Rural producers have been at a potential disadvantage given their generally limited assets, resources, education and access to advanced technology.
By on 13-11-2018
THE CONCEPT OF PRODUCER COMPANY
The Companies (Amendment) Act, 2002 vide Notification No. S.O. 135(E) dated 5.02.02 has inserted Part IX-A to the Companies Act, 1956 and introduced the concept of Producer Companies. Rural producers have been at a potential disadvantage given their generally limited assets, resources, education and access to advanced technology. In the present scenario, there is an emerging need of changing the terms of trade between rural and urban, labour and industry, finance and commerce. Therefore, if cooperative enterprises are to continue to serve rural producers, they require an alternative to the institutional form presently available under law. The Companies (Amendment) Act, 2002 is a step in this direction.
The newly inserted provision, by virtue of Companies (Amendment) Act, 2002 not only provides an opportunity to the co-operative sector to corporatise itself but also opens up new avenues for them. The conversion to producer companies will enable them to invite greater investments and modernize themselves. They can take advantage of the provisions to reinvent themselves, and function more efficiently. Accordingly, it is specified that a ‘producer’ shall mean any person engaged in any activity connected with or relatable to any primary produce. The amendment also seeks to provide a comprehensive meaning to primary produce which shall encompass produce of farmers, arising from agriculture (including animal husbandry, horticulture, etc.) produce of persons engaged in handloom, handicraft, any product resulting from any of the above activities or from an ancillary activity and any activity which is intended to increase the production or quality of anything referred above. The Amendment Act also includes the insertion of the provisions which enables the conversion of an existing co-operative society into a company as well as the incorporation of a Producer Company. This part contains specific provisions relating to incorporation, management, meetings, share capital etc. of Producer Companies.
OBJECTS OF PRODUCER COMPANY
A Producer company means a body corporate, having objects or activities specified in Section 581B and registered as Producer Company. Hence, the objectives for which Producer Companies may be formed are laid down in Section 581B. These 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. However, in terms of Section 581B of the Companies Act, 1956, the objects of the Producer Company shall relate to all or any of the following matters, namely:
- 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;
- processing including preserving, drying, distilling, brewing,venting, canning and packaging of produce of its Members; manufacture, sale or supply of machinery, equipment or consumables mainly to its Members
- providing education on the mutual assistance principles to its Members and others;
- rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members;
- generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce;
- insurance of producers or their primary produce;
- promoting techniques of mutuality and mutual assistance;
- welfare measures or facilities for the benefit of Members as may be decided by the Board;
- 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
- 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.
Every Producer Company shall deal primarily with the produce of its active members for carrying out any of its specified objects. This means there is an obligation on the producer company to deal primarily with the active members in conducting its activities. The expression ‘active member’ has been defined in Clause (a) of Section 581A to mean a member who fulfils the quantum and period of patronage of the producer company as may be required by the articles of the producer company. The patronage means the use of services offered by the Producer Company to its members by participation in its business activities.
FORMATION OF PRODUCER COMPANY AND ITS REGISTRATION
Section 581C of the Act provides that, any ten or more individuals, each of them being a producer or two or more producer institutions or a combination of ten or more individuals and producer institutions, desirous of forming a producer company may form an incorporated company as such having its objects, specified in Section 581B as producer company under this Act after complying with the requirements and the provisions of the Act in respect of registration. ‘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 581B and which agrees to make use of the services of the Producer Company or Producer Companies as provided in its articles. The Registrar on being satisfied that all requirements relating to registration and incidental matters have been complied with, shall register the memorandum, articles and other documents and issue a certificate of incorporation within 30 days of the receipt of the documents for registration. On registration, the Producer Company shall be deemed to be a private company limited by shares without any limit on the number of members. The direct costs associated with the promotion and registration of the company may be reimbursed by the Producer Company.
MEMBERSHIP AND VOTING RIGHTS OF MEMBERS OF PRODUCER COMPANY
Section 581D of the Act provides that unless the membership of the Producer Company consists of a Producer institution only, every member shall have a single vote irrespective of the number of shares held. In case, where the membership consists solely of Producer Institutions, the voting rights of such Producer institutions shall be determined on their previous year’s participation in the business of the company. However, during the first year of its regulation, the voting rights in a Producer Company shall be determined on the basis of shareholding by producer institutions. Where the membership of Producer Company consists of a combination of individuals and Producer Institutions, every member shall exercise a single vote. The Articles may however, authorize the Producer Company to restrict the voting rights to active members only. No person, who has any business interest which conflicts with the business of Producer Company, shall become a member of that Producer Company and if subsequently a member acquires any business interest which is in conflict with the business of the Producer Company, he shall cease to be a member.
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