MCA grants five-year dematerialization breather for producer companies

Extended deadline replaces earlier 18-month compliance window. In a significant move, the Corporate Affairs Ministry (MCA) has granted relief for “producer companies”, extending the compliance window on mandatory dematerialisation of their existing shares. Producer companies, who were earlier required to complete dematerialisation of their shares by September 30, 2024, have now been given time till end March 2028 to achieve full compliance. In October last year, MCA had mandated that all private companies (other than small companies) will have to dematerialise existing shares by end September 2024. Also, the private companies were mandated to issue new securities only in dematerialised form. A “Producer Company” is a corporate entity designed for farmers and producers, primarily involved in agriculture and related activities. As a legal entity, they are recognised as a company under the Companies Act, facilitating more accessible credit, and better post-harvest management. Ownership and membership of such entities is held only by ‘Primary Producers’ or ‘Producer Institution’, and member equity cannot be publicly traded. Prasenjit Chakravarti, Partner, Khaitan & Co said that the latest MCA notification offering a five-year compliance window for producer companies to meet securities issuance regulations is a forward-thinking and business-friendly reform. This relaxation reflects the Government’s understanding of the operational challenges faced by the agricultural and co-operative sectors, he said. It provides much-needed flexibility, enabling producer companies to strengthen governance and ensure transparency without immediate regulatory pressure.

This step not only facilitates sustainable growth but also gives producer companies the opportunity to ‘build their house on solid ground,’ fostering long-term economic resilience, Chakravarti said. Sonam Chandwani, Partner, KS Legal, said that the relaxation is granted to producer companies because their members, often small farmers and rural producers, face significant challenges with dematerialisation. “Many of them lack financial literacy, access to technology, and resources to comply with complex regulatory requirements. These companies primarily cater to welfare of the members and are engaged in local small-scale operations, which is why dematerialisation wasn’t enforced earlier”, she said. Chandwani said that the Government now aims to support their gradual transition to compliance, ensuring they can modernise without being overwhelmed, allowing them to focus on their core mission of member welfare and rural development. Vishal Gehrana, Principal Associate, Karanjawala & Co, said that the amendment recognises the unique challenges these companies often face in rural and agricultural sectors, where resources and infrastructure may be limited. It strikes a vital balance between upholding regulatory standards and providing the necessary support for such companies to thrive, he said. “By granting this additional time, the amendment not only encourages compliance but also fosters a sense of empowerment for producer companies, enabling them to adapt and grow in an increasingly digital economy”, Gehrana added.