Sections 378ZE to 378ZG 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.
Sections 378ZE to 378ZG are the accounts-and-audit rules of Chapter XXIA. A Producer Company keeps its books at its registered office, prepares accounts broadly as section 129 requires, has an internal audit by a chartered accountant, and its statutory auditor reports on extra matters beyond those in section 143.
Every Producer Company must keep proper books of account at its registered office (s.378ZE). Its balance-sheet and profit and loss account are prepared, as far as may be, under section 129. It must have an internal audit by a chartered accountant, at the intervals and in the manner its articles specify (s.378ZF). The auditor must report on seven additional matters, without prejudice to section 143 (s.378ZG). The Bill 2026 proposes to replace section 378ZF; it is pending, not law.
The sections at a glance
| Section | Subject | Key rule |
|---|---|---|
| 378ZE | Books of account | Kept at the registered office; accounts prepared as far as may be under s.129 |
| 378ZF | Internal audit | By a chartered accountant, at intervals and in the manner the articles specify |
| 378ZG | Auditor's extra duties | Seven additional reporting matters, on top of s.143 |
Books of account: section 378ZE
Section 378ZE(1) requires every Producer Company to keep proper books of account at its registered office with respect to:
- (a) all sums of money received and expended, and the matters in respect of which the receipts and expenditure take place;
- (b) all sales and purchases of goods;
- (c) the instruments of liability executed by or on its behalf;
- (d) its assets and liabilities;
- (e) for a company engaged in production, processing and manufacturing, particulars of utilisation of materials, labour or other items of cost.
Clause (e) matters for a company that processes its Members' produce: the cost records go beyond a plain cash book. Under 378ZE(2), the balance-sheet and profit and loss account are prepared, as far as may be, in accordance with section 129. The accounts then go to the Members with the AGM notice; see sections 378Y to 378ZA.
Internal audit: section 378ZF
Section 378ZF says every Producer Company shall have an internal audit of its accounts carried out, at such interval and in such manner as the articles specify, by a chartered accountant as defined in section 2(1)(b) of the Chartered Accountants Act, 1949. The law leaves the interval to the articles, so a company that never wrote anything into its articles should fix that point before its next audit cycle. Our legal consultation service can help you amend the articles in the manner the Act allows.
This is separate from the statutory audit. The statutory auditor is appointed at the general meeting (see the draft resolution on the AGM notice), while the internal audit is a check on the accounts on the schedule in the articles. For the statutory auditor's general powers and duties, see section 143.
Auditor's additional duties: section 378ZG
Without prejudice to section 143, the auditor must report on these additional matters:
| Clause | Matter |
|---|---|
| (a) | The amount of debts due, with particulars of bad debts, if any |
| (b) | Verification of cash balance and securities |
| (c) | Details of assets and liabilities |
| (d) | All transactions that appear to be contrary to the provisions of this Chapter |
| (e) | Loans given by the Producer Company to the directors |
| (f) | Donations or subscriptions given by the company |
| (g) | Any other matter the auditor considers necessary |
Clauses (e) and (f) link to other sections. Loans to directors or their relatives need the approval of Members in general meeting under section 378ZK, and donations are capped under section 378ZH. See sections 378ZK and 378ZL and sections 378ZH to 378ZJ. A clause (d) report flags any transaction that appears contrary to the Chapter, so the auditor's report is an early warning for the Board.
Example. A Producer Company processes Members' pulses. The books show a loan to a director and a donation to a village trust. The auditor must report both under clauses (e) and (f). If the loan was granted without the general meeting's approval that section 378ZK's proviso requires, the auditor can also report it under clause (d) as a transaction appearing to be contrary to the Chapter.
Proposed change (Corporate Laws (Amendment) Bill, 2026)
The Bill is pending and is not law. Clause 87 would substitute section 378ZF. Under the proposed text:
- a Producer Company with average annual turnover exceeding five crore rupees, or another prescribed amount, in each of three consecutive financial years, would have to appoint an internal auditor;
- the internal auditor would be a chartered accountant, a cost accountant, or another professional the Board decides;
- the internal audit would cover the functions and activities of the company; and
- the manner and intervals of the audit and its reporting to the Board would be as prescribed.
So the proposal would link the duty to turnover and move the audit's manner and frequency from the articles to the rules. Until it is enacted and in force, the present section 378ZF applies to every Producer Company.
Need help with Producer Company accounts and audit?
A Producer Company has audit points that an ordinary company does not, from the internal audit to the extra auditor reporting. If you want a review of your books, articles and audit set-up, you can reach our team through legal consultation.
Key takeaways
- Books of account are kept at the registered office, covering receipts, sales and purchases, liabilities, assets and, where relevant, cost particulars.
- Accounts follow section 129, as far as may be.
- Internal audit is by a chartered accountant, on the schedule set in the articles.
- The auditor reports on seven extra matters, including loans to directors and donations.
- The Bill 2026 proposes a turnover-linked internal audit regime; it is pending.
Read next
- Sections 378Y to 378ZA: quorum, voting and AGM
- Sections 378ZH to 378ZJ: donations, reserves and bonus
- Section 143: powers and duties of the auditor
- Producer Company compliance requirements checklist
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.