Section 378ZK Companies Act 2013 - Loan, etc., to Members

Section 378ZK is contained in Chapter XXIA of the Companies Act, 2013, which deals with Producer Companies. The provision permits the Board of a Producer Company, subject to its articles, to provide specified forms of financial assistance to its Members.

What does Section 378ZK provide?

Section 378ZK authorises the Board to provide financial assistance to Members of a Producer Company, but the power is expressly subject to the provisions contained in the company's articles. The section recognises two principal forms of assistance: short-term credit facilities connected with the business of the Producer Company, and secured loans or advances for a longer repayment period.

Section 378ZK - Loan, etc., to Members

The Board may, subject to the provisions made in articles, provide financial assistance to the Members of the Producer Company by way of-

(a) Credit facility: to any Member, in connection with the business of the Producer Company, for a period not exceeding six months.

(b) Loans and advances: against security specified in the articles, to any Member, repayable within a period exceeding three months but not exceeding seven years from the date of disbursement of the loan or advance.

Proviso: any loan or advance to a director or his relative may be granted only after approval by the Members in general meeting.

Meaning of Producer Company and Member

For Chapter XXIA, Section 378A defines a Member as a person or Producer Institution, whether incorporated or not, admitted as a Member of a Producer Company who continues to possess the qualifications required for membership.

A Producer Company is a body corporate having the objects or activities specified in Section 378B and registered as a Producer Company under the Companies Act, 2013 or under the Companies Act, 1956. Section 378B includes activities connected with primary produce and also contemplates financing of procurement, processing, marketing and other permitted activities, including extending credit facilities or other financial services to Members.

Key requirements under Section 378ZK

Board authority: financial assistance is provided through the Board of the Producer Company.
Articles govern the power: the Board's authority is subject to the provisions made in the articles of the Producer Company.
Credit facility: a credit facility must be connected with the business of the Producer Company and cannot exceed six months.
Security for longer assistance: loans and advances under clause (b) must be against security specified in the articles.
Repayment period: a loan or advance under clause (b) must be repayable after more than three months but within seven years from disbursement.
Director or relative: a loan or advance to a director or his relative requires approval of the Members in general meeting.

Practical effect of the provision

Section 378ZK creates a specific statutory framework for financial assistance by a Producer Company to its Members. Before granting assistance, the company should check its articles for the permitted security, internal conditions and approval process. Where the proposed borrower is a director or a relative of a director, the additional general-meeting approval stated in the proviso must be obtained.

Legislative background

Chapter XXIA, including Section 378ZK, was inserted into the Companies Act, 2013 by Section 52 of the Companies (Amendment) Act, 2020 and came into force on 11 February 2021. Producer Companies are also governed, where applicable, by the Producer Companies Rules, 2021.

Official legal resources

For the authoritative statutory material and subsequent updates, refer to the official sources below:

Note: This page is an explanatory legal reference. For compliance or a transaction involving a Producer Company, the current Act, applicable rules, the company's articles and professional advice should be considered together.