On March 20, 2019, SEBI issued a consultation paper (“consultation paper”) on the issuance of DVRs to address the “growing debate on the need to issue and enhance shares with DVR in India.” Among other things, the document highlighted the benefits and needs of DVR in light of India`s “high growth phase, which requires companies to raise capital to maintain this growth.” Because some companies with asset light models prefer equity to borrowing, issuing higher voting shares (“SR”) on founders and/or shares with lower or split voting rights (“RR”) to private or public investors may be considered a viable option for raising capital. The first question is whether such positive voting rights can be granted under the law? Section 87 of the Act gives the same right to vote to all shareholders of the same class. Therefore, members of Section 87 are not eligible for special voting rights for members of the same class. Section 43 (1) of the Corporations Act (which replaced the old Act) is similar to Section 86 of the Old Act and authorizes the issuance of shares with different voting rights. However, section 47 of the Companies Act provides that any member of a company limited by shares and equity may vote on any decision submitted to the company. Sunset clause/conversion of SR shares: SR shares automatically turn into common shares on the 5th (5th anniversary) of the listing of the company`s common shares, i.e. they lose their voting rights and each SR share is entitled to one vote as if it were a share of related shares. The validity of SR shares may be extended, with the consent of shareholders, from a special decision at a general meeting at which all members vote on a “one-vote” basis regardless of the nature of their participation. However, proponents may expedite the conversion of their SR shares into common shares at any time prior to the fifth (fifth) anniversary or extended period. For this reason, the “yes” of Group B will not impede Group A decision-making, provided that the requirements of the law are met.
The only way Group A can defeat a special resolution is to hold at least 26%; and a proper liquidation can be rejected by only 50% of shares. Request: If the company decides to issue a bonus or share split, SR shareholders are entitled to SR shares. Similarly, the SR shareholder is entitled to SR shares in the event of preferential rights being granted. However, the SR shareholder cannot waive the rights to the SR shares. The right to vote on all these SR shares remains the report that the company originally adopted. The sunset over the time for these SR shares remains from the date of the listing of the common shares of this company. SEBI has published an informal guide on the intersessic transfer of shares between project proponents and voting agreements under the acquisition code. This was published on request by the promoters of Cipla Limited, one of India`s leading pharmaceutical companies. Until August 16, 2019, Rule 4 of the Order of Companies (Equity And Bonds) of 2014 (“SCDR”) has set out certain additional requirements that must be met by companies wishing to issue shares with different dividend rights, voting rights or other means.