SEBI has vide its circular dated 5th March, 2021 advised the mutual funds holding shares in listed companies to mandatorily vote in respect of certain resolutions. What action will be taken against those mutual funds not voting on the said resolutions has not been specified but the fund managers/ decision makers have to report on a quarterly basis to their trustees that they voted in the best interest of the unit holders of their schemes. The trustees in turn will have to submit a half yearly report to the SEBI in this regard.
This will be applicable from 1st April, 2021 onwards in respect of the identified list of resolutions. But in respect of all the resolutions, the mutual funds will have to mandatorily vote but after 1st April, 2022 onwards. The identified list of resolutions are :
a) Corporate governance matters, including changes in the state of incorporation. merger and other corporate restructuring, and anti-takeover provisions.
b) Changes to capital structure, including increases and decreases of capital and preferred stock issuances.
c) Stock option plans and other management compensation issues.
d) Social and corporate responsibility issues.
e) Appointment and Removal of Directors.
f) Any other issue that may affect the interest of the shareholders in general and interest of the unit-holders in particular.
ii. Related party transactions of the investee companies (excluding own group companies). For this purpose, “Related Party Transactions” shall have same meaning as assigned to them in clause (zc) of Sub-Regulation (1) of Regulation (2) of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015.
PIB press release dated 16th August, 2019
The Ministry of Corporate Affairs has amended the provisions relating to issue of shares with Differential Voting Rights (DVRs) provisions under the Companies Act with the objective of enabling promoters of Indian companies to retain control of their companies in their pursuit for growth and creation of long-term value for shareholders, even as they raise equity capital from global investors.
The key change brought about through the amendments to the Companies (Share Capital & Debentures) Rules brings in an enhancement in the previously existing cap of 26% of the total post issue paid up equity share capital to a revised cap of 74% of total voting power in respect of shares with Differential Voting Rights of a company.
Another key change brought about is the removal of the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with Differential Voting Rights.
The above two initiatives have been taken by the Government in response to requests from innovative tech companies & startups and to strengthen the hands of Indian companies and their promoters who have lately been identified by deep pocketed investors worldwide for acquisition of controlling stake in them to gain access to the cutting edge innovation and technology development being undertaken by them.
The Government had noted that such Indian promoters have had to cede control of companies which have prospects of becoming Unicorns, due to the requirements of raising capital through issue of equity to foreign investors.
Alongside the above two changes, another major step taken is that the time period within which Employee Stock Options (ESOPs) can be issued by Startups recognized by the Department for Promotion of Industry & Internal Trade (DPIIT) to promoters or Directors holding more than 10% of equity shares, has been enhanced from 5 years to 10 years from the date of their incorporation.