Differential Voting Rights - Under Gray Area
Lawz Magazine, November 2011
8 Pages Posted: 31 Jul 2011
Date Written: July 30, 2011
In India within half a decade in the realm of corporate laws plethora of innovative concepts has mushroomed. These concepts have helped the corporate world to keep in tune with the changing demands of the market. Every day demand for a sound capital base is increasing. With companies needing more and more capital through equity and less and less interference in the management, a complete new concept has evolved in the corporate world. This is the concept of Shares with Differential Voting Rights. Recently, the most talked about issue in the corporate industry was that India's largest passenger automobile and commercial vehicle manufacturing company, Tata Motors, has issued shares on a rights basis with differential voting rights to finance the acquisition of Jaguar-Land Rover. The motive this issue is to raise an estimated amount of around Rs. 7200 Crores through this project. Nearly seven years after the government permitted the issue of equity shares with differential voting rights, Tata Motors becomes the first Indian company to make a rights issue carrying differential voting rights (DVR), with its offer opening on September 29. This new class of shares can be utilized very well by the companies that are already listed and want to raise more and more capital without too much of a dilution in the voting power.
As we all are aware that Security and Exchange Board of India in its recent meeting banned the issuance of shares with superior voting rights “SVRS” by listed companies in order to avoid the possible misuse by person in control to the detriment of public shareholding. This move has been taken to prevent persons in control of the company from issuing shares to themselves, which provide equal economic benefits with other shareholders but more voting rights and hence better control. It is worth noting that this decision of SEBI is undoubtedly taken in order to dilute the effect of Company Law Board ruling given on February 2009 in the matter of Anand Persad Jaiswal v. Jagatjit Industries Limited popularly known as Jagatjit Industries Case.
Keywords: DVR, differential voting rights, Jagatjit Industries Case
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