• Small Farmers’ Agri-Business Consortium

    "Society promoted by Department of Agriculture, Cooperation and Farmers Welfare, Ministry of
    Agriculture and Farmers Welfare, Govt. of India"

Inviting Applications for engagement for various positions under the Central Sector Scheme for Formation and Promotion of 10,000 FPOs in SFAC on Contract Basis | Inviting applications for 1 vacant post of Deputy Director (PDF) and 1 vacant post of Accounts Officer on deputation / short term contract basis and last date is 05.01.2021 | Expression of Interest for empanelment as Cluster Based Business Organizations (CBBOs) | RFP for selection of NPMA for formation & promotion of 10000 FPOs | New Ordinance of Government of India

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frequently asked questions (FAQ's)

National Agriculture Market Scheme

How will NAM operate?

  • NAM is an electronic trading platform created with an investment by the Government of India.
  • It will offer plug-ins to any market yard existing in the state.
  • Necessary customization shall be undertaken to conform to the regulations of each of the state Mandi Act.

Will APMC Mandis lose out business due to NAM?

  • NO
  • NAM increases the choice of the farmer
  • Volume of business will significantly increase as there will be greater competition for specific produce, resulting in higher transaction fees for the mandis

Will NAM require separate legislation?

  • No, NAM is being set up as a part of an administrative arrangement and requires no enabling legislation as an electronic platform

Who will actually operate the NAM Platform?

  • SFAC will operate the NAM with technical support by Strategic Partner
  • DAC shall provide budgetary grants for this initiative

Who will bear the cost of running NAM?

  • National level platform is being developed by Ministry of Agriculture, which will also bear the maintenance cost
  • Integration costs for local mandis and customization of software training etc shall be borne by Ministry of Agriculture as one time grant
  • Running costs of the software at the local level and staff costs for quality checks shall be met by transaction fee

What are the likely benefits of NAM?

  • For farmers, NAM promises more options for sale
  • For local traders, NAM offers the opportunity to access a larger national market for secondary trading
  • For Bulk buyers, processers, exporters, NAM offers direct participation in the local mandi trade and thereby reducing the intermediation costs
  • Gradual integration will ensure common procedures for issue of licence, levy of fee and movement of produce
  • Significant return expected in 5 to 7 years to all the stakeholders
    • Higher returns to farmers
    • Lower transaction costs to buyers
    • Stable prices and availability to consumers
    • Integrated value chain across country promoting scientific storage and movement of agri goods

Equity Grant Scheme

Who is the Implementing Agency?

Equity Grant Scheme is being operated by Small Farmers Agri Business Consortium ( SFAC)

What is FPC?

Farmer Producer Companies (FPC) means a company of Farmer Producer Members as defined in Part IX A of the Indian Companies Act, 1956 (including any amendments thereto or re-enactment thereof) and incorporated with the Registrar of Companies.

Who can be shareholder of the FPC?

Any farmer (Small/Marginal), landless labourer can become shareholder by contributing to Equity of the Company. For the purpose of Equity Grant Scheme a shareholder is a shareholder member of FPC on the date of its application for Equity Grant under the EGCGFS.

What are the objectives of Equity Grant Scheme?

The Equity Grant Fund has been set up with the primary objectives of :
a) Enhancing viability and sustainability of FPCs;
b) Increasing credit worthiness of FPCs;
c) Enhancing the shareholding of members to increase their ownership and participation in their FPC.

What is the Eligibility Criteria for availing Equity Grant?

An FPC shall be eligible to apply for Equity Grant under the Scheme based on its fulfilling the following criteria :
a) It is a duly registered FPC under Part IX A of the Indian Companies Act, 1956 and incorporated with the Registrar of Companies (RoC).
b) It has raised equity from its Members as laid down in its Articles of Association.
c) The number of its individual shareholders is not lower than 50.
d) Its paid up equity does not exceed Rs. 30 lakh.
e) Minimum 33% of its shareholders are small marginal and landless tenant farmers as defined by the Agriculture Census carried out periodically by the Ministry of Agriculture, Government of India.
f) Maximum shareholding by any one member is not more than 5% of total equity of the FPC.
g) Maximum shareholding of an Institutional Member is not more than 10% of total equity of the FPC.
h) It has a duly elected Board of Directors (BoD) with a minimum of five members, with adequate representation from member farmers and minimum one woman member.
i) It has a duly constituted Management Committee responsible for the business of the FPC.
j) It has a business plan and budget for next 18 months that is based on a sustainable revenue model as may be determined by the implementing Agency.
k) It has an account with a “Bank”.
l) It has a Statement of Accounts duly audited by a Chartered Accountant (CA).

What is the sanction limit under Equity Grant Scheme?

The Equity Grant shall be sanctioned to eligible FPCs as follows:
a) Equity Grant shall be a cash infusion equivalent to the amount of shareholder equity in the FPC subject to a cap of Rs. 10 lakh per FPC.

What are the criteria for calculation Equity Grant?

The criteria for calculation of Equity Grant rounded off to the share unit value subject to the above limits to each shareholder member of the FPC as per authenticated copy of the shareholders register maintained by the Producers Company is as follows :
a) Allocation of shares shall be on matching/pro-rata basis of the shareholders’ current shareholding, subject to the maximum specified above and ensuring that each shareholder member receives minimum one equity share.
b) If the Grant sanctioned to the FPC is not sufficient to ensure a minimum one share to all its shareholder members, allocation of grant shall be based on the shareholders ‘current landholding, starting with shareholder with the least land holding/the smallest producer in case of allied activities/ or by transparent draw of lots where such identification is not possible.

How many times Equity Grant can be sanctioned.?

The FPC shall be allowed to draw the Equity Grant in a maximum of two tranches (within a period of 2 years of the first application) subject to the cap of Rs. 10.00 lakh per FPC, provided and to the extent that it is able to raise additional Member Equity to qualify for an additional matching grant within the overall ceiling of Rs. 10.00 lakh. The request for the second tranche shall be treated as a fresh application and the full process of due diligence shall be repeated.

