Supreme Court of India
PANNALAL BHANSALIversusBHARTI TELECOM LIMITED & ORS.
- Citation
- 2026 INSC 213
- Decided
- 10 March 2026
- Disposal
- Dismissed
- Bench
- SANJAY KUMAR
Holding
A reduction of share capital under s.66 is valid if a special resolution is passed and the Tribunal confirms it, even without a statutory valuation report, provided the notice discloses the method and the valuation is not shown to be biased.
Summary
The Supreme Court considered an appeal by minority shareholders of Bharti Telecom Limited (BTL) who challenged the company’s reduction of share capital under s.66 of the Companies Act, 2013, alleging that the valuation and the notice were unfair and misleading. BTL had cancelled 28.4 million shares held by the appellants, offering Rs.163.25 per share, later increased to Rs.196.80 by the NCLT after a tax deduction issue. The appellants argued that the notice was a “tricky notice,” the valuation was performed by an entity linked to the internal auditor, and the application of a Discount for Lack of Marketability (DLOM) was arbitrary. The Court held that s.66 does not require a statutory valuation report, that the notice disclosed all material required, and that the valuation and fairness reports, though prepared by related parties, were not shown to be biased. It further found that the DLOM was permissible under Indian Accounting Standards and that the price offered was fair, having been approved by a special resolution and confirmed by the Tribunal. Consequently, the Court dismissed the appeals, upholding the reduction of share capital.
Issues considered
- The adequacy of disclosure in the notice of the general meeting for a reduction of share capital under s.66 of the Companies Act, 2013.
- Whether a valuation report from a registered valuer is mandatory for a reduction of share capital under s.66.
- The propriety of applying a Discount for Lack of Marketability (DLOM) in determining the buy‑out price for minority shareholders.
- Whether the involvement of an internal auditor’s affiliate as the valuer creates a conflict of interest rendering the valuation biased.
- The jurisdiction of the Supreme Court under s.423 of the Companies Act, 2013 to review the Tribunal’s findings.
Legislation cited
- Chartered Accountants Act, 1949
- Companies (Accounts) Rules, 2014s. Rule 13
- Companies Act, 2013s. 102, s. 133, s. 230, s. 232, s. 236(2), s. 244, s. 423, s. 62, s. 66, s. 68
- Constitution of India
- Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992
Headnote
Issue for Consideration Issue arose whether the reduction of share capital u/s.66 of the Companies Act, 2013, and the consequent forced exit of minority shareholders, was arbitrary and unfair. Headnotes† Companies Act, 2013 – s.66 – Reduction of share capital – company, held a fraction of 1.09% of shares – Respondent no.1 decided to reduce its share capital u/s.66, by cancelling 28,457,840 equity shares held by the minority shareholders and paying them an exit price of Rs.163.25 per share which was subsequently raised to Rs.196.80 per share
Subjects
Buy-back offerDiscount for Lack of Marketability (DLOM)Fair market valueFair valueFairness reportIndian Accounting StandardsInternal auditorMinority shareholdersOppression and mismanagementReduction of share capitalSpecial ResolutionTricky noticeValuation report
Judgment
[2026] 3 S.C.R. 493 : 2026 INSC 213
Pannalal Bhansali
v.
Bharti Telecom Limited & Ors.
(Civil Appeal No. 7655 of 2025)
10 March 2026
[Sanjay Kumar and K. Vinod Chandran,* JJ.]
Issue for Consideration
Issue arose whether the reduction of share capital u/s.66 of the
Companies Act, 2013, and the consequent forced exit of minority
shareholders, was arbitrary and unfair.
Headnotes†
Companies Act, 2013 – s.66 – Reduction of share capital –
Appellants-minority public shareholders in the respondent
company, held a fraction of 1.09% of shares – Respondent
no.1 decided to reduce its share capital u/s.66, by cancelling
28,457,840 equity shares held by the minority shareholders and
paying them an exit price of Rs.163.25 per share which was
subsequently raised to Rs.196.80 per share by the NCLT – Said
reduction approved by 99.9% of total shareholders – Minority
shareholders including appellants filed appeal challenging the
same on the ground that the explanatory note of the General
Meeting was a tricky notice to mislead them because it did
not include the actual valuation reports, and valuation was
done by an internal auditor – Correctness:
Held: Notice not vitiated by non-disclosure or mis-disclosure merely
for reason of the valuation and fairness report not being placed
before the shareholders as there was no statutory mandate for a
valuation report for the reduction of a share capital – Valuation in the
process of reduction of capital was resorted to by the company only
to arrive at a fair value and the fair value arrived, after the deduction
of tax was disclosed in the notice and the method adopted itself
was kept open for verification by the identified shareholders at the
registered office – It was disclosed fully in the proceedings before the
NCLT where the investors objected, despite the special resolution
having been passed with a thumping majority – Reduction of share
capital can be achieved by a special resolution and confirmation
* Author
494 [2026] 3 S.C.R.
