Differential Voting Rights as a Takeover Defence

Shares with differential voting rights (DVRs) have been permitted to be issued by Indian companies since 2001 when the Companies (Issue of Share Capital with Differential Voting Rights) Rules were issued. Not only have there been stringent conditions imposed with respect to issuance of shares with DVRs, but the rules themselves have given rise to several issues (particularly with reference to interpretation) due to which not many companies have actually availed of the benefits of DVRs.

DVRs can potentially be an effective tool to defend against hostile takeovers. For instance, promoters of a company may issue shares with DVRs to themselves, whereby they can hold a small number of shares, but still exercise a large number of votes. This will act as a resistance against hostile acquirers.

Today’s Livemint reports that a case pertaining to Jagatjit Industries that is currently pending before the Company Law Board may well clarify some of the existing ambiguities relating to DVRs and help determine their effectiveness as a takeover defence. The report also contains a discussion on several implications of issuance of DVRs, especially under the SEBI Takeover Code.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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