What is the impact if a member exits the FPC after sanction of Equity Grant?

In the event that a shareholder, who receives additional shares issued by the FPC against Equity Grant sanctioned by SFAC, exits the FPC at any point after receiving the shares, the additional shares received by him/her name must be transferred to another shareholder or new shareholder within 90 days of his/her exiting the FPC, through an open and transparent draw of lots. In such cases, the original shareholder cannot receive the value of the additional shares transferred to other/new members.

Under what circumstances, SFAC can recall the Equity Grant amount from the FPC?

SFAC shall have the right to recall the Equity Grant amount from the FPC which shall be legally liable to comply with the same in the case of :
a) Failure to issue additional shares to members against the Equity Grant received by the FPC within 45 days of its receipt, and
b) Closure/Dissolution of FPC within three years of the receipt of the Equity Grant.
c) Instances of misuse / misappropriation of the Equity Grant (viz. Use of funds for activity other than mentioned in Memorandum of Association/Articles of Association/Business plan of the FPC) of the Equity Grant.

What is the Application process for Equity Grant?

Eligible FPCs that meet the eligibility criteria shall apply for the Equity Grant in the prescribed Application Form only. Other mandatory documents required to be submitted along with the application are listed below :
i) Shareholder list and share capital contribution by each member verified and certified by a Chartered Accountant (CA) prior to submission.
ii) Resolution of the FPC Board/Governing Council to seek Equity Grant for members.
iii) Consent of shareholders, stating name of shareholder, gender, number of shares held, face value of shares, land holding, signifying consent for SFAC to directly transfer the equity grant sanctioned to the FPC on their behalf, to FPC Bank account, against the consideration of additional shares of equivalent value to be issue to them by FPC and on exit – transfer of the shares as per rules.
iv) Audited financial statements of FPC.
v) Photocopy of Bank Account Statement for last six months authenticated by the Branch Manager of the “Bank”
vi) Business Plan of FPC and budget for next 18 months.
vii) Names, photographs, and identity proof (any one from among ration card, Adhaar Card, election identification card, passport) of Representatives/Directors authorised by the Board for executing and signing all documents under the Scheme.
viii) Each page of the Application form and accompanying documents shall be signed by a minimum of two Board Member/Authorised Representatives of the FPC.
For Clarifications in respect of points no. I, ii & iii, please refer our Circular No. SFAC/EGSC/2014-15/1295 dated 01/07/2014 (available at our website : www.sfacindia.com)

What is the process of Institutional Due Diligence?

The Implementing Agency shall undertake a due diligence process to establish the credibility, sustainability and viability of the FPC, before taking a decision on its application for Equity Grant. The due diligence shall cover the following aspects :
a) Governance;
b) Business and Business Plan Viability
c) Management Capability;
d) Financials.
Due diligence shall be conducted through Desk Appraisal on the basis of documents received and a Filed Visit to the FPC and its Promoter Organisation if applicable.

Who is the Sanctioning Authority for sanction of Equity Grant?

An Equity Grant Sanction Committee (EGSC) with four members, the Managing Director SFAC as Chairman, two officers of the organisation nominated by MD, SFAC, is constituted for the purpose of evaluating applications received under this Scheme. The EGSC, meeting under the Chairmanship of MD, SFAC, shall have full authority to decide on the applications and its decision in this regard shall be final.
Sanction of Equity Grant by EGSC shall be conveyed to the FPC through a Sanction Letter issued within seven working days of the decision of the EGSC.

What is the process of disbursement?

After accepting the terms of sanction, the FPC shall enter into Agreement with SFAC.
SFAC shall transfer sanctioned funds to the FPC Account.

What are the post disbursement formalities?

The FPC shall submit the following documents to SFAC:
i) List of additional shares issued by it to its shareholder members under the Scheme along with the respective Folio Numbers, verified and certified by a Chartered Accountant (CA) within 45 days of the funds having been received by it.
ii) Copy of application with enclosures submitted to the RoC for increasing Authorised/Paid up Capital.

What action will be taken if FPC is not able to comply with terms of sanction?

If the FPC does not honour its commitment in any manner whatsoever, either in the matter of issuing shares or in notifying SFA within the specified time limit, the Equity Grant amount sanctioned and released by SFAC to the FPC is liable to be cancelled and recalled by SFAC as detailed in the Agreement between SFAC and FPC.

What is the legal process for recovery of Equity Grant in case of default occurs?

In the event of violation of any of the terms and conditions herein contained or contained in the rules or any of the instructions issued by SFAC from time to time or instances of misuse/misappropriation of the Equity Grant sanctioned and released to FPC by SFAC, SFAC shall have the right to demand and enforce forthwith repayment of the entire amount of Equity Grant sanctioned by SFAC.
The Agreement between SFAC and the FPC is governed and construed according to the laws of India. Controversies and claims arising out of/relating to this Agreement, or the breach thereof, shall be settled through Legal process or Arbitration at Delhi. However, before taking any legal action, the parties shall endeavour to mobilise all efforts and to enter into discussions in order to find a mutually acceptable settlement by direct negotiation.

Credit Guarantee Fund Scheme

What is the objective of Credit Guarantee Fund Scheme?

The Fund has been set up with the primary objective of providing a Credit Guarantee Cover to Eligible Lending Institution (ELI) to enable them to provide collateral free credit to FPCs by minimising their lending risks in respect of loans not exceeding Rs. 100.00 lac.

Who is Eligible Lending Institutions (ELI)?

Eligible Lending Institution (ELI) means a Scheduled Commercial Bank for the time being included in the second schedule to the Reserve Bank of India Act, 1934 and Regional Rural Banks, NCDC, NABARD and its subsidiaries, NEDEFI or any other institution (s) as may be decided by the SFAC Board or as directed by the Government of India from time to time.

Who is the Implementing Agency?

The Scheme is being operated by Small Farmers Agri Business Consortium (SFAC) through lending Institutions.

What does “AMOUNT IN DEFAULT” means?

