The concept of Producer Company dates back to the year 2000 when committee under the chairmanship of the eminent economist Dr Y.K. Alagh proposed the new type of organization that having the features of both co-operative society and company and to be called as producer company.
The committee in its report explicates the reason why this type of organization is required. The reason includes the fact that India is transforming very rapidly since the country moved from the “License Raj” to the new economic policies aimed towards liberalization and globalization.
The committee emphasized the need of the rural producers’ participation in the national and international economy to unlock the full potential of the Indian economy. However, the committee was also well aware of the shortcoming of our rural producers or agriculture sector that is lack of education, professionalism, and lack of resources.
The structure that is prevalent among our producers are co-operative societies but these co-operative structures have their own baggage of problems. There are following to main two problems are and somehow these problems are also interlinked with each other, co-operative societies depends on the funds from the government and these funding further lead to government control, bureaucratization and political interference.
The co-operative societies though suffer from host problems but committee simply can not discount the fact that co-operative societies are partially able to emancipate our producers from many problems due to some of its very unique principals such as mutual assistance, voluntary and open membership, and democratic control etc.
Thus committee looked for some kind of blended structure which provides the flexibility of the limited company and attract professionals to run it and also works on the principals of the co-operative society and this lead to the idea of the producer company.
The principle of co-operative society is at the heart of the concept of the producer company. The same can be understood by the statement in the report which says that while interpreting the provisions relating to the producer companies, a construction that promotes the principle of mutual assistance to be preferred over the one that would not promote the principles of mutual assistance.
Finally, on 10th December, 2002, through the amendment in the Companies Act, 1956, the new part IX-A is added in the Companies Act, 1956. Even after the introduction of the Companies Act, 2013, the provision of Producer Company was still governed by the Companies Act, 1956, it was only after the notification of the Companies (Amendment) Act, 2020 that provisions of the producer companies in Companies Act, 1956 become redundant. However, it is to be noted that though the provisions of the Companies Act, 1956 related to Producer Company are redundant, provisions related to the producer company in the Companies Act, 2013 that is chapter XXIA is still not notified. We are at a cusp right now moving from the Companies Act, 1956, to Companies Act, 2020, as far as provisions related to Producer Company is concerned.
WHAT IS PRODUCER COMPANY
We have already discussed in detail the historical background of the producer company and how it is an effort of the government of India towards the corporatization of the agriculture and co-operative societies in India.
As stated above the provision of the Companies Act, 1956, related to the producer company is already redundant and very soon provisions of the Companies Act, 2013 related to Producer Company will be notified so my whole write-up is based on the provisions of the Companies Act, 2013 that is chapter XXIA. I will reproduce the provisions as and when required in our discussion.
Section 378(A) clause (L) defines the Producer Company in following terms,
“Producer Company” means a body corporate having objects or activities specified in section 378B and registered as Producer Company under this Act or under the Companies Act, 1956.
Thus any body-corporate having those activities as specified in section 378B and registered as producer companies under this act or under the Companies Act, 1956 (Since the concept of the producer company was introduced under Companies Act, 1956 only so there is no reference to any previous companies acts).
The entire existence of the Producer Company is based on the fact that whether it has as an object those activities which are mentioned in Section 378B. Let us see what are the activities mentioned in section 378B.
(a) production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit: Provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution;
(b) processing including preserving, drying, distilling, brewing, vinting, canning and packaging of 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 any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner;
(k) financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.’’
(2) Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects specified in this section
When we analyse these activities it is clear that service towards the primary produce of its member and processing of the primary produce of its member is at the core of the Producer Company’s activities. Other activities includes providing other assistance to its members such as financial help, technical help etc.
Since section provides about primary produce, it is important to understand what primary produce is? As per section 378A clause (j);
(j) “primary produce” means —
(i) produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products), or from any other primary activity or service which promotes the interest of the farmers or consumers; or
(ii) produce of persons engaged in handloom, handicraft and other cottage industries; or
(iii) any product resulting from any of the above activities, including by-products of such products; or
(iv) any product resulting from an ancillary activity that may assist or promote any of the aforesaid activities or anything ancillary thereto; or
(v) any activity which is intended to increase the production of anything referred to in sub-clauses (i) to (iv) or improve the quality thereof;
The definition is exhaustive and self-explanatory and does require too much of ponderance.
The company can do these activities either directly or indirectly through other institution. The provision also introduces one caveat under sub-section 2 of the Section 378A that is Producer Company shall primarily deal with the produce of its active members only. This ask us to understand active members.
