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Variation Of Shareholders Right - Section 47 Of The Companies Act, 2013

Neha Rajan Redekar , Last updated: 18 October 2021  
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Where the share capital of the company is divided into different class of shares, the rights attached to any class of shares may be varied with the written consent of the holders of not less than ¾ of the issued shares of that class or by means special resolution passed at a separate meeting of the holders of the issued shares of that class.

Pursuant to the provisions of section 110 read with the Rule 22 of the Companies (Management and Administration) Rules, 2014 unlisted public companies having more than 200 shareholders shall pass the special resolution through postal ballot only.

VARIATION OF SHAREHOLDERS RIGHTS IS POSSIBLE IF

  • A provision with respect to such variation is contained in the memorandum or articles of the company; or
  • In the absence of any such provision in the memorandum or articles, if such variation is not prohibited by the terms of issue of the shares of that class.

Note that if variation by one class of shareholders affects the rights of any other class of shareholders, the consent of 3/4 of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such variation.

Variation Of Shareholders Right - Section 47 Of The Companies Act, 2013

CANCELLATION OF VARIATION OF SHAREHOLDERS RIGHTS

If the holders of not less than 10% of the issued shares of a class did not consent to such variation or vote in favour of the special resolution, they may apply to the Tribunal to get the variation cancelled, and where any such application is made, the variation shall not have effect unless and until it is confirmed by the Tribunal.

Such application to Tribunal shall be made within 25 days after the date on which the consent was given or the resolution was passed to have the resolution cancelled.

 

APPLICATION TO TRIBUNAL FOR CANCELLATION OF VARIATION OF RIGHTS UNDER SECTION 48(2)

  • Where an application to cancel a variation of the rights attached to the shares of any class is made on behalf of the shareholders of that class entitled to apply for cancellation under section 48(2) by the letter of authority, such letter of authority shall be annexed to the application.
  • The applicant shall at least 14 days before the date of filing of the petition advertise the application in accordance with the rule 35.
  • Where any objection of any person whose interest is likely to be affected by the proposed application is received by the applicant, a copy thereof shall be served to the Registrar of Companies and Regional Director on or before the date of hearing.
  • On any application, the Tribunal, after hearing the applicant and any other person, as appears to it, to be interested in the application, may if it is satisfied that the variation would unfairly prejudice to the shareholders of the class represented by the applicant, cancel the variation and shall, if not so satisfied, confirm the variation after recording the reason.
  • The company shall within 30 days of the date of order of the Tribunal, file a copy thereof with the Registrar.

PROCEDURE FOR VARIATION OF SHAREHOLDERS RIGHT

1. Issue Notice of Board Meeting to all directors of the company at least 7 days before the date of Board Meeting.

2. Hold Board Meeting: 

  • To consider variation of shareholders rights and approve the draft circular setting out the scheme of such variation.
  • To authorizing Company Secretary or any Director of the company to sign and circulated letters to all shareholders of such class for getting their consent for such variation.
 

3. Issuing circular to all shareholders of such class.

4. Receiving consent letters from at least holders of not less than ¾ of the issued shares of that class.

5. Once the ¾ consent is received, the company can proceed with variation of rights.

6. Fling necessary forms and documents with the Registrar of Companies.

The author can also be reached at csneharedekar@gmail.com

Disclaimer: Please note that the above article is based on the interpretation of related laws, which may differ from person to person and is not legal advice.


Published by

Neha Rajan Redekar
(Company Secretary and Compliance Officer)
Category Corporate Law   Report

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