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’).
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:
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.
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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Companies Act, 2013 allows alterations in shareholders' rights with consent. Specific requirements must be met and processes followed for variations or cancellations.