Companies Act Section 378Q

Companies Act, Section 378Q: Vacation of Office by Directors of a Producer Company

Section 378Q of the Companies Act, 2013 outlines the circumstances under which a director of a Producer Company must vacate office. This provision ensures accountability of directors and maintains good corporate governance standards within Producer Companies by mandating the removal of directors under specific situations of misconduct, default, or non-compliance.

1. Circumstances Leading to Vacation of Office

A person holding the office of a director in a Producer Company shall be required to vacate the position if any of the following disqualifications or events occur:

(a) Conviction for an Offence Involving Moral Turpitude

If a director is convicted by a court of law for any offence that involves moral turpitude, and is sentenced to imprisonment for a period not less than six months, then his office as director becomes vacant.

Moral turpitude refers to conduct that is considered contrary to community standards of justice, honesty, or good morals.
This provision ensures that individuals with serious criminal convictions are disqualified from continuing to hold responsible positions within a Producer Company.
(b) Default by the Producer Company in Repayment of Loans or Advances

If the Producer Company in which the individual is serving as a director has defaulted in repayment of any loan or advance taken from:

Any company, any institution, or any other person, and if this default continues for a period of ninety days, then the director's office becomes vacant.

This provision aims to hold directors accountable when the company fails to meet its financial obligations.
(c) Default by the Director in Repaying Loans Taken from the Producer Company

If the director himself has taken any loan or advance from the Producer Company and has defaulted in repayment, he shall cease to hold office.

This ensures that directors maintain financial discipline and integrity in their dealings with the company.
(d) Serious Non-Compliance by the Producer Company

If the Producer Company, in which the person is serving as a director, is involved in any of the following serious forms of non-compliance, then the director’s office shall be vacated:

(i) The company has not filed its annual accounts and annual return for any continuous period of three financial years.

This signals gross non-compliance with statutory filing requirements.
(ii) The company has failed to repay:

Its deposits, Withheld price, Patronage bonus, Interest thereon, or Dividend on the due date, and such failure has continued for a period of one year or more.

These provisions seek to protect the financial interests of members and depositors by removing directors when the company persistently fails to meet its financial commitments.
(e) Failure to Conduct Elections for the Office of Director

If the Producer Company fails to hold elections for the office of director in accordance with the provisions of the Act and its Articles of Association, and the director is part of this defaulting Board, then he must vacate his position.

This upholds the democratic functioning and timely renewal of leadership in the company.
(f) Failure to Convene General Meetings

If the annual general meeting (AGM) or an extraordinary general meeting (EGM) is not called in accordance with the requirements of the Act, the director must vacate his office.

This requirement ensures that the company remains accountable to its members through periodic meetings.
Exception: This clause shall not apply if the failure to convene meetings is due to:

A natural calamity, or any other reasonable cause, which makes it impractical or impossible to conduct such meetings.
2. Application to Directors of Producer Institutions

The provisions listed under sub-section (1) shall, as far as applicable, also apply to directors of Producer Institutions that are members of a Producer Company.

A Producer Institution may itself be a member (or shareholder) in a Producer Company, and it may nominate a director to represent it on the Board.
If such nominated directors are found to be in violation of any of the clauses mentioned in sub-section (1), they shall also be subject to the same rules for vacating office.