Section 27 of Companies Act, 2013: When a Company Wants to Change the Deal

Companies evolve.
Plans change.
What looked perfect at the time of raising money may not remain relevant five years later.

But here’s the problem.

When a company raises funds by issuing a prospectus, investors put in money based on specific promises. Objects. Contracts. Usage of funds. Change those later, and the entire investment decision starts looking shaky.

That is exactly where Section 27 of Companies Act, 2013 steps in.
Not to stop companies from changing. But to make sure they don’t do it quietly.

Why Section 27 Exists in the First Place

The Companies Act, 2013 tries hard to walk a fine line.
Give companies room to operate. But don’t let them misuse investor trust.

Section 27 deals with variation of terms mentioned in a prospectus or contracts referred to in it. These are not small operational tweaks. These are changes that can materially affect shareholder expectations.

So the law says one simple thing.
If you want to change what you promised investors, ask them first.

What Section 27 of Companies Act, 2013 Actually Covers

Section 27 applies when a company wants to:

• Change the objects stated in the prospectus, or

• Vary the terms of contracts referred to in the prospectus

Once money is raised from the public, those terms are no longer just internal decisions. They belong to shareholders too.

The company cannot alter them on its own.
Board approval alone is not enough.

Special Resolution Is Not Optional Here

This is where many companies get it wrong.

Under Section 27, any such variation must be approved by a special resolution in a general meeting. That means at least 75% of shareholders present and voting must agree.

Not 50.
Not board majority.
A clear supermajority.

And shareholders must be told exactly:

• What is changing

• Why it is changing

• How it impacts them

No vague explanations allowed.

General Meeting and Public Notice – Yes, Both

Calling a general meeting is mandatory. But that’s not all.

The company must also publish notice of the proposed variation in newspapers with wide circulation. This ensures even passive investors are informed.

The law assumes that not every shareholder tracks emails or filings daily.
So the burden is on the company to reach them.

Transparency is the theme here. Loud and clear.

Exit Option: Protection for Unhappy Shareholders

This is where Section 27 really shows its intent.

If a shareholder does not agree with the proposed change, the law says they should not be forced to stay invested. Companies must provide an exit opportunity at a fair price.

This protects minority shareholders from being dragged into a business they never agreed to fund.

It also forces companies to think twice.
Because if too many shareholders exit, the cost of the change becomes real.

How SEBI Fits Into This Picture

For listed companies, Section 27 works alongside SEBI regulations.

SEBI already mandates disclosures, shareholder approval, and exit mechanisms in case of material changes. Section 27 ensures the Companies Act and SEBI regulations are aligned, not conflicting.

Ignore either, and consequences follow.
Regulatory action. Penalties. Reputational damage.

No company wants that.

What This Means in Real Business Terms

Section 27 affects how decisions are made internally.

Before proposing any variation, companies must now ask:

• Is this change genuinely required?

• Will shareholders support it?

• Are we ready to offer exits if they don’t?

It pushes companies towards better planning and honest communication.

Real-Life Situations Where Section 27 Comes Into Play

Think of a company that raised money for manufacturing but later wanted to move into real estate. That’s not a minor pivot. Shareholders objected. Exit options were provided. The process held.

Or a company wanting to modify long-term contracts mentioned in the prospectus. Instead of quietly renegotiating, it followed Section 27, called a meeting, passed a resolution, and avoided litigation.

Compliance saved time, money, and credibility.

Common Errors Companies Still Make

Despite clarity, mistakes happen.

• Notices are poorly drafted

• Newspaper publication is skipped

• Exit options are delayed or undervalued

• Changes are pushed through with ordinary resolutions

Each of these can invalidate the entire process.

And once challenged, fixing it later becomes messy.

Why Section 27 Strengthens Corporate Governance

This provision forces discipline.

Directors cannot act in isolation.
Shareholders are part of the decision.
Minority voices are not ignored.

Companies that respect this process generally face fewer disputes and enjoy stronger investor trust.

Governance improves not because of fear, but because of structure.

Final Thoughts

Section 27 of Companies Act, 2013 is not anti-business.
It is anti-surprise.

Change is allowed.
Silence is not.

By requiring approvals, disclosures, and exit options, the law ensures companies remain flexible without betraying investor confidence.

And that balance matters more than most people realise.

Need help with Section 27 compliance, drafting resolutions, or managing shareholder approvals?

Get expert, practical support at Callmyca.com — before a small change becomes a big problem.