The Central Government has issued the Companies (Issue of Share capital with differential voting Rights) Rules, 2001 vide Notification No. GSR 167(E) dtd. 9-3-2001 (full copy of the same available in the CD-ROM under sections 86(a)(ii) and 642. The salient features are as under:

1. The term "differential voting rights" is defined to include rights as to dividend or voting.

2. A company can issue shares with differential rights as to dividend, voting or otherwise subject to the conditions hereafter stated.

3. 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.

4. 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 shares.

5. 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.

6. The Articles of Association of the company authorises the issue of shares with differential voting rights.

7. The company has not been convicted of any offence arising under, Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Foreign Exchange Management Act, 1999.

8. The company has not defaulted in meeting investors' grievances.

9. The company has obtained the approval of shareholders in General Meeting by passing resolution as required under the provisions of clause (a) of sub-section (1) of section 94 read with sub-section (2) of the said section.

10. The listed public company obtained approval of shareholders through Postal Ballot.

11. The notice of the meeting at which resolution is proposed to be passed is accompanied by an explanatory statement stating –

1. the rate of voting rights which the equity share capital with differential voting right shall carry;

2. the scale or in proportion to which the voting rights of such class or type of shares will vary;

3. the company shall not convert its equity capital with voting rights into equity share capital with differential voting rights and the shares with differential voting rights into equity share capital with voting rights.

4. the shares with differential voting rights shall not exceed 25% of the total share capital issued;

5. That a member of the company holding any equity share with differential voting rights shall be entitled to bonus shares, right shares of the same class;

6. the holders of the equity shares with differential voting rights shall enjoy all other rights to which the holder is entitled excepting right to vote as indicated in (a) above.

12. Every company referred to in rule 3 shall maintain a register as required under section 150 of the Act containing the particulars of differential rights to which the holder is entitled.