Mumbai, June 1: The Maharashtra State Electricity Board (MSEB) has made it clear that it would not like to be a second rate voting power once it buys 30 per cent of the Dabhol Power Company. It has asked DPC to give it 30 per cent of both `A' and `B' class shares. The board made this demand after studying the rights of both categories of shares. Currently, category B shares are in the possession of Enron Mauritius Company (EMC).

Though both A and B shares are equity shares, the MSEB has discovered that B shares are more equal than the others. Only B shares have veto power. The shareholders of B class shares can pass any resolution irrespective of the objections of A class shareholders. The authorised capital of DPC, inclusive of A and B class shares, is 191.47 crore equity shares of Rs 10 each.

Currently, 21 per cent of the issued and outstanding equity shares of DPC, and held by EMC, are classified as B shares. The balance are A category shares.

Under DPC's articles of association, the percentage of A category shares shall not be less than 77.5 or more than 79.5; class B shares have to be at least 20.5 per cent or a maximum of 22.5 per cent. Class B shares rank pari passu with A shares in respect of voting rights, rights to dividends or other distribution and also the rights on return of capital on the winding up of the company.

However, there are several exceptions to the rule, say sources. As per the articles of association of DPC, certain decisions can be taken only by members favourably and together holding more than 90 per cent of the voting power. Decisions like altering the provisions of the articles will also be taken in this manner.

If any such decision cannot be passed at the meeting, the shareholders having class B shares may in their absolute discretion convene a second meeting. Here, the decision will be taken on the basis of a majority of those members attending and voting in person or by proxy.

The holder(s) of B shares shall be entitled to cast, in addition to the votes attaching to its shares, "such further votes as shall result in the votes cast by the holder(s) of B shares (and any other member voting in favour of such resolution) constituting a majority of the votes cast on such resolution."

This would, in turn, mean that shareholders having B class shares can constitute a majority by themselves and hence have absolute powers.Incidentally, at a meeting called by holders of B shares, if shareholders do not vote in the manner in which the holders of B shares vote, then such members (dissenting members) shall have to offload their equity shares to the B shareholders or other shareholder(s).

If there is a difference of opinion among shareholders regarding the value/price of the shares that are to be sold, the valuation shall be subject to arbitration as laid out in the articles of association. Hence, in a number of areas, the A shares have no powers at all.

For transferring category B shares, besides meeting all other requirements, one would also need a majority consent of all the other shareholders.Comment: What the Act says

Section 88 of the Companies Act says that no company can issue shares (other than preference shares) which carry voting rights or rights in the company that are disproportionate to the rights attaching to the holders of other shares. The question then is how has DPC managed to create two classes of shares? The answer lies in Section 106 of the Companies Act. It says that in case the share capital of a company is divided into different classes of shares, the rights of any class can be varied after taking the consent in writing of holders of at least 75 per cent of that class or by passing a special resolution at a separate meeting of the shareholders of that class. For doing this, either the memorandum or articles of the company should permit it or, in the absence of this provision, such variation should not be prohibited by the terms of issue of shares in that class.

DPC has already issued two classes of shares and the rights of one class have been altered in accordance with the provisions of the Act. It is obvious that unless B class shares are offered to MSEB, it will just be a sleeping partner in Dabhol.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.