MNCs can divest without losing control

NEW DELHI: Foreign promoters of companies such as Coke that have committed to divest equity to in the domestic market as a condition for entering India can fulfil this promise without loss of control.
Top government officials have clarified that the divestment clauses refer only to pruning of equity holdings and not allocation of voting rights.
"If the foreign promoters can manage to entice investors with say high dividends or rates of return on investment, then they are free to work out arrangements whereby they issue differential voting rights for the divested stakes. The divestment clause pertains to equity and not voting rights," a senior official, also a member of the foreign investment promotion board said.
The clarification is sure to send out positive signals and bring relief to a host of companies that have been seeking the FIPB’s waiver on the divestment conditions that they had agreed to adhere to at the time of being granted entry into India.
Under the provisions of the Companies Act, companies can issue differential rights on voting, the official said. As per these provisions, the Companies (Issue of share capital with differential voting Rights) Rules, 2001, foreign promoters of companies complying with the divestment clause will be permitted to divest their stakes without reducing say in the management, the official said.
The provisions allow companies to allocated voting rights such that different shareholders have different proportions of rights per share.