Indian Companies act

The companies (amendment) act, 2002

There are two amendments in 2002 and the 1st amendment provides for Producer Companies.  The IInd amendment replaces the Company Law Board with National Company Law Tribunal and also creates an Appellate Tribunal.  Besides taking over the jurisdiction of the Company Law Board, The National Company Law Tribunal has been vested with the jurisdiction of the High Court under the Companies Act.  This amendment resulted in reducing the powers and jurisdiction of the High Courts.


To have brief knowledge about the latest amendments, it is to be noted that changes made by the Companies (Amendment) Act, 2002 (First) are given below:


Producer Companies:  This Amendment Act added a new chapter, namely Chapter IX-A to the Act.  The chapter contains a complete set of provisions dealing with producer companies.  It runs from S. 581-A to 581-ZT.

Objects and Reasons:

The statement of objects and reasons appended to the Bill proceeded as follows:

During the last decade, changes have taken place in the Indian economy, in the communication and transportation infrastructures, as well as in the method of commerce, banking and international trade. Liberalisation of the economy is in the process of changing the terms of trade between rural and urban, labour and industry, finance and commerce. Biotechnology, the information revolution, computerisation can all be used to raise the standard of living of the rural masses and ultimately link this economy with regional, national and global demand. Institutions are needed to link the rural economy with the emerging new opportunities. Rural producers are at a potential disadvantage given their generally limited assets, resources, education and access to advanced technology. In the present competitive scenario, if cooperative enterprises are to continue to serve rural producers, they require an alternative to the institutional form presently available under Law.

Keeping all this in view the Government constituted a Committee consisting of experts led by Dr. Y.K. Alagh, economist, former Union Minister, to examine and make recommendations with regard to (a) framing a legislation which would enable incorporation of cooperatives as companies and conversion of existing cooperatives into companies and (b) ensuring that the proposed legislation accommodates the unique elements of cooperative business within a regulatory framework similar to that of companies. The Committee had a series of meeting during which it interacted with, and received responses from various cooperatives, institutes and individuals.

On the basis of the recommendations of the Committee the present Bill has been prepared with the main objective of facilitating formation of cooperative business as companies and to convert existing business into companies. The salient features of the Bill are:

  • to offer a statutory and regulatory framework that creates the potential for producer-owned enterprises to compete with other enterprises on a competitive footing. The Companies Act envisages and provides for various forms of companies including private limited, public limited, trusteeship companies and nidhis, each with specific and appropriate provisions applicable to them;
  • to provide for the formation and registration of producer companies which include the mutual assistance and cooperative principles within the more liberal regulatory framework afforded by the Company Law with suitable adaptations;
  • to provide an opportunity to cooperative institutions to voluntarily transform themselves into the new form of producer companies;
  • Under the Bill conversion of cooperatives to producer companies is purely voluntary;
  • Member equity may not be publicly traded, but may only be transferred, with the approval of the producer company’s Board of Directors. Producer companies would not be vulnerable to the takeover by multinationals or other companies;
  • The conversion option by cooperative society to producer company can be exercised only if two-thirds of the members of the concerned society vote in favour of a resolution to that effect;
  • The new form of company is designated as “producer company” to indicate that only certain categories of persons can participate in the ownership of such companies. The members of the Producer Company have necessarily to be “primary producers”, that is persons engaged in an activity connected with, or relatable to, primary produce;
  • The objects of a producer company have been defined to include, among other things, production, processing, manufacture and sale of primary produce as well as allied matters.

Changes made by the Companies (Second Amendment) Act, 2002

Tribunal and Appellate Tribunal:-  The Company Law Board (CLB) is to be abolished and in its place, the National Company Law Tribunal (Tribunal), The National Company Law Appellate tribunal (Appellate Tribunal) are to be established.  Apart from vesting in the Tribunal, the jurisdiction of CLB, jurisdiction for most of the matters under the Companies Act, for example, mergers, etc., and winding up is going to be vested in it.  The jurisdiction of the ordinary civil courts and that of the High Courts will become marginalised.  The appeals from decisions of the Tribunal will be heard by the Appellate Tribunal and final appeals will be before the Supreme Court.

Sick Industrial Companies:- A new chapter has been added as Chapter VI-A to provide for rehabilitation of Sick Industrial Companies (SIC).  The SIC (Special Provisions) Act, 1985 is to be repealed and the functions of Board of Industrial and Financial Reconstruction (BIFR) are to be performed by the Tribunal.


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