PROVISIONS FOR PRODUCER COMPANY

[Mr. M. GOVINDARAJAN]

Introduction

The proviso to Section 465 (1) of the Companies Act, 2013 provides that 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1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies.

Minimum 10 individuals or two or more producer institutions or combination of 10 or more individuals and Producer institutions may form a producer company.  If the Registrar is satisfied that all the requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereto, he shall, within thirty days of the receipt of the documents required for registration, register the memorandum, the articles and other documents, if any, and issue a certificate of incorporation under this Act.

The liability of the members is limited as prevailing for the private companies.  The Producer Company is akin to the private company except to the requirement of number of members.   The Producer Company cannot be a public company. After incorporation it will be a body corporate.  If a person is having conflict with the business of the company he cannot continue to be a member of the company.

Voting rights

If the producer company consists of individual members then each member will have a single vote irrespective of the shares held by them.  If the company consists of institutions as members then the vote shall be determined on the participation in the business in the previous year.  If the company consists of individuals and institutions then voting rights shall be computed on the basis of a single vote for every member.  If authorized by articles the voting rights of a member may be restricted.

Benefits to Members

The following are the benefits available to the members of the Producer Company:

• Every member shall receive the value in proportion to the produce  supplied to the company during the Financial year ;
• Bonus shares may be issued to the members;
• Surplus may be paid in cash or in equity shares proportion to the participation of the members.

Memorandum

The Memorandum of the Company shall state the name of the Company ending with ‘Producer Company’, state in which the main office is registered, main objects, names and addresses of the members subscribed to the memorandum, details of share capital, details of first directors, liability of members etc.,

Articles of Association

The Articles of association provides for the constitution of the Board of the company, functioning of the Board, the procedure for conducting the meeting of the Board etc.,   The Articles of Association may be amended by means of a special resolution.  The amended articles of association duly signed by two directors along with special resolutions are to be submitted to the Registrar within 30 days of passing of the special resolution.  The amendment in relation to the change of registered office from one State to another State is to be confirmed by Company Law Board.

Option to Inter State Co-operative Societies

Any interstate co-operative society may make an application to the Registrar for registration as Producer Company.  The application shall accompany with the special resolution of the members and the details of directors and executives and also a list of members.  A statement is to be filed declaring that the society is having objects as to that of Producer Company.   On satisfaction of the Registrar that the provisions for registration have been complied with, he will issue a certificate of registration within 30 days of the receipt of the application.

Every stakeholder of the interstate co-operative society after incorporation as Producer Company will become the members of the producer company.   All the assets and liabilities of the society will vest on the newly formed Producer Company.  All the legal cases pending will be dealt with by the newly registered Producer Company.  Whatever the concessions and privileges available to the Producer Company shall be extended to the newly formed Producer Company from society.

Provisions are there for reconversion of a Producer Company into an Inter State Co-operative Society.

Management of Producer Company

Every Producer Company shall have minimum five and not more than 15 directors.  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.

Vacation of Director post

The post of Director may be vacated-

• if he is convicted by the Court of Law for any offence involving moral turpitude and sentenced imprisonment not less than six months;
• made a default in repayment of any advances  or loan taken from any company or institution or person and such defaults continues for 90 days;
• made a default in repayment of loan taken from the Producer Company in which he is a Director;
• the Producer Company in which he is a Director fails to file annual accounts and annual returns; repay the deposit, bonus , dividend etc.,;
• made default in conducting the election for the Director;
• made default in conducting Annual General Meeting.

Powers of Directors

The powers of Directors shall include determination of dividend payable; appoint of a Chief Executive; superintendence over the functions of the Producer Company; frame organization policy, objectives, strategic plans etc.,; maintain accounts; preparing annual accounts; investment of the funds; granting of loan to any member of the company and such other functions as may be authorized by the company.

Committee of Directors

The Board may constitute such number of committees for the assistance of Board.  The Committee can co-opt such number of members as deem fit.  The Committee shall function under the superintendence of the Board for such duration and in the manner as prescribed by the Board.    The fee for the members shall be payable as decided by the Board.   The minutes of each meeting shall be placed before the Board.

Meetings of Board

Board meeting shall be held not less than once in every three months and at least four meetings in every year.  The Chief Executive shall give notice for the meeting in writing to the Board of Directors at least 7 days before the date of meeting.  Short notice may be there but the reasons for the same shall be recorded by the Board.   If the Chief Executive fails to comply with the provisions of notice he shall be punishable with fine up to ₹ 1,000/-.  The quorum for the Board meeting shall be one third of total strength of Directors subject to a minimum of three.

Directors may be paid allowances as decided in General Meeting.

Chief Executive

Every producer company shall have a full time Chief Executive to be appointed by the Board amongst persons other than the members.  He shall be ex officio director of the Board and he is not liable to retire by rotation.  The qualifications, experience, tenure, terms and conditions of his appointment may be decided by the Board.  He shall be entrusted with the substantial powers to handle day-to-day activities of the company.

Company Secretary

Every Producer Company, having annual turnover more than five crores in each of three consecutive financial years shall have a whole time Company Secretary.  If the Producer Company fails to appoint Company Secretary the Company and every Officer-in-default shall be punishable with fine up to ₹ 500/- for every day during which the default continues.

