Section 378ZC Companies Act 2013 - Special User Rights
Section 378ZC of the Companies Act, 2013 forms part of Chapter XXIA dealing with Producer Companies. It permits certain special rights for producers who qualify as active Members, subject to the articles of the Producer Company and the requirements of the section.
Text of Section 378ZC - Special User Rights
(1) The producers, who are active Members may, if so provided in the articles, have special rights and the Producer Company may issue appropriate instruments to them in respect of such special rights.
(2) The instruments of the Producer Company issued under sub-section (1) shall, after obtaining approval of the Board in that behalf, be transferable to any other active Member of that Producer Company.
Explanation. For the purposes of this section, the expression "special right" means any right relating to supply of additional produce by the active Member or any other right relating to his produce which may be conferred upon him by the Board.
Meaning and Scope of Section 378ZC
The provision enables a Producer Company to recognise special user rights of its active Members. These rights are not automatic. Sub-section (1) requires that the articles of the Producer Company provide for them. Where the articles so permit, the Producer Company may issue appropriate instruments evidencing those special rights.
Under Section 378A(a), an active Member is a Member who fulfils the quantum and period of patronage of the Producer Company as may be required by its articles. This definition is important because Section 378ZC is specifically directed to producers who are active Members.
What Is a Special Right?
The Explanation to Section 378ZC defines a "special right" as a right relating to the supply of additional produce by an active Member, or another right relating to that Member's produce which may be conferred by the Board. The provision therefore links the special right to the Member's produce and to the Producer Company's internal governance framework.
Transfer of Instruments Issued for Special Rights
An instrument issued in respect of a special right may be transferred to another active Member of the same Producer Company only after approval of the Board. Section 378ZC therefore places both the identity of the transferee and Board approval at the centre of transferability.
Key Requirements Under Section 378ZC
- The producer must be an active Member.
- The articles of the Producer Company must provide for special rights.
- The Producer Company may issue an appropriate instrument representing the special right.
- A transfer requires approval of the Board.
- The transferee must be another active Member of the same Producer Company.
- The special right must relate to additional produce or another right concerning the Member's produce as conferred by the Board.
Relationship With Nearby Provisions
Section 378ZC appears in Part V of Chapter XXIA, which deals with share capital and Members' rights. It follows Section 378ZB on share capital and is followed by Section 378ZD on transferability of shares and attendant rights. These provisions should be read together when considering the financial and membership rights attached to participation in a Producer Company.
Official Legal Resources
For the latest consolidated statutory text and official corporate-law information, refer to the Government of India resources linked in the right sidebar. The Companies Act, 2013 is maintained through the official India Code service, while corporate filings and regulatory information are provided by the Ministry of Corporate Affairs.
Statutory note: Section 378ZC was inserted by Act 29 of 2020, Section 52, with effect from 11 February 2021.