Producer Company Penalty Under Section 378ZM

The producer company penalty provision is section 378ZM of the Companies Act, 2013, and its first limb is the penalty for improper use of the producer company name: a fine which may extend to ten thousand rupees for every day the words "Producer Company Limited" have been used by a person who is not a producer company registered under Chapter XXIA. Two further limbs reach the company's own directors and officers.

What is the producer company penalty for improper use of the name?

Sub-section (1) reads: If any person, other than a Producer Company registered under this Chapter, carries on business under any name which contains the words "Producer Company Limited", he shall be punishable with fine which may extend to ten thousand rupees for every day during which such name has been used by him.

Three elements have to be present. The actor is a person other than a producer company registered under the Chapter. That person carries on business. And the name under which the business is carried on contains the words "Producer Company Limited".

The penalty is per day of use, with no stated aggregate cap, so its size is a function of how long the name was in use rather than of the business done under it.

The provision is the enforcement side of a naming rule stated positively elsewhere. Section 378F(a) requires the memorandum of every producer company to state the name of the company with "Producer Company Limited" as the last words of the name. So the Chapter reserves the suffix by requiring it of registered companies and by fining its use by everyone else.

Note the asymmetry in the two provisions. Section 378F(a) requires the words as the last words of the name; section 378ZM(1) reaches a name which contains the words. The prohibition is wider than the requirement, which means a name embedding the phrase somewhere other than at the end is inside section 378ZM(1).

How does it compare with section 453 on "Limited"?

The Act carries a parallel provision for the ordinary corporate suffixes, and the amounts differ.

Section 453 has a floor and a lower ceiling. Section 378ZM(1) has a higher ceiling and no floor, so a court has the full range from nil to ten thousand rupees a day available to it. The position of the words also differs: section 453 catches them as the last word or words and extends to a contraction or imitation, while section 378ZM(1) catches the exact phrase anywhere in the name and says nothing about imitations.

What do sub-sections (2) and (3) reach?

Both limbs bind a director or an officer of a producer company, and "officer" is defined by section 378A(g) to include any director, Chief Executive or Secretary, and any person on whose directions part or the whole of the business is carried on.

Sub-section (2), withholding information. A director or officer who wilfully fails to furnish any information relating to the affairs of the Producer Company required by a Member or a person duly authorised is liable to imprisonment for a term which may extend to six months and with fine equivalent to five per cent. of the turnover of that Company during the preceding financial year.

Two features stand out. The mental element is wilfully, so an inadvertent failure is outside it. And the fine is turnover linked, not a stated rupee band, which is unusual in the offence provisions of the Act. The measure is the company's turnover in the preceding financial year, so the same conduct carries a different fine in a larger company. The right the sub-section protects is stated in the articles: section 378G(3)(l) requires the articles to carry the right of any Member to obtain information relating to general business of the company.

Sub-section (3), books and meetings. A director or officer who either fails to hand over the custody of books of account and other documents or property in his custody to the producer company, or fails to convene annual general meeting or other general meetings, is punishable with fine which may extend to one lakh rupees, and for a continuing default or failure, with an additional fine which may extend to ten thousand rupees for every day the default or failure continues.

Clause (a) sits against section 378ZE(1), which requires the books to be kept at the registered office, so a director holding them elsewhere is holding them away from where the Act says they belong. The accounts and audit provisions carry that requirement in full. Clause (b) sits against section 378ZA, which requires the first annual general meeting within ninety days of incorporation and not more than fifteen months between one and the next.

Failing to convene a meeting has a second consequence too, and it is not in section 378ZM. Section 378Q(1)(f) vacates the office of a director where the annual general meeting or an extraordinary general meeting is not called in accordance with the provisions of this Act except due to natural calamity or such other reason. So the same failure can both attract a fine under section 378ZM(3)(b) and empty the office under the Board provisions, and only the vacation ground carries the natural-calamity exception.

Fine or penalty? The distinction inside Chapter XXIA

The words the Chapter uses are not uniform, and the difference decides who imposes the money.

• Section 378ZM uses "punishable with fine" in sub-sections (1) and (3) and "liable to imprisonment ... and with fine" in sub-section (2). These are offences, tried and fined by a court.
• Section 378V(3) makes a Chief Executive who fails to give at least seven days' notice of a Board meeting "liable to a penalty of five thousand rupees".
• Section 378X(3) makes a company and every officer in default that fails to appoint a required whole-time secretary "liable to a penalty of one hundred rupees for every day", capped at one lakh rupees.

A penalty under the Act is imposed by an adjudicating officer under section 454, with an appeal to the Regional Director. A fine follows a conviction. So the two penalty provisions above, sections 378V(3) and 378X(3), run on a different track from section 378ZM even though all three sit in the same Chapter, inserted by the same amending Act on the same date.

This also separates section 378ZM from the residual penalty in section 450, which fills the gap where the Act provides no consequence at all. Section 378ZM provides one, so section 450 is not engaged for the conduct it covers.

Reading a section 378ZM exposure

Four questions settle which limb of the producer company penalty is in play, and only the first goes to improper use of the name. Is the person a producer company registered under Chapter XXIA, which decides whether sub-section (1) applies at all. Does the name contain the phrase, rather than merely resemble it, since the section names no imitations. Was the failure to furnish information wilful, which is the gate on sub-section (2). And is the default continuing, which is what converts the one lakh rupee ceiling in sub-section (3) into a daily addition. Of the four, the first is the one a public register answers directly: the register of companies shows whether the entity behind the suffix is registered as a producer company or not.

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.