# Section 27 — Variation in Terms of Contract or Objects in Prospectus

## Core Principle: Doctrine of Ultra Vires (Mutatis Mutandis)

Once funds are raised through a prospectus, the company must use those funds strictly in accordance with the prospectus. Any deviation requires:

Pre-approval by investors, AND
Recall (exit) option to dissenting investors.

## Absolute Prohibition

Deviation regarding use of issue proceeds for buying, trading, or dealing in equity shares of any other listed company is NOT permitted at all. This bar is absolute — no shareholder approval can authorize it.

## Procedural Requirements

### (1) Special Resolution by Postal Ballot

Variation of terms of contract or objects can only be done by special resolution.
The resolution must be passed through postal ballot.

### (2) Notice Publication in Newspapers

The notice of resolution must be published in newspapers:

One in English and one in vernacular language, AND
In the city where the registered office is situated, AND
Must clearly indicate the justification for variation.

### (3) Exit Offer to Dissenting Shareholders

Dissenting shareholders = those who have NOT agreed to the variation proposal.
They must be given an exit offer by:
Promoters, OR
Controlling shareholders
Exit price, manner, and conditions are specified by SEBI Regulations.

## Memory Aid

"S-N-E" — Special resolution (postal ballot) + Newspaper notice (English + vernacular) + Exit offer to dissenters

Worked example

### Example 1

Example 1 — Permissible Variation: ABC Ltd raised ₹100 crores through a prospectus stating funds would be used for setting up a manufacturing unit in Pune. After 6 months, the Board wants to use ₹40 crores to set up an additional unit in Bangalore instead. Procedure required: (1) Pass special resolution by postal ballot; (2) Publish notice in English and vernacular newspaper in the city of registered office with justification; (3) Offer exit to dissenting shareholders at SEBI-prescribed price by promoters/controlling shareholders.

### Example 2

Example 2 — Impermissible Variation: XYZ Ltd raised funds through IPO and wishes to use ₹50 crores of issue proceeds to purchase equity shares of PQR Ltd (a listed company) as investment. Answer: This deviation is NOT permitted under any circumstances — even with shareholder approval. The absolute prohibition under Section 27 bars use of issue proceeds for buying/trading in equity shares of any other listed company.

⚠️ Common exam mistakes

Believing that special resolution alone is sufficient — students forget the additional newspaper publication and exit offer requirements.
Forgetting that the absolute bar on buying equity of other listed companies cannot be overridden by any resolution.
Confusing 'special resolution' with 'ordinary resolution' — Section 27 specifically requires special resolution by postal ballot.
Missing the requirement that exit offer must come from promoters/controlling shareholders (not the company itself).
Forgetting that dissenting shareholders are defined as those who did NOT vote in favor (not just those who voted against).

Bare-Act text Section 27 of the Companies Act, 2013 · The Companies Act, 2013 · click to expand

Section 27 — Variation in terms of contract or objects in prospectus: A company shall not vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued except by special resolution passed by postal ballot. Notice of resolution shall be published in newspapers (one English, one vernacular) in the city of the registered office indicating clearly the justification. Dissenting shareholders shall be given an exit offer by promoters or controlling shareholders at such exit price as specified by SEBI. Use of issue proceeds for buying or trading in equity shares of any other listed company is not permitted.

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Section 27 - Variation in Terms of Contract or Objects in Prospectus

Worked example

⚠️ Common exam mistakes