In this blog post, Sakshi Bhatnagar, a student of National Law University Odisha, Cuttack writes about producer companies and the process of its registration, working and management of these companies along with a comparison with between producer companies and cooperatives.

 

The concept of producer companies was introduced in the Companies Act, 1956 as Part IX-A by The Companies (Amendment) Act, 2002 vide Notification No. S.O. 135(E). A potential disadvantage is seen by the rural producers given their large constrained resources,lack of education, and lack of access to modern technology equipment and techniques. Thus, in the present situation, there is a developing need of changing the terms of trade in the interaction of rural and urban sectors, laborers and industries, financial institutions and commerce.To facilitate this, a legal platform is provided to the cooperative enterprises which serve rural producers with the help of the introduction of producer companies.

However, the Companies Act 2013 has no provision for producer companies and with the commencement of the new act, the old one, i.e., Companies Act 1956 stands repealed. But the new act lays a provision which allows the producer companies to function as under Companies Act, 1956 which reads- Provided that the provisions of Part IX-an 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1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies.[1]

What is a producer company?

Producer Company” means a body corporate having objects or activities specified in section 581B and registered as Producer Company under this Act.[2]The objective of establishing producer companies include inter alia, production, marketing, export of primary produce of members, processing, packaging of produce of its members; manufacture, sale of machinery, etc. mainly to its members, generation and distribution of power, insurance of producers/primary produce, rendering technical/ consultancy services, promoting mutual assistance, welfare measures and any other activity for the benefit of members.[3]

Formation and registration:

According to section 581C of the Companies Act, 1956 association of 10 or more people who are producers, two or more producer institutions or a combination of the two can form a producer company. The registrar under 30 days of receipt of all the required documents required for registration after becoming satisfied that the requirements of this act have been complied with, issues a certificate. The liability of the members of the company towards the company is limited to the amount of shares purchased by them, and thus, it is kind of a company limited by shares.

Management:

The act provides that number of directors in a producer company should be more than five but less than fifteen but a company can have more than fifteen directors if it is an interstate co-operative converted into a producer company, though this advantage is only for a period of one year from the date of incorporation as a producer company. The election for appointing directors is held within the period of ninety days from the incorporation of the company.

Audit:

A pointless stipulation is that “without preference to the concerned areas in the Act,” the auditors of producer organizations need to exceptionally cover  and make special report on some extra things, for example, debts due and obligations, check of balance in cash and securities, details of liabilities and assets, advances  to directors and of gifts and memberships. These are all indispensable parts of any review, both statutory and inside and one neglects to comprehend the rationale behind this stipulation.

An internal audit is ordered that each producer company ought to do an interior review of its records by contracted bookkeepers. The Act has not so far made it mandatory for restricted organizations to complete inner review, albeit recorded organizations, by the goodness of the provision in the posting assertion identifying with the corporate administration, are to have a full-scale inward review framework.

Resolution of disputes:

Any question identifying with the development, administration or business of producer’s organizations is to be settled by placation or by discretion under the Arbitration and Conciliation Act, 1996 as though the gatherings to the debate have agreed in composing to such method. The judge’s choice might be last. This is by all accounts unjust since for the most part a mediation grant can be claimed against in high courts.

Benefits to members:

Individuals will at first get just such esteem for the produce or items pooled and supplied as the Chiefs may decide. The withheld sum might be dispensed later either in a trade or out kind or by a portion of value shares.

Individuals will be qualified to get reward offers. An intriguing procurement is for the conveyance of support reward (much the same as profit) after the yearly records are affirmed — support reward implies installment out of surplus pay to individuals in the extent to their particular support (not shareholding). Support, like this, is characterized as the utilization of administrations offered by producer organizations to their individuals by interest in their business exercises. Unexpectedly, there is a mistake in drafting — the forces of the board incorporate “determination of the profit payable” — it ought to have been “support reward payable.”

Reserves:

Each producer company needs to keep up a general store in each budgetary year and the event that there are not adequate assets in any year for such exchange, the deficit must be made up by individuals’ commitment in the extent to their support in the business. This is a well-thoroughly considered procurement.

