Companies Act Section 378ZP

Companies Act, Section 378ZP: Strike Off of Name of a Producer Company 

Section 378ZP of the Companies Act, 2013, lays down the provisions under which the name of a Producer Company may be struck off from the register of companies. The section provides a mechanism for the Registrar to remove a Producer Company from the register in certain circumstances and also lays out the rights and recourse available to aggrieved members of such a company. The section is explained in detail below:

1. Power of the Registrar to Strike Off the Name of a Producer Company

According to sub-section (1), the Registrar of Companies is empowered to remove the name of a Producer Company from the register in any of the following circumstances:

Non-commencement of business: If the Producer Company fails to commence its business activities within one year from the date of its registration, this may be considered a ground for striking off.
Cessation of business with members: If the company has ceased to transact business with its Members, the Registrar may view this as a sign that the company is no longer functioning in the intended cooperative manner.
Non-pursuance of objects: If, after conducting such inquiry as the Registrar deems fit, it is found that the Producer Company is no longer carrying on any of the objectives specified under Section 378B of the Act, it would be liable for being struck off.
Upon satisfaction of any of these conditions, the Registrar shall issue an order striking off the name of the Producer Company. Once such an order is passed, the Producer Company shall cease to exist forthwith, i.e., with immediate effect.

Proviso- Right to Notice and Hearing

However, before passing any such order of cancellation and removal of name, the law mandates that:

The Registrar must issue a notice to the concerned Producer Company.
A copy of the notice must also be sent to all its directors.
The notice must provide the reasons for the proposed action, thereby giving the company an opportunity to know the grounds.
The Producer Company must be given a reasonable opportunity to show cause and present its side.
Only after considering the company's representation (if any) can the Registrar proceed to pass the final order of striking off the name.
2. Failure to Maintain Mutual Assistance Principles

As per sub-section (2), if the Registrar has reasonable cause to believe that the Producer Company is not maintaining the mutual assistance principles, which are essential to its functioning and cooperative character, he shall initiate action to remove the name of the company from the register.

This action must be taken in accordance with the provisions of Section 248 of the Companies Act, 2013, which lays down the procedure for removal of a company’s name from the register by the Registrar, including notice, publication, and the right of appeal.

3. Right to Appeal for Aggrieved Members

Sub-section (3) provides a right of appeal to any Member of the Producer Company who is aggrieved by the order of the Registrar passed under sub-section (1).

The aggrieved Member may file an appeal before the Tribunal (National Company Law Tribunal or NCLT).
Such appeal must be filed within sixty (60) days from the date of the Registrar’s order.
4. Effect of Filing an Appeal

According to sub-section (4), if an appeal is filed by a Member under sub-section (3), the order of striking off the name of the Producer Company shall not take effect:

The removal of the company’s name from the register will be stayed, and the company shall continue to be legally recognized until the Tribunal disposes of the appeal and passes appropriate orders.