Amount in Default means the principal and interest amount outstanding in the account (s) of the Farmer Producer Company (FPC) borrower in respect of term loan and working capital facilities (including interest) as on :
i) The date of the account becoming NPA ; or
ii) The date of lodging claim application/recall of advance, whichever is earlier; or
iii) Such of the date as may be specified by SFAC for preferring any claim against the guarantee cover;
Subject to a maximum of amount Guaranteed and shall not include penal interest, other charges and any other costs debited to the FPC by the Eligible Lending Institution (ELI).

What does “AMOUNT IN DEFAULT” means? Which Credit Facility is covered under the scheme?

Any financial assistance (fund based and/or non- fund based) already sanctioned/extended within six months from the date of the application for the Guarantee Cover or intended to be extended singly or jointly by one or more than one ELI to a single eligible FPC borrower by way of term loan and/or working capital/composite credit facilities without any Collateral Security or Third Party Guarantee.
ELI can extend credit without any limit; however, the Guarantee cover shall be limited to the maximum guarantee cover specified under the Scheme.

Who is the Eligible Borrower?

A new or existing FPC meeting eligibility criteria laid down under the Scheme seeking credit facility from ELI under the Scheme, without any Collateral Security or Third Party Guarantee.

What are the criteria for non eligibility under the scheme?

The following credit facilities shall not be eligible for Guarantee Cover under the Scheme :-
i) Any credit facility which has been sanctioned by the ELI against collateral security and/or third party guarantee.
ii) Any credit facility in respect of which risks are additionally covered any scheme operated/administered by Reserve Bank of India/or by the Government/or by any general insurer or any other person or association of persons carrying on the business of insurance, guarantee or indemnity.
iii) Any credit facility, which does not conform to, or is in any way inconsistent with, the provisions of any law, or with any directives or instructions issued by the Central Government or the Reserve Bank of India, which is, for the time being in force.
iv) Any credit facility granted to any borrower, who has himself availed of any other credit facility covered under this scheme or under the schemes mentioned in clause (i), (ii), and (iii) above at any point in time.
v) Any credit facility that is overdue for repayment/NPA taken over by the ELI from any other lender or any other default converted into a credit facility.
vi) Any credit facility which has been rescheduled or restructured on becoming overdue for repayment.
vii) Any credit facility which is overdue for repayment.

What are the criteria for non eligibility under the scheme? What is the application process?

The ELI shall be required to apply to SFAC for Guarantee Cover in the specified form only. For credit proposals sanctioned by them during any quarter prior to expiry of the following quarter viz. Application w.r.t. credit facility sanctioned in April-June Quarter must be submitted in the ensuing quarter, i.e. July-September to qualify for consideration under the Scheme.

How much cover is available?

ELI shall be eligible to seek Guarantee Cover for a credit facility sanctioned in respect of a single FPC borrower for a maximum 2 times over a period of 5 years.
i) Maximum Guarantee Cover shall be restricted to the extent of 85% of the eligible sanctioned credit facility, or to Rs. 85.00 lac, whichever is lower.
ii) In case of default, claim shall be settled up to 85% of the amount in default subject to maximum cover as specified above.
iii) Other charges such as penal interest, commitment charge, service charge, or any other levies/expenses, or any costs whatsoever debited to the account of FPC by the ELI other than the contracted interest shall not qualify for Guarantee Cover.
iv) The cover shall only be granted after the ELI enters into an agreement with SFAC and shall be granted or delivered in accordance with the Terms & Conditions decided upon by SFAC from time to time. SFAC shall
i) Scrutinize the proposal before sanctioning the Guarantee Cover to the ELI under the Scheme in accordance with the Terms and Conditions of the Scheme.
ii) Insofar as it may be considered necessary, for the purposes of the Scheme, inspect or call for copies of the Books of Account and other records (including any Book of Instructions or Manual or Circulars covering general instructions regarding conduct of Advances) of the Lending Institution or of the Borrower from the Lending Institution.
iii) Such inspection shall be carried out either through the officers of SFAC or any other agency appointed by SFAC for the purpose of inspection.
iv) The Investment and Claims Settlement Committee (I&CSC) shall sanction the Guarantee Cover to the concerned Bank based on the findings of the above.
The Fee payable to SFAC by the ELI for Guarantee Cover in respect of a FPC Borrower under the Scheme is a onetime Guarantee Fee calculated @ 0.85% of the sanctioned Credit Facility, subject to a maximum of Rs. 85000/- (Rs. Eighty Five Thousand only).
i) The Fee shall be paid upfront to SFAC by the Lending Institution availing of the Guarantee for each loan account. The payment is to be made within 30 days from date of approval of the Guarantee or such date as is specified by SFAC, failing which the Guarantee is liable to became void unless and until its continuance is specifically approved by SFAC.
ii) As on the date of acceptance of Guarantee Fee from the ELI, SFAC shall ensure that :
a) Any dues of the FPC borrower to the lending institution have not become overdue and/or are not an overdue/NPA credit facility taken over by the ELI and/or/is not a Credit Facility which has been rescheduled or restructured on becoming overdue.
b) The business or activity of the borrower for which the Credit Facility was granted has not been ceased.
c) The credit facility has not been utilised, wholly or partly, for adjustment of any debts deemed bad or doubtful of recovery.

Are there other charges in addition to One time guarantee fee?

In addition to onetime Guarantee Fee, an Annual Service Fee @ 0.25% per annum or such other rate or limit as may be decided from time to time per loan account shall be charged from ELIs to keep the Guarantee of SFAC live. The annual service fee shall be paid by ELI to SFAC by the 31st May each year.

How Guarantee can be invoked?

The ELI may invoke the Guarantee in respect of Credit Facility within a maximum period of one year from the date of NPA and after initiation of recovery process by ELI.

How claim would be settled?

SFAC shall honour 75% of the Guaranteed amount in default subject to a maximum of 75% of the guaranteed cap amount, on submission of claim by the ELI where appropriate action for recovery has been initiated. Balance 25% shall be paid on conclusion of recovery proceedings by ELI. SFAC shall pay claims found in order and complete in all respects, within 90 days.

Is there any provision of General awareness/publicity/training programme?

