Section 378N Companies Act 2013 - Officers and Employees of Inter-State Co-operative Society

Section 378N of the Companies Act, 2013 deals with the position of directors, officers and other employees when an inter-State co-operative society is transformed into a Producer Company. The provision protects continuity of employment, service conditions, employee benefits and specified retirement and welfare rights following the transformation.

Section 378N at a glance:

The section provides transitional protection for directors and employees of an inter-State co-operative society when its undertaking becomes vested in a Producer Company. Employees generally continue with the Producer Company on the same tenure, remuneration, terms, conditions, obligations, rights and privileges, subject to the provisions of the section.

Meaning and scope of Section 378N

Section 378N forms part of Chapter XXIA of the Companies Act, 2013 dealing with Producer Companies. It operates in the context of transformation of an inter-State co-operative society into a Producer Company.

Under Section 378A, an "inter-State co-operative society" includes a multi-State co-operative society as defined under the Multi-State Co-operative Societies Act, 2002 and, subject to the statutory definition, certain co-operative societies whose objects or activities have extended to more than one State.

Section 378N should therefore be read together with the other transformation provisions in Chapter XXIA, particularly Section 378J, Section 378K, Section 378L and Section 378M.

Key provisions of Section 378N

Existing directors continue in office for the statutory transitional period.
Eligible officers and employees become officers or employees of the Producer Company from the date of transformation.
Their tenure, remuneration and terms and conditions of service are protected as provided by the section.
Leave, welfare, medical, insurance, provident fund, gratuity, retirement and other specified benefits continue.
An officer or employee who opts not to continue with the Producer Company is deemed to have resigned.
Retired employees retain their entitlement to applicable benefits, rights and privileges from the Producer Company.
Provident fund, gratuity fund and employee welfare bodies continue to perform their functions following transformation.

Section 378N - Statutory provisions

Section 378N(1): Notwithstanding anything contained in section 378-O, all the directors in the inter-State co-operative society before the incorporation of the Producer Company shall continue in office for a period of one year from the date of transformation and in accordance with the provisions of this Act.

Transfer and continuation of officers and employees

Section 378N(2): Every officer or other employee of the inter-State co-operative society (except a director of the Board, Chairman or Managing Director) serving in its employment immediately before the date of transformation shall, in so far as such officer or other employee is employed in connection with the inter-State co-operative society which has vested in the Producer Company by virtue of this Act, become, as from the date of transformation, an officer or, as the case may be, other employee of the Producer Company and shall hold his office or service therein by the same tenure, at the same remuneration, upon the same terms and conditions, with the same obligations and with the same rights and privileges as to leave, leave travel concession, welfare scheme, medical benefit scheme, insurance, provident fund, other funds, retirement, voluntary retirement, gratuity and other benefits as he would have held under the erstwhile inter-State co-operative society if its undertaking had not vested in the Producer Company and shall continue to do so as an officer or, as the case may be, other employee of the Producer Company.

Option not to continue employment

Section 378N(3): Where an officer or other employee of the inter-State co-operative society opts under sub-section (2) not to be in employment or service of the Producer Company, such officer or other employee shall be deemed to have resigned.

Transfer of service and compensation

Section 378N(4): Notwithstanding anything contained in the Industrial Disputes Act, 1947 (14 of 1947) or in any other law for the time being in force, the transfer of the services of any officer or other employee of the inter-State co-operative society to the Producer Company shall not entitle such officer or other employee to any compensation under this Act or under any other law for the time being in force and no such claim shall be entertained by any court, tribunal or other authority.

Current labour-law note:

The statutory text of Section 378N(4) contains an express reference to the Industrial Disputes Act, 1947. The Central Government brought the four Labour Codes, including the Industrial Relations Code, 2020, into effect from 21 November 2025. The Industrial Disputes Act, 1947 formed part of the labour-law framework consolidated into the Industrial Relations Code. The wording reproduced above is the text appearing in Section 378N of the Companies Act.

Rights of employees who retired before transformation

Section 378N(5): The officers and other employees who have retired before the date of transformation from the service of the inter-State co-operative society and are entitled to any benefits, rights or privileges, shall be entitled to receive the same benefits, rights or privileges from the Producer Company.

Provident fund, gratuity fund and welfare bodies

Section 378N(6): The trusts of the provident fund or the gratuity fund of the inter-State co-operative society and any other bodies created for the welfare of officers or employees shall continue to discharge functions in the Producer Company as was being done hitherto in the inter-State co-operative society and any tax exemption granted to the provident fund or the gratuity fund would continue to be applied to the Producer Company.

No compensation for loss of specified management office

Section 378N(7): Notwithstanding anything contained in this Act or in any other law for the time being in force or in the regulations of the inter-State co-operative society, no director of the Board, Chairman, Managing Director or any other person entitled to manage the whole or substantial part of the business and affairs of the inter-State co-operative society shall be entitled to any compensation against the inter-State co-operative society or the Producer Company for the loss of office or for the premature termination of any contract of management entered into by him with the inter-State co-operative society.

Effect of Section 378N on employees

The central purpose of Section 378N is continuity during transformation. An eligible employee serving immediately before the date of transformation does not ordinarily lose employment merely because the undertaking of the inter-State co-operative society becomes vested in the Producer Company. Instead, sub-section (2) provides for continuation with the Producer Company on the protected service terms specified in the provision.

The protection expressly extends to matters such as remuneration, tenure, leave, leave travel concession, welfare schemes, medical benefits, insurance, provident fund, retirement, voluntary retirement, gratuity and other benefits. This helps preserve continuity of service and accrued employment benefits during the statutory transformation.

What happens if an employee does not want to join the Producer Company?

Section 378N(3) addresses this situation directly. Where an officer or employee covered by sub-section (2) opts not to remain in the employment or service of the Producer Company, that person is deemed to have resigned.

Protection of retired employees

Section 378N is not limited to persons actively serving on the date of transformation. Sub-section (5) protects officers and employees who retired before that date and who are entitled to benefits, rights or privileges. Those benefits, rights or privileges are to be received from the Producer Company in accordance with the provision.

Employee welfare funds after transformation

Under sub-section (6), provident fund trusts, gratuity fund trusts and other bodies established for employee welfare continue to discharge their functions in the Producer Company. The provision also addresses continuation of tax exemptions granted to the provident fund or gratuity fund.

Section 378N and Section 378-O

Section 378N(1) begins with a non-obstante clause overriding Section 378-O for the specific transitional situation covered by Section 378N. Existing directors of the inter-State co-operative society continue in office for one year from the date of transformation, subject to the Companies Act.

Related provisions

Readers examining the transformation of an inter-State co-operative society into a Producer Company should also refer to Section 378J - Option to inter-State co-operative societies to become Producer Companies, Section 378K - Effect of incorporation of Producer Company, Section 378L - Vesting of undertaking in Producer Company and Section 378M - Concessions deemed to have been granted to Producer Company.

Official legal resources

Legal reference: Section 378N, Chapter XXIA, Companies Act, 2013. Chapter XXIA relating to Producer Companies was inserted by the Companies (Amendment) Act, 2020 with effect from 11 February 2021.