four operative clauses turn on failure to commence business, two financial years without business or operation, unpaid subscription, and physical verification.

A note on that count, because the lettering does not match it. The clauses of section 248(1) print as (a), (c), (d), (e). Where clause (b) stood, the consolidation prints a row of asterisks against a footnote reading "Clause (b) omitted by s. 19, ibid. (w.e.f. 29-5-2015)", and the "ibid." resolves to the preceding entry in the same footnote block, "Ins. by Act 21 of 2015, s. 19 (w.e.f. 29-5-2015)". So five letters carry four operative clauses. The general strike-off page states the same four grounds.

Both of the producer-company grounds are specific to what this form is for. Ground 2 tracks section 378B(2), which requires every producer company to deal primarily with the produce of its active Members. Ground 3 tracks the section 378B objects themselves, which the memorandum must state as its main objects under section 378F(c). A producer company that keeps trading but stops trading with its Members is inside ground 2 while still being a going concern.

What procedure protects the company before an order?

The proviso to sub-section (1) is the whole of it, and it has three requirements: no such order cancelling the registration as aforesaid shall be passed until a notice to show cause has been given by the Registrar to the Producer Company with a copy to all its directors on the proposed action and reasonable opportunity to represent its case has been given.

The copy to all directors is a specific service requirement, not a courtesy. It matters because two of the strike-off grounds overlap with grounds on which the same directors' own offices become vacant under section 378Q(1), so the directors have a separate interest in the proceeding. The Board provisions carry those vacation grounds.

Note the wording of the proviso against the wording of the sub-section. The sub-section speaks of an order striking off the name; the proviso speaks of an order cancelling the registration. Both phrases describe the same order in the same sub-section.

What is the appeal, and does it suspend the order?

Section 378ZP(3): any Member of a producer company who is aggrieved by an order made under sub-section (1) may appeal to the Tribunal within sixty days of the order.

Section 378ZP(4): where an appeal is filed under sub-section (3), the order of striking off the name shall not take effect until the appeal is disposed of.

Two things follow from reading the two together. The appellant class named is Members, and the sub-section (3) right is expressed by reference to an order made under sub-section (1) only, so the route in sub-section (2) is not what sub-section (3) speaks to. And the suspensive effect in sub-section (4) sits against the "cease to exist forthwith" language of sub-section (1): filing the appeal is what holds the order back.

How does the section 248 route in sub-section (2) differ?

Sub-section (2) carves out one ground and hands it to the general provision. Where the Registrar has reasonable cause to believe that a Producer Company is not maintaining any of the mutual assistance principles specified, he shall strike its name off the register in accordance with the provisions contained in section 248.

The principles in question are defined rather than left open. Section 378A(f) defines mutual assistance principles as the principles set out in section 378G(2), which the articles of every producer company must contain: voluntary and available membership, a single vote per Member irrespective of shareholding, an elected Board accountable to the Members, particulars on limited return on share capital, equitable distribution of surplus, provision for the education of Members and employees, and active co-operation with other producer companies.

Because that route runs through section 248, section 248's own machinery applies to it, and that machinery is different in kind:

Two further features of section 248 travel with the sub-section (2) route. Section 248(6) requires the Registrar to satisfy himself, before an order, that sufficient provision has been made for realising amounts due to the company and discharging its liabilities, with a proviso keeping the company's assets available for those liabilities even after the removal order. Section 248(7) continues the liability of every director, manager, officer exercising management powers and every member of a dissolved company, enforceable as if the company had not been dissolved. The general strike off of a company provisions carry the full sequence.

Is a producer company a candidate for dormant status instead?

Section 248(1)(c) treats an application for dormant company status under section 455 as an answer to the two-year inactivity ground. Chapter XXIA itself is silent on dormant status: sections 378A to 378ZU contain no reference to section 455 or to a dormant company, and section 378ZR applies the private-company provisions of the Act to a producer company only as far as they do not conflict with the Chapter.

What is clear on the face of the text is that the section 378ZP(1) grounds are not expressed to be answerable that way. They turn on commencement of business within one year of registration, business with Members, and the section 378B objects. Section 455 works on different facts: sub-section (1) reaches a company formed for a future project or to hold an asset or intellectual property with no significant accounting transaction, or an inactive company, which its own Explanation defines by reference to the last two financial years. The general dormant company provisions carry that definition in full.

Reading a producer company strike-off notice

Strike off of a producer company arrives as a notice, and the first thing to establish is which route it is on, because the answer decides everything after it. A notice citing section 378ZP(1) and one of its three grounds carries the show-cause requirement, the copy to all directors, the forthwith effect and the sixty-day Member appeal. A notice citing section 378ZP(2) is a mutual assistance case and runs on section 248, with Official Gazette publication and dissolution rather than an order that takes effect at once. In either case, neither route is the same question as the winding up of an unregistered company under section 375, which is a Tribunal-led winding up of an entity inside that section's own definition rather than a strike off by the Registrar.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.