The option of inter-state co-operative societies to become producer companies:

Is a re-conversion of Producer Company to inter-state cooperative society possible? Yes, a producer company under section 581ZS of the Companies Act, 1956 can convert itself into a cooperative society by making an application, after such conversion has been approved by the company in a resolution with a two-third majority.

 

Cooperatives v Producer companies

Indian economy is essentially an agrarian economy. More than 66% of the population relies on agriculture for their job. The Indian Income Tax Act, 1961(“the IT Act”) particularly exempts tax on agricultural income under segment 10(1). In any case, the exemptions on agriculture income should at times vary depending upon what kind of agriculture activity is carried. It is to be noticed that however the IT Act does not fundamentally give any uncommon advantages or exemptions to Producer Companies in that capacity, yet relying on the sort of agrarian activity it goes ahead, certain tax reductions can be profited.

Like, if green tea leaves are developed and sold straightforwardly with no further preparing, the salary got from such a movement will be considered as agricultural income under the IT Act and it would be free from any tax, but in the event that the green tea leaves are further processes and tea is manufactured just 60% of the salary got from such an action is considered as agricultural income and the assessment exclusion can be profited just on the said 60% of such salary. Subsequently, plainly the duty exclusion to a producercompany relies on the action it conveys on.

 

Features	Producer Cooperative	Producer Company
Registration	Cooperative Societies Act	Companies Act
Shares	Not transferable but tradable	Transferable but not tradable
Reserves	Created only if there are profits	Created mandatorily every year
Role of Registering Authority	Significant	Significant only for registration purpose
Dispute Settlement	Cooperative mechanism	Arbitration

 

 

Producer companies in India[5]

India has seen less than one hundred enlisted producer organizations so far. Majorly these companies are skimmed in Maharashtra and Madhya Pradesh as an activity by the government fundamentally for the advancement of unprivileged farmers. For instance, Government of Madhya Pradesh under District Poverty Initiatives Program (DPIP) has advanced a couple Producer Organizations in different parts of the State to eradicate poverty.

The following is a list of few companies incorporated as Producer Companies in India[6]

1. The Indian Organic Farmer Producer Company Limited is an Aluva (Kerala) company of farmers producing organic products.
2. Vanilla India Producer Company Ltd (VANILCO) has been promoted by Kerala based Indian Farmers Movement (Infarm), a charitable society with over one lakh farmer members for catering to the long-term interests of the vanilla farmers.
3. Coinonya Farm Producer Company Limited for turmeric and Karbi Farms Producer Company Limited for ginger and chilly in Assam.
4. Karnavati Producer Company Limited in Madhya Pradesh

 

Conclusion

A producer company is in this manner a hybrid between a private limited company and a cooperative society. It consolidates the integrity of a cooperative society and the dynamic quality and productivity of a company. It obliges the unique components of cooperative business with a framework regulated by government like that of a private limited company. In this manner, it can appropriately be said that the expectation behind the idea of Producer Company in Companies Act,1956 is to guarantee a more valuable and simple regulatory structure of such companies and it is to be considered 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.[7]

To conclude, it is to be noted that “all the limitations, restrictions and provision of the Act, other than those specified in Part IXA, applicable to a private limited company, shall, as far as may be, apply to a producer company, as if it is a private limited company under the Act in so far as they are not in conflict with the provisions of this Part.” In other words, a producer company is a hybrid between a private limited company and a cooperative society.[8]

 

[1] Proviso to S 465 (1), Companies Act 2013.

[2] S581A(l), Companies Act, 1956

[3]https://www.icsi.edu/Webmodules/Publications/Company%20Law.pdf

[4]http://www.thehindu.com/biz/2003/06/30/stories/2003063000010300.htm

[5]http://rna-cs.com/pdf/Producer%20Companies.pdf

[6] Id

[7]http://rna-cs.com/pdf/Producer%20Companies.pdf

[8]http://www.thehindu.com/biz/2003/06/30/stories/2003063000010300.htm