• Small Farmers’ Agri-Business Consortium

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

Advt. for the post of Deputy Director (Project Development Facility) & Accounts Officer in SFAC | New Ordinance of Government of India | Knowledge Report - Energising Infant Farmer Producer Organisations Memorandum of Understanding (MoU) signed between SFAC & Samunnati Agro Solutions Pvt. Ltd. Dated 13.09.2021
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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?

Yes.

(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

1. What is a Producer Organisation (PO)?

A Producer Organisation (PO) is an organization/legal entity formed by primary producers (agricultural or otherwise), 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.

2. What is a Farmer Producer Organisation (FPO)?

It is one type of Producer Organization where the members are farmers. Small Farmers’ Agribusiness Consortium (SFAC) is providing support for promotion of FPOs.

3. What is a Producer Company?

Producer Company means a body corporate having the following objects and registered as a Producer Company under the Companies Act, 1956 or the Companies Act, 2013:
  • a. production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit;
  • b. processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members
  • c. manufacture, sale or supply of machinery, equipment or consumables mainly to its Members
  • d. providing education on the mutual assistance principles to its Members and others
  • e. rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members
  • f. generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce
  • g. insurance of producers or their primary produce
  • h. promoting techniques of mutuality and mutual assistance
  • i. welfare measures or facilities for the benefit of Members
  • j. any other activity, ancillary or incidental to any of the activities referred to in (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner
  • k. financing of procurement, processing, marketing or other activities specified in (a) to (j) which include extending of credit facilities or any other financial services to its Members.’

4. What is a Producer Institution?

Producer Institution means a Producer Company or any other institution (whether incorporated or not) having only producer(s) or Producer Company (ies) as its members, having any of the objects of a Producer Company and which agrees to make use of the services of the Producer Company (ies) as provided in its Articles of Association.

5. Who are Members of a Producer Company and what is their position in the Producer Company?

A primary producer or a Producer Institution (whether incorporated or not) may be admitted as a Member of a Producer Company. However, if a person has any business interest which is in conflict with business of the Producer Company, they cannot become a Member of such Producer Company. Membership of the Producer Company shall be voluntary and available to all eligible persons who can avail of the services of the Producer Company, and are willing to accept the duties of Membership. The Articles of Association of the Producer Company shall prescribe the qualifications for Membership, the conditions for continuance or cancellation of Membership and the terms, conditions and procedure for transfer of shares. Members are shareholders of the equity share capital of the Producer Company, in proportion to their patronage. Active Members are Members who fulfil the quantum and period of patronage of the Producer Company as required by its Articles of Association. Every Producer Company shall deal primarily with the produce of its Active Members for carrying out any of its objects. If a Member ceases to be a producer or fails to retain his qualifications as a Member, the Board of Directors shall direct such Members to surrender their shares in the Producer Company.

6. What are the preparatory arrangements for registration and incorporation of a Producer Company?

Cluster Based Business Organisations (CBBOs)will undertake the work of FPO formation, provide business incubation services and catalyse market linkages at cluster level. They would assist in community mobilisation - cluster finalisation, baseline survey, value chain study, formation of groups etc. The preparatory steps to be followed for the incorporation of a Producer Company 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 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, 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 become willing to participate and work together for their mutual benefit. It may take typically 3 to 6 months’ 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 Producer Company.
  • k. Revise the business plan for the Producer 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:
  • Articles of Association
  • Memorandum of Association
  • Selection of Promoter
  • Authorized capital and cost of each share
  • m. Collect the capital and savings also if possible.