AFC is engaged to generate awareness about the benefits of CGFS to FIs, PSUs, SCBs, RRBs and last but not the least FPC. Services of Banking Institutions/NABARD and its subsidiaries shall also be engaged for sensitizing Branch Managers & other functionaries about the Scheme.

(I) ELI obtains CG for a FPC for a lesser amount in 1st phase. In 2nd phase fresh loan either term loan or enhancement of working capital is taken. Can credit guarantee upto the remaining eligible amount i.e. Rs. 85 lakh be given?


(ii) What will be the tenure of 2nd guarantee?

Validity of Guarantee starts from the date of issue. Hence the tenure of 2nd guarantee will be 5 years from the date of issue.

(iii) How many times it can be issued?

Can be issued two times within a span of 5 years.

Whether FPC is eligible for full amount of CG if it repay/prepay a loan with in a period of 5 years for which CG for lesser amount has been availed. What will be its tenure?

Credit Guarantee is issued for maximum 85% of loan amount with a cap of Rs. 85000/-. A fresh guarantee for balance amount can only be taken and will run for five years from the date of issue.

FPC has taken loan from one bank may be against some collateral security. Now take loan from other ELI without offering collateral security. Whether Credit Guarantee can be given for the loan given by the 2nd bank without collateral security.

Can be allowed subject to all terms and conditions met within the scheme.

Some projects which are otherwise viable are not able to avail this facility only due to the stipulation that total facility should be collateral free for availing benefit under CGFS. With a view that good projects are not denied the facility only because they need more credit than stipulated in the scheme. Whether, stipulation of collateral free loan can be restricted to loan as specified in the scheme and loan exceeding this limit can be collateralised.

Yes provided charge of collateral security taken for addl. Loan is not extended on collateral free loan.

In some states, SFCs are more proactive in financing of FPCs particularly, in Kerala where number of coconut producer companies are getting loan from KFC. Can SFCs be considered for inclusion in the list of ELI?

It can only be considered when review of CGFS would be undertaken.

If ELI give in writing that ELI agrees ‘In Principal’ to sanction collateral free loan, can ‘In Principal’ approval be given by SFAC to give Credit Guarantee

If ELI gives its “In Principal” intention in writing about sanction of loan without collateral, SFAC may give its “In Principal” consent to issue Credit Guarantee on usual terms & conditions.

Is takeover of a credit facility (guaranteed by SFAC) by other bank is permitted? Whether fresh guarantee would be needed or the same guarantee would be valid for transferee bank?

It can be permitted with the consent of SFAC and original bank provided transferee bank has entered in MoU with SFAC. Fresh letter of guarantee would be issued in favour of 2nd Bank.

If assets and liabilities of a FPC is taken over by other FPC, will credit guarantee will also be available to transferee FPC?

Credit facility may be transferred to other borrower with the consent of SFAC and eligibility of the transferee borrower and subject to fulfilling of all terms and conditions.

Suppose FPC singly does not qualify for Credit Guarantee for want of minimum 500 members and join few other FPCs to make them eligible for Credit Guarantee. Is it possible?

Yes it is possible, provided FPCs jointly register a new Company which will be treated as FPC and eligibility and other terms & conditions are as per scheme guideline.

Can a credit facility extended to a borrower against a collateral security be covered under the Guarantee Scheme, if the lending institution relinquishes its rights on the collateral security?

Yes, provided the lending institution relinquishes its rights on the collateral assets and releases the same in favour of the borrower before seeking guarantee cover and subject to fulfilment of the other norms of the Scheme.

Venture Capital Assistance Scheme

What is VCA?

Venture Capital Assistance is financial support in the form of an interest free loan provided by SFAC to qualifying projects to meet shortfall in the capital requirement for implementation of the project.

What are key objectives of the scheme?

1. To facilitate setting up of agri-business venture in association with banks.
2.To catalyze private investment in setting up of agri-business project.
3. Increasing rural income and employment.
4. To strengthen backward linkage of agri-business project with producers.
5. Assign producer groups and agriculture graduates to enhance their participation in value chain.

What are the benefits of VCA to Small farmers How do entrepreneurs benefit from VCA?

It encourages farmers to diversify into high value crops aimed to increase farmer’s income and assured access to markets for their crops by linking their produce to the agribusiness unit.
It encourages farmers to diversify into high value crops aimed to increase farmer’s income and assured access to markets for their crops by linking their produce to the agribusiness unit.

Who can avail VCA?

Assistance under the scheme is available to Individuals, farmers, producer groups, partnership/ Proprietary firms, self help group, Companies, agripreneurs, units in agri-export zones and other agri-preneures , intending to set up related agri-project.

What type of project qualifies for VCA?

Projects can be in agriculture or allied sector, Dairy and Poultry units are also eligible under the Scheme

Which are the eligible financial institutions under the scheme?

Financial Institutions, notified by the RBI where ownership of the Central/State Government is more than 50% such as national banks, SBI and its subdivision, IDBI,SIDBI,NABARD,NCDC,NEDFi,RRBs and State financial corporation can recommend proposal after sanction of Term Loan.

What should be the minimum cost of project to qualify for VCA?

Minimum cost of project should be Rs. 15 lakh. In North Eastern and Hilly States minimum cost is Rs. 10 lakh.

What are the other qualifying factors for a project to be eligible to receive VCA?

1. Project should provide assured market to farmers and/or producer groups.

What is the eligibility amount under VCA scheme?

a) North East and Hilly states: 40% of equity or Rs. 50 lakh, whichever is less .
(b) Rest of the country: 26% of equity or Rs. 50 lakh whichever is less.
(c) 40% of equity or Rs. 50 lakh whichever is less for FPCs

Can higher VCA be sanctioned by SFAC in special circumstances?

Yes executive committee of SFAC has power to consider projects for higher amount of VCA to deserving projects on recommendation of the bank on merits and such projects are located in Hilly/North Eastern States and pre-identified Districts declared Backward under planning commission’s Backward Region Grant Fund Scheme. However, cost of such projects should not be more than 10.00 crore.

Is VCA subsidy?

