Sections 378ZG to 378ZL: Auditor Duties, Donations, Reserves, Bonus Shares, Loans and Investments

Section 378ZG: Duties of auditor

Auditors must report additional Producer Company matters beyond the general duties under section 143.

Legal provisions and requirements

378ZG. Without prejudice to the provisions contained in section 143, the auditor shall report on the following additional matters relating to the Producer Company, namely:-

(a) the amount of debts due alongwith particulars of bad debts, if any;

(b) the verification of cash balance and securities;

(c) the details of assets and liabilities;

(d) all transactions which appear to be contrary to the provisions of this Chapter;

(e) the loans given by the Producer Company to the directors;

(f) the donations or subscriptions given by the Producer Company;

(g) any other matter as may be considered necessary by the auditor.

Section 378ZH: Donations and subscriptions

A special resolution is required, the annual aggregate is capped at 3% of the preceding financial year's net profit, and political contributions and facilities are prohibited.

Legal provisions and requirements

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 general public; or

(b) promoting the mutual assistance principles:

Provided that the aggregate amount of all such donations and subscriptions in any financial year shall 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 was made:

Provided further that no Producer Company shall make directly or indirectly to any political party or for any political purpose to any person any contribution or subscription or make available any facilities including personnel or material.

Section 378Z-I: General and other reserves

A general reserve is mandatory each financial year; where funds are insufficient, members share the contribution in proportion to patronage.

Legal provisions and requirements

378Z-I. (1) Every Producer Company shall maintain a general reserve in every financial year, in addition to any reserve maintained by it as may be specified in articles.

(2) In a case where the Producer Company does not have sufficient funds in any financial year for transfer to maintain the reserves as may be specified in articles, the contribution to the reserve shall be shared amongst the Members in proportion to their patronage in the business of that Company in that year.

Section 378ZJ: Issue of bonus shares

Bonus shares may be issued from general reserves on Board recommendation and a resolution in general meeting, proportionately to existing holdings.

Legal provisions and requirements

378ZJ. Any Producer Company may, upon recommendation of the Board and passing of resolution in the general meeting, issue bonus shares by capitalisation of amounts from general reserves referred to in section 378Z-I in proportion to the shares held by the Members on the date of the issue of such shares.

Section 378ZK: Loans and financial assistance to members

Credit facilities and secured loans are subject to the articles, time limits and additional approval for directors and relatives.

Legal provisions and requirements

378ZK. 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 articles to any Member, repayable within a period exceeding three months but not exceeding seven years from the date of disbursement of such loan or advances:

Provided that any loan or advance to any director or his relative shall be granted only after the approval by the Members in general meeting.

Section 378ZL: Investments and subsidiaries

Investment powers are subject to approved instruments, corporate objects, special resolutions, statutory limits and investment-register requirements.

Legal provisions and requirements

378ZL. (1) The general reserves of any Producer Company shall be invested to secure the highest returns available from approved securities, fixed deposits, units, bonds issued by the Government or co-operative or scheduled bank or in such other mode as may be prescribed.

(2) Any Producer Company may, for promotion of its objectives acquire the shares of another Producer Company.

(3) Any Producer Company may subscribe to the share capital of, or enter into any agreement or other arrangement, whether by way of formation of its subsidiary company, joint venture or in any other manner with any body corporate, for the purpose of promoting the objects of the Producer Company by special resolution in this behalf.

(4) Any Producer Company, either by itself or together with its subsidiaries, may invest, by way of subscription, purchase or otherwise, shares in any other company, other than a Producer Company, specified under sub-section (2), or subscription of capital under sub-section (3), for an amount not exceeding thirty per cent. of the aggregate of its paid-up capital and free reserves:

Provided that a Producer Company may, by special resolution passed in its general meeting and with prior approval of the Central Government, invest in excess of the limits specified in this section.

(5) All investments by a Producer Company may be made if such investments are consistent with the objects of the Producer Company.

(6) The Board of a Producer Company may, with the previous approval of Members by a special resolution, dispose of any of its investments referred to in sub-sections (3) and (4).

(7) Every Producer Company shall maintain a register containing particulars of all the investments, showing the names of the companies in which shares have been acquired, number and value of shares; the date of acquisition; and the manner and price at which any of the shares have been subsequently disposed of.

(8) The register referred to in sub-section (7) shall be kept at the registered office of the Producer Company and the same shall be open to inspection by any Member who may take extracts therefrom.