Differential Voting Rights

shares with differential voting rights - DVR

Since December, 2000, Indian companies have been permitted to issue ‘dual class shares’. This was when the concept of ‘shares with differential voting rights’[1] was introduced in the Companies Act, 1956. The Securities and Exchange Board of India (SEBI) has, since July 21, 2009[2], disallowed listed companies to issue shares with superior rights to voting or dividend. However, listed companies were permitted to issue shares with inferior (or fractional) voting rights.

In an apparent reversal of its policy position, SEBI in its board meeting on June 27, 2019, approved a framework for the listing of companies that have shares with superior voting rights, while disallowing any further issuance of shares for those with inferior voting rights.
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Shares with Differential Voting Rights

The Securities Exchange Board of India (SEBI) has recently circulated a consultation paper on Differential Voting Rights (DVRs). Issuance of shares with differential voting or dividend rights is not a novel concept for India. It has been around since 2000 and a few listed companies, like Tata Motors and Pantaloons, have issued shares with differential voting / dividend rights.

However, ever since, SEBI amended the Listing Regulations in 2009, to state that listed companies are not permitted to issue shares with ‘superior rights’, there have hardly been any takers for this instrument. SEBI’s current proposal appears to be an attempt to breathe some life into such instruments by providing more flexibility in structuring the terms of such issuances, albeit with some checks and balances.  
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