Section 48 of Companies Act, 2013: Variation of Shareholders’ Rights

A company’s share capital is divided into various classes, and each class has different rights attached to them. The rights attached to one class of shares of the company can be varied from the other class of shares with the written consent of the shareholders as per Section 48 of the Companies Act, 2013 (‘Act’).

Variation of Shareholders’ Rights of a Company

Section 48 of the Act provides that the rights attached to the class of shares of the company can be varied with the written consent of the shareholders of more than three-fourths of the issued shares of that class.

It can also be varied through a special resolution passed at a separate meeting of the shareholders of the issued shares of that class. However, the shareholders of the issued shares of a class can consent or pass a special resolution to vary the rights attached to that class of shares when:

• A provision regarding such variation is provided in the Memorandum of Association (MoA) or Articles of Association (AoA) of the company.
• Such variation is not prohibited by the issue terms of the shares of that class if the provision for variation is not provided in the MoA or AoA. 

When the variation of the rights attached to one class of shareholders affects the rights of another class of shareholders, the consent of three-fourths of the other class of shareholders should also be obtained.

Requirements for Variation of Shareholders’ Rights

• Consent of at least three-fourths of shareholders of the issued shares of that class.
• Consent of three-fourths of shareholders of other classes if the variation by one class of shareholders affects the rights of the other classes of shareholders.
• An unlisted public company with more than 200 members should pass the special resolution only through postal ballot.
• Listed companies must pass the special resolution only through postal ballot and intimate the particulars of the proposed change of shareholders’ rights to the stock exchange where it is listed.

Process for Variation of Shareholders’ Rights

• Check whether there is a provision for variation of the rights attached to a class of shares in the MoA or AoA.
• If there is no provision in the MoA or AoA for variation of rights, ensure such variation is not prohibited by the issue terms of the shares of that class.
• When the variation of shareholders’ rights is not provided in the MoA, AoA or terms of issue prohibit variation, alter the MoA or AoA to provide variation of the rights attached to that class of shares.
• Obtain the consent of more than three-fourths of shareholders of the issued shares of that class or pass a special resolution at the separate meeting of the shareholders of the issued shares of that class for variation of shareholders’ rights.
• Hold a general meeting and pass the special resolution for the shareholders’ rights variation.
• File MGT-14 of the special resolution passed in the general meeting with the Registrar of Companies within 30 days of passing the resolution.

Cancellation of Variation in Shareholders’ Rights

When the shareholders of not less than 10% of the issued shares of a class do not vote in favour of the special resolution or consent to such variation, they can apply to the National Company Law Tribunal (NCLT) to cancel the variation. When the shareholders file the application to the NCLT to cancel the variation, the variation will not have any effect unless the NCLT confirms such variation of shareholders’ rights. 

However, the shareholders must apply to the NCLT for cancellation of variation within 21 days after the consent was given or a special resolution was passed for the variation of such rights. The decision of the NCLT will be binding on the shareholders. The company should file the order copy of the NCLT within 30 days of the order date to the Registrar of Companies. 

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