Like all other companies the producer companies also have members but unlike other companies. Producer Company has two types of members that are members and active members. Section 378A clause (a) define active member and Section 378A clause (e) define the member.
|“Member” means a person or Producer Institution (whether incorporated or not) admitted as a Member of a Producer Company and who retains the qualifications necessary for continuance as such||“Active Member” means a Member who fulfils the quantum and period of patronage of the Producer Company as may be required by the articles|
In the definition of the member, there are three important terms, “Person”, “Producer Institution”, and qualification. So the person and producer institution having qualifications can be a member.
Qualifications are prescribed in the Article of the Producer Company. However, generally, AoA required the member to be the producer as qualification for becoming member. Producer means any person engaged in the production of primary produce.
A person is not defined under the Companies Act, 2013 and we have to borrow the definition from the General Clause Act, 1897 and Indian Contract Act, 1872, for it.
Another term that is being used is the Producer Institution (Incorporated or not); “Producer Institution” means a Producer Company or any other institution having only producer or producers or Producer Company or Producer Companies as its member whether incorporated or not having any of the objects referred to in section 378B and which agrees to make use of the services of the Producer Company or Producer Companies as provided in its articles; as defined under section 378A clause (m).
The “Active Member” is also member, however, as per the definition there is one additional criterion that needs to be fulfilled by a member to be called as an active member and that is “quantum and period of patronage”
The word patronage is defined under section 378A clause (h); patronage” means the use of services offered by the Producer Company to its Members by participation in its business activities.
So, an active member is a member who participates in the business activities of the producer company and uses the services provided by the producer company.
LEGAL ASPECT OF THE INCORPORATION OF PRODUCER COMPANY
Section 378C deals with the formation of the producer company, section spells out the conditions subject to which producer company can be incorporated.
1. Individual and Producer Institution (Producer Institution already discussed above) can only incorporate the producer company.
2. Individual needs to be a producer.
3. In case, the only individuals are members then at least 10 individual are required.
4. In case, producer institutions is members then two producer institutions are required.
5. In case, both individuals and producer institutions are a members then they should be at least ten (10) in number. For example, Five (5) individuals and 5 producer companies can incorporate Producer Company or any combination thereof.
6. The object of the producer company should be as per Section 378B.
7. The producer company will be incorporated within 30 days of receipt of all the required documents.
8. The producer company will always be a company limited by shares. Unlimited company or company limited by guarantee cannot be incorporated as Producer Company.
9. After incorporation, all the cost related to the incorporation will be reimbursed by the producer company to its promoters, subject to the approval of the same in the first general meeting.
10. The Producer Company on incorporation will be a body corporate.
11. The producer company will always be “Private Limited Company” irrespective of the number of members it is having.
12. The Producer Company don’t have any limit with respect to number of members are concerned.
13. The Producer Company will never become a “Public Limited Company”.
PROCEDURAL ASPECT OF THE INCORPORATION OF PRODUCER COMPANY
Like any other company, Producer Company is also incorporated through SPICE+ system of the MCA website. SPICE+ form is divided into two parts that are Part A for the reservation of the name and Part B for the incorporation of the company.
While reserving the name suffix “Producer Company Limited” should be entered with the desired name. Part B can be filed along with Part A only or maybe filed after reserving the name of the company.
Unlike other company, in case of Producer Company in place SPICE+ MoA and SPICE+ AoA the scanned copy of physical MoA and AoA will be attached with the SPICE+ INC-32 only. It is also a good practice to attach proof of the fact that subscribers of the producer company are the producers.
PROVISIONS RELATED TO MEMORANDUM AND ARTICLE OF THE PRODUCER COMPANY
I will also like to discuss in brief about the provisions related to Memorandum and Article of Association as provided in Section 378F and Section 378G respectively.
Section 378F provide about the content to be provided under the Memorandum of Association. Similar to normal companies, Producer Company also has Name clause, state clause, object clause, Liability clause, and capital clause. However, Producer Company also have additional disclosure in case producer company will be having operation beyond one state of India then name of the state to which its objects extend should also be provided in MoA of the Producer Company.
Section 378G provides about the Article of Association. Similar to other company AoA prescribe about the internal management of the company. What stands out in case of producer company’s AoA is that AoA of the producer company must specifically provide about the principals of mutual assistance among its member.
Another matter that AoA of the producer company must have are; criteria for ascertaining the active member, qualification for membership, voting power, how to distribute patronage bonus, etc.
India due to its colonial past suffers from the multifaceted problem in the agriculture sector such as subsistence farming, small landholding among our farmers and farm income being one of the lowest in the world.
To overcome all the above problems, we must ensure that our resources are not only allocated optimally but also pooled together to get the benefit of economies of scale to generate maximum returns.
Further, we also need to bring a quality professional into the agriculture sector so that the collective intellectual capital can be increased and our agriculture sector get rid of the problem like illiteracy among producers and lack of scientific aptitude.
All this can be achieved by promoting corporatization of the agriculture sector and Producer Company is certainly the great leap forward towards it.