Kiran Raj

The Supreme Court of India Division Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran held that a company undertaking reduction of share capital under the Companies Act, 2013 is not statutorily required to obtain or circulate a valuation report, though doing so may reflect prudent corporate practice. The court dismissed a batch of appeals filed by minority shareholders who challenged the cancellation of their equity shares in a closely held telecom holding company, contesting the fairness of the share price determined for their compulsory exit.

The dispute concerned the reduction of share capital undertaken by Bharti Telecom Limited (BTL), a closely held company, under the Companies Act, 2013. BTL resolved to cancel equity shares held by identified minority shareholders at Rs.163.25 per share, with the resolution receiving over 99.90% majority approval before being placed before the National Company Law Tribunal (NCLT) for confirmation. The NCLT found the deduction of Dividend Distribution Tax from the share price arbitrary and directed payment of Rs.196.80 per equity share, which BTL accepted. Certain shareholders who had voted in favour of the capital reduction subsequently challenged the NCLT's order before the National Company Law Appellate Tribunal (NCLAT), where their appeals were dismissed.

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The appellants approached the Supreme Court contending that BTL's valuation process was unfair and that the exit price fixed for minority shareholders was unreasonably low. They alleged that the procedure contained misleading disclosures, including the failure to circulate valuation and fairness reports, and that the valuation agency appointed had connections with BTL's internal auditor. They further challenged the application of Discount for Lack of Marketability (DLOM) in arriving at the share price.

BTL, as respondent, maintained that the capital reduction fully complied with statutory requirements, including special resolution approval and Tribunal confirmation. It submitted that valuation was not a mandatory requirement under the provision, that the methodology adopted conformed to accepted accounting standards, and that the appellants had failed to demonstrate any real or tangible prejudice, given that a substantial majority of shareholders had approved the resolution.

On the statutory requirement of a valuation report under Section 66 of the Companies Act, 2013, the court observed that "reduction of share capital can be achieved by a special resolution and confirmation by the Tribunal, without a report of valuation from an approved/registered valuer and hence, it does not fall within the ambit of a relevant material; without the full and complete disclosure of which the reduction of capital cannot be acted upon."

On the adequacy of disclosures made in the notice issued for capital reduction, the court observed that "we do not think that the notice in the present case is vitiated by non-disclosure or mis-disclosure merely for reason of the valuation and fairness report not being placed before the shareholders. As we found, the measure adopted was a reduction in capital as permitted by Section 66, hedged in by various protections but does not require a valuation report as would be required in other circumstances." The court further recorded that "the notice contains the full disclosure as required in a measure employed for reduction of share capital under Section 66, which is the price offered by the company which translates as an exit option for the identified shareholder."

On the distinction between Section 66 and other corporate actions where valuation reports are statutorily mandated, the court noted that "an amalgamation or merger as contemplated in Section 232 also stipulates a report of the expert with regard to valuation by sub-section (2)(d). So does Section 236(2) in the context of a buyback or purchase of minority shares, which is conspicuously absent in a reduction of share capital, which also results in an exit of certain shareholders."

On the question of bias arising from the valuation agency's alleged connection with BTL's internal auditor, the court stated that "bias should be demonstrably real and present to vitiate an action. Where it is shown that there exists a real danger of bias the action would attract judicial chastisement while, if it is only a mere probability or even a preponderance of probability it cannot affect the action adversely." The court further observed that "the mere fact that the signatory of the report valuing the shares of BTL was in the Board of Directors of BTL's Internal Auditor does not create any conflict or relation insofar as the affairs of BTL."

On the applicability of DLOM in the valuation of BTL shares, the court observed that the ICAI Valuation Standard 103 states that "DLOM is based on the premise that an asset which is readily marketable commands a higher value than an asset which requires longer period/more efforts to be sold or an asset having restriction on its ability to sell" and that "determining an appropriate level of DLOM can be a complex and subjective process. Accordingly, the specific nature and characteristics of the asset and the acts and circumstances surrounding the valuation should be considered." The court further recorded that "the statutory scheme also does not restrict the use of DLOM."

On the standard for determining prejudice to shareholders in a capital reduction, the court stated that prejudice "should be an attempt to force a class of shareholders to divest themselves of their holding at a rate far below what is reasonable, fair and just; a strategy by which an entire class is forced to accept something that is inherently unjust."

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On the role of expert valuation and the threshold for judicial interference, the court observed that "unless the valuation is especially unreasonable it would be a wrong approach to reject a plausible rationale provided by the valuer on the mere ground that the objector has a different point of view" and that "valuation is an exercise which is best left to the experts."

On the conduct and profile of the appellant shareholders, the court recorded that they were "not wary investors, cautious retirees or mere speculators, but seasoned retail investors who blend in equal measure prudence with quite calculation."

The Court directed: “On the above reasoning, we reject the appeals. Pending applications, if any, shall stand disposed of.”

Advocates Representing the Parties

For the Petitioners:  Mr. K. Parameshwar, Sr. Adv. Mr. Masoom K. Shah, Adv. Mr. Udit Gupta, Adv. Ms. Veda Singh, Adv. Mr. Prasad Hegde, Adv. Mr. N Sai Kaushal, Adv. Mr. Adit Garg, Adv. Mr. Rohan Chawla, Adv. Ms. Aashvi P. Shah, Adv. M/s. Udit Kishan And Associates, AOR

For the Respondents: Mr. Shyam Divan, Sr. Adv. Mr. Ramji Srinivasan, Sr. Adv. Ms. Arti Singh, AOR Mr. Kamal Shankar, Adv. Mr. Tanmay Sharma, Adv. Mr. Aakashdeep Singh Roda, Adv. Mr. Arjun Narang, Adv. Mr. Shivam Jain, Adv. Ms. Shefali Munde, Adv. Mr. Arjun Bhatia, Adv. Mr. Arpith Jacob Varaprasad, Adv. Mr. Ankur Singhal, Adv. Ms. Pooja Singh, Adv. Mr. B P Singh, Adv. Mr. Soumya Dutta, AOR Mr. Percival Billimoria, Sr. Adv. Mr. Khowaja Siddiqui, Adv. Mr. Arvind Gupta, AOR Mr. Kshitij Arora, Adv. Ms. Rachita Sood, Adv. Ms. Priyamvada Paneru, Adv. Mr. Rahul Bhaskar, Adv.

Case Title: Pannalal Bhansali v. Bharti Telecom Limited & Ors.
Neutral Citation: 2026 INSC 213
Case Number: Civil Appeal No. 7655 of 2025 and connected appeals
Bench: Justice Sanjay Kumar, Justice K. Vinod Chandran