Section 378L Companies Act 2013 - Vesting of Undertaking in Producer Company
Section 378L of the Companies Act, 2013 provides for the vesting and transfer of the undertaking of an inter-State co-operative society when it is transformed into a Producer Company. The provision addresses property, assets, liabilities, contracts, money due, capital, organisations managed by the society and pending legal proceedings.
Legal provision: Section 378L forms part of Chapter XXIA of the Companies Act, 2013 dealing with Producer Companies. Chapter XXIA was inserted by the Companies (Amendment) Act, 2020 and came into force on 11 February 2021.
Meaning and Scope of Section 378L
The purpose of Section 378L is to provide statutory continuity when an eligible inter-State co-operative society is transformed into a Producer Company. Instead of requiring individual transfers of each asset, liability, contract and legal interest, the section provides for their vesting or continuation in the Producer Company according to its terms.
The provision should be read together with Section 378J, which deals with the option of an inter-State co-operative society to become a Producer Company, and Section 378K, which deals with the effect of incorporation.
Section 378L - Vesting of Undertaking in Producer Company
(1) All properties and assets, movable and immovable, of, or belonging to, the inter-State co-operative society as on the date of transformation, shall vest in the Producer Company.
(2) All the rights, debts, liabilities, interests, privileges and obligations of the inter-State co-operative society as on the date of transformation shall stand transferred to, and be the rights, debts, liabilities, interests, privileges and obligations of, the Producer Company.
(3) Without prejudice to the provisions contained in sub-section (2), all debts, liabilities and obligations incurred, all contracts entered into and all matters and things engaged to be done by, with or for, the society as on the date of transformation for or in connection with their purposes, shall be deemed to have been incurred, entered into, or engaged to be done by, with or for, the Producer Company.
(4) All sums of money due to the inter-State co-operative society immediately before the date of transformation, shall be deemed to be due to the Producer Company.
(5) Every organisation, which was being managed immediately before the date of transformation by the inter-State co-operative society shall be managed by the Producer Company for such period, to such extent and in such manner as the circumstances may require.
(6) Every organisation which was getting financial, managerial or technical assistance from the inter-State co-operative society, immediately before the date of transformation, may continue to be given financial, managerial or technical assistance, as the case may be, by the Producer Company, for such period, to such extent and in such manner as that company may deem fit.
(7) The amount representing the capital of the erstwhile inter-State co-operative society shall form part of the capital of the Producer Company.
(8) Any reference to the inter-State co-operative society in any law other than this Act or in any contract or other instrument, shall be deemed to be reference to the Producer Company.
(9) If, on the date of transformation, there is pending any suit, arbitration, appeal or other legal proceeding of whatever nature by or against the inter-State co-operative society, the same shall not abate, be discontinued or be in any way prejudicially affected by reason of the incorporation of the Producer Company under section 378C or transformation of the inter-State co-operative society as a Producer Company under section 378J, as the case may be, but the suit, arbitration, appeal or other proceeding, may be continued, prosecuted and enforced by or against the Producer Company in the same manner and to the same extent as it would have, or may have been continued, prosecuted and enforced by or against the inter-State co-operative society as if the provisions contained in this Chapter had not come into force.
Legislative note: Chapter XXIA containing Section 378L was inserted by section 52 of the Companies (Amendment) Act, 2020 with effect from 11 February 2021.
Key Effects of Section 378L
- Movable and immovable properties vest in the Producer Company.
- Rights, debts, liabilities, interests, privileges and obligations transfer to the Producer Company.
- Existing contracts and obligations continue in relation to the Producer Company.
- Money due to the former society becomes due to the Producer Company.
- The capital of the erstwhile society forms part of the capital of the Producer Company.
- Statutory, contractual and other references to the society are treated as references to the Producer Company as provided by the section.
- Pending suits, arbitrations, appeals and other legal proceedings do not abate merely because of the transformation.
Transfer of Assets and Liabilities
Sub-sections (1) to (4) establish the principal financial and property consequences of transformation. Property and assets vest in the Producer Company, while existing rights, debts, liabilities, interests, privileges and obligations are transferred to it. Contracts and matters undertaken by or for the society are also treated as having been undertaken by or for the Producer Company in accordance with the section.
Continuity of Pending Legal Proceedings
Sub-section (9) is an important continuity provision. A pending suit, arbitration, appeal or other legal proceeding by or against the inter-State co-operative society does not abate or become prejudicially affected merely because the Producer Company has been incorporated or the society has been transformed.
Such proceedings may continue, be prosecuted and be enforced by or against the Producer Company in the manner specified in Section 378L(9).
Related Producer Company Provisions
Section 378L operates within the broader statutory framework for Producer Companies. Readers may also refer to Section 378A - Definitions, Section 378J - Option to inter-State co-operative societies to become Producer Companies, Section 378K - Effect of incorporation, and Section 378M - Concessions deemed to have been granted to Producer Company.