Chapter III - Prospectus and Allotment of Securities
Section 27
Section 27: varying a prospectus contract or the objects of an issue
Once a company has raised money through a prospectus, it cannot freely change a contract referred to in the prospectus or the objects for which the prospectus was issued. Section 27 requires shareholder approval by special resolution and protects shareholders who disagree.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution: Provided that the details, as may be prescribed, of the notice in respect of such resolution to shareholders, shall also be published in the newspapers (one in English and one in vernacular language) in the city where the registered office of the company is situated indicating clearly the justification for such variation: Provided further that such company shall not use any amount raised by it through prospectus for buying, trading or otherwise dealing in equity shares of any other listed company. (2) The dissenting shareholders being those shareholders who have not agreed to the proposal to vary the terms of contracts or objects referred to in the prospectus, shall be given an exit offer by promoters or controlling shareholders at such exit price, and in such manner and conditions as may be specified by the Securities and Exchange Board by making regulations in this behalf.
Introduction
The section has two parts. Sub-section (1) sets the approval route and two provisos: published notice with a justification, and a bar on using prospectus money to deal in the equity shares of other listed companies. Sub-section (2) gives dissenting shareholders an exit offer from the promoters or controlling shareholders on terms specified by SEBI regulations.
Section 27 commenced on 1 April 2014 under S.O. 902(E). The India Code consolidated text shows no amendment, and the text is identical to the Act as published in 2013.
Key takeaways
Special resolution needed
A variation of a prospectus contract or of the objects of the issue needs the approval of, or an authority given by, the company in general meeting by special resolution.
Published justification
The prescribed details of the notice of the resolution must be published in two newspapers, one in English and one in the vernacular language, in the city of the registered office, clearly stating the justification for the variation.
No trading with issue money
The company must not use any amount raised through the prospectus to buy, trade in or otherwise deal in equity shares of any other listed company.
Exit for dissenters
Shareholders who did not agree to the variation must be given an exit offer by the promoters or controlling shareholders, on the price and terms set by SEBI regulations.
What section 27 controls
Section 27(1) covers two things: the terms of a contract referred to in the prospectus, and the objects for which the prospectus was issued. A company may not vary either "at any time" except with the approval of, or an authority given by, the company in general meeting by special resolution.
The first proviso requires the details of the notice of the resolution, as prescribed, to be published in newspapers, one in English and one in the vernacular language, in the city where the registered office is situated. The notice must clearly state the justification for the variation. The second proviso bars the company from using money raised through the prospectus to buy, trade in or otherwise deal in equity shares of any other listed company.
Exit offer to dissenting shareholders
Section 27(2) defines dissenting shareholders as those who have not agreed to the proposal to vary the contract terms or the objects. They must be given an exit offer by the promoters or controlling shareholders. The exit price, manner and conditions are those specified by the Securities and Exchange Board of India by regulations. The section itself does not fix the price.
Who this matters to
The section applies to companies that raised money through a prospectus, which in practice means public issues. Boards that want to redeploy unutilised issue money, or change a contract disclosed in the offer document, need to plan for the general meeting, the published notice and the exit offer obligation of the promoters.
Practical preparation
Identify whether the change touches a contract referred to in the prospectus or the stated objects; prepare the justification; pass the special resolution in general meeting; publish the prescribed notice details in an English and a vernacular newspaper in the city of the registered office; check the current rules for the details to be published; arrange the exit offer to dissenting shareholders under the applicable SEBI regulations; confirm that no issue money is used to deal in other listed companies’ equity shares.
Practical checklist
Do
- State the reasons for the variation clearly in the notice and the published advertisement.
- Coordinate with promoters early, because the exit offer obligation falls on them.
- Check the current rules and SEBI regulations before fixing the meeting timetable.
Avoid
- Do not change the use of issue proceeds before the special resolution is passed.
- Do not park issue money in equity shares of other listed companies.
Illustrative example
Hypothetical: redeploying unspent issue money
A listed company raised money to build a plant, but the project was dropped. The board wants to use the balance for working capital.
Assess
The change alters the objects for which the prospectus was issued, so section 27 applies.
Approve
The company calls a general meeting and passes a special resolution.
Publish
The prescribed notice details, with the justification, appear in an English and a vernacular newspaper in the city of the registered office.
Exit offer
The promoters make an exit offer to dissenting shareholders on the SEBI-specified terms.
Outcome
- The variation is valid, and shareholders who disagreed have had the opportunity to exit.
Glossary
- Objects of the issue
- The purposes for which the prospectus said the money was being raised.
- Dissenting shareholders
- Shareholders who have not agreed to the proposal to vary the contract terms or objects.
- Special resolution
- A resolution passed in general meeting by the majority required for special resolutions under the Act.
Frequently asked questions
Can the board alone change the objects of a public issue?
No. Section 27(1) requires the approval of, or an authority given by, the company in general meeting by special resolution.
Who pays the exiting shareholders?
The promoters or controlling shareholders make the exit offer under section 27(2), at the price and on the terms specified by SEBI regulations.
Can unutilised issue money be invested in listed shares meanwhile?
Not in equity shares of other listed companies. The second proviso to section 27(1) bars using prospectus money to buy, trade in or otherwise deal in them.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026