Conversion of Interstate co-operative Societies into Producer Companies

Co-operative societies is formed by group of people to support each other and strive together. Its concept is almost 100 years old when oldest co-operative society exists “The Primary Agricultural Co-operative Society”  since then there have been various structures which have evolved like Self-Help Groups, Common Interest Groups etc like Amul, Indian Coffee House.

Going forward, concept of forming co-operative society is less favoured after introduction of Producer Companies which are hybrid of Body Corporate and Co-operative societies.

For example “Sri Vijaya Visakha District Milk Producers Mutually Aided Cooperative Union Ltd” was registered under Multi-State Co-operative Societies Act, 1984 and to fulfil the growth aspirations while retaining cooperative ideology as core principles of governance, Visakha Dairy got converted into Producer Company under the name and style of “Sri Vijaya Visakha Milk Producers Company Limited”.

Producer Companies are engaged in agricultural and other primary produce like pisiculture, horticulture etc they work mutually on Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import goods for their benefit.

These Producer Companies works on below given fundamentals:

• Democratic Management
• Mutual Assistance
• Sharing of Profit
• Cooperation with similar institutes

Producer Companies are involved into other primary objects as provided Part IXA (Section 581A to 581ZT) into the Companies Act, 1956, (“the Act”).

In this article we will focus on conversion inter-State co-operative societies to become Producer Companies.

What is “inter-State co-operative society”?

As per definition given in Section 581 A (e) inter-State co-operative society” means:

Inter-State co-operative society” means a multi-State co-operative society as defined in clause (k) of section 3 of the Multi-State Co-operative Societies Act, 1984 (51 of 1984) and includes any co-operative society registered under any other law for the time being in force, which has, subsequent to its formation, extended any of its objects to more than one State by enlisting the participation of persons or by extending any of its activities outside the State, whether directly or indirectly or through an institution of which it is a constituent;

In simple terms Inter-State co-operative society includes:

• Multi-State co-operative society registered under Multi-State Co-operative Societies Act, 1984
• Any co-operative society which has extended its activities in more than one state.

Option to inter-State co-operative societies to become Producer Companies.

Section 581 J of the Act states that any inter-State co-operative society with objects not confined to one State may make an application to the Registrar for registration as Producer Company under this Part.

Documents required for Application

• A copy of the special resolution, of not less than 2/3 of total members of inter-State co-operative society, for its incorporation as a Producer Company under this Act
• A statement indicating that the inter-State co-operative society is engaged in any one or more of the objects specified for Producer Companies
• A declaration by two or more directors of the inter-State co-operative society certifying the application and its annexures
• A statement showing:
  1. Names and addresses or the occupation of the directors and Chief Executive, if any, by whatever name called, of such co-operative;
  2. List of members of such inter-State co-operative society;
• Approval from local co-operative department of the state concerned for such conversion

Processing of Application

• After receipt of application, Registrar will scrutinise the documents in line with all provisions.
• Registrar must confirm that applicant society has extended its activities outside the state where it is registered as co-operative society under the local law governing co-operative societies which are not inter-State co-operative societies.
• If satisfied, than within 30 days from date of receipt of application, certify the conversion and register co-operative society as Producer Company.

 Post Approval Requirements

• When an inter-State co-operative society is registered as a Producer Company, it should use the words “Producer Company Limited” with its name.
• Post conversion all provisions given in Part IXA (Section 581A to 581ZT) into the Companies Act, 1956.

Effect of conversion into Producer Company

As per section 581K of the Act, every shareholder of the inter-State co-operative society immediately before the date of registration of Producer Company shall be deemed to be registered on and from that date as a shareholder of the Producer Company to the extent of the face value of the shares held by such shareholder.

Vesting of undertaking in Producer Company

As per section 581 L of the Act, below given would be the legal impact on the co-operative society that converts into a Producer Company from Transformation date i.e. date of getting conversion approval:

1. All properties and assets, movable and immovable, of, or belonging to, the inter-State co-operative society shall vest in the Producer Company.
2. All the rights, debts, liabilities, interests, privileges and obligations of the inter-State co-operative society shall stand transferred to, and be the rights, debts, liabilities, interests, privileges and obligations of, the Producer Company.
3. All contracts entered into and all matters and things engaged to be done by, with or for, the society for or in connection with their purposes, shall be deemed to have been incurred, entered into, or engaged to be done by, with or for, the Producer Company.
4. All sums of money due to the inter-State co-operative society shall be deemed to be due to the Producer Company.
5. The amount representing the capital of the erstwhile inter-State co-operative society shall form part of the capital of the Producer Company.

Provisions in respect of officers and other employees of inter-State co-operative society

Section 581 N of the Act states the status of employee and officers of society which got converted into producer company. Those provisions are given as below:

1. 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 transformation date and in accordance with the provisions of this Act.
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 transformation date become employee of the Producer Company and shall hold his office or service with same term of appointments and conditions.
3. Where an officer or other employee of the inter-State co-operative society opts not to be in employment or service of the Producer Company, such officer or other employee shall be deemed to have resigned.
4. 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.
5. The officers and other employees who have retired before the transformation date 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.
6. The trusts of the provident fund or the gratuity fund of the inter-State co-operative society shall continue to discharge functions in the Producer Company.