Interpretation of Statutes plays a very important role in understanding the true meaning of law and applies it in ascertaining the correct view of what the law is saying. There are many rules describing the interpretation of statutes, say, Rule of Literal Interpretation, Rule of Logical Interpretation, Rule of Ejusdem Generis, Noscitur a Sociis, etc. Here we apply the Rule of Logical Interpretation in determining the difference between Total Voting Power and Total Share Capital.

As per Section 2(89) of Companies Act, 2013, “Total Voting Power” in relation to any matter means the total number of votes which may be cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies having a right to vote on that matter are present at the meeting and cast their votes.

Whereas, “Total Share Capital” in relation to any matter means equity share capital of the company and includes convertible preference share capital.

Let us consider this with the following provision of Companies Act, 2013.

Total Voting Power V/s Total Share Capital

As per section 2(87) of Companies Act, 2013, Subsidiary Company or Subsidiary, in relation to any other company (that is to say the Holding company), means a company in which the holding company –

(i) Controls the composition of Board of Directors, or

(ii) Exercises or controls more than one half of the Total Voting Power* either at its own or together with one or more of its subsidiary companies.

*earlier it was Total Share Capital before amendment as on 20th September 2017.

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Let us take an example to differentiate between Total Voting Power and Total Share Capital –

A company S. Ltd. has four classes of shares in its Capital Clause namely –

Class A (Equity Shares), 10,00,000 shares of Rs. 100 each (10 shares = 1 vote).

Class B (Equity Shares), 20,00,000 shares of Rs. 20 each (1 share = 1 vote).

Class C (Convertible Preference Shares), 10,00,000 shares of Rs. 10 each (No Voting Power).

Class D (Non-Convertible Preference Shares), 1,00,000 shares of Rs. 100 each (No Voting Power).

  • Total Share Capital = 10 Crores + 4 Crores + 1 Crores = 15 Crores.
  • Total Votes = 1 Lacs + 20 Lacs = 21 Lacs.

Now, if we consider the situation before 20th September 2017, say, H. Ltd. and HHH Ltd. holds 9 Lac Class A shares and 15 Lac Class B Shares of S. Ltd. respectively, which amounts to 9 crores or 60% of Total Share Capital and 3 crores or 20% of Total Share Capital of S. Ltd. respectively. It concludes that H. Ltd. is controlling more than one half of Total Share Capital of S. Ltd., which means that H. Ltd. is the holding company of S. Ltd. as per old provisions, i.e., before amendment.

After amendment, situation will be like; H. Ltd. holds 4.29% of Total Voting Power and HHH Ltd. hold 71.43% of Total Voting Power, which reverse the situation and make HHH Ltd., the Holding company of S. Ltd. in place of H. Ltd.

In reality, when the meeting of any company held, it is the vote that matter to take a decision and not the amount of share capital. Only a vote can be casted by any member either in favor or against the requisite resolution to be passed at the concerned meeting. If we collaborate the differentiate between Total Voting Power and Total Share Capital, we can conclude that there is a huge difference between these both terms as it is not only a term, it has changed many companies from being a Holding Company to a Normal Company only and all its powers has wiped away. And, interestingly, many normal companies have become the Holding Company of another company in which they have a low investment due to huge voting power only.

In India, after amendment of section 2(87), there were a huge change in the ownership of the companies from one company to another just because of change in a term, i.e., from Total Share Capital to Total Voting Power. I would like to add that even with a change of a word in Law can change the whole concept of Law, so we have to be very careful in interpreting law with its actual meaning.

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14 Comments

  1. Manu Tomar says:

    Very nicely explain,and this topic became more easy to understand by the given example.thanks for sharing your knowledge sir.and keep continue with the good work

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