No it is an interest free loan.

Is it mandatory requirement of sanction of Term Loan by banks/FI for VCA?

Yes, it is mandatory. Self funded projects are not covered.

Is it necessary that the proposal should be forwarded through Banks/FI?

Yes, it is necessary that proposal is forwarded and recommended by the lending bank/financial institutions to SFAC. Promoters may however submit advance copy of their application to SFAC.

Is disbursal of TL mandatory before VCA?

Yes at least 50% of Term loan should have been disbursed before execution of documents for VCA.

Can VCA be remitted in Promoter’s A/C?

No, VCA being part of means of finance of the project, it is remitted to landing Bank so as to disburse the funds to promoters to complete the projects.

When will VCA be repaid back to SFAC?

VCA is to be repaid back to SFAC after the schedule date of last instalment of Bank’s term loan. Promoter may however opt to repay VCA in four equal quarterly instalments with interest as applicable on Bank’s term loan after scheduled date of last instalment of Banks Term Loans.

Is VCA confined to some states of India?

No, VCA is available for eligible projects across the country. Projects in north eastern and hilly states are given relaxation in cost and eligibility norms.

How much time will it take to process the case?

Generally from 60 to 90 days, depending upon the submission of desired documents by finance institutions

Farmer Producer Organisations

What is the need for Producer Company?

The main objective of PO is to ensure better income for the producers through an organization of their own. Small producers do not have the volume individually (both inputs and produce) to get the benefit of economies of scale. Besides, in agricultural marketing, there is a long chain of intermediaries who very often work non-transparently leading to the situation where the producer receives only a small part of the value that the ultimate consumer pays. Through aggregation, the primary producers can avail the benefit of economies of scale. They will also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers of inputs.

What is a “Farmers Producer Organisation” (FPO)?

It is one type of PO where the members are farmers. Small Farmers’ Agribusiness Consortium (SFAC) is providing support for promotion of FPOs. PO is a generic name for an organization of producers of any produce, e.g., agricultural, non-farm products, artisan products, etc

What is a Producer Organisation (PO)?

A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. In some forms like - producer companies, institutions of primary producers can also become member of PO.

What are the different legal forms of PO?

Producer Organisation can be registered under any of the following legal provisions:
a. Cooperative Societies Act/ Autonomous or Mutually Aided Cooperative Societies Act of the respective State
b. Multi-State Cooperative Society Act, 2002
c. Producer Company under Section 581(C) of Indian Companies Act, 1956, as amended in 2013
;d. Section 25 Company of Indian Companies Act, 1956, as amended as Section 8 in 2013
e. Societies registered under Society Registration Act, 1860
f. Public Trusts registered under Indian Trusts Act, 1882

What is a Producer Company?

"Producer Company" means a body corporate registered under amended Companies Act, 1956, the terms of section 465 of the Companies Act, 2013, the provisions of the Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a producer company the objects of producer company shall confirm to the activities included in 581B of the Companies Act, 1956

Who are members of a Producer Company and their position in a company?

a) In a producer company, only primary producers or producer organisations can become members
b) Membership is acquired by purchase of shares in a Producer Company
c) A Producer Company can act only through its members
d) Members create the company
e) Members can also wind up the company
f) Members act through their General Meetings

What is the minimum share capital for a producer company?

a. The minimum Authorized Capital of Producer Company is Rs.5 lakh
. b. The Authorized Capital of the company can be more than Rs. 5 lakh as indicated in the Memorandum of Association.
c. The authorized share capital should be sufficient for carrying out the objects mentioned in the memorandum.
d. The authorized share capital should be realistic.
e. The minimum paid up capital for Producer Company is Rs. 1 Lakh.

What are the preparatory arrangements for registration and incorporation of a Producer Company (PC)?

The preparatory steps to be followed for the incorporation of a PC are:
a. Identify a cluster where the PO can be formed.
b. Conduct Baseline and Feasibility Studies to ensure that a viable PO can formed in the cluster. Plan for business activities that are possible to improve the incomes.
c. Meet the villagers (primary producers) and introduce the concept of Producer Company to them.
d. Explore the need for a Producer Company (PC) with the primary producers. The primary producers should understand the benefits and feel the need for it.
e. Take the interested primary producers on an exposure visit to a functioning Producer Company and enable meaningful interaction among them.
f. Create a critical group of primary producers, who are very enthusiastic about the idea of Producer Company and empower them further with the concept and details and benefits of a producer company.
g. Use the critical group for canvassing among other eligible members about the need, urgency and benefits of a Producer Company.
h. Allow enough time to the prospective primary Producer Company members to understand the idea. Make frequent visits to them and clarify all their doubts. The objective should be that the prospective members have right understanding, and willing to participate and work together for their mutual benefit. It may take typically 3 to 6 month time for this kind of social mobilisation.
i. Have focused group meeting and motivate eligible members to become shareholders.
j. Hold a meeting with the prospective shareholders and discuss objectives and possible business ideas for the company.
k. Revise the business plan for the company taking into account the views of the prospective members.
l. Once the primary producers are willing to form a Producer Company and are ready to contribute to the share capital
i ) Identify Promoter Directors.
ii ) Prepare a draft Articles of Association (AoA).
iii ) Prepare a draft Memorandum of Association (MoA). Hire the services of a consultant to get the AoA and MOA drafted, if necessary.
iv ) Call first informal meeting of the shareholders to approve
v ) Articles of Association
  • Memorandum of Association, Selection of Promoter
  • Authorized capital and cost of each share / collect the capital and savings also if possible.

What are the legal formalities for formation of a Producer Company?

a) Obtain Digital Signature of the Nominated Director, who will be affixing DSC on all the documents to be submitted to RoC online, on behalf of the company.
b) Chose maximum 4 names for the Producer Company in order of preference.
c) Apply for the name availability in Form – INC1.
d) Once name is available, a letter is received from RoC indicating it. The documents to be submitted to ROC thereafter are:
e) Articles of Association (AoA).
f) Memorandum of Association (MoA).
g) Form No. INC-22 for Registered Office.
h) Form No. DIR-12 for Directors’ Appointment.
i) Apply on-line for Directors Identification Number (DIN) for the proposed Directors.
j) INC-7 – Affidavits by subscribers to Memorandum of Association to be filed, in case, if they have signed in Hindi.
k) Power of Attorney in favour of a consultant to authorize him to make necessary changes in MoA and AoA as required by the RoC.
l) Submit the documents to RoC for Incorporation of Producer Company.
m) Obtain Certificate of Commencement in INC-2.

