The Companies Act of 1956 recognized
three types of companies viz., public limited, private limited and trusteeship
and nidhis. It was amended in 2002 to
accommodate a fourth type of company called Producer Company. Cooperative organizations
it was felt would not be able to respond to rapid changes taking place globally
in trade, technology etc. Therefore, a producer company was contemplated to
protect the interests of the farmers. Producer organization was expected to
respond with much alacrity to market conditions than cooperatives which are
slow to react to market signals due to regulations.
Cooperative organizations/institutions
are “user owned and user controlled”. They help the members realize better
prices for their output or lower prices for inputs by leveraging on scale and
bargain collectively. In case of farming especially small size of holding such
as in India the cooperatives are the best forms of organization to protect the
interest of the farmers from the vagaries of the market forces. However, the
success stories of cooperatives in India are few. There are various reasons
attributed for their poor showing one of them is said to be the excessive
interference of the government in their functioning.
Cooperative governance structure
consists of the general body consisting of all members, a board elected from
the members and executives who are paid to look after the day today affairs of
their functioning. The checks and balances among these three constituents
ensure a fair and transparent administration of cooperatives. However, in India
a fourth component is added to the governance structure that is the cooperative
registrar of the government. Though the registrar is not a stakeholder in the
true sense he was vested with lot of powers ostensibly to guide the
cooperatives but more often than not he/she comes in the way of its effective
functioning. Crucial decisions are delayed and the initiatives of the
cooperatives stifled as everything needs the registrar’s approval.
Therefore, there was a felt need for a
new type of organization which would retain the cooperative spirit and at the
same time lot more flexible and nimble to market signals. The Companies
(Amendment) Act 2002 inserted Part IXA in the Companies Act of 1956 to enable
formation of producer companies.
Under the Act, any ten or more
individual producers or two or more producers institutions can come together to
form a producer company. The voting pattern is based on single vote for every
member irrespective of his shareholding or patronage of the producer company.
Members’ equity cannot be publicly traded but can be transferred to other
members. The producer company shall become a body corporate as if it is a
private limited company and under no circumstances become a public limited
company under this Act. The members of the producer company necessarily have to
be primary producer that is persons engaged in activity connected with or
related to primary produce.
Primary produce is defined as produce of
farming arising from agriculture including animal husbandry, horticulture,
floriculture, forest produce, apiculture or from any other primary activity or
service which promotes the interest of the farmer or consumers or produce of
persons engaged in handlooms, handicrafts and other cottage industries. The
activities of the producer companies will relate to one or more of the
activities such as production, harvesting, procurement, grading, pooling,
processing, pricing, marketing including export of primary produce of the
members or import of goods and services for the benefit of the members.
Benefits to the Members
Every member
will initially receive only such value for the produce or products pooled and
supplied as determined by the board.
The withheld price which is defined as part of the price due and payable
for goods supplied by any Member to the Producer Company; and as withheld by
the Producer Company for payment on a subsequent date. The withheld amount will
be distributed later (usually at the end of the year) in the form of cash or
kind or by allotment of equity shares.
The members will
receive only a limited return (the maximum decided by the articles of
association) on the share capital.
The surplus if
any, remaining after making provision for payment on limited return and
reserves will be disbursed as patronage refund in proportion to the
participation of the members in the business of the producer company.
Management
Producer Company can have at least 5 but
not more than 15 directors. Each director will hold the position for one year
but not more than five years. There is a provision to co-opt expert directors.
They should not exceed one fifth of the board strength. These expert directors
will not have voting rights. The board can also constitute committees to assist
in its functioning. The board will appoint a full time Chief Executive and
shall entrust substantial powers to look at the efficient administration of the
company. The Chief Executive will be an ex-officio director of the board.
Producer Company having an average turnover of five crores for three
consecutive financial years shall have a full time secretary
There are several producer companies
being set up in various parts of the country. Vanilla India Producer Company in
Kerala was the first to be set up in 2004 under the act. There are several
producer companies in Madhya Pradesh promoted by NGOs such as Pradan. Other
parts of country such as Gujarat, Maharashtra, Rajasthan Assam, Uttaranchal etc
are also giving importance to producer companies. NABARD has created a “Producers
Organization Development Fund” to support Producer Organizations across the
country.
Though Producer
Company is an innovation and free of certain limitations of cooperatives there
are certain elements which are similar to cooperatives that may hinder growth.
True, that the registrar as in the cooperative cannot interfere in the functioning
of the producer company. This in turn precludes the company in seeking any
funds from the government. Farmers in India being too poor to raise the
necessary capital and market borrowings being costly most of the producer
companies are handheld by the promoting NGOs. The grant and donations from the
NGOs are not sustainable. Non producers cannot invest in the equity of the
company therefore capital mobilization from the producers who themselves are
short of capital put the organizations ability to manage funds on a sustainable
basis extremely difficult.
