Section 378ZH Companies Act 2013 - Donation or Subscription by Producer Company

Section 378ZH is part of Chapter XXIA of the Companies Act, 2013, which contains the statutory framework for Producer Companies. The section regulates the purposes, approval and financial ceiling for donations or subscriptions made by a Producer Company.

Current statutory position: Section 378ZH was inserted into the Companies Act, 2013 by the Companies (Amendment) Act, 2020 and came into force on 11 February 2021. It permits specified donations or subscriptions only through a special resolution, limits the aggregate amount in a financial year, and expressly prohibits political contributions by a Producer Company.

Meaning and scope of Section 378ZH

A Producer Company is a body corporate governed by Chapter XXIA of the Companies Act, 2013. Section 378ZH gives such a company a specific statutory power to make donations or subscriptions for permitted welfare or mutual-assistance purposes, subject to safeguards stated in the section.

A special resolution is a resolution satisfying the requirements of Section 114(2) of the Companies Act, 2013. In practical terms, the notice must specify the intention to propose the resolution as a special resolution and the votes cast in favour must meet the statutory three-to-one threshold over votes cast against, subject to the Act.

Text and requirements of Section 378ZH

A Producer Company may, by special resolution, make donation or subscription to any institution or individual for the purposes of:

(a) promoting the social and economic welfare of Producer Members or producers or the general public; or

(b) promoting the mutual assistance principles.

The aggregate amount of all such donations and subscriptions in a financial year must not exceed three per cent of the net profit of the Producer Company in the financial year immediately preceding the financial year in which the donation or subscription is made.

A Producer Company must not make, directly or indirectly, any contribution or subscription to a political party, or for a political purpose to any person, and must not make available facilities including personnel or material for such a purpose.

Key compliance conditions

  • Special resolution required: the donation or subscription must be authorised by the members through a special resolution.
  • Permitted purpose: the payment must promote social and economic welfare of Producer Members, producers or the general public, or promote the mutual assistance principles.
  • Annual ceiling: all donations and subscriptions covered by Section 378ZH together cannot exceed 3% of the net profit of the immediately preceding financial year.
  • Political contribution prohibited: the restriction applies to direct and indirect contributions, subscriptions and facilities for political purposes.

How the 3% limit works

The statutory ceiling is calculated with reference to the Producer Company's net profit for the financial year immediately preceding the year in which the donation or subscription is made. The limit applies to the aggregate of all donations and subscriptions under Section 378ZH during the relevant financial year, rather than separately to each payment.

Relationship with the Producer Companies framework

Section 378ZH appears in Part VI of Chapter XXIA, dealing with finance, accounts and audit of Producer Companies. It should therefore be read with the other provisions of Chapter XXIA and the applicable Producer Companies Rules, 2021.

Official legal resources

For the current statutory text and amendments, refer to the Companies Act, 2013 published by the Ministry of Corporate Affairs, the Companies Act, 2013 on India Code, and the Producer Companies Rules, 2021.

Legislative note: Section 378ZH was inserted by Section 52 of the Companies (Amendment) Act, 2020 with effect from 11 February 2021.