Moringa Ltd. initially issued preference shares with a fixed 10% dividend. Later, the company decided to reduce the dividend rate to 8%, as the…

In companies, shareholders may hold different classes of shares, such as: Equity Shares - Carry voting rights and represent ownership in the company. Preference Shares – Have priority in receiving dividends but usually have limited voting rights. When a company modifies or alters the rights associated with a specific class of shares, it must comply with Section 48 of the Companies Act, 2013, to ensure fairness and transparency. For Moringa Ltd. to validly reduce the dividend rate on preference shares, it must satisfy the following conditions under Section 48: There should be a provision in the Company's Articles of Association (AOA) or Memorandum of Association (MOA) permitting the variation of class rights. If there is no such provision, the terms of the issue of preference shares must not prohibit such a variation.The company must obtain written consent from the holders of at least 75% of the issued shares of that class of affected shareholders (preference shareholders in this case).Alternatively, a special resolution approving the variation must be passed at a separate class meeting of preference shareholders.If the change in preference share rights affects equity shareholders, then three-fourths of such equity shareholders must also approve the variation.Shareholders holding at least 10% of that class who did not consent or vote in favor of the resolution can apply to the Tribunal. The variation will only take effect if confirmed by the Tribunal. Hence Moringa Ltd. cannot alone reduce the preference dividend from 10% to 8%. If company fails to follow these legal provisions, the change in preference share rights would be invalid, and affected shareholders may challenge the decision in the Tribunal.