Minority Shareholders and Capital Reduction

Background

The appeals arose from the reduction of share capital undertaken by Bharti Telecom Limited (BTL), a closely held company whose principal business was the holding of shares in Bharti Airtel Limited (BAL).

BTL had been delisted from the stock exchanges in 1999–2000. Its individual shareholders continued to hold shares despite the absence of regular dividends and the limited ability to trade their holdings. In 2016, BTL undertook a rights issue under which 115 shares were offered for every one share held.

In 2018, the company proposed a selective reduction of its share capital under Section 66 of the Companies Act, 2013 by cancelling 28,457,840 equity shares held by identified minority shareholders. The proposed exit price was ₹163.25 per share after deducting an amount towards Dividend Distribution Tax.

The proposal was approved by a special resolution with more than 99.90% of the equity shareholders voting in favour. Among the identified shareholders present and voting, 76.35% also voted in favour.

BTL thereafter approached the National Company Law Tribunal (NCLT) for confirmation of the reduction. The NCLT accepted the reduction but found the deduction of Dividend Distribution Tax from the amount payable to the shareholders to be arbitrary. It accordingly directed BTL to pay ₹196.80 per share, without the deduction.

BTL accepted the NCLT’s modification. A group of shareholders nevertheless pursued appeals before the National Company Law Appellate Tribunal (NCLAT), challenging the manner in which the reduction had been undertaken and the valuation on which the exit price had been determined.

Proceedings Before the Supreme Court

The NCLAT upheld the NCLT’s order. The matter then reached the Supreme Court through a batch of connected civil appeals.

The appellants challenged the capital reduction on three broad grounds, described during the hearing as the “Manner, Method and Matter.”

The manner concerned the procedure followed by BTL, including the contents of the notice issued for the general meeting, the disclosure of the valuation material and the relationship between the valuation agency and BTL’s internal auditor.

The method concerned the valuation methodology, particularly the application of a Discount for Lack of Marketability (DLOM) to BTL’s unlisted shares.

The matter concerned the resulting price itself. The appellants contended that the price of ₹196.80 per share was substantially below the value that should have been attributed to the shares, particularly when compared with earlier purchase offers and the ₹310 per-share valuation used when SingTel acquired a strategic stake in BTL.

One of the connected appeals also challenged the composition of the NCLAT Bench, which comprised one Judicial Member and two Technical Members.

The Supreme Court heard the connected appeals and delivered a common judgment on 10 March 2026.

Issues Before the Court

The principal questions considered by the Supreme Court were:

Submissions Before the Court

The parties made the following submissions:

The Court’s Reasoning

The Supreme Court examined the appellants’ contentions under the heads of procedure, valuation and regulatory framework, while also considering the limits of interference with concurrent findings of the NCLT and NCLAT. The key aspects of the Court’s reasoning are set out below.

Composition of the NCLAT Bench

The Court rejected the challenge to the composition of the NCLAT Bench, which comprised one Judicial Member and two Technical Members. It held that the Companies Act requires the presence of a Judicial Member on an NCLAT Bench but does not mandate that Judicial Members constitute a majority, even on a larger Bench.

The Bench in the present case was headed by a Judicial Member and its decision was unanimous. The Court distinguished earlier authorities relied upon by the appellants and found no jurisdictional defect in the composition of the Bench.

The presence of a Judicial Member is the statutory requirement; there is no mandate that Judicial Members must constitute a majority on a larger Bench.

The Procedure and the Notice to Shareholders

The Court examined the contention that the general meeting notice was misleading and did not provide sufficient material information.

Whether a Registered Valuer’s Report Was Mandatory

The Court compared Section 66 with other provisions of the Companies Act and noted that certain transactions expressly require a valuation report from a registered valuer.

In contrast, Section 66 does not contain an express requirement for a valuation report from a registered or approved valuer. The Court held that reduction of share capital can be undertaken through a special resolution and confirmation by the Tribunal without such a report.

