# Equity Shares with Differential Rights (DVRs)

DVRs are equity shares that carry different rights as to dividend, voting, or otherwise. They are governed by Rule 4 of Companies (Share Capital and Debentures) Rules, 2014.

## Conditions for Issue of DVRs

### 1. Authorisation

The Articles of Association must authorise the issue of DVRs.

### 2. Resolution Requirement

Unlisted Companies: Ordinary Resolution at a general meeting.
Listed Companies: Ordinary Resolution via postal ballot.
The explanatory statement must disclose the size of the issue and the differential rights.

### 3. Voting Power Cap

Shares with differential voting rights cannot exceed 74% of the total voting power at any time.
(This means at least 26% voting power must always rest with ordinary equity holders.)

### 4. No Default in Filings

No default in filing financial statements or annual returns for the last 3 years.

### 5. No Subsisting Defaults in:

Dividend payments
Repayment of deposits + interest
Repayment of debentures + interest
Redemption of preference shares

### 6. No Subsisting Defaults in:

Payment of Preference Share Dividend
Payment of employee statutory dues
Transferring dues to IEPF
Repayment of term loans from PFI/SFI/banks + interest

Cure period: A company can issue DVRs after 5 years from end of FY in which default was made good.

### 7. No Recent Penalty

No penalty by Court/Tribunal in last 3 years under RBI Act, SEBI Act, SCRA 1956, FEMA 1999, or sector-specific laws.

### 8. No Conversion Between Categories

Existing ordinary equity shares cannot be converted into DVRs, and vice versa.

### 9. Equality in Other Rights

DVR holders enjoy the same rights as ordinary shareholders for bonus shares and rights issues, subject only to their differential rights.

### 10. Disclosure Obligations

Register of Members must record DVR details.
Board's Report for the FY of issue must disclose the DVR issue.

## Exemptions

Not applicable to:

Specified IFSC Public Companies — if MOA/AOA permits.
Private Companies — if MOA/AOA permits.

## Quick Recall: 74-3-5 Rule

74% — max voting power cap for DVR class.
3 years — clean record of filings and no Tribunal penalties.
5 years — cool-off after curing certain defaults.

Worked example

### Example 1

Example 1 — Voting cap: XYZ Ltd's total voting power is 100. It already has 60 votes in DVR class. Can it issue another 20 DVR votes?

Answer: No. After issue, DVR voting power = 80, which exceeds the 74% ceiling. The maximum new DVR votes it can issue is 14 (so total becomes 74).

### Example 2

Example 2 — Cooling period: A company defaulted on debenture interest payment in FY 2020-21 and cured it in FY 2021-22. From when can it issue DVRs?

Answer: 5 years from end of FY in which the default was made good = 5 years from 31-March-2022 = it can issue DVRs from 1-April-2027 onwards.

⚠️ Common exam mistakes

Believing DVRs need a Special Resolution — it is only an Ordinary Resolution (postal ballot for listed).
Forgetting the 74% voting power cap applies at all times, not just at issue.
Assuming the 5-year cool-off starts from the date of default — it starts from the end of FY in which default was cured.
Allowing conversion of ordinary equity into DVRs — this is expressly prohibited.

Bare-Act text Rule 4 · Companies (Share Capital and Debentures) Rules, 2014 · click to expand

Rule 4, Companies (Share Capital and Debentures) Rules, 2014 – No company limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions, namely: (a) the articles of association of the company authorizes the issue of shares with differential rights; (b) the issue of shares is authorized by an ordinary resolution passed at a general meeting; (c) the voting power in respect of shares with differential rights of the company shall not exceed seventy four per cent of total voting power including voting power in respect of equity shares with differential rights issued at any point of time.

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