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

  • a. Any 10 or more producers or any 2 or more Producer Institutions, or a combination of 10 or more producers and Producer Institutions, may incorporate a Producer Company.
  • b. Class 2 or Class 3 Digital Signature Certificate (DSC) has to be obtained by the first director acting as the authorized signatory for filing the incorporation forms and associated documents electronically on the Ministry of Corporate Affairs (MCA) Portal.
  • c. A proposed name must be decided for the Producer Company after using the search facilities available on the MCA Portal to ensure that the proposed name does not closely resemble the name of an existing company or Limited Liability Partnership or an already approved name or a registered trademark. The proposed name should also not contain any offensive or objectionable words.
  • d. Application for reservation of the proposed name shall be made online through SPICe+ (INC-32 Part A).The Registrar of Companies (RoC) may reserve the name for a period of 20 days from the date of approval.
  • e. Thereafter, Form INC-32 Part B shall be made online through SPICe+, along with prescribed supporting documents, to the RoC having jurisdiction over the area in which the proposed registered office of the Producer Company is to be located. Form INC-32 Part B covers the following matters:
  • (i) Incorporation
  • (ii) DIN allotment
  • (iii) Mandatory issue of PAN
  • (iv) Mandatory issue of TAN
  • (v) Mandatory issue of EPFO registration
  • (vi) Mandatory issue of ESIC registration
  • (vii) Mandatory issue of Profession Tax registration(Maharashtra)
  • (viii) Mandatory Opening of Bank Account for the Company and
  • (ix) Allotment of GSTIN
  • f. Form INC-32 Part A and B may also be filed together for simultaneously applying for reservation of name and incorporation and other integrated services.
  • g. The RoC, on the basis of Form INC-32 and the documents submitted along with, shall issue a certificate of incorporation to the Producer Company.
  • h. Within 30 days of incorporation, the Producer Company shall file Form INC-22 for verification of its registered office.
  • i. The Producer Company shall commence business within 1 year of its incorporation, failing which its name may be struck off by the RoC.

8. What is Director Identification Number (DIN)?

  • a. Director Identification Number (DIN) means an identification number allotted by the Central Government to any individual, intending to be appointed as director or to any existing director of a company, for the purpose of his identification as a director of the company.
  • b. At the time of incorporation of a Producer Company, the particulars of up to 3 proposed first directors not having approved DIN shall be mentioned in Form INC-32 (Part B), and DIN may be allotted to them.
  • c. Any person intending to become a director in an existing Producer Company shall have to make an application in Form DIR-3 for allotment of DIN.
  • d. The documents required to be attached with Form DIR- 3 are as follows:
  • (i) Photograph
  • (ii) Proof of identity
  • (iii) Proof of residence
  • (iv) board resolution proposing his appointment as director in an existing company
  • (v) specimen signature duly verified
  • e. Form DIR-3 shall be signed and submitted electronically using the applicant’s Digital Signature Certificate (DSC) and shall be verified digitally by a company secretary, managing director or director or CEO or CFO of the company.
  • f. The DIN shall be allotted within 1 month of receipt of duly filled Form DIR-3, with necessary supporting documents.

9. What is Memorandum of Association (MoA) of a Producer Company?

Memorandum of Association of a Producer Company is the charter document that sets out the following details
  • a. the name of the company with "Producer Company Limited" as the last words of the name
  • b. the State in which the registered office of the Producer Company is to situate
  • c. the main objects of the Producer Company
  • d. the names and addresses of the persons who have subscribed to the Memorandum of Association
  • e. the amount of share capital with which the Producer Company is to be registered and division thereof into shares of a fixed amount
  • f. the names, addresses and occupations of the subscribers being producers, who shall act as the first Directors
  • g. that the liability of its members is limited
  • h. against the subscriber's name, the number of shares each subscriber takes(no subscriber shall take less than one share)
  • i. in case the objects of the Producer Company are not confined to one State, the States to whose territories its objects extend

10. What are Articles of Association (AoA) of a Producer Company?

Articles of Association of a Producer Company is a document that sets out principles for the governance of the Producer Company and includes the following provisions:
  • a. the qualifications for membership, the conditions for continuance or cancellation of membership and the terms, conditions and procedure for transfer of shares
  • b. the manner of ascertaining the patronage and voting right based on patronage
  • c. the manner of constitution of the Board, its powers and duties, the minimum and maximum number of Directors, manner of election and appointment of Directors and retirement by rotation, qualifications for being elected and the terms of office of the said Directors, their powers and duties, conditions for election or co-option of Directors, method of removal of Directors and the filling up of vacancies on the Board, and the manner and the terms of appointment of the Chief Executive
  • d. the election of the Chairman, term of office of Directors and the Chairman, manner of voting at the general or special meetings of Members, procedure for voting by Directors at meetings of the Board, powers of the Chairman and the circumstances under which the Chairman may exercise a casting vote
  • e. the circumstances under which, and the manner in which, the withheld price is to be determined and distributed
  • f. the manner of disbursement of patronage bonus in cash or by issue of equity shares, or both
  • g. the contribution to be shared and related matters
  • h. the matters relating to issue of bonus shares out of general reserves
  • i. the basis and manner of allotment of equity shares of the Producer Company in lieu of the whole or part of the sale proceeds of produce or products supplied by the Members
  • j. the amount of reserves, sources from which funds may be raised, limitation on raising of funds, restriction on the use of such funds and the extent of debt that may be contracted and the conditions thereof
  • k. the credit, loans or advances which may be granted to a Member and the conditions for the grant of the same
  • l. the right of any Member to obtain information relating to general business of the company
  • m. the basis and manner of distribution and disposal of funds available after meeting liabilities in the event of dissolution or liquidation of the Producer Company
  • n. the authorisation for division, amalgamation, merger, creation of subsidiaries and the entering into joint ventures and other matters connected therewith
  • o. any other provision, which the Members may, by special resolution recommend to be included in the Articles of Association.

