Producer Company under Companies Act, 2013

BACKGROUND:

Ministry of Company Affairs, India has introduced a Bill for amendment (based on the report submitted by High Powered Committee under the Chairmanship of Dr. YK Alagh) in the Companies Act, 1956 by inserting Part IX A, paving a way for the incorporation of Producer Companies. The Act has allowed primary producers to organise themselves to gain a maximum profit from the market oriented economy.

For this, a new Part IXA, divided into 12 chapters, has been included in the Act, comprising 46 sections, interestingly numbered as 581A to 581Z and 581ZA to 581ZT. However, the section that defines the various types of companies that can be incorporated under the Act remains unaltered.

1. A producer company is a hybrid between a private limited company and a cooperative society.

2. It combines the goodness of a cooperative enterprise and the vibrancy and efficiency of a company.

3. It accommodates the unique elements of cooperative business with a regulatory framework similar to that of a private limited company

PROVISIONS UNDER COMPANIES ACT, 2013

Section 465 of the Companies Act, 2013:

• The Companies Act, 1956 and the Registration of Companies (Sikkim) Act,1961 (hereafter in this section referred to as the repealed enactments) shall stand repealed
• The provisions of Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies ( 1st Proviso to Section 465(1))

Therefore, there are no separate provisions under the Companies Act, 2013 regarding producer Company. As mentioned above it still govern by chapter IXA of Companies Act, 1956.

Definition of the Producer Company:

“Producer Company” means a body corporate having objects or activities specified in section 581B and registered as Producer Company under the Companies Act, 1956.

Allowed Activities for Producer Companies:

A producer company is basically a body corporate registered as Producer Company under Companies Act, 2013 and shall carry on or relate to any of following activities classified broadly: –

(a) Production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling, export of *primary produce of the Members or import of goods or services for their benefit.

(b) Rendering technical services, consultancy services, training, education, research and development and all other activities for the promotion of the interests of its Members;

(c) Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce;

(d) Promoting mutual assistance, welfare measures, financial services, insurance of producers or their primary produce;

Silent Condition for Producer Companies:

• Only persons engaged in an activity connected with, or related to, primary produce can participate in the ownership.
• The members have necessarily to be primary producers.
• Termed as “Companies with Limited Liability” and the liability of the members will be limited to the amount, if any, unpaid on the shares.
• Name of the company shall end with the words “Producer Company Limited“.
• On registration, the producer company shall become as if it is a Private Limited Company for the purpose of application of law and administration of the company
• However, it shall comply with the specific provisions of part IXA.
• The limit of maximum number of members is not applicable to these Companies.

Incorporation:

Any of the following combination of producers can incorporate a producer company:

• Ten or more producers (individuals); or
• Two or more producer institutions; or
• Combination of the above two (10+2).

On registration under Section 581 C (1), the Producer Company shall become a body corporate as if it is a private limited company to which the provisions contained in this Part apply.

It cannot become or deemed to become a public limited company.

Share Capital:

• Share capital of a Producer Company shall consist of equity shares only.
• Members’ equity cannot be publicly traded but only transferred
• Voting
• Only of individuals, then voting rights shall be based on a single vote for every member.
• Only of producer institutions, then voting rights on the basis of their participation.
• Combination of both individuals and producer institutions then voting rights shall be based on a single vote for every member.

Director:

Every producer company is to have

• At least 5 and not more than 15
• A full time chief executive should (CEO) be appointed by the board and
• shall be entrusted with substantial powers of management as the board may determine.

If any director resigns from his post the election shall be conducted within 90 days from the date of resignation of such director. The Director shall hold his office for a period not less than 1 year but not more than 5 years as may be specified in the articles. Every director shall be eligible for reappointment. The Directors of the Board are elected by the members in the Annual General Meeting. The Board may co-opt one or more expert directors or additional directors not exceeding one fifth of the total number of directors. The expert director and additional director shall hold the post for the period as prescribed in the articles.

Annual General Meeting

1. First AGM shall be conducted within 90 days from the date of incorporation.

2. The Registrar may permit extension of the time for holding Annual General Meeting (not being the first annual general meeting) by a period not exceeding 3 months.

