Section 48 Of Companies Act 2013: Variation Of Shareholders' Rights
Updated: Oct 14, 2022
The share capital of a firm is divided into numerous classes, each with its own set of rights. According to Section 48 of the Companies Act, 2013 ('Act'), the rights attached to one class of the company's shares can be changed from the rights attached to the other class of shares with the written permission of the shareholders.
Section 48 of the Companies Act 2013
Section 48 of the Act states that the rights associated to a company's class of shares can be changed with the written permission of shareholders owning more than three-fourths of the class's issued shares.
It can also be changed by a special resolution passed by the shareholders of the issued shares of that class at a separate meeting. The shareholders of issued shares of a class, on the other hand, can agree or approve a special resolution to change the rights linked to that class of shares if-
i. the company's Memorandum of Association (MoA) or Articles of Association (AoA) contain a provision allowing for such changes. If no provision for variation is included in the MoA or AoA, such variation is not barred by the issue terms of the shares of that class.
ii. change in one class of shareholders' rights affects the rights of another class of shareholders, the permission of three-fourths of the other class of shareholders shall be acquired as well.
Additional Requirements for Variation of Shareholders’ Rights
1. If the holders of at least 10% of the issued class of shares do not accede to the Special Resolution, they may petition the Tribunal to have the modification revoked.
2. If the Tribunal receives such an application, the variation will not take effect unless and until the Tribunal confirms it.
3. An application under this section must be made within 21 days of the date on which the consent or resolution was given, and it may be made on behalf of the shareholders entitled to make the application by one or more of their number who they may select in writing for the purpose.
4. The shareholders are bound by the Tribunal's ruling on any application.
5. The corporation must file a copy of the Tribunal's order with the Registrar within thirty days of receiving it.
Variation of Shareholders' Rights in Different Share Classes
The rights connected to preference shares, such as the rate of dividend given on such shares or the time of redemption, can be changed by passing a special resolution at a meeting of the holders of the preference shares, just like the rights attached to equity shares of a corporation. A postal ballot must be used to pass a special resolution under section 48 in a publicly traded corporation. The variation can be made if the articles or memorandum provide for it, or if there is no such particular provision, the variation should not be forbidden by the terms and conditions of the share issue. As a result, if the organization has issued more than one series of preference shares, each holder will be assigned to a class, and action will be conducted for each class separately.
Since the company's shares are separated into several classes, it is occasionally necessary to change the rights associated to these classes of shares. The memorandum or article of association may allow for the modification of the rights associated to these shares. There may be occasions when the articles of association or memorandums of association of a company are silent on the subject of rights variation. In such circumstances, the firm lacks the ability to change the shareholders' rights without going through the proper channels.
If the variation curtails rights of any class of shareholders in such cases the consent or sanction of those particular classes of shareholders will be mandatory. If the variation pertains to adding or enhancing any such rights to any of the classes of shareholders then also the compliance with the provision of Section 48 would be required. In such circumstances, the permission or sanction of those specific groups of shareholders will be required if the alteration restricts their rights. If the adjustment relates to the addition or enhancement of any such rights for any of the classes of shareholders, Section 48 compliance is also needed. To make any modifications to the rights of shareholders, the company's management must follow a specific method in order to maintain transparency in the company's management and the company's goodwill.