Section 378E 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 378E explains how a Producer Company pays its Members. A Member first receives only a value for pooled produce that the Board fixes, the balance (the withheld price) can follow later, the money put in as share capital earns only a limited return, and any surplus left over may be shared as a patronage bonus in proportion to business done with the company.
Under section 378E, a Member initially receives only the value the Board determines for the produce or products pooled and supplied. The withheld price may be paid later in cash, in kind or by allotment of equity shares, in proportion to produce supplied in the financial year. On share capital, a Member gets only a limited return. Any surplus after the limited return and the reserves under section 378ZI may be paid as patronage bonus, as the Members decide at the general meeting. The Bill 2026 does not amend section 378E.
Section 378E at a glance
| Sub-section | What it says |
|---|---|
| (1) | Subject to the articles, a Member initially receives only the value for pooled produce that the Board determines; the withheld price may be disbursed later in cash, in kind or by allotment of equity shares, in proportion to produce supplied during the financial year |
| (2) | On share capital contributed, a Member receives only a limited return; bonus shares may be allotted under section 378ZJ |
| (3) | The surplus, after providing for the limited return and the reserves referred to in section 378ZI, may be disbursed as patronage bonus, in proportion to participation in the business, in cash or equity shares or both, as Members decide at the general meeting |
Anyone planning a producer company registration should settle these payment rules while the articles are still being drafted.
Why the Producer Company pays differently
A Producer Company is owned by the people who supply it. It is not built to maximise dividends for investors. Section 378E turns that idea into three payment streams, each tied to a different thing the Member has done: supplied produce, put in capital, or taken part in the business. This is one of the differences from an ordinary company; see section 378A definitions for who counts as a producer and Member, and how a Producer Company differs from a co-operative society.
1. Initial value and the withheld price
Section 378E(1) begins with the words "subject to the provisions made in articles". The articles must therefore be read first. Within them:
- Every Member initially receives only such value for the produce or products pooled and supplied as the Board determines.
- The part held back is the withheld price. The Board may disburse it later in cash, in kind, or by allotting equity shares.
- The withheld price is paid in proportion to the produce supplied to the company during the financial year.
- The extent, manner and conditions are as decided by the Board.
The articles are also required to state when and how the withheld price is determined and distributed; this is one of the mandatory article contents under section 378G(3)(e), and the basis for allotting equity shares in lieu of sale proceeds is another (section 378G(3)(i)). See sections 378F to 378I on the memorandum and articles. The Board's power to fix the withheld price and recommend patronage is listed in section 378R(2)(b); see section 378R on the Board's powers.
2. Limited return on share capital
Under section 378E(2), a Member receives only a limited return on the share capital contributed. There is no open-ended dividend. The proviso adds that a Member may be allotted bonus shares in accordance with section 378ZJ. Section 378S lists "declaration of limited return" among matters that the Board can decide only through a resolution passed at the annual general meeting of Members.
3. Patronage bonus from surplus
Section 378E(3) says the surplus, if any, remaining after two things may be disbursed as patronage bonus:
- provision for payment of the limited return; and
- the reserves referred to in section 378ZI.
The bonus goes to Members in proportion to their participation in the business of the Producer Company. It may be given in cash, by allotment of equity shares, or both, as the Members decide at the general meeting. Note the word "may": the section permits the bonus; it does not fix an amount or promise one.
| Payment | Linked to | Who decides | Form |
|---|---|---|---|
| Initial value and withheld price | Produce supplied | Board, within the articles | Cash, in kind, or equity shares |
| Limited return | Share capital contributed | Articles and the general meeting | Return on shares |
| Patronage bonus | Participation in business | Members at the general meeting | Cash, equity shares, or both |
A worked example
A Producer Company of vegetable growers collects produce from its Members through the year. At delivery, the Board pays each Member a part of the value it has determined. After the year closes, the Board decides what part of the withheld price can be paid and whether to pay it in cash or allot equity shares. The Members at the general meeting then consider the surplus left after the limited return and the section 378ZI reserves. A Member who supplied twice as much produce as another receives a withheld price twice as large, and a patronage bonus that reflects twice the participation, if the meeting decides to pay one.
Two points to keep in mind. First, nothing in the section lets one Member's bonus depend on how many shares he holds; the measure is participation in the business. Second, the records behind these payments (who supplied what, and when) decide the amounts, so good books matter; see annual compliance for a Producer Company.
Proposed change
The Corporate Laws (Amendment) Bill, 2026 contains clauses that amend other provisions of Chapter XXIA (sections 378P, 378Q, 378Y, 378ZA, 378ZF, 378ZM and 378ZS), but our search found no clause amending section 378E. The Bill is pending and is not law.
Need help with Producer Company payouts?
If you are drafting articles or planning how your Members will be paid, the wording on withheld price, limited return and patronage needs to be settled before registration. Our producer company registration team can help you turn these rules into clear articles and a workable payment policy.
Key takeaways
- A Member initially receives only the value the Board determines for pooled produce; the withheld price may follow later.
- The withheld price is paid in proportion to produce supplied in the financial year, in cash, in kind or as equity shares.
- Share capital earns only a limited return; bonus shares are possible under section 378ZJ.
- Patronage bonus comes from the surplus after the limited return and section 378ZI reserves, in proportion to participation in the business.
- Members decide the form of patronage bonus at the general meeting.
Read next
- Section 378D: membership and voting rights
- Sections 378F to 378I: memorandum and articles
- Section 378R: powers of the Board
- Advantages and disadvantages of a Producer Company
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.