What is Digital Signature Certificate?

a) Digital Signature Certificates are equivalent to the paper certificates e.g. Driving License, Pass port etc. The certificates serve as a proof of identity of a person for a particular purpose. DSCs are used by the people for filing various important documents on-line.
b) All documents need to be signed digitally and submitted online to the RoC as per MCA21 e-Governance programme and in accordance with Information Technology Act 2000.
c) Digital Signature Certificate (DSC) is to be obtained for signing documents of the PC for submission online by the authorized person of the PC.
d) Form for obtaining Digital Signature Certificate (DSC) is available from the Certifying Agencies of Certifying Authorities.
e) After filling the form, it is to be submitted to Certifying Authorities.
f) The DSCs are issued with one or two year validity normally and can be renewed thereafter.
g) There are three classes of DSCs namely Class 1, Class 2 and Class 3. Class -2 DSC need to be used by an individual for filing various forms for Producer Company or to file an Income Tax Return.
h) The cost of obtaining Class -2 (DSC) is market driven and depends on the Certification Agency and it costs.

What is a Certifying Authority (CA) for Digital Signature Certificate and list the CAs?

The IT Act provides for the Controller of Certifying Authorities (CCA) to license and regulate the working of Certifying Authorities. The Certifying Authorities (CAs) issue Digital Signature
Certificates for electronic authentication of users. At present the following organisations are authorized as Certifying Authorities under CCA, Government of India.
  • NIC (For Government Departments / Undertakings only) (http://nicca.nic.in)
  • (n)Code Solutions CA(GNFC) (www.ncodesolutions.com)
  • Safescript (www.safescrypt.com)
  • TCS (www.tcs-ca.tcs.co.in)
  • MTNL (www.mtnltrustline.com)
  • Customs & Central Exercise (www.icert.gov.in)
  • e-Mudhra (www.e-mudhra.com)

What is Director Identification Number (DIN)?

a) Ministry of Company Affairs (MCA) maintains the details of all the Directors of all the companies with a unique Identification Number which is called Director Identification Number (DIN).
b) Every director needs to have a DIN form MCA. DIN form is available on the website of MCA. Before formation of the PC all the Directors / Chairman should have DIN.
c) If any Director got a DIN, the same need not be obtained afresh.
d) MCA on online application provides DIN at a cost of Rs. 1000/- against identity proof. For identity only PAN Card, Voter ID Card, Passport or Driving License number is accepted.

What is Memorandum of Association (MoA)?

a) MoA is a document that indicates what activities the company can undertake.
b) MoA needs to be prepared carefully to cover all the activities planned for the present and future of the Producer Company in a broad manner.
c) MoA should be prepared and printed on both sides of the paper.
d) It is to be subscribed/signed by the requisite number of subscribers/promoters in his/her own hand along with details like father’s name, occupation, address and the number of shares subscribed for, by them.
e) MoA needs to be dated after the date of stamping of the Articles of Association (AoA).

What is Articles of Association (AoA)?

a) AoA is a document that specifies the rules for a company's operations.
b) It defines the company's purpose and lays out how tasks are to be accomplished within the organization.
c) It includes the process for appointing Directors and how financial records are handled.
d) AoA should be prepared and printed on both sides of the paper.
e) It is to be subscribed/signed by the requisite number of subscribers/promoters in his/her own hand along with details like father’s name, occupation, address and the number of shares subscribed for.

What are the documents to be submitted to the Registrar of Companies (RoC) for incorporation of a Producer Company?

1. Copy of the letter of RoC confirming the availability of name.
2. MoA and AoA duly stamped and signed.
3. Form INC-22 indicating the Registered Office of the company with full address.
4. Form DIR-12 in duplicate with details about the directors of the company.
5. Form INC-7 on stamp paper declaring compliance with all and incidental matters regarding formation of companies.
6. Consent of each of the Directors along with form DIR-12.
7. An affidavit indicating that MoA is fully understood by the subscribers/signees, if they sign in Hindi.
8. Power of Attorney to the agent who is dealing with the RoC to make corrections in MoA and AoA, if necessary, to the satisfaction of the RoC.

What is Certificate of Commencement (CoC)?

a) CoC is issued by the RoC as a conclusive proof of formation of a Producer Company.
b) Producer Company is effective and comes into existence from the date mentioned in the Certificate of Registration granted by the RoC.

What is the legal status of a Producer Company?

a. On incorporation and from the date mentioned in the Certificate of Commencement (CoC), the company becomes a person in the eyes of law.
b. It has perpetual succession, meaning members may come and go, but it will go on until it is wound up by following the process of law.
c. It has a common seal, which is affixed on all the documents executed on behalf of the company in the presence of a director and signed by the authorized signatory or signatories.
d. It is empowered to hold the properties in its own name and has its own right.
e. It can enter into contracts in its own name.
f. It can sue others and can be sued by others.
g. In simple terms it has contractual capacity in the eyes of law just like any other person who has contractual capacity.

How much time is taken for registration of a Producer Company?

It may take anything between 2 to 6 months

How much it costs for registration of a Producer Company?

  • It is estimated that it may cost Rs. 40,000/- approximately.
  • It depends on the fee charged by CA, Company Secretary and Authorized Agents etc.

Who will bear the cost of the registration of a Producer Company?

a) Initially the promoters of the company will bear the cost of registration of the company.
b) The promoters are generally the RI or the initial directors.

Whether Producer Company reimburses the cost of registration to the promoters?

The cost of registration may be reimbursed to the promoters duly approved by its general body in its first meeting with a resolution passed to that effect.

Who will run a Producer Company?

