2,00,000 Equity shares of ₹ 100 each were issued at a premium of ₹ 8 per share by MNC Limited after the offer for the same was received from the…

ANSWERS OF PART – II DESCRIPTIVE QUESTIONS Provisions of the Law: Section 27(1) of the Companies Act, 2013 provides that a company shall not, at any time, vary the terms of a contract referred to in the prospectus, or the objects for which the prospectus was issued, except by way of a special resolution passed at a general meeting. The first proviso to sub-section (1) requires that the prescribed details of the notice given to shareholders must also be published in newspapers (one in English and one in vernacular language) circulating in the city where the registered office of the company is situated, clearly indicating the justification for the variation. The second proviso to sub-section (1) further prohibits the company from using any amount raised through the prospectus for buying, trading or otherwise dealing in the equity shares of any other listed company. Section 27(2) provides that the dissenting shareholders (those who did not agree to the variation) are to be given an exit offer by the promoters or controlling shareholders, at such exit price and in such manner as may be specified by SEBI regulations. Analysis: In the given question, MNC Limited has raised amount through issue of equity shares. It was specified that the amount so received will be exclusively used for setting up a manufacturing unit for affordable dialysis equipment. However, now the company wants to use the surplus money left from the mentioned issue of shares, for development of cloud-based hospital management software and for investing in Equity Shares of Y Limited (a listed company). Applying the provisions to the facts: Contention (i): A special resolution requires not less than three-fourths of the votes cast in favour. Since the votes in favour, though in excess of votes against, did not reach the three-fourths threshold, the resolution was not validly passed as a special resolution. This contention of the shareholders is tenable. Contention (ii): Since the required newspaper publication (English and vernacular, in the city of the registered office, with justification for the variation) was not made, this contention is also tenable. Contention (iii): The second proviso to section 27(1) bars a company from using prospectus proceeds to deal in the equity shares of any other listed company. As Y Limited is a listed company, MNC Limited cannot use the issue proceeds to invest in its shares. This contention is also tenable; the resolution to invest ₹10,00,000 in the equity shares of Y Limited is invalid. Conclusion: Hence, all three contentions of the shareholders are tenable.