11. What are the rules relating to the signing of MoA and AoA?

In signing the MoA and AoA, the following rules have to be adhered to:
  • a. The MoA and AoA shall be signed by each subscriber to the MoA, who shall add his name, address, description and occupation, if any, in the presence of at least one witness.
  • b. The witness shall attest the signature of the subscriber and shall sign and add his name, address, description and occupation, if any, stating:
  • “I witness to subscriber/subscriber(s), who has/have subscribed and signed in my presence (date and place to be given); further I have verified his or their Identity Details (ID) for their identification and satisfied myself of his/her/their identification particulars as filled in.”
  • c. If a subscriber to the MoA is illiterate, he shall affix his thumb impression or mark. The person writing for him shall place the name of the subscriber against or below the mark and the number of shares taken by him, and authenticate it by his own signature.
  • d. Such person shall also read and explain the contents of the MoA and AoA to the subscriber and make an endorsement to that effect on the MoA and AoA.
  • e. Type written or printed particulars of the subscribers and witnesses shall be allowed so long as the subscriber and the witness appends his or her signature or thumb impression.
  • f. If the subscriber to the MoA is a body corporate, the MoA and AoA shall be signed by director, officer or employee of the body corporate duly authorized in this behalf by a resolution of the board of directors of the body corporate.
  • g. If the subscriber to the MoA is a Limited Liability Partnership, the MoA and AoA shall be signed by a partner of the Limited Liability Partnership, duly authorized by a resolution approved by all the partners of the Limited Liability Partnership.
  • h. The person authorized to sign the MoA and AoA on behalf of a body corporate or Limited Liability Partnership shall not simultaneously also be a subscriber to the MoA and AoA.

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

  • a. Form INC-32 (Part A) for reservation of name
  • b. Form INC-32 (Part B) for incorporation of Producer Company
  • c. MoA and AoA duly by all the subscribers
  • d. Form INC-9 for declaration by each of the subscribers to the MoA and the first directors
  • e. Proof of identity and residential address of subscribers
  • f. Where subscriber is a company, certified true copy of the board resolution indicating authorization to subscribe to the MoA, the number of shares proposed to be subscribed, and the name, address and designation of the person authorized to subscribe to the MoA
  • g. Form DIR-12 for declaring the particulars of the first directors and their interest in other firms or bodies corporates
  • h. Form DIR-2 for declaration of consent to act as director
  • i. Proof of identity and residential address of first directors
  • j. Form INC-8 for declaration by an advocate, chartered accountant, cost accountant or company secretary engaged in the formation of the Producer Company
  • k. Form INC-22 for verification of registered office within 30 days of incorporation
  • l. Proof of office address (Conveyance Deed or notarised Lease Deed/ Rent Agreement along with rent receipts not older than a month)
  • m. Copy of utility bills (not older than two months)
  • n. Authorization to use the premises as the registered office if the same is owned by any other entity
  • o. Form AGILE-PRO for application for GSTIN, EPFO, ESIC, Profession Tax Registration and opening of bank account.

13. What is Certificate of Incorporation (CoI)?

Certificate of Incorporation is issued by the RoC as conclusive proof of registration of the Producer Company and it is required to commence its business within 1 year of such registration.

14. What is the legal status of a Producer Company?

From the date of incorporation mentioned in its Certificate of Incorporation, the Producer Company shall be a body corporate, having perpetual succession and the power to acquire, hold and dispose of property (both movable and immovable, tangible and intangible), to contract and to sue and be sued in its own name. On registration of the Producer Company, it shall become a body corporate as if it is a private limited company, but without any limit on the number of Members. The Producer Company shall not, under any circumstance become or be deemed to become a public limited company.

