Page 127 - DCOM106_COMPANY_LAW

Company Law

Notes The Department of Companies Affairs has notified the rules, “The Companies (Issue of Share
Capital with Differential Voting Rights) Rules, 2001” which, inter alia, provide for the following:
1. Share with differential voting rights, including non-voting shares, cannot exceed 25 per
cent of the total issued share capital.
2. The company issuing such shares must have distributable profits in the three years
preceding such issues.
3. Companies will not be allowed to convert its equity capital with regular voting rights
into shares with differential voting rights and vice versa.

4. Issue of such shares must be approved by the shareholders by way of a resolution in a
general meeting:
The notice of the general meeting to shareholders shall carry an explanatory statement
detailing, inter alia, the following:
(i) Voting rights which shares with differential rights will carry;
(ii) Scale or proportion to which the voting rights of such shares will vary;

(iii) That the members holding equity shares with differential rights will be entitled to
bonus and rights shares of the same class.
5. Listed companies must obtain the shareholders’ approval through postal ballot.

6. Companies which have defaulted in filing annual returns during the preceding three
years or have failed to repay their deposits or interest thereon on due date or redeem
debentures on due date or pay dividend after becoming due, will not be eligible to issue
shares with differential rights.
7. Companies which have defaulted in addressing investors’ grievances will not be allowed
to issue such shares.
8. Issue of such shares must be authorized by articles of the company.
9. The company should not have been convicted of any offence under SEBI Act, 1992, Securities
Contract (Regulation) Act, 1956 and FEMA, 1999.
10. Members holding equity shares with differential rights shall be entitled to bonus and
rights issue of the same class.
The holders of equity shares carrying voting rights shall have voting rights in proportion to the
paid-up equity capital of the company, in case the voting is by poll [s.87(1)].

Rights/Powers of Equity Shareholders

In particular, the equity shareholders have the following rights/powers:

He can ask for a copy of memorandum and articles (s.39).
He is entitled to receive offer to subscribe to further issue of capital on rights basis (s.81).
The shareholders holding not less than 10 per cent of the issued shares, having not consented
to in favour of resolution for variation of rights may apply to the court for cancellation of
the variation of the rights of shareholders (s.107).
He has a right to apply to the CLB for rectification of register of members (s.111).

He has a right to inspect documents and registers to be kept by the company and ask
extracts therefrom (s.163).

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