Question

The approval of the company ________________ is required for any variation in objects for which a prospectus was issued.

• A. By way of special resolution in general meeting.
• B. Through an ordinary resolution in debenture holders meeting.
• C. By way of an ordinary resolution in preference shareholders meeting
• D. By way of an extra-ordinary resolution in bond holders meeting

Hint:

A special resolution is the highest tier of shareholder approval under the Act.
This stringent requirement protects public investors from "mission drift" where funds raised for one object are diverted to another.

Answer 1

The Correct Option is A

Step 1: Understanding the Question:
The question asks for the required corporate approval mechanism when a company wishes to vary the objects for which it raised money through a public prospectus.

Step 2: Key Principles and Statutory Provisions:
This situation is governed by Section 27 of the Companies Act, 2013, which restricts the variation of terms in a contract referred to in the prospectus or the variation of objects.

Step 3: Detailed Explanation and Analysis:

• Section 27(1) of the Act states that a company shall not vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued except under specific statutory conditions.

• The primary requirement is the passage of a special resolution by the shareholders of the company in a general meeting.
A special resolution requires a three-fourths majority (75%) of the votes cast.

• Additionally, the company must publish notice of such variation in newspapers (one English and one vernacular) and provide details on its website.

• Furthermore, under Section 27(2), dissenting shareholders (those who voted against the variation) must be given an exit option by the promoters or controlling shareholders in accordance with SEBI regulations.

Step 4: Final Answer:
The required approval is a special resolution passed in a general meeting of the company, which corresponds to Option A.