3. The Producer Company shall in each year hold an Annual General Meeting and not more than 15 months shall elapse between the date of one Annual General Meeting to the next.

4. The AGM shall be called by issuing at least 14 days notice.

5. The proceedings of every AGM along with Directors’ Report, the audited Balance Sheet and Profit & Loss Account shall be filed with the Registrar within 60 days of AGM.

Chief Executive

Every producer company shall have a full time Chief Executive to be appointed by the Board amongst persons other than the members.

Internal Audit

Every Producer Company shall have internal audit of its accounts carried out in such intervals and in such manner as specified by its articles, by a Chartered Accountant

Meetings of the Board Quorum:

• Board shall meet at least once in every three months and at least four such meetings shall be convened in every year.
• The Chief Executive shall give notice for the board meeting at least 7 days in advance of the meeting. Meeting can be called with shorter notice but the reasons thereof shall be recorded by the Board.
• Quorum:- 1/3rd of the total strength of Directors subject to a minimum – 3

Reserves:

• Every producer company has to maintain a general reserve in every financial year.
• Where there is no sufficient funds in any year for such transfer,
• The shortfall has to be made up by members’ contribution in proportion to their patronage in the business.

Members’ benefits:

• Members will initially receive only such value for the produce or products pooled and supplied as the directors may determine.
• The withheld amount may be disbursed later either in cash or in kind or by allotment of equity shares.
• Members will be eligible to receive bonus shares.
• An interesting provision is for the distribution of patronage bonus(akin to dividend) after the annual accounts is approved — patronage bonus means payment out of surplus income to members in proportion to their respective patronage (not shareholding).

Audit:

• Producer Companies shall carry out an internal audit of its accounts, at regular intervals in accordance with its articles of association and such an audit shall be carried on by a Chartered Accountant.
• The auditor shall make an annual audit report to the members of the company on the accounts examined by him

An unnecessary stipulation is that “without prejudice to the concerned sections in the Act,” the auditors of producer companies have to specially report on some additional items such as debts due and bad debts, verification of cash balances and securities, details of assets and liabilities, loans extended to directors and details of donations and subscriptions.

Alteration of Memorandum of association and Articles of Association

By passing Special Resolution Memorandum or Articles of the company can be altered, but alteration of MoA or AoA shall not be inconsistent with Section 581B.

In case of alteration of Articles- It has to be proposed by not less than 2/3rd of the elected directors or by not less than 1/3rd of the Members and adopted by special resolution.

Copy of the altered MoA or AOA alongwith the copy of the special resolution has to be filed with the Registrar within 30days of adoption.

Striking of name

The Registrar shall strike the name of the Producer Company if the company fails to commence its business within one year from the date of registration or ceases it transactions after giving a notice to the company. Any Member of the Producer Company is aggrieved against such order

CASE STUDY:

Vanilla India Producer Company Limited (Vanilco) is a new venture, promoted by Indian vanilla farmers to protect the long term interests of vanilla growers all over the country. Vanilco is a Producer Company with the twin objective of promoting vanilla production and processing vanilla as per international standards. Vanilco is owned by farmers and it works in tandem with them to produce and market the best vanilla beans and extracts. Its goal is to ensure a just and fair value for the farmers’ produce at par with the international markets and standards. The company procures, processes, benchmarks and markets the farmer’ produce and generates profits that are distributed to share holders as handsome dividends. Today Vanilco is recognized as one of the most reliable suppliers of natural Vanilla in the market, thanks to the technical know-how, quality of products, commercial expertise and knowledge of global markets.

CONCLUSION:

It can aptly be concluded that the intention behind insertion of the concept of Producer Company in Companies Act,1956 is to ensure a more beneficial and easy adaptable regulatory framework of such companies and it is to be well noted that whether it is a Producer Co-operative registered under Co-operative Societies Act, or a Producer Company under the Companies Act, they both serve for the common purpose as to serve its members and work for their betterment.

“PROMOTE INDIAN CULTURE; PROMOTE PRODUCER COMPANIES”

KEY POINTS FOR PRODUCER COMPANY:

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at [email protected])

(Republished with Amendments till 24.03.2020)