Companies Act Section 378ZQ

Companies Act, Section 378ZQ: Overriding Effect of Chapter on Producer Companies over Other Laws

The legislative intent and operative mandate of Section 378ZQ of the Companies Act, 2013, is to establish the supremacy and primacy of the provisions of the Chapter relating to Producer Companies over any other conflicting or inconsistent provisions contained either in the Companies Act itself or in any other law that is currently in force in India, or in any rules, regulations, orders, notifications, contracts, agreements, or legal instruments that derive their authority from such laws.

When expanded and interpreted in its broader legal and practical context, the provision can be understood as follows:

1. Overriding Clause: Non-Obstante Declaration

Section 378ZQ begins with a non-obstante clause, signified by the phrase “notwithstanding anything inconsistent therewith…”. This is a clear legislative declaration that in the event of any inconsistency, conflict, or contradiction between:

The provisions of this Chapter relating to Producer Companies, and any other provisions of the Companies Act, 2013 (as applicable to companies generally).
The provisions of any other law currently in force in India, regardless of the subject matter or sectoral applicability.
The terms or contents of any instrument, such as a rule, regulation, bye-law, notification, order, contract, deed, or agreement, which has been made or operates under the authority of any such law.
Then the provisions of this Chapter shall prevail and shall be given overriding effect to the extent of the inconsistency.

This means that in any scenario where there is a contradiction between this Chapter and another legal provision or instrument, the provisions applicable to Producer Companies under this Chapter shall override those other provisions and shall be followed in priority.

2. Continuity of Non-Conflicting Provisions

While the first part of the Section establishes the overriding nature of the Chapter on Producer Companies, the second part of the Section makes an equally important qualification. It clarifies that in instances where the provisions of:

The Companies Act, 2013, or any other law in force, or any legal instrument derived under such law, are not inconsistent with, or are not altered or modified by, the provisions of this Chapter, then such provisions shall continue to apply to Producer Companies.

In simpler terms, only those provisions that are inconsistent or in conflict with the specific provisions of this Chapter are overridden. All other provisions of general law that are harmonious with this Chapter shall remain applicable to Producer Companies and shall operate concurrently.

3. Legislative Objective and Rationale

This provision reflects the special status of Producer Companies within the framework of Indian corporate and cooperative law. Producer Companies are a hybrid form of organization that combine the mutual assistance principles of cooperatives with the efficient business structure of companies. Recognizing their distinctive nature and needs, the legislature has carved out a separate Chapter (Chapter XXIA) to govern such entities.

To protect the integrity and coherence of this specialized legal regime, it is essential that the provisions designed specifically for Producer Companies are not undermined or diluted by general laws or instruments that were never intended to apply to such entities. Hence, Section 378ZQ gives a clear legislative directive that this Chapter shall operate with paramount authority, and other legal frameworks shall yield to it where they are inconsistent.

4. Legal Effect and Practical Implications

In case of conflicting interpretations: If a Producer Company faces conflicting obligations under this Chapter and under another law or instrument (for example, provisions relating to voting rights, shareholding structures, or patronage-based returns), then the provisions of this Chapter shall prevail.
In regulatory compliance: Regulators, courts, and enforcement agencies must interpret and apply legal obligations on Producer Companies in a manner that respects the overriding status of this Chapter.
In drafting contracts or internal policies: Producer Companies must ensure that the contents of their Articles of Association, shareholder agreements, internal governance rules, and other instruments do not contain provisions inconsistent with the Chapter on Producer Companies. If they do, such inconsistent provisions will be legally inoperative to the extent of the inconsistency.
5. Harmonious Construction

This Section does not aim to exclude the application of all other laws to Producer Companies. Instead, it mandates that other laws must be applied in a manner consistent with this Chapter. A harmonious interpretation is thus encouraged, where the general provisions of corporate law and other applicable laws will continue to apply, provided they do not contradict or undermine the special provisions applicable to Producer Companies.