15. How much time is taken for registration and incorporation of a Producer Company?

The process of registration and incorporation of the Producer Company, including the preparatory arrangements and community mobilisation, may take between 3 to 6 months.

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

The costs associated with the promotion and registration of the Producer Company shall initially be borne by the promoters of the Producer Company.

17. Whether Producer Company reimburses the cost of registration to the Promoters?

The Producer Company may reimburse to its promoters all direct costs associated with the promotion and registration of the company, including registration, legal fees, printing of Memorandum and Articles of Association, subject to approval at its first general meeting of the Members.

18. Who will run a Producer Company?

The Producer Company shall be administered by a Board of Directors and the Board shall be accountable to the Members. The Board of Directors may appoint the Chief Executive, Secretary or any person in accordance with whose directions or instructions, the business of the Producer Company is carried on.

19. Who are Board of Directors (BoD) of a Producer Company?

The Board of Directors govern the affairs of a Producer Company. The initial Board of Directors of a Producer Company are the persons who are designated as Directors by the Members who sign the Memorandum and the Articles of the Producer Company. Thereafter, the Board of Directors are elected by the Members in the annual general meeting, as required.

20. Who are Officers of a Producer Company?

Officers of a Producer company include any Director, Chief Executive, Secretary or any other person in accordance with whose directions or instructions the business of the Producer Company is carried on. It is the responsibility of the Board of Directors to appoint a Chief Executive and such other officers of the Producer Company in accordance with its Articles of Association.

21. How to become a Member of a Producer Company?

  • a. By subscribing to the Memorandum of Association of the Producer Company
  • b. By way of transfer of shares held by a Member to his nominee upon death of the Member, provided such nominee is a producer.

22. What is the authority of the Members on the Producer Company?

The Board of Directors of the Producer Company shall exercise its powers with respect to the following matters only by means of resolutions passed at the annual general meeting of its Members:
  • a. approval of budget and adoption of annual accounts of the Producer Company
  • b. approval of patronage bonus
  • c. issue of bonus shares
  • d. declaration of limited return and decision on the distribution of patronage
  • e. specify the conditions and limits of loans that may be given by the Board to any Director and
  • f. approval of any transaction of the nature as is to be reserved in the Articles of Association for approval by the Members.

23. What are the benefits accruing to the Members of a Producer Company?

  • a. Every Member shall initially receive such value for the produce or products pooled and supplied as the Board of the Producer Company may determine
  • b. The withheld price may be disbursed later in cash or in kind or by allotment of equity shares, in proportion to the produce supplied to the Producer Company during the financial year
  • c. Every Member shall receive a limited return on the share capital contributed
  • d. Every Member may be allotted bonus shares
  • e. The surplus after payment of limited return and reserves, may be disbursed as patronage bonus amongst Members, in proportion to their participation in the business of the Producer Company, either in cash or by way of allotment of equity shares, or both, as may be decided by the Members at the general meeting.

24. What are the voting rights of a Member of a Producer Company?

  • a. If the membership of a Producer Company solely consists of individual Members, the voting rights shall be based on a single vote for every Member, irrespective of his shareholding or patronage of the Producer Company.
  • b. If the membership of a Producer Company solely consists of Producer Institutions only, the voting rights of such Producer Institutions shall be determined on the basis of their participation in the business of the Producer Company in the previous year. However, in the first year of registration of a Producer Company, the voting rights shall be determined on the basis of the shareholding by such Producer Institutions.
  • c. If the membership of a Producer Company consists of both individuals and Producer Institutions, the voting rights shall be computed on the basis of a single vote for every Member.
  • d. A Producer Company may, if so authorised by its Articles of Association, restrict the voting rights to active Members, in any special or general meeting.

