In a significant ruling on minority shareholder rights, the Supreme Court of India dismissed appeals filed by several minority investors challenging the reduction of share capital by Bharti Telecom Limited. The Court held that the process adopted by the company complied with the law and that the valuation of shares offered to exiting shareholders was neither arbitrary nor unfair.
The dispute arose after the company decided to cancel shares held by identified minority investors and compensate them at a fixed price per share as part of a capital reduction scheme under the Companies Act, 2013.
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Background of the Case
The case began when Bharti Telecom Limited proposed a reduction of its share capital under Section 66 of the Companies Act, 2013. The plan involved cancelling 28,457,840 equity shares held by minority shareholders and compensating them at ₹163.25 per share initially.
A special resolution approving the capital reduction was passed with more than 99.90% of shareholders voting in favour. The proposal was then placed before the National Company Law Tribunal (NCLT) for approval.
While examining the proposal, the NCLT directed the company to revise the payout amount, holding that deduction of Dividend Distribution Tax from the share value was improper. Consequently, the compensation was increased to ₹196.80 per share.
Despite this modification, several shareholders challenged the decision before the National Company Law Appellate Tribunal (NCLAT), which upheld the NCLT’s order. Eleven of those investors then approached the Supreme Court.
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Arguments by Minority Shareholders
The minority shareholders alleged that they were forced out of the company at an unfairly low share price.
Their main objections were based on three issues:
- Manner: The process leading to the capital reduction was allegedly flawed, with insufficient disclosure to shareholders.
- Method: The valuation method used to determine the share price was said to be improper, particularly the application of the Discount for Lack of Marketability (DLOM).
- Matter: The final share price was argued to be far below the actual value of the company’s shares.
Senior counsel appearing for the investors argued that the company’s directors owed fiduciary duties to minority shareholders. According to them, the valuation process was rushed and conducted by an entity allegedly connected with the company’s internal auditor.
They also claimed the notice for the shareholders’ meeting did not adequately disclose details of the valuation report, calling it a “tricky notice” that prevented shareholders from making an informed decision.
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Company’s Stand
Counsel for Bharti Telecom argued that the reduction of share capital was carried out strictly in accordance with the Companies Act.
The company emphasized that:
- The decision was approved through a special resolution with overwhelming shareholder support.
- The process was reviewed and sanctioned by the NCLT and later upheld by the NCLAT.
- Section 66 of the Companies Act does not mandate a valuation report, though the company voluntarily obtained one to ensure fairness.
The company also highlighted that many minority shareholders had earlier requested an exit opportunity, as the shares were not traded on stock exchanges and dividends had not been paid for years.
Court’s Observations
The Supreme Court examined whether the process suffered from procedural irregularities, lack of transparency, or unfair valuation.
On Alleged Procedural Irregularities
The Court rejected the claim that the notice issued to shareholders was misleading. It noted that the price offered for the shares and the basis of valuation were disclosed and the relevant documents were kept available for inspection.
“The notice contains the full disclosure required for reduction of share capital under Section 66,” the bench observed.
The Court also held that there was no legal requirement to attach the valuation report to the notice under Section 66.
On Valuation Method
The Court examined the use of the Discount for Lack of Marketability (DLOM) in determining the share price. It noted that the company’s shares were not publicly traded and therefore had limited liquidity.
The judgment observed that lack of marketability is a valid factor in valuation, particularly for shares of a private company with no trading market.
On Allegations of Bias
The Court found no evidence of actual bias in the valuation process, even though the valuing entity had professional links with the company’s internal auditor.
The bench stated that allegations of bias must show a real and demonstrable likelihood of prejudice, which the appellants failed to establish.
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Court’s Decision
After reviewing the record, the Supreme Court concluded that the capital reduction scheme was lawful, fair, and supported by the majority of shareholders.
The Court held that:
- The reduction of share capital was a valid corporate decision approved through a special resolution.
- The process complied with statutory requirements under Section 66 of the Companies Act.
- The valuation adopted by the company and approved by the tribunals could not be considered unreasonable or prejudicial to minority shareholders.
Accordingly, the Supreme Court dismissed the appeals and upheld the capital reduction scheme, affirming the compensation of ₹196.80 per share to the exiting shareholders.
Case Title: Pannalal Bhansali v. Bharti Telecom Limited & Others
Case No.: Civil Appeal No. 7655 of 2025 and connected appeals
Decision Date: 09 March 2026
