Infra Ltd came out with an IPO of equity shares in April 2018. The prospectus issued for the purpose explained that the purpose of the IPO was to fund a 1000 MW mega solar power project and substantiated the position by

CS Professional · Advanced Company Law and Practice · PYQS · December 2018
Infra Ltd came out with an IPO of equity shares in April 2018. The prospectus issued for the purpose explained that the purpose of the IPO was to fund a 1000 MW mega solar power project and substantiated the position by citing the contract they have won from Solar Power Corporation with a tariff rate of ₹4.00 per kWhr. Prashant subscribed to the IPO for 50,000 equity shares at ₹10 each, which was duly allotted by the company. Subsequently in July 2018, the Company came out with an update that the tariff rate in the above contract has been slashed down to ₹3.00 per kWhr. Prashant is of the view that the company will lose money with such a low tariff and would not like to continue his investment in the company. The said equity share was trading at ₹7.00 in the market. Is there any remedy available to Prashant? Advise.

Answer & Explanation:

Section 27 of the Companies Act, 2013 provides that where there is a variation in the contract indicated in the prospectus, on the basis of which the Company issued securities, the Company needs to get the approval of the shareholders in the general meeting by way of a special resolution. The dissenting shareholders, being those shareholders who have not agreed to the proposal to vary the said terms of contract referred to in the prospectus, shall be given an exit offer by the promoters or controlling shareholders of the Company at such exit price and terms and conditions as may be specified by SEBI. Thus, Prashant can exercise the exit offer made by the Company and mitigate his loss.

Topics: Prospectus and Allotment of Securities

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