Annual General Meetings

The share holders are having exclusive rights to be exercised in the Annual General Meeting such as approval of budget, adoption of annual accounts, issue of bonus shares,

Granting of loans and such other functions as may be described in the Articles.  The Company has to conduct AGM once in a year.  The gap between two AGMS shall not exceed 15 months.  The first AGM shall be conducted within 90 days from the date of incorporation.  The Registrar can permit up to 3 months for extension of time for conducting AGM.

The notice to the AGM shall be issued notice of 14 days.  The notice shall be in writing giving the date, time and place of the meeting. The notice shall contain other required documents as specified in this regard.  Every AGM shall be conducted during business hours on a day that is not being a public holiday and shall be held at the registered office or some other place within the city, town or village in which the registered office is situate.

The quorum for AGM is one fourth of the total membership.  The article may prescribe a larger number of members to constitute a forum.  Every member shall have one vote and in case of equality of votes the Chairman shall have a casting vote except in the case of election of Chairman.           

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 on which the AGM is held along with fees prescribed.

Share capital and Member Rights

The Producer Company shall have only equity shares.  The shares held by a member shall be in proportionate to the patronage of the company.  The active members may have special rights if provided in the Articles.  Special rights means any rights relating to supply of additional produce by the active member or any other right relating to produce as conferred on him by the Board.

The shares shall not be transferrable.  The shares having special rights may be transferred with the approval of the Board to another active member.  Every member shall nominate a person within three months on becoming a member of the Company.  The nominee shall get all the benefits on the death of the member. If the nominee is not a producer, the Board shall direct the nominee to surrender the shares.  If any member ceased to be a producer or failed to retain his qualifications the Board may direct to surrender the shares with special rights, if any to the company after giving him a reasonable opportunity of being heard.

Finance, Accounts and Audit

Every Producer Company has to maintain books of accounts at its registered office with respect to all sums of money received and expended, all sales and purchase of goods, the instrument of liability executed by the Company, the assets and liabilities, the particulars of utilization of materials etc., The Balance Sheet shall be prepared in accordance with Section 211 of the Companies Act, 1956.

Internal Audit

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

Duties of Auditor

The auditor shall report on the amounts of debts due with particulars of bad debt, verification of cash balance and securities, details of assets and liabilities, transactions contrary to the provisions of the Act, loan given to Directors and any other matters as may be considered necessary by the auditor.

Miscellaneous

A Producer Company may, by special resolution, make donations to any institution or individual for the purposes of promoting the social and economic welfare of the producer members or producers of general public.  The same may not exceed 3% of the net profit.

Every Producer Company shall maintain a general reserve in every year in addition to the Reserves as may be specified in the Articles.  If the company does not have enough funds for the reserve the same may be distributed to the members in proportion to their patronage in the business.

Any Producer Company may issue bonus shares on the recommendation of the Board and approval in the General meeting by capitalizing the amount from General Reserve in proportion to the shares held by the members.

The Producer Company may, if provided in the Articles, give loans and advances repayable exceeding 3 months but within seven years from the date of disbursement of loans.  The members also are given credit facility for a period not exceeding 6 months.

The Producer Company may use the funds of General Reserve in investments for securing highest returns, acquire shares of another company, form subsidiary company or joint venture for the purpose of promoting their Company.

Penalties

If any person carries on business under the name of the Producer Company he is liable for fine which may be extended up to ₹ 10000/- for each day he uses the name.  

If a Director or an officer fails to furnish any information required by a member he shall be liable to imprisonment for a term which may extend to six months and with fine equivalent to 5% of the turnover of that company during preceding financial year.

If a Director makes a default in handing over the custody of the books of account or he fails to convene annual general meetings or other general meetings he shall be punishable with a fine up to ₹ 1 lakh.   In case of continuous default additional fine up to ₹ 10,000/- for every day during which the default continues.

Amalgamation, Merger or Division

A Producer Company may, by a special resolution passed at its general meeting may amalgamate or merge with other company or causing division of that company.  The resolution shall be passed by not less than two thirds of its Members present.  The resolution shall contain all the details relating to restructuring of the company.  Before passing the resolution the members shall be given notice giving details about it.  The member who does not consent for the resolution may have the option to cease to continue to be a member of the company and withdraw the deposit or loan or advance.  The said option has to be exercised during the period of one month from the date of issue of notice.   If option has not been given it will be deemed that the member has given his consent.  The resolution shall not take effect until the expiry of one month or until the assent of the members and creditors has been obtained, whichever is earlier.

The registration of amalgamated companies shall stand cancelled once the amalgamated company gets its registration.  When the Producer Company is divided into two or more Producer Company the registration of the Company shall stand cancelled on registration of divided Producer Companies.

Any member or creditor or employee aggrieved by the transfer of assets may prefer an appeal within 30 days of passing the resolution to the High Court.

Resolution of Disputes

Any dispute arises amongst members, between the Producer Companies  and between the Board the same shall be resolved by means of arbitration under the provisions of Arbitration and Conciliation Act, 1996.

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 may prefer an appeal before the Company Law Board within sixty days from the date of order.