DVRs: Against or For the notion of healthy Corporate Governance
Section 43 of the Companies Act, 2013 talks of Differential Voting Rights proposed by SEBI are shares devoid of voting rights, unlike equity shares. When the company wants and requires fuelling up their capital without diluting voting rights, they use DVRs. Here, the voting rights differ along with dividend and the investor can have either higher dividend, lesser voting rights, or lesser dividend, higher voting rights. The investors look for dividends and capital appreciation, not for control in the company.

The company must comply with Rule 4 of Share Capital and Debentures Rules 2014 in the issuance of equity share capital with DVRs. The cause for concern is whether DVRs are against the tenet of corporate governance as it dispenses for inadequate voting rights that may impede the tenets of corporate supremacy. One of the negative contentions was if DVRs were approved, it would be a win-win situation for promoters as superior rights would allow them to have the shares even after trading them.

Nevertheless, as per SEBI, a two-fold structure with greater voting rights wherein for unlisted companies, the share will have higher voting power rather than an ordinary share. For Listed companies, they would be having a mediocre voting right contrasted to an ordinary share.

As per the modified rules (16.08.2019), now the voting power of DVR shares shall not exceed 74% of total voting power which was earlier used to be 26% of the total post-issue paid-up equity share capital. The reason for this amendment was the percentage calculated on different bases which was ludicrous. Other criticisms were, issuing DVRs with superior rights could impair the marginal investors, marginalization of short-term shareholders, incapable to accomplish long term growth, dominance by the promoter and exploitation of DVRs could lead to trembling the trust of shareholders. Also, as per regulation 6 of SEBI (ICDR) 2018, there must be a consistent history of profits for the last 3 years, net tangible assets corresponding to Rs. 3 Crores however, it would be difficult to comply with this requirement for, let us say, a tech company as they have fewer tangible assets.

The practicability of DVRs is dubious. However, this action intended to make Indian marketplace extra responsive to the advanced countries. A plausible recommendation by could be to issue Compulsorily Convertible Preference Shares (CCPS) to minority investors as they convert into ordinary equity shares after 5 years.

To conclude, I think DVRs are not that bad to the market and offer some gains to the market as it aids in acquiring capital by lessening the dilution of the promoter and retain its control to withstand development and might act as a custodian from a cruel buyout. Hence, DVRs are not contrary to the tenet of healthy corporate governance wherein differential treatment can be done among shareholders holding an equal or superior sum of shares.