Although not mandated by Section 66, BTL had voluntarily undertaken a valuation exercise and obtained a separate fairness report to determine a fair exit price.

Independence of the Valuer

The appellants argued that the valuation agency was an affiliate or sister concern of BTL’s internal auditor and that this created a conflict of interest.

The Court held that the existence of an association between the two entities did not, by itself, establish actual bias or a real danger of bias. An allegation of bias must be based on more than a mere possibility or speculative connection.

The valuation was also subjected to a fairness assessment by a separate agency and was affirmed by independent valuation confirmations from ICICI Securities and SBI Capital Markets, which had no connection with BTL or its internal auditor. The Court therefore found no sufficient basis to conclude that the valuation was affected by bias.

The Fairness Report and Inspection of Documents

The appellants contended that the fairness report was issued on the same date as the valuation report, indicating a lack of independent scrutiny.

The Court held that a fairness report evaluates the fairness of the valuation approach and does not necessarily require a complete repetition of the underlying valuation exercise. Issuance of both reports on the same date did not, by itself, demonstrate that the exercise was perfunctory.

The Court also rejected the argument that shareholders should not have been required to travel to the registered office to inspect the reports. The documents had been made available during the voting period and at least one shareholder, through an advocate, had inspected them. In the circumstances, there was no procedural defect.

DLOM and the Valuation of Unlisted Shares

The Court considered the principal substantive challenge to the valuation — the application of a Discount for Lack of Marketability (DLOM) to BTL’s unlisted shares.

BTL’s shares had been delisted for many years, had no ready market and were illiquid. The valuation applied a DLOM of 25% to reflect this lack of marketability.

The Court distinguished cases involving court-ordered buy-outs arising from oppression, where a different approach to valuation may be warranted. The present case was not an oppression proceeding and no finding of oppression had been made.

The Court held that there is no general rule prohibiting the application of DLOM in a capital reduction under Section 66. The discount was a recognised valuation adjustment and appropriate in the circumstances.

Fair Value and Accounting Standards

The Court referred to Section 133 of the Companies Act, 2013 and the requirement under Section 66(3) for a certificate from the company’s auditor regarding conformity with applicable accounting standards. It noted that Ind AS 113 defines fair value as a market-based measurement reflecting the price that would be received in an orderly transaction between market participants.

The Court also referred to ICAI Valuation Standard 103, which recognises DLOM as a legitimate valuation adjustment based on the principle that an asset that is readily marketable may command a higher value than an asset requiring greater time or effort to sell.

The statutory scheme did not prohibit consideration of marketability when determining fair value for a reduction of share capital.

Whether the Exit Price Was Unreasonable

The Court examined the historical prices and transactions relied upon by the appellants.

The Court held that the valuation could not be rejected merely because the appellants preferred a different valuation approach. Unless the valuation was shown to be especially unreasonable or to have gone so far off-track that the result was demonstrably wrong, the Court would not substitute its own assessment for that of the valuation experts.

Selective Reduction and Minority Shareholders

The Court held that a reduction of share capital may validly be selective, extinguishing the shares of identified shareholders while retaining others within the same class. The relevant question is whether the reduction is unfair, inequitable, unreasonable or prejudicial, rather than whether it is selective.

Scope of Review by the Supreme Court

Under Section 423, the Supreme Court does not ordinarily reappreciate concurrent findings of the NCLT and NCLAT. A finding that is perverse may raise a question of law. The Court found that the valuation had a rational basis, the methodology was supported by recognised principles and the price fixed at ₹196.80 per share was not shown to be egregiously unreasonable or prejudicial.

Decision

The Supreme Court dismissed the connected appeals and upheld the capital reduction as confirmed by the NCLT and affirmed by the NCLAT. The exit price of ₹196.80 per share was held to be fair and the appeals were rejected.

Source Supreme Court of India, Pannalal Bhansali v. Bharti Telecom Limited & Ors., 2026 INSC 213 (10 March 2026).