The company is run / governed by members/shareholders, Board of Directors and Office bearers.

Who are Board of Directors (BoD)?

a. Board of Directors are elected by the members.
b. BoD may act collectively only through meetings.

Who are Office Bearers?

a) An office bearer is a person who is selected / appointed to look after the day-to-day affairs of the Producer Company.
b) The office bearers include Chief Executive officer (CEO), Accountant, godown keeper, etc.
c) The company pays salaries to all the office bearers.

How to become a member of a Producer Company?

a. By subscribing to the MoA.
b. By an agreement in writing to become a member and with an entry in the register.

What is the authority of the members on the company?

Members exert authority on the company only through General Meetings. The General Meetings alone can do the following:
a. Approve Budget and adopt Annual Accounts of the Company
b. Approve the quantum of withheld price
c. Approve the patronage bonus
d. Authorize the issue of bonus shares
e. Appoint an auditor
f. Declare a dividend and decide on the distribution of patronage
g. Amend the MoA and AoA
h. Specify the conditions and limits of loans that may be given by the Board to any Director
i. Approve any act or any other matter that is specifically reserved in the articles for decision for members

What are the rights of the members?

a. to transfer one’s shares
b. to vote on resolutions at meetings of the Company
c. to requisition an extraordinary general meeting of the Company or to make a joint requisitions
d. to receive notice of a general meeting; to attend and speak in a general meeting
e. to move amendments to resolutions proposed at meetings, in case the member is a corporate body, to appoint a representative to attend and vote at general meetings on its behalf
f. to require the company to circulate its resolutions
g. to enjoy the profits of the company in the form of dividends
h. to elect directors and to participate in the management of the company through them
i. to apply to the Company Law Board in case of oppression
j. to apply to the Company Law Board in case of mismanagement
k. to apply to the court for winding up of the company
l. to share the surplus on winding up
m. to have a share certificate issued to him/her in respect of his/her shares

What are the voting rights of a member?

a. In case of Producer Company comprising only of individual members or combination of individual members and producer institutions, then the voting rights shall be based on one vote per member.
b. In case of Producer Company consisting only of producer institutions, then the voting rights shall be based on the participation in the business of the Producer Company in the previous year.
c. The Producer Company can restrict the voting rights to only its active members provided it is authorized by its Articles of Association.

How a member is ceased of his/her membership?

a. By completely transferring his/her shares
b. By forfeiting his/her shares
c. By a valid surrender
d. By death
e. By the company selling his shares in exercise of its right under its Articles of Association
f. By order of a court or any other competent authority attaching and selling the shares, in satisfaction of a decree or claim
g. By the official assignee disclaiming his shares, on his adjudication as an insolvent
h. By rescission of contract of membership, on the grounds of misrepresentation or mistake.

How many Board of Directors are permitted in a Producer Company?

A producer company can have a minimum of 5 Directors and not more than 15 Directors.

What are the powers and functions of the Board?

a. The Board is responsible for formulating, supervising and monitoring the performance of the Producer Company.
b. It should not act on the areas reserved for General Body.
c. It should not exercise executive powers.

What are the matters, which the Board generally deals with?

a. Determination of the dividend payable;
b. Determination of the quantum of withheld price and recommended patronage to be approved at General Body Meeting;
c. Admission of new members;
d. Pursue and formulate the organizational policy, objectives, establish long term and annual objectives, and approve corporate strategies and financial plans;
e. Appointment of Chief Executive Officer (CEO) and other officers, as may be specified in the AoA. Control CEO and other officers by exercising superintendence and direction;
f. To sanction any loan or advance to members, who are not directors or their relatives, in the course of its business;
g. Ensure proper books are maintained;
h. Acquire or dispose property of the company in the day-to-day affairs of the business;
i. Investment of the funds in the day to day business;
j. Ensure annual accounts are placed before the Annual General Meeting (AGM) with the auditor’s report.

Who appoints the Board of Directors?

a. The names of the first Board of Directors are indicated in the MoA
b. The AGM elects the directors in the first meeting and thereafter whenever required

What is the period of tenure for the Directors?

The tenure of a director appointed by AGM is minimum one year and a maximum of 5 years.

Who is an expert Director?

a. Any person who is having expert knowledge in running the Producer Company can be co-opted by the Board as an expert director.
b. Expert directors will not have right to vote in the election of Chairman.
c. Expert directors should not exceed one fifth of the total number of directors.
d. Expert director can become a Chairman.

Who is an alternate Director?

If a regular director is out of the State in which the meetings are held, for a period of 3 months or more, another person can be appointed as director in his place, who is called an alternate director. The tenure of the alternate director must be not less than 3 months. The moment the original director returns, the alternate Director ceases to be the Director.

How the Directors are remunerated?

Generally the Directors are reimbursed the cash expenditure incurred by them for attending the board meetings like expenditure on travel, lodging and food. However, if any Director, spends more time for the company, provisions may be made for providing fixed allowances like communication allowance, fixed daily allowance etc.

What should be the qualification of a Director?

Only individuals can be directors of a company. No educational qualification or minimum holding of shares is required. Hence any individual can become a Director as per Section 465(1) of Companies Act, 2013.

What is the procedure for removing directors?

a) The shareholder directors of the company can be removed before the tenure by passing an ordinary resolution at a general body meeting.
b) The Director ceases his post on completion of the tenure which ranges from 1 to 5 years.

What is the procedure for resignation of Director/s?

a) Any Director can resign from his post by giving intimation to the company in a manner indicated in the AoA.
b) If AoA do not indicate any procedure for resignation, then a Director can resign by giving reasonable notice. The resignation is deemed as accepted the moment the notice is given.
c) In case of Chief Executive Officer or Managing Director or whole-time Director, mere notice of resignation will not be deemed as resignation. Their resignation will be governed by the terms and conditions of the appointment. In this case acceptance of the resignation is required to get relieved of their duties.