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

A Producer Company shall have a minimum of 5 Directors, but not more than 15 Directors

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

The Board of Directors of a Producer Company are authorized to exercise powers on behalf of the Producer Company relating to any or all of the following matters, by means of resolution passed at its meeting:
  • a. determination of the dividend payable
  • b. determination of the quantum of withheld price and recommend patronage to be approved at general meeting
  • c. admission of new Members
  • d. pursue and formulate the organisational policy, objectives, establish specific long-term and annual objectives, and approve corporate strategies and financial plans
  • e. appointment of a Chief Executive and such other officers of the Producer Company, as may be specified in the Articles of Association
  • f. exercise superintendence, direction and control over Chief Executive and other officers appointed by it
  • g. cause proper books of account to be maintained; prepare annual accounts to be placed before the annual general meeting with the report of the auditor and the replies on qualifications, if any, made by the auditors
  • h. acquisition or disposal of property of the Producer Company in its ordinary course of business
  • i. investment of the funds of the Producer Company in the ordinary course of its business
  • j. sanction any loan or advance, in connection with the business activities of the Producer Company to any Member, not being a director or his relative
  • k. take such other measures or do such other acts as may be required in the discharge of its functions or exercise of its powers

27. Who appoints the Board of Directors?

Members who sign the Memorandum and the Articles of the Producer Company may designate at least 5 Directors, who shall govern the affairs of the Producer Company until Board of Directors are elected. Within 90 days of the registration of the Producer Company, Directors of the Board shall be elected. Thereafter, they shall be elected by the Members in the annual general meeting, as required.

28. What is the period of tenure for the Directors?

A Director shall hold office for a minimum period of one year, but not more than5 years, as specified in the Articles of Association. Further, every Director who retires shall be eligible for re-appointment as a director.

29. How are the Directors remunerated?

  • a. The remuneration payable to the directors shall be determined either by the Articles of Association of the Producer Company, or by a resolution or by a special resolution (if the Articles of Association so require), passed by the Producer Company in its general meeting.
  • b. A director may be paid remuneration either by monthly payment or as a specified percentage of the net profits of the Producer Company or by a combination of both.
  • c. A director may receive remuneration by way of sitting fee for attending meetings of the Board of Directors or its committees up to INR 1 Lakh per meeting, as decided by the Board of Directors.

30. What should be the qualifications of a Director?

The qualifications for being elected as a Director on the Board of a Producer Company shall be as prescribed by its Articles of Association. However, a person shall not be eligible for appointment as a director, if:
  • a. he is of unsound mind and stands so declared by a competent court
  • b. he is an undischarged insolvent
  • c. he has applied to be adjudicated as an insolvent and his application is pending
  • d. he has been convicted by a court of any offence and sentenced to imprisonment for not less than 6 months and a period of 5 years has not elapsed from the date of expiry of the sentence
  • e. has been convicted of any offence and sentenced to imprisonment for 7 years or more
  • f. an order disqualifying him for appointment as a director has been passed by a court or tribunal and the order is in force
  • g. he has not paid any calls in respect of any shares held by him and 6 months have elapsed from the last day fixed for the payment of the call
  • h. he has been convicted of the offence dealing with related party transactions during the last 5 years
  • i. he does not hold valid DIN
  • j. he holds office as a director, including any alternate directorship, in more than 20 companies at the same time or more than 10 public companies at the same time
  • k. he has been the director of a company which has not filed financial statements or annual returns for a continuous period of 3 financial years, and a period of 5 years has not elapsed from the date of such failure
  • l. he has been the director of a company which has failed to repay the deposits or pay interest thereon or redeem debentures or pay interest thereon or pay dividend declared, for 1 year or more, and a period of 5 years has not elapsed from the date of such failure.

31. What is the procedure for removing directors?

  • a. The method of removal of Directors and the filling up of vacancies on the Board of a Producer Company shall be as prescribed by its Articles of Association.
  • b. A director may be removed by the Producer Company before the expiry of the period of his office by ordinary resolution, after giving him a reasonable opportunity of being heard.
  • c. A special notice shall be required for the resolution to remove a director or to appoint another director in the place of the director being removed, at the meeting at which he is removed.
  • d. A director so appointed shall hold office till the date up to which the removed director would have held office had he not been removed.
  • e. The director who was removed from office shall not be re-appointed as a director by the Board of Directors of the Producer Company.

