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1. TILL RECENTLY, the Companies Act, 1956 (the Act), recognised only three types of companies, namely, companies limited by shares (sub-divided into public limited and private limited companies), companies limited by guarantees and unlimited companies. With the coming into force on February 6 of the Companies (Amendment) Act 2002, (1 of 2003), a fourth category, `producer companies,’ finds a place in the Act.

   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.

   The new concept of producer companies is based on the recommendations of an expert committee led by noted economist, Y. K. Alagh. The committee was asked (a) to frame a legislation that would enable incorporation of cooperatives as companies and conversion of existing cooperatives into companies and (b) to ensure that the proposed legislation accommodated the unique elements of cooperative business with a regulatory framework similar to that of companies.

   The new type is termed as `producer company’, to indicate that only certain categories of persons can participate in the ownership of such companies. The members have necessarily to be `primary producers,’ that is, persons engaged in an activity connected with, or related to, primary produce.

   What is primary produce? In terms of the Act it is a produce of farmers arising from agriculture including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products: produce of persons engaged in handloom, handicraft and other cottage industries: by – products of such products; and products arising out of ancillary industries.

   The 46 new sections respectively deal with incorporation of producer companies: their management; general meetings; share capital and members rights; finance, accounts and audit; loan to members and investments; penalties; amalgamation, merger or division; resolution of disputes; and reconversion of producer company to inter-State cooperative society. A few salient features are now briefly described.

   Formation

   Any ten or more individuals, each of them being a producer, that is, any person engaged in any activity connected with primary produce, any two or more producer institutions, that is, producer companies or any other institution having only producers or producer companies as its members or a combination of ten or more individuals and producer institutions, can get a producer company incorporated under the Act.

   The companies shall be termed as limited and the liability of the members will be limited to the amount, if any, unpaid on the shares. On registration, the producer company shall become as if it is a private limited company with the significant difference that a minimum of two persons cannot get them registered, the provision relating to a minimum paid-up capital of Rs. 1 lakh will not apply and the maximum number of members can also exceed 50.

   Members’ equity cannot be publicly traded but be only transferred. As such, “producer companies would not be vulnerable to takeover by other companies or by MNCs.”

   Objects

   The objects of producer companies shall include one or more of the eleven items specified in the Act, the more important being:

   (i) Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of members or import of goods or services for their benefit;

   (ii) Processing including preserving, drying, distilling, brewing, venting, canning and packaging of produce of its members; and

   (iii) Manufacture, sale or supply of machinery, equipment or consumables mainly to its members.

   The other objects include rendering technical or consultancy services, insurance, generation, transmission and distribution of power and revitalisation of land and water resources; promoting techniques of mutuality and mutual assistance; welfare measures and providing education on mutual assistance principles.

   It is to be noted that private limited or public limited companies are not hamstrung by such restrictions as to their objectives, provided they are legal.

   Management

   (a) Every producer company is to have at least five and not more than 15 directors. Minimum prescribed for private limited is two and for public limited three, while the maximum will depend on the number mentioned in the respective Articles. Usually the maximum is pegged at twelve.

   (b) A full time chief executive, by whatever name called, is to be appointed by the board. He shall be an ex-officio director and will not be liable to retire by rotation. He shall be entrusted with substantial powers of management as the board may determine. This provision differs from that appl

   

   Rose
   March 20, 2014 at 2:13 am
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