Section 378K Companies Act 2013 - Effect of Incorporation of Producer Company
Section 378K of the Companies Act, 2013 deals with the effect of incorporation of a Producer Company when an inter-State co-operative society is transformed into a Producer Company. The provision protects continuity of shareholding by treating the existing shareholders of the inter-State co-operative society as shareholders of the Producer Company from the date of transformation.
Section 378K - Effect of Incorporation of Producer Company
Legislative note: Section 378K was inserted by section 52 of the Companies (Amendment) Act, 2020 (Act 29 of 2020) with effect from 11 February 2021.
Meaning and Scope of Section 378K
Section 378K creates statutory continuity between an inter-State co-operative society and the Producer Company into which it is transformed. Once the qualifying inter-State co-operative society is registered as a Producer Company, its existing shareholders do not have to acquire their shareholder status afresh merely because of the transformation.
The law deems every person who was a shareholder of the inter-State co-operative society immediately before registration to be a shareholder of the Producer Company from the date of transformation. The extent of that shareholding corresponds to the face value of the shares held by that shareholder immediately before transformation.
What Is the Date of Transformation?
For the purposes of these Producer Company provisions, Section 378K describes the date of registration of the Producer Company as the date of transformation. This is the relevant date for determining when the shareholder status arising from the former inter-State co-operative society continues in the Producer Company.
Key Effects of Section 378K
- An existing shareholder of the inter-State co-operative society becomes a shareholder of the Producer Company by operation of law.
- The statutory effect operates from the date of transformation.
- The shareholder's interest is recognised to the extent of the face value of the shares held immediately before transformation.
- The provision facilitates continuity of membership and shareholding during conversion of an eligible inter-State co-operative society into a Producer Company.
- The provision should be read with Section 378J, which deals with the option and procedure for an inter-State co-operative society to become a Producer Company.
Relationship Between Sections 378J and 378K
Section 378J of the Companies Act, 2013 provides the statutory framework under which an eligible inter-State co-operative society may apply for registration as a Producer Company. Upon registration, the inter-State co-operative society stands transformed into a Producer Company in accordance with that provision.
Section 378K deals specifically with the consequence of that transformation for shareholders. It ensures that the transformation does not, merely because of the change in legal form, interrupt the shareholder status represented by the face value of the shares held immediately before transformation.
Producer Companies Under the Companies Act, 2013
Producer Companies are governed by the special provisions contained in Chapter XXIA of the Companies Act, 2013. The Chapter contains provisions relating to definitions, objects, formation, membership, voting rights, benefits to members, memorandum and articles, transformation of inter-State co-operative societies, management, general meetings, share capital, accounts, audit and other matters concerning Producer Companies.
For the current statutory text and amendments, readers may refer to the Companies Act, 2013 on India Code and the Companies Act, 2013 published by the Ministry of Corporate Affairs.