32. What is the procedure for resignation of Directors?

  • a. A director may resign by giving a notice in writing to the Producer Company and the Board shall on receipt of such notice, take note of the same.
  • b. Within 30 days from the date of resignation, the director may forward to the RoC, a copy of his resignation along with the reasons for resignation in Form DIR-11.
  • c. Within 30 days of the receipt of the notice of resignation, the Producer Company shall intimate the RoC in Form DIR-12 and post the information on its website, if any.
  • d. The Producer Company shall also place the fact of such resignation in the report of directors laid in the immediately following general meeting.
  • e. The resignation of a director shall take effect from the date on which the notice is received by the Producer Company or the date specified by the director in the notice, whichever is later. However, the director shall be liable even after his resignation for the offences which occurred during his tenure.

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

If a director or an officer of a Producer Company wilfully fails to furnish any information relating to the affairs of the Producer Company required by a Member or an authorized person, he shall be liable to imprisonment for a term up to 6 months and with fine equivalent to 5% of the turnover of the Producer Company during the preceding financial year.
If a director or officer of a Producer Company fails to hand over the custody of books of account and other documents or property in his custody to the Producer Company, or fails to convene annual general meeting or other general meetings, he shall be liable for fine up to INR 1 lakh. In the case of continuing default, he will be liable for an additional fine up to INR 10,000/- for every day during which such default continues.

34. Who is a Chief Executive and how are they appointed?

The Chief Executive is an individual appointed by the Board of Directors of a Producer Company from amongst persons other than Members. The Chief Executive is a full-time officer who shall be an ex officio Director on the Board of the Producer Company and such Director shall not retire by rotation. The Chief Executive shall manage the affairs of the Producer Company under the general superintendence, direction and control of the Board of Directors and shall be accountable for the performance of the Producer Company. The qualifications, experience, manner and the terms and conditions of appointment of the Chief Executive are laid down in the Article of Association of the Producer Company.

35. What are the functions of a Chief Executive?

The Chief Executive is entrusted with substantial powers of management by the Board of Directors of a Producer Company. Accordingly, the Chief Executive may exercise any of following powers and functions:
  • a. do administrative acts of a routine nature including managing the day-to-day affairs of the Producer Company
  • b. operate bank accounts or authorise any person, subject to the general or special approval of the Board, to operate the bank account
  • c. make arrangements for safe custody of cash and other assets of the Producer Company
  • d. sign such documents as may be authorised by the Board, for and on behalf of the Producer Company
  • e. maintain proper books of account, prepare annual accounts and audit thereof, place the audited accounts before the Board and in the annual general meeting of the Members
  • f. furnish Members with periodic information to apprise them of the operation and functions of the Producer Company
  • g. make appointments to posts in accordance with the powers delegated by the Board
  • h. assist the Board in the formulation of goals, objectives, strategies, plans and policies
  • i. advise the Board with respect to legal and regulatory matters concerning the proposed and ongoing activities and take necessary action in respect thereof
  • j. exercise the powers as may be necessary in the ordinary course of business
  • k. discharge such other functions, and exercise such other powers, as may be delegated by the Board.

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

The qualifications, experience, manner and the terms and conditions of appointment of the Chief Executive are determined by the Board of Directors in accordance with the Article of Association of the Producer Company. The Chief Executive shall not be a Member of the Producer Company.

37. What are the advantages of a Producer Company?

  • a. The Producer Company is a body corporate having perpetual succession and the power to acquire, hold and dispose of property (both movable and immovable, tangible and intangible), to contract and to sue and be sued in its own name.
  • b. Only 10 Members are required to form a Producer Company, while there is no limit on the maximum number of Members. Therefore, a Producer Company may be incorporated with ease by 10 Members initially and the membership can be increased as desired.
  • c. Once incorporated, the Producer Company would be a body corporate in the nature of a Private Limited Company. However, the manner of distribution of mutual benefits amongst Members is based on the principles of a co-operative organization.
  • d. The Producer Company shall not, under any circumstance become or be deemed to become a public limited company. Therefore, the cost and complexity of compliance with corporate regulatory norms is limited.
  • e. Membership of a Producer Company is held only by primary producers and/or Producer Institutions and the shares of a Producer Company can be transferred by the Members only to Active Members and only with the approval of the Board of Directors. Hence, the Producer Company shall be protected from acquisition of ownership and/or control by any entity which is not a primary producer or Producer Institution.
  • f. The liability of the Members in a Producer Company is limited to the unpaid amount of the shares held by them. Hence, the private assets of the Members are safe in the event of liquidation of the Producer Company.
  • g. The Producer Company may operate all over the country, including export business, giving flexibility to expand business.
  • h. Producer Companies may also create subsidiaries or enter into joint ventures, enabling the Producer Company to improve its supply chain, storage facilities and provide access to technology, thereby enhancing the profitability.

