# Variation in Terms of Contract or Objects in Prospectus (Section 27)

## Underlying Principle — Doctrine of Ultra Vires

Once funds are raised under a prospectus, the doctrine of ultra vires (mutatis mutandis) applies — the company must use the funds strictly in accordance with the prospectus. Any deviation needs:

Pre-approval by investors, and
A recall (exit) option for dissenting investors.

## Specific Prohibition

Deviation regarding use of issue proceeds for buying, trading, or otherwise dealing in equity shares of any other listed company is NOT permitted — no matter what investors approve.

## Procedure for Variation

### (1) Special Resolution by Postal Ballot

A company may vary the terms of a contract referred to in the prospectus, or the objects for which the prospectus was issued, only by way of a special resolution passed by postal ballot.

### (2) Notice to Shareholders & Public

The details of the notice for such resolution shall also be published in newspapers:

One in English and
One in the vernacular language

...of the city where the registered office is situated, clearly indicating the justification for such variation.

### (3) Exit Offer to Dissenting Shareholders

Dissenting shareholders = shareholders who have not agreed to vary the terms/objects.
They shall be given an exit offer by the promoters or controlling shareholders.
Exit price, manner, and conditions are as specified by SEBI by regulations.

## Memory Hook

"Special resolution + Postal ballot → Newspaper notice → Exit for dissenters → Never buy other listed equities."

Worked example

### Example 1

Example 1 — Valid variation: ABC Ltd raised ₹100 crore via a prospectus stating funds would be used for a new factory in Maharashtra. Due to delays, the Board wishes to shift the factory to Gujarat. Required: Pass a special resolution by postal ballot, publish the notice in English and Marathi newspapers in the city of the registered office, and offer exit to dissenting shareholders at SEBI-specified price.

### Example 2

Example 2 — Prohibited variation: A company wishes to use unutilised IPO proceeds to invest in equity shares of XYZ Ltd, a listed company. Result: Even with 100% shareholder approval, this is not permitted — the Act expressly bars such deviation.

### Example 3

Example 3 — Newspaper publication: Registered office is in Chennai. Notice published only in 'The Hindu' (English). Result: Non-compliance — must also publish in a Tamil (vernacular) newspaper of Chennai.

⚠️ Common exam mistakes

Using an ordinary resolution or a general meeting — the Act specifically requires a special resolution by postal ballot.
Forgetting the newspaper publication step — it is mandatory, in both English and vernacular.
Believing all variations are permitted with shareholder approval — variation for buying/trading equity in another listed company is absolutely prohibited.
Confusing who must give the exit offer — it is promoters or controlling shareholders, NOT the company itself.

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

Section 27 — 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 way of a special resolution through postal ballot. Notice of the resolution shall be published in newspapers (one English, one vernacular) in the city of registered office. Dissenting shareholders shall be given an exit offer by promoters/controlling shareholders at such price as SEBI specifies. Variation for buying/trading equity shares of any other listed company is not permitted.

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