What is the accountability of a Director in a Producer Company?

a) A director or an officer who fails to provide information to a member or a person, for whom he is required to provide information about the Producer Company, the Director is liable for imprisonment for a term extending to 6 months and with a fine equivalent to 5% of turnover of the company in the previous year
b) If there is a failure for convening an Annual General Meeting or other general meetings, the Director shall be punishable with a fine extended up to Rs. 1 lakh. In case the default continues, an additional fine extended up to Rs. 10,000/- per day.

Who appoints the CEO and what are his/her functions?

a. A full time CEO is appointed by the Board of Directors as per AoA
b. The CEO is to be other than a member
c. The CEO is accountable to both the Board of Directors and members

What are the functions of a CEO?

The functions of a CEO include the following:
a) Do administrative acts of routine nature including managing the day-to-day affairs of the Company;
b) operate bank accounts or authorize any person, subject to the general or special approval of the Board; make arrangements for safe custody of cash and other assets of the Company;
c) sign business related documents as may be ‘authorized by the Board’ for and on behalf of the Producer Company;
d) maintain proper books of account, prepare annual accounts, place the audited accounts before the Board and in the Annual General Meeting of the Members;
e) furnish the members with periodic information to appraise them of the operation and functions of the Company;
f) make appointments to posts in accordance with the powers delegated to him by the Board;
g) assist the Board in the formation of goals, objectives, strategies, plans and policies;
h) advise the Board with respect to legal and regulatory matters concerning the proposed and ongoing activities and take necessary action in respect thereof;
i) exercise the powers as may be necessary in the ordinary course of business;
j) discharge such other functions, and exercise such other powers, as may be delegated by the Board;
k) to provide timely information to the Members and Board of Directors for scheduled company meetings or emergency or short notice meetings.

What is the minimum qualification for appointment of a CEO in a producer company?

a. As indicated in AoA, the qualifications, experience and the terms and conditions of service of the Chief Executive shall be such as may be determined by the Board.
b. The Chief Executive Officer (CEO) of a Producer Company shall be a full time employee of the company.
c. The CEO shall be appointed by the Board of Directors of the company amongst persons other than members.
d. The CEO shall be ex-officio director of the Board and such director shall not retire by rotation.

What are the advantages of a Producer Company?

a) A Producer Company is a hybrid between a Private Limited Company and a Cooperative Society, thus enjoying the benefits of professional management of a Private Limited Company as well as mutual benefits derived from a Cooperative Society.
b) Ownership and membership of a Producer Company is held only by “primary producers” or “Producer Institution/s” and member’s equity cannot be traded. Hence, nobody can take over the company or deprive the primary producers of their organisation.
c) The clauses of Private Limited Company shall be applicable to the producer companies except the clauses specified in Producer Company Act from 581-A to 581-ZL which make it different from a normal private or limited company (refer the Producer Company Act for details). This enables a professional framework for a Producer Company.
d) The liability of the members is limited to the unpaid amount of the shares held by them. Hence, the private assets of the members are safe from company losses.
e) The minimum paid-up Capital being Rs. 1 Lakh and minimum authorized capital being Rs.5 lakh for a PC, it easy to mobilise the small amount.
f) Minimum number of producers required to form a PC is 10 while there is no limit for maximum number of members and the membership can be increased as per feasibility and need. This helps even 10 individuals start a Producer Company which is easy.
g) There cannot be any government or private equity stake in the Producer Companies, which implies that PC cannot become a public or deemed public limited company. Hence, any Government or other corporate threat is non-existent in professional functioning of the company.
h) The area of operation for a PC is the entire country giving flexibility to expand and do business in a free and professional manner.

Who provides support for promotion of Producer Company?

SFAC, NABARD, Government Departments, Corporates and Domestic & International Aid Agencies provide financial and/or technical support to the Producer Organisation Promoting Institution (POPI) for promotion and hand-holding of the PO. Each agency has its own criteria for selecting the project/promoting institution to support.

Who can become a Resource Institution (RI)?

An NGO, firm, a bank branch, a Government Department, a Cooperative Society or any Association or Federation can become a RI. Basically, the RI needs to be a legal entity so that it can enter into legally valid contracts with other institutions including the PO which they seek to promote. Support is available for RI from SFAC for meeting part of the recurring cost incurred for promotion of the PO based on individual project considerations. The empanelment of RI is done as per policy process guidelines for FPOs issued by Ministry of Agriculture and Farmers Welfare, Government of India.

What are the roles and responsibilities of Resource Institution (RI)?

The primary responsibility of the RI is to see that the PO reaches sustainable level of business and the staff of the FPO acquire technical and managerial capability to run the business successfully when the RI withdraws its support. The principal role of the RI is, therefore, to build the capabilities of the Staff and Management of the PO through training and continuous hand-holding.
The broad responsibilities of a RI are indicated below:
a) Cluster identification
b) Diagnostic and Feasibility Studies
c) Business Planning
d) Mobilisation of Producers and Registration/Incorporation of PO
e) Resource Mobilisation
f) Development of Management Systems and Procedures
g) Business Operations
h) Assessment and Audit

What are the taxation systems / laws governing the POs? Whether any tax benefit is available to Producer Company?

Currently, Government of India has allowed hundred per cent deduction to these companies registered as Farmer Producer Companies and having annual turnover up to Rs 100 crore in respect of their profit derived from such activities for a period of five years from financial year 2018-19. But immediately after incorporation, they have to procure PAN number from the Income Tax Department and GST number from the Commercial Tax Department to carry out business.

What support is available for Producer Company from SFAC?

Mainly two types of support specifically is available to the POs from the Small Farmers Agribusiness Consortium (SFAC). Details are available at www.sfacindia.com
a) SFAC operates a Credit Guarantee Fund to mitigate credit risks of financial institutions which lend to the Farmers Producer Companies (registered as Producer Company under Part IX-A of Companies Act) without collateral. This helps the FPCs (one form of PO) to access credit from mainstream financial institutions for establishing and operating businesses.
b) SFAC provides matching equity grant up to Rs. 15 lakh to the FPCs (registered as Producer Company under Part IX-A of Companies Act) to strengthen the equity base and enhance borrowing power of company, and thus enables the entities to access bank finance.