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CMA Intermediate · Business Laws and Ethics · Rights of Shareholders

Hind Textiles Ltd has equity shares and 8% preference shares. The articles are silent on variation of class rights, and the terms of issue of the preference shares do not prohibit variation. Can the preference shareholders' rights be varied under Section 48?

Yes. Under Section 48(1)(b), where the memorandum or articles have no variation provision, variation is allowed if the terms of issue do not prohibit it. It then needs three-fourths written consent of the class or a special resolution at a separate class meeting.

  1. ANo, variation is possible only if the articles expressly provide for it
  2. BYes, as variation is not prohibited by the terms of issue, it may be done with three-fourths consent or a special resolution at a separate class meetingCorrect
  3. CYes, but only by an ordinary resolution of all members of the company
  4. DNo, variation of class rights requires an order of the Tribunal in every case

Explanation

Section 48(1)(b) permits variation, in the absence of a provision in the memorandum or articles, if the terms of issue of that class do not prohibit it. The same three-fourths consent or separate-meeting special resolution applies. Option A ignores clause (b).

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