Differential Voting Rights

GROUP MEMBERS:-
1) PRADEEP JADHAV
2) RAHUL SINGH
3) PRANITA KUMARI
4) NATARAJ V.
5) NAMAN SANGARI
 COMPANY PROFILE
• Ashok Leyland’s shares are currently listed on the Bombay
Stock Exchange & National Stock Exchange of India
• It is the 2nd largest commercial vehicle manufacturer in India
• 4th largest manufacturer of buses in the world and 16th largest
manufacturer of trucks globally
 Introduction
• DVRs means shares that give the holder differential rights as to
voting (either more or less voting right) as against the Ordinary
shareholders of the company.
•  Trading similar to Equity Shares.
• The issue of DVRs can result in two types of shares
 Shares that have superior voting rights.
 Shares that have inferior voting rights but offer higher
dividends or are offered at a discount.
 Indian Scenario
The Issue of DVRs in India was allowed only since 2001. There was an
amendment made to Companies Act 1956 through an amendment in provisions
of Section 86. This Section stated that:

The share capital of a company limited by shares shall be of two kinds only,
namely:
• Equity share capital
– With voting rights; or
– With differential rights as to dividend, voting or otherwise in accordance with such rules
and subject to such conditions as may be prescribed .  
• Preference share capital
 Conditions for Eligibility
Every company limited by shares may issue shares with differential rights as to dividend,
voting or otherwise, if- 
• The company has distributable profits in terms of Section 205 of the Companies Act,
1956 for three financial years preceding the year in which it was decided to issue such
shares.
• The company has not defaulted in filing annual accounts and annual returns for three
financial years immediately preceding the financial year in which it was decided to issue
such share.  
• The company has not failed to repay its deposits or interest thereon on due date or
redeem its debentures on due date or pay dividend.
• The Articles of Association of the company authorizes the issue of shares with
differential voting rights.
• The company has not been convicted of any offence arising under, Securities Exchange
Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Foreign
Exchange Management Act, 1999.
 Changes made by SEBI

• Lot of voices raised on the misuse of DVRs with superior voting

rights by the management to get full control on the company
to the deterrent of the minority stakeholders.
• SEBI prohibited issue of DVRs with superior rights as to
dividend or voting in 21 July,2009.
Difference between DVR shares and ORDINARY shares
DVR SHARES
• Provide few voting right to
shareholders
• Rate of dividend is high
• DVR shares are ideal for small
shareholders
• Traded at a discount in
comparison with ordinary
shares
ORDINARY SHARES
• Higher voting right to
shareholders
• Rate of dividend is low in
comparison with DVR shares
• Ideal for large shareholders
• Traded at market price
 Advantages of Issuing DVR
From Issuer Perspective
• To raise more capital without
diluting its ownership
structure.
• A tool to avoid hostile take
over .
• To fund large Project
From Investor Perspective
• Economic Benefit as it is issued
at discount & also for
incremental dividend.
• Gain from capital appreciation
in a scenario where the price
difference between ordinary
and DVR shares falls
• Beneficial for the passive
investors
 Tata Motors
• In 2008, issued DVR shares.
• It was the first company in India to issue DVR shares and amongst the
very few in Asia.
• Issued at Rs 305 a share which was about 10% lower than the issue of
normal rights at Rs.340.
• Will offer 5% of more dividends.
• Gives an additional 10.3% discount.
• But carry one-tenth the voting rights of ordinary shares. This means
10 DVR shares = 1 ordinary share as far as voting rights is concerned.
TATA MOTORS DVR
 Pantaloons DVR issue
• On July 25 2008 Pantaloon Retail India Limited (PRIL) have approved a
proposal to provide shareholders with one bonus share with different
voting and dividend rights for every 10 shares held.
• The new shares, called Class B shares, will get five per cent more
dividend than ordinary shares and will be entitled to one vote for every
10 held.
• The company issued bonus shares that were DVRs in February 2009.
PANTALOON INDIA’S DVR’S
HISTORICAL TREND
 GOOGLE
• Google already had two classes of shares – A shares that have
one vote per share and B shares that have 10 votes per shares.
• The founders own the bulk of the B shares and that gives them
the ability to issue new stock without diluting their control
over the company. The new class of shares they have issued is
called the C class, and these shares won’t have any voting
rights at all
 Ford motor company
• The shares available to the public are not normally identified
by a letter and have voting rights. There are 1,114,618,895
total Ford shares outstanding.
• However, included in that number are 70.9 million class B
shares owned by the Ford officers and certain key officers.
These shares have weighted voting rights that allow them to
control nearly 40% of the votes
INTERNATIONAL DVR’S
 Key strengths of India stock market
The two main players of the India stock market - NSE and BSE have outshone all the other
exchanges and majority of the stocks are listed on these two exchanges. The market participants
are ever increasing, the volume of securities has been growing, transaction costs are getting
reduced, and there is significant improvement in efficiency, transparency and safety.

Important elements of India stock market -

• Investors
• Issuers
• Intermediaries
• Regulators

If all these four elements are taken good care of from the onset, a stock market can easily exhibit
sound growth and perform exponentially. 
 The Road Ahead
1) Need to review the pre conditions (on the issue of DVR)& to add more
relevant and stricter qualifying norms on such issues.
2) Companies issuing DVRs need to clearly specify their intend for such an issue in
the offer document.
3) A separate committee of Directors, consisting of only Independent Directors
should be involved .
4) The pricing mechanism used for arriving at the issue price of DVRs needs to be
disclosed.
5) Ensure better investor awareness on DVRs.
6) The rights of the DVR holders need to be clearly defined.
 Conclusion
• For an investor, who wants to be in the company’s decision
processes, DVR shares is not an attractive proposition due to
limited voting rights.
• But if an investor isn’t concerned much with voting rights, then
investing in the DVR would certainly be an attractive option.
Thank You.