Companies Act Section 378ZE

Companies Act, Section 378ZE: Maintenance of Books of Account by Producer Companies

Producer Companies, which are formed by producers for the purpose of undertaking or facilitating activities related to production, harvesting, procurement, processing, marketing, or financing of their primary produce, are required to maintain a high standard of financial record-keeping and transparency. In furtherance of this objective, Section 378ZE of the Companies Act, 2013, lays down the statutory obligation for every Producer Company to maintain proper and accurate books of account.

This provision is critical not only for compliance with the law but also for ensuring accountability to members, regulators, lenders, and other stakeholders. The section consists of two sub-parts one dealing with the nature and content of the books of account to be maintained, and the other concerning the preparation of financial statements in line with general accounting principles and legal requirements.

1. Obligation to Maintain Proper Books of Account at the Registered Office

Every Producer Company is required to maintain, at its registered office, proper and up-to-date books of account that provide a full and accurate record of the financial affairs of the company. These records must be maintained in such a manner that they present a clear and complete picture of the financial transactions, assets, liabilities, and costs associated with the company’s activities.

The records to be maintained must include, but are not limited to, the following:

(a) Record of Receipts and Expenditures

The company must keep detailed books that reflect all sums of money received and expended by the Producer Company. This includes not only the amount but also the nature, purpose, and particulars of each transaction. For example, the records must indicate whether the receipts are from members, customers, subsidies, or grants, and whether the expenditures relate to operations, wages, asset acquisition, or other costs. This level of documentation ensures:

Effective internal controls, readiness for external audits, transparency for members and statutory bodies, and protection against fraud or financial mismanagement.
(b) Records of Sale and Purchase of Goods

The company must maintain comprehensive and up-to-date records of all goods sold or purchased, whether in raw form, semi-processed, or fully processed. This includes documentation of:

Purchase invoices, Sales receipts, Delivery challans, Inventory records, and Transaction details with third-party vendors, customers, and members.
These records are essential for tracking inventory flow, revenue generation, tax calculations, and future procurement planning.

(c) Instruments of Liability Executed

The books of account must include all instruments of liability executed by or on behalf of the Producer Company. These may include:

Loan agreements, Bank guarantees, Promissory notes, Letters of credit, and Any other financial instruments that create or imply financial obligations.
By maintaining such records, the company ensures that its contingent and actual liabilities are documented and auditable.

(d) Details of Assets and Liabilities

Every Producer Company must maintain a complete record of its assets and liabilities, including both tangible and intangible assets. This involves keeping track of:

Land, buildings, machinery, and equipment, Vehicles and tools used in production or transportation, Patents, licenses, and other intellectual property, Loans or advances made to others, and Liabilities towards suppliers, employees, financial institutions, and government authorities.
These details provide a real-time snapshot of the financial strength and obligations of the company and form the basis for critical decisions relating to investment, expansion, or restructuring.

(e) Cost Records Related to Production, Processing, and Manufacturing Activities

Where the Producer Company is involved in activities such as production, processing, or manufacturing, it is further required to maintain detailed cost records pertaining to:

The quantity and value of raw materials used, Labour costs and number of man-hours deployed, Power, fuel, packaging, and storage costs, Overheads and administrative expenses.
These particulars help in cost control, profitability analysis, and performance review. Moreover, they are vital for complying with cost audit requirements, if applicable, and for making informed business decisions.

2. Preparation of Financial Statements in Accordance with Section 129

In addition to maintaining books of account, every Producer Company is required to prepare its Balance Sheet and Profit and Loss Account in the format and manner prescribed under Section 129 of the Companies Act, 2013, to the extent applicable.

Overview of Section 129 Requirements

Section 129 mandates that every company must prepare financial statements that give a true and fair view of the state of affairs of the company at the end of the financial year. These statements should:

Comply with the accounting standards notified under the Act, be laid before the members at the annual general meeting, Include a Balance Sheet, Profit and Loss Account, Cash Flow Statement (if applicable), Statement of Changes in Equity (if applicable), and explanatory notes.
For Producer Companies, which often operate in agricultural or rural settings, this alignment ensures consistency with national financial reporting norms, enhances the ability to attract institutional support and enables effective participation in government schemes and credit facilities.