SEBI (Listing Obligations and Disclosure Requirements) Fourth Amendment with respect to shares with differential voting rights

The Market Regulator, Securities and Exchange Board of India (‘SEBI’) at its Board meeting held on 27 June 2019 approved the Framework for Issuance of Differential Voting Rights (DVR) Shares with enhanced corporate governance compliance for listed entities issuing shares with Superior Rights. 

 To give effect to its decision, SEBI has notified SEBI (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2015 to become effective from dated July 29, 2019.

The brief of the amendments are as under:

Where the listed company has outstanding SR equity shares,

·      Regulation 17(1)(d):At least half of the board of directors shall comprise of independent directors

·      Regulation 18 (1)(b):The audit committee of a listed entity shall comprise only of independent directors

·      Regulation 19(1)(c):At least two thirds of the nomination and remuneration committee shall comprise of independent directors

·      Regulation 20 (2A):At least two thirds of the Stakeholders Relationship Committee shall comprise of independent directors

·      Regulation 21(2): At least two thirds of the Risk Management Committee shall comprise of independent directors

·      Regulation 41(3):The listed entity shall not issue shares in any manner that may confer on any person;

i) superior or inferior rights as to dividend vis-à-vis the rights on equity shares that are already listed; or

ii) inferior voting rights vis-à-vis the rights on equity shares that are already listed:

A listed entity having SR equity shares issued to its promoters/ founders, may issue SR equity shares to its SR shareholders only through a bonus, split or rights issue in accordance with the provisions of the SEBI (ICDR) Regulations, 2018.

·      Regulation 41A

Other provisions relating to outstanding SR equity shares

1. The SR equity shares shall be treated at par with the ordinary equity shares in every respect, including dividends, except in the case of voting on resolutions.
2. The total voting rights of SR shareholders (including ordinary shares) in the issuer upon listing, pursuant to an initial public offer, shall not at any point of time exceed 74%.
3. List of Circumstances in which SR equity shares shall be treated as ordinary equity shares in terms of voting rights has been mentioned such as appointment/ removal of Independent Directors, Related Party Transactions involving SR shareholder, Voluntary winding up, changes in AOA/ MOA except change affecting SR equity share, delisting of equity shares etc.
4. SR equity shares shall be converted into ordinary shares on elapse of 5 years after listing of the ordinary shares. The same can be extended for further 5 years after passing a resolution to that effect, with the SR shareholders abstaining from voting.
5. Circumstances when SR equity shares shall be mandatorily converted into ordinary shares has been provided viz. demise of promoter/ founder holding such shares, SR shareholder resigning from executive position, merger or acquisition of listed entity resulting in SR shareholders cease to have control and if the SR equity shares are sold by an SR shareholder holding shares after the lock-in period but prior to the lapse of validity of such SR equity shares

Click here to read the notification