Sections 47 and 48 of the Companies Act, 2013: Voting Rights and Variation of Shareholders' Rights
Sections 47 and 48 form part of Chapter IV of the Companies Act, 2013 dealing with share capital and debentures. Section 47 governs voting rights attached to equity and preference share capital, while Section 48 lays down the statutory procedure for varying rights attached to a class of shares.
- Equity shareholders ordinarily vote on every resolution, subject to the Act.
- Voting on a poll is generally proportionate to the member's share in paid-up equity capital.
- Preference shareholders ordinarily vote only on specified matters affecting their rights, capital or winding up.
- If dividend on a class of preference shares remains unpaid for two years or more, that class may vote on all resolutions.
- Class rights may be varied only through the procedure and thresholds prescribed by Section 48.
- Qualifying dissenting holders may approach the National Company Law Tribunal (NCLT) within the statutory period to seek cancellation of a variation.
Section 47 - Voting rights
Meaning: Section 47 determines when members holding equity or preference share capital can vote and how their voting strength is calculated.
Equity shareholders
Subject to Section 43, Section 50(2) and Section 188(1), every member of a company limited by shares who holds equity share capital has a right to vote on every resolution placed before the company. On a poll, the voting right is proportionate to the member's share in the paid-up equity share capital.
Preference shareholders
A holder of preference share capital ordinarily has voting rights only on resolutions that directly affect the rights attached to those preference shares and on resolutions concerning winding up or repayment or reduction of equity or preference share capital. On a poll, voting strength is proportionate to the holder's share in the paid-up preference share capital.
For voting involving equity and preference shareholders, the Act also prescribes proportionality between the voting rights of the two groups by reference to their respective paid-up capital.
Where dividend in respect of a class of preference shares has not been paid for two years or more, holders of that class acquire the right to vote on all resolutions placed before the company.
Related provisions
| Provision | Relevance |
|---|---|
| Section 43 | Recognises equity share capital with voting rights and equity share capital with differential rights as to dividend, voting or otherwise, subject to prescribed rules. |
| Section 50(2) | Deals with voting rights in relation to amounts paid by a member in advance of calls, subject to the articles. |
| Section 188(1) | Contains voting restrictions relevant to specified related party transactions, subject to the statutory framework and applicable exceptions. |
Section 48 - Variation of shareholders' rights
Meaning: Section 48 protects rights attached to a particular class of shares. Where a company's share capital is divided into different classes, those class rights cannot ordinarily be altered merely by a general decision of the company; the statutory class-consent procedure must be followed.
How class rights may be varied
Rights attached to shares of a class may be varied with the written consent of holders of not less than three-fourths of the issued shares of that class, or by a special resolution passed at a separate meeting of holders of the issued shares of that class.
The variation must be authorised by the memorandum or articles, or, where they contain no such provision, the variation must not be prohibited by the terms on which the shares of that class were issued.
If the variation by one class affects the rights of another class, consent of three-fourths of that other class must also be obtained and Section 48 applies to that variation as well.
Protection of dissenting shareholders and NCLT remedy
Holders of not less than ten per cent of the issued shares of the affected class who did not consent to the variation or vote in favour of the special resolution may apply to the Tribunal to have the variation cancelled. The application must be made within twenty-one days after the consent was given or the resolution was passed. Once such an application is made, the variation does not take effect unless and until it is confirmed by the Tribunal.
The Tribunal's decision is binding on the shareholders. The company must file a copy of the Tribunal's order with the Registrar within thirty days of the order.
2020 amendment
Former sub-section (5) of Section 48 was omitted by the Companies (Amendment) Act, 2020 with effect from 21 December 2020. Accordingly, the current operative structure of Section 48 consists of sub-sections (1) to (4).
Practical distinction between Sections 47 and 48
| Section 47 | Section 48 |
|---|---|
| Deals with the right to vote and voting strength. | Deals with alteration of rights attached to a class of shares. |
| Distinguishes equity and preference shareholder voting rights. | Requires class consent or a separate class special resolution. |
| Operates when resolutions are placed before members. | Provides protection where existing class rights are proposed to be varied. |
| Includes expanded voting rights for preference shareholders where dividend remains unpaid for the prescribed period. | Provides a statutory NCLT remedy to qualifying dissenting class shareholders. |
Official legal resources
- India Code - Central Acts and subordinate legislation
- Ministry of Corporate Affairs - Acts, Rules, Notifications and MCA services
This page is intended as a general legal-information guide. For a transaction, class-right variation, shareholder dispute or NCLT proceeding, the company's memorandum, articles, terms of issue, applicable rules, notifications and case-specific facts should also be examined.