Section 378D explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 378D sets how votes are counted in a Producer Company. Where all Members are individuals, each has one vote, regardless of shareholding or patronage. Where Producer Institutions are involved the rule changes, articles can restrict voting to active Members, and a person with a conflicting business interest cannot be a Member.
Under section 378D(1), a Producer Company with only individual Members gives one vote to each Member, irrespective of shareholding or patronage. Where the Members are only Producer Institutions, votes depend on their participation in the business in the previous year, as the articles specify (in the first year of registration, on shareholding). Where Members are individuals and Producer Institutions, it is one vote per Member. Articles can restrict voting to active Members (sub-section (3)). A person with a conflicting business interest cannot become a Member, and a Member who acquires one ceases to be a Member (sub-sections (4) and (5)). The Bill 2026 does not amend section 378D.
Section 378D at a glance
| Sub-section | Membership consists of | Voting rule |
|---|---|---|
| (1)(a) | Only individual Members | One vote per Member, irrespective of shareholding or patronage |
| (1)(b) | Only Producer Institutions | Based on their participation in the business in the previous year, as specified by the articles; during the first year of registration, based on shareholding |
| (1)(c) | Individuals and Producer Institutions | One vote for every Member |
| (2) | Any | Articles may set conditions for retaining membership and how voting rights are exercised |
| (3) | Any | If the articles authorise, voting rights may be restricted to active Members in any special or general meeting |
| (4) | Incoming person | No person with a business interest in conflict with the company's business shall become a Member |
| (5) | Existing Member | A Member who acquires such an interest ceases to be a Member and is removed as the articles provide |
Chapter XXIA was inserted by the Companies (Amendment) Act, 2020 (w.e.f. 11-2-2021), as the footnote in the official text shows.
The three voting cases
Individuals only: one Member, one vote. This is the core idea of a Producer Company, and section 378G(2)(b) repeats it as one of the mutual assistance principles that the articles must contain: each Member has a single vote irrespective of shareholding, save as otherwise provided in the Chapter. A farmer holding ten shares and a farmer holding one share both get one vote, and a large supplier gets no extra vote for the volume supplied.
Producer Institutions only: participation decides. If every Member is a Producer Institution, votes are fixed by reference to its participation in the company's business in the previous year, in the manner the articles specify. This reflects how much business each institution has actually done with the company. The proviso covers the start: in the first year of registration there is no previous year, so votes follow shareholding.
Mixed membership: one Member, one vote. Where individuals and Producer Institutions are both Members, section 378D(1)(c) computes voting rights on the basis of a single vote for every Member. A Producer Institution does not get extra weight because it represents many producers. Who is a Producer Institution is explained in section 378A definitions.
Conditions in the articles
Sub-section (2) lets the articles set the conditions on which a Member may continue as a Member and the manner in which voting rights are exercised. Sub-section (3) then allows the articles to restrict voting rights to active Members in any special or general meeting, "notwithstanding" sub-sections (1) and (2). An active Member is one who meets the quantum and period of patronage the articles require (section 378A(a)).
Two consequences follow. First, a restriction to active Members is not automatic; the articles must authorise it. Second, what "active" means is written into the articles, so the patronage tests should be drafted carefully and applied the same way to every Member. Our producer company registration service includes drafting these clauses as part of the articles.
Conflict of interest
Section 378D(4) bars a person who has a business interest in conflict with the company's business from becoming a Member. Sub-section (5) deals with a Member who later acquires one: such a Member ceases to be a Member and is to be removed in accordance with the articles. The text does not define "conflict" or set a procedure, so the articles are where a company should state how the question is decided, how a Member is told, and who records the removal.
A trader who buys produce in competition with the company, for example, is the type of person the company might not want as a Member. Whether a given interest is in conflict depends on the facts and the company's business. Section 378B sets the business; see section 378B on objects.
How it fits with the rest of the Chapter
- Section 378C requires at least ten individual producers (or institutions) to form the company and sets no upper limit on Members; see section 378C on formation.
- Section 378E deals with the benefits Members receive, such as limited return and patronage bonus, which follow patronage rather than votes; see section 378E on benefits to Members.
Example. A Producer Company has 300 individual farmer Members. One farmer holds 500 shares and supplies half of the produce, another holds 10 shares. Each has one vote under section 378D(1)(a). If the articles authorise it, voting at general meetings could be restricted to active Members, and a farmer who supplied nothing in the required period would not vote, although he is still a Member. Separately, a Member who opens a competing procurement business acquires a conflicting interest under section 378D(5) and ceases to be a Member, to be removed as the articles provide.
Proposed change
The Corporate Laws (Amendment) Bill, 2026 carries clauses on other provisions of Chapter XXIA, such as those on directors and quorum, but our search found no clause amending section 378D. The Bill is pending, not law.
Need help with membership clauses?
Who can join, who votes and how a conflict of interest is handled should be settled in the articles before the first Member is admitted. Our team can help draft and review them through our producer company registration service.
Key takeaways
- Individuals only: one vote per Member, irrespective of shareholding or patronage.
- Producer Institutions only: votes follow previous-year participation, and shareholding in the first year.
- Mixed membership: one vote per Member.
- Articles may restrict voting to active Members and set conditions for continuing membership.
- A person with a conflicting business interest cannot be a Member, and a Member who acquires one ceases to be a Member.
Read next
- Section 378C: formation of a Producer Company
- Section 378E: benefits to Members of a Producer Company
- Sections 378F to 378I: memorandum and articles
- Membership and voting rights in Producer Companies
Disclaimer: Based on the Companies Act, 2013 as amended up to 1 April 2021 (official consolidated text), read with later developments noted in the article; proposals in the Corporate Laws (Amendment) Bill, 2026 are pending and not law as on 30 September 2026. Verify current notifications and rules before acting.