Companies Act Section 378P

Companies Act, Section 378P: Appointment of Directors in a Producer Company

Section 378P of the Companies Act, 2013, lays down the provisions concerning the appointment and election of directors in a Producer Company, including the tenure of office, eligibility for reappointment, and co-option of expert or additional directors. This section ensures that the governance of a Producer Company is properly structured and operates with transparency and member involvement.

1. Initial Appointment of Directors

At the time of incorporation of a Producer Company, the members who sign the Memorandum of Association and Articles of Association (the founding documents of the company) have the power to designate the initial Board of Directors. This initial Board shall consist of not less than five individuals, who will be responsible for governing the affairs of the Producer Company temporarily, until a regular Board of Directors is elected in accordance with the provisions of this section.

However, it is important to note that this arrangement is subject to any contrary provision contained in Section 378N of the Act, which deals with effect of incorporation and transition of an inter-State co-operative society into a Producer Company.

2. Election of Directors After Registration

The Act mandates that a formal election of directors must be conducted within ninety days from the date of registration of the Producer Company.

Exception for Inter-State Co-operative Societies:
If the Producer Company has been formed by converting an inter-State co-operative society under Section 378J(4), and on the date of registration of such Producer Company there are already at least five directors holding office (including those continuing under Section 378N(1)), then an exception applies.

In such cases, instead of ninety days, the timeline for conducting elections is extended to three hundred and sixty-five days from the date of registration.

This extension provides adequate time for cooperative societies undergoing transition to reorganize and comply with the formalities of the Companies Act.

3. Term of Office of Directors

Each director appointed to the Board shall hold office for a period that is:

Not less than one year, and not exceeding five years, as may be specified in the Articles of Association of the Producer Company.

This ensures flexibility in determining the tenure of directors while providing a minimum and maximum range to avoid indefinite appointments.

4. Eligibility for Re-appointment

Any director who retires from office in accordance with the provisions laid down in the articles of the company is eligible for re-appointment.

This enables continuity in leadership and the retention of experienced individuals on the Board, subject to the collective decision of the members.

5. Manner of Election or Appointment of Directors

Except in the specific situation described in sub-section (2), the appointment or election of directors to the Board shall be carried out by the members of the Producer Company during the Annual General Meeting (AGM).

This ensures a democratic process, where members participate directly in choosing the leadership responsible for the management of the company’s affairs.

6. Co-option and Appointment of Expert or Additional Directors

The Board of Directors has the authority to co-opt or appoint:

One or more expert directors, or an additional director, provided that the total number of such directors does not exceed one-fifth (1/5th) of the total number of directors on the Board.
Such appointments may be made for a duration as the Board considers appropriate. However, the following conditions apply:

a. Voting Rights of Expert Directors:

Expert directors shall not have the right to vote in the election of the Chairman of the Board.
However, if the Articles of Association of the Producer Company provide for it, expert directors may themselves be elected as Chairman.
b. Tenure of Expert or Additional Directors:

The maximum tenure for which any expert director or additional director can hold office shall not exceed the period specified in the Articles of Association.
This provision ensures that the Board can benefit from the expertise of professionals or other qualified individuals in specialized fields, while also maintaining a proper balance and control over Board composition.