Partners can only negotiate the existence of such a clause in certain circumstances. In addition, this means that the anti-dilution clause can protect a shareholder while facing another disadvantage. This is particularly dangerous when it is unfavorable to the founding partner. For example, if the shares of a founding partner are diluted, this dilution can affect the business and hinder the growth of the company. As a result, non-Indian investors listed on the Securities and Exchange Board of India as “Foreign Venture Capital Investors” (“FVCIs”) are exempt from the regulatory nuances of the valuation as well as entry and exit prices. As a result, FVCI is free to apply their anti-dilution rights. However, the 2013 Companies Act provides a way to issue shares to foreign investors without reference to price rules. Section 62 of the Act deals with the issuance of rights for which companies can increase their capital at any time by offering shares to existing shareholders in proportion to the shares they currently hold. The RBI guidelines state that the issuance of rights is not in accordance with price guidelines. The only condition that the RBI imposes on the issuance of shares by issuing rights to foreign investors is that these shares be issued at a price that is not less than the price at which the shares are offered to resident investors. An unlisted company has an absolute margin of appreciation to determine prices in the context of a rights issue. As a result, the price set may well be less than the value set in the price guidelines.
However, in the context of a preferential rights issue, shares are offered to all existing shareholders in proportion to the shares already held. As a reminder, for example, this means that developers are offered shares with foreign investors. Suppose 0.4 of one share is offered for each share held by existing shareholders. This means that 24 shares will be offered to the promoters, while the foreign investor will be offered 16 shares. But such an issue will not help foreign investors maintain their 40% stake. In order for the stake to be held at 40% after the issuance of shares in new investors, the 40 shares must be issued to foreign investors. Since the issuance of subscription rights is merely an offer to issue securities on a portion of the company, existing shareholders are still open to not accepting the offer.