38. What are the limitations of a Producer Company?

  • a. A Producer Company has to be registered as per Part XXIA of the Companies Act, 2013. The legal formalities of the registration process may be cumbersome, requiring the electronic filing of several forms related to incorporation on the MCA Portal. Reference Section 465(1) of the Companies Act 2013.
  • b. The incorporation of the Producer Company involves several steps such as obtaining DSC, reservation of name, obtaining DIN for directors, incorporation formalities, acquiring PAN, TAN, GSTIN, EPFO, ESIC, opening of bank account etc. Therefore, it may be a time-consuming process.
  • c. The shares of a Member in a Producer Company can only be transferred to Active Members with the previous consent of the Board of Directors. Therefore, the shares of a Producer Company are not freely transferable.
  • d. As an incorporated entity, the Producer Company has to follow strict reporting requirement and other statutory compliances, which may be cumbersome.

39. What are the roles and responsibilities of Cluster Based Business Organizations (CBBO)?

Implementing Agencies will set up Cluster-Based Business Organizations (CBBOs) at the State/Cluster level to form and promote FPOs. The roles and responsibilities of CBBOs are as follows:
  • a. Cluster identification
  • b. Community mobilization - baseline survey, cluster finalization, value chain study, formation of groups and FPO and assist in their periodic meetings
  • c. Registration of FPOs and training of BODs on roles, responsibilities, management and also capital/ equity mobilization
  • d. Training and capacity buildings of FPOs/farmer groups
  • e. Encourage and promote social cohesiveness amongst members of FPOs
  • f. Preparation and execution of Business Plans, incubation/ handholding services for long-term sustainability of FPO
  • g. Facilitate establishment of necessary common pool production, marketing and processing infrastructure facility by the FPO.

40. What are the taxation systems/laws governing the POs? Whether any tax benefit is available to FPOs?

All Producer Companies shall mandatorily apply for PAN, TAN, GSTIN and Profession Tax registration at the time of incorporation. POs registered as co-operative societies are also required to obtain PAN, TAN and GSTIN (where turnover in a financial year exceeds INR 20 Lakhs).
Since the FPOs are not engaged in either the primary or secondary agricultural activities, it cannot avail the exemption available for agricultural income under Section 10(1) of the Income Tax Act, 1961.
FPOs registered as co-operative societies enjoy income tax relief under Section 80P of the Income Tax Act, 1961. Profits and gains of primary cooperative societies from the prescribed activities under Section 80Pare deductible in the computation of its total income.
Similarly, under Section 80PA of the Income Tax Act, 1961, 100% of the profits and gains from the following businesses of any Producer Company having turnover up to INR 100 Crores in the preceding year, are deductible in the computation of its total income:
  • a. the marketing of agricultural produce grown by the members or
  • b. the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members or
  • c. the processing of the agricultural produce of the members.

41. What support is available for PO from SFAC?

The following support is available to the POs from the Small Farmers Agribusiness Consortium (SFAC):
  • 1. FPO Management Cost: Under the scheme, financial support to FPOs up to maximum of INR 18 Lakhs per FPO or actual, whichever is lesser is to be provided during 3 years from the year of formation
  • 2. Equity Grant in the form of matching grant upto INR 2,000/- per farmer member of FPO subject to maximum limit of INR 15 Lakhs fixed per FPO
  • 3. Credit Guarantee Fund Support. Details are available at www.sfacindia.com

42. What are the legal provisions for registering a PO as a Cooperative Society?

Producer Organisations can be formed and registered as a Cooperative Society under the following Acts:
  • a. The Cooperative Societies Act, 1912
  • b. Autonomous or Mutually aided Cooperative Societies Act of the respective States
  • c. The Multi-State Co-operative Societies Act, 2002.

43. What is Statement of Objects for Cooperative Societies?

A Cooperative Society has the object of promotion of the economic interests of its members in accordance with co-operative principles. Co-operative Societies may be formed for the promotion of thrift and self-help among agriculturists, artisans and persons of limited means.

44. What societies can be registered as a Cooperative Society? What is the liability of members in a Cooperative Society?