Supreme Court Reports
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 – However, company
despite any legal requirement adopted a valuation exercise, which
was further affirmed in a fairness evaluation by a different agency,
both of which reports were retained in the Registered Office of the
Company, kept open for verification by the investors – Thus, no
procedural infraction or misleading disclosure to style the notice
as ‘tricky notice’ – Notice contains the full disclosure as required
in a measure employed for reduction of share capital u/s.66, which
is the price offered by the company which translates as an exit
option for the identified shareholder – Furthermore, appointment
as an internal auditor, does not bring in a bias with respect to
the activities of the company which would essentially go against
the scope and spirit of an audit carried out of the accounts of
the company as an inhouse verification, which is also a statutory
requirement, available for scrutiny before a statutory auditor –
Not even a probability found that the internal auditor would act
in a biased manner, leave alone the valuation agency which is
an affiliate of the former – Plea that arbitrarily and without legal
sanction, the method of Discount for Lack of Marketability-DLOM
was applied to further reduce the value of share, cannot be
accepted – Applicability of DLOM cannot be held invalid and in
any event, what has to be looked at by the tribunal in scrutinising
the scheme of reduction of capital is only as to whether there was
a fair measure employed which cannot be termed unreasonable
or prejudicial to the individual shareholders – Fair and reasonable
value was offered to the minority shareholders and the majority
of the identified shareholders present and voting, voted in favour
of the resolution – Even on a microscopic scrutiny the valuation
cannot be found to be egregiously wrong especially looking at the
previous offers and also the rights issue offered at par, prior to
the reduction of share capital, exponentially increasing the take
aways of the individual shareholders and the valuation cannot at
all be said to have gone off-track, so as to make it egregiously
wrong – Appellants were seasoned retail investors who made a
calculated decision – Valuation is an exercise best left to experts,
and the Court found no blatant unfairness – Furthermore, plea as
regards the jurisdictional defect on the composition of the NCLAT
and the status-quo order cannot be accepted. [Paras 29, 32, 34,
38, 46, 48, 50]
[2026] 3 S.C.R. 495
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
Companies Act, 2013 – s.66 – Reduction of share capital –
Requirements – Explained. [Para 47]
Case Law Cited
Union of India v. Madras Bar Association [2010] 6 SCR 857 : (2010)
11 SCC 1; Madras Bar Association v. Union of India [2015] 6 SCR
638 : (2015) 8 SCC 583; State of M.P. v. B.R. Thakare (2002)
10 SCC 338; State of West Bengal v. Anwar Ali Sarkar [1952] 1
SCR 284 : AIR 1952 SC 75; LIC v. Escorts Ltd and Others [1985]
Supp. 3 SCR 909 : (1986) 1 SCC 264; Claude-Lila Parulekar
(SMT.) v. Sakal Papers (P) Ltd. and Others [2005] 2 SCR 1063 :
(2005) 11 SCC 73; Devas Multimedia (P) Ltd. v. Antrix Corpn. Ltd.
[2022] 11 SCR 291 : (2023) 1 SCC 216; N.K. Bajpai v. Union of
India [2012] 2 SCR 433 : (2012) 4 SCC 653; Mihir H. Mafatlal v.
Mafatlal Industries Ltd. [1996] Supp. 6 SCR 1 : (1997) 1 SCC
579 – referred to.
In Re: Reckitt Benckiser (India) Ltd., 2005 SCC OnLine Del 674;
In Re: Cadbury India Limited, 2014 SCC OnLine Bom 4934;
Firestone Tyre & Rubber Co. v. Synthetics and Chemicals Ltd.
(1971) Comp. Cases 377 (Bom.) – referred to.
British and American Trustee and Finance Corporation v. Couper
(1894) SC 399; Kiri Industries Ltd. v. Senda International Capital
Ltd. [2022] SGCA (I) 5; Baillie v. Oriental Telephone and Electric
Co. Ltd. [1915] 1 Ch 503; Foss v. Harbottle, 67 E.R. 189; Kaye v.
Croydon Tramways & Co. Ltd. [1898] 1 Ch. 358; Thio Syn Kym
Wendy and Others v. Thio Syn Pyn and Others [2018] SGHC 54;
Liew Kit Fah and Others v. Koh Keng Chew and Others [2020] 1
SLR 275 – referred to.
Books and Periodicals Cited
“Shareholder Oppression and ‘Fair Value’: of Discounts, Dates and
Dastardly Deeds in Close Corporation” by Professor Douglas Moll
(2004) 54 (2) Duke LJ 293 – referred to.
List of Acts
Constitution of India; Companies Act, 2013; Companies (Accounts)
Rules, 2014; Special Court (Trial of Offences relating to Transactions
in Securities) Act, 1992; Chartered Accountants Act, 1949.
496 [2026] 3 S.C.R.
Supreme Court Reports
List of Keywords
Buy-back offer; Discount for Lack of Marketability (DLOM); Fair
market value; Fair value; Fairness report; Indian Accounting
Standards; Internal auditor; Minority shareholders; Oppression and
mismanagement; Reduction of share capital; Special Resolution;
Tricky notice; Valuation report.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7655 of 2025
From the Judgment and Order dated 03.04.2025 of the National
Company Law Appellate Tribunal in CAAT No. 340 of 2019.
With
Civil Appeal No(s). 9862, 9601, 9797, 7666, 9478, 9599, 9849,
and 13824 of 2025
Appearances for Parties
Advs. for the Appellant(s):
K. Parameshwar, Sr. Adv., Masoom K. Shah, Udit Gupta, Ms. Veda
Singh, Prasad Hegde, N Sai Kaushal, Adit Garg, Rohan Chawla,
Ms. Aashvi P. Shah, M/s. Udit Kishan And Associates.
Advs. for the Respondent(s):
Shyam Divan, Ramji Srinivasan, Percival Billimoria, Sr. Advs.,
Ms. Arti Singh, Kamal Shankar, Tanmay Sharma, Aakashdeep
Singh Roda, Arjun Narang, Shivam