In the year 2000, Companies Act, 1956 had amended section 86 whereby companies were permitted to issue DVRs Instruments with differential rights as to dividend, voting or otherwise. Subsequently, w.e.f. February 24, 2009, Securities and Exchange Board of India (“SEBI”) amended erstwhile SEBI (Disclosure and Investor Protection) Guidelines, 2000 (“SEBI DIP Regulations”) to facilitate listed companies to issue DVRs Instruments on the stock exchange by way of bonus and rights issue to all the existing shareholders.
Meanwhile, Companies Law Board (“CLB”), on March 12, 2009, issued a favorable ruling in case of Jagatjit Industries Limited[1] (“JIL”) case, supporting preferential issue of DVRs Instruments by JIL. In the instant case, 2 shareholders collectively holding 11.5% stake, challenged resolution passed by JIL for issuance of DVRs Instruments with SR Shares in the ratio of 20 votes to one of its shareholder, thereby increasing such shareholder’s total voting rights over JIL to 62%, against economic rights of 32.1%. CLB upheld the said resolution constituting it as valid and legal since issue of DVRs Instruments was in accordance with articles of association of the company and the provisions of section 86 of the Companies Act 1956.
Pursuant to above CLB’s ruling, in order to protect the interest of public shareholders, SEBI issued a circular on July 21, 2009 instructing the stock exchanges to amend the equity listing agreement by inserting a new clause 28A thereby prohibiting issuance of shares which may confer on any person, superior rights as to voting or dividend vis-a-vis the rights on equity shares that are already listed.
Immediately in short time thereafter, SEBI DIP Regulations were replaced by SEBI (Listing Obligations and Disclosure Requirements), 2009, w.e.f. August 25, 2009 with provisions restricting issuance of DVRs Instruments with superior rights as to voting, dividend.
No such restriction was imposed on issuance of DVRs Instruments with FR Shares so long as such FR Shares does not carry any additional benefits such as additional dividend, any other incentive, etc.
Till now very few listed companies have issued and listed DVRs Instruments with FR Shares, summary of which is as follows:
| Name of issuer Company | Tata Motors Ltd | Future Enterprises Limited (erstwhile Pantaloons Retails Limited) | Gujarat NRE Coke Ltd | Jain Irrigation Systems Limited | Arman Financial Services Limited | Stampede Capital Limited |
| Date of listing of ordinary shares | 26/12/2003 | 29/11/2001 | 01/08/1994 | 30/11/2011 | 2001-02 | 20/05/1996 |
| Period of issue of DVRs Instruments | 05/11/2008 | 20/07/2008 | 26/05/2010 | 30/11/2011 | NA | 10/10/2017 |
| Period of listing of DVRs Instrument | 2008-09 | 2008-09 | 2009-10 | 2010-11 | 2012-13 | 2017-18 |
| Mode of Issue of DVRs Instrument | ‘Rights issue to existing shareholders | Bonus shares to existing shareholders; Subsequently terms revised pursuant to passing of Special Resolution on January 2012 | Bonus shares to existing shareholders for every 10 ordinary shares held | Bonus shares to existing shareholders for every 20 ordinary shares held | Initially 5% CCD were issued, which, subsequently, converyed into 5% class B ordinary shares on April 18, 2012 | Bonus shares to existing shareholders for every 4 ordinary shares held |
| Terms of DVRs Instruments – Voting rights | Fractional Voting rights – 1/10th | Original term: Fractional Voting rights – 1/10th; Revised Term: Fractional Voting rights – 3/4th | Fractional Voting rights – 1/100th | Fractional Voting rights – 1/10th | Fractional Voting rights – 1/1,00,000th | Fractional Voting rights – 1/1000th |
| Terms of DVRs Instruments – Dividend rights | 5% higher dividend as compared to ordinary shares | Original term: 5% higher dividend as compared to ordinary shares; Revised Term: 2% higher dividend as compared to ordinary shares | Dividend rights at par with ordinary shares | Dividend rights at par with ordinary shares | Dividend rights at par with ordinary shares | Dividend rights at par with ordinary shares |
| Status of DVRs Instruments | Listed ((Issued To fund acquisition of Jaguar – Land-rover) | Listed | Listed; Suspended from trading on the recognized stock exchange | Listed | W.e.f November 18, 2019, unlisted DVRs Instruments extinguished pursuant to Scheme of Arrangement for re-organisation of share capital | Listed |
Out of the above 6 companies, DVRs Instruments issued by Tata Motors Limited and Future Enterprises Limited carry additional dividend rights on the DVRs Instruments since same were issued prior to SEBI imposing prohibitions as discussed above.
Recently, on March 20, 2019, SEBI had released a consultation paper submitted by the DVR Group for public comments (“Report”).
Based on the recommendations of Primary Market Advisory Committee and the public comments, SEBI vide its press release dated June 27, 2019 approved introduction of a new framework for issuance of DVRs Instruments with SR Shares by an unlisted company proposing to list its shares by way of an Initial Public Offering (“IPO”).
As it can be seen, provisions for DVRs Instruments have considerably evolved over past 20 years. It is interesting to see how companies now a days are adopting DVRs Instruments as a mode of restructuring their capital with a long term view. For understanding regulatory regime around DVRs Instruments and Tax considerations, refer articles , ‘DVRs Instruments: Regulatory Framework‘ and ‘DVRs Instruments: Transaction Tax‘. We have analysed detailed implications on DVRs Instruments from tax and regulatory perspective in these coverages.
For detailed discussion on the above subject, please feel free to connect at contact@devadhaantu.in
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[1] Anand Parshad Jaiswal v Jagatjit Industries Limited [2010] 1 Comp. LJ 509 (CLB-New Delhi)