A society which has as its object the promotion of economic interests of its members in accordance with cooperative principles ora society established with the object of facilitating operation of such a society can be registered as a Cooperative Society.The members of Cooperative Society may have limited or unlimited liability. If a member of the Cooperative Society is a registered society, its liability shall be limited, unless otherwise directed by the State Government. However, a Cooperative Society having majority of its members as agriculturists and no member as a registered society, and established with the object of creation of funds to be lent to its members, can have unlimited liability.

45. What are the conditions for registration of a Cooperative Society?

The following are the conditions for registration of a Cooperative Society(without any registered society as its member) having the object of creation of funds to be lent to its members:
  • a. At least 10 members above the age of 18 years
  • b. All members reside in the same town/ village/ group of villages
  • c. All members belong to the same tribe, class, caste or occupation (unless otherwise directed by the Registrar).
Registrar has the authority to decide matters relating to whether a person is agriculturist or non-agriculturist or whether a person is resident of the same town/ village, whether 2 or more villages shall be considered to form a group, or whether any person belongs to any particular tribe, class, caste, or occupation and Registrar’s decisions in this regard would be final. The application for registration shall be signed by at 10 qualified members as above and be accompanied by a copy of the proposed by-laws of the Cooperative Society, and such other information as the Registrar may require. In case of a Cooperative Society in which a member is a registered society, the application for registration shall be signed by a duly authorised person on behalf of every such registered society. If all the members of the Cooperative Society are not registered societies, the application for registration shall be signed by 10 other members or, when there are less than 10 other members, by all of them. The application for registration shall be accompanied by a copy of the proposed by-laws of the Cooperative Society, and such other information as the Registrar may require The last word in the name of a Cooperative Society which has limited liability should be “Limited”.

46. What are the rights and liabilities of members of a Cooperative Society?

  • a. A member shall not exercise his rights, unless he has made payment to the Cooperative Society in respect of membership or has acquired interest in the Cooperative Society, as prescribed by the rules or bye-laws.
  • b. If liability of members is not limited by shares, each member shall have one vote in the affairs of the Cooperative Society irrespective of the amount of member’s interest in the capital.
  • c. If liability of members is limited by shares, each member will have as many votes as prescribed by the bye laws.
  • d. If a Cooperative Society has invested in the shares of other registered society, it can vote in the affairs of the other registered society by appointing a proxy.
  • e. The transfer or charge of the share or interest of a member in the capital of the Cooperative Society shall be subject to conditions as to maximum holdings.
  • f. If a Cooperative Society is registered with unlimited liability, a member shall not transfer any share or interest in the capital unless:
  • (i) such share or interest is held by the member for not less than 1 year and
  • (ii) the transfer or charge is made to the Cooperative Society or its member.

47. How will the Cooperative Society be managed?

Each Cooperative Society will be managed by a Committee, being the governing body of the Cooperative Society and to which the management of the affairs will be entrusted. Additionally, a Cooperative Society also has officers including, a chairman, secretary, treasurer, or other persons empowered under rules or bye-laws, will be appointed to give directions in regard to business of society.

48. Is there any restriction on loans by Cooperative Society?

  • a. A Cooperative Society can give loans only to its members. However, a Cooperative Society can give loan to another registered society with the sanction of the Registrar.
  • b. A society with unlimited liability cannot lend money on security of moveable property without sanction of the Registrar
  • c. State Government may prohibit or restrict lending of money on mortgage of immoveable property by any Cooperative Society or class of Cooperative Societies.

49. Can a Cooperative Society be dissolved?

  • a. Registrar, after inquiry or inspection of books of indebted Cooperative Society or on receipt of application from 75%of the members of a Cooperative Society, may cancel the registration of the Cooperative Society, if in his opinion, the Cooperative Society should be dissolved.
  • b. Any member of the Cooperative Society can appeal against the dissolution order of the Registrar within 2months of such order.
  • c. If no appeal is filed within 2months, the order of dissolution cancelling the registration of the Cooperative Society will become effective upon the expiry of 2 months.
  • d. If appeal is filed within 2 months, the dissolution order will be effective only after it is confirmed by the appellate authority (State Government or revenue authority as notified by the State Government).

50. Are provisions of Companies Act applicable to a registered Cooperative Society?

The provisions of Companies Act are not applicable to a registered Cooperative Society. However, a Multi-State Cooperative Society may choose to incorporate as a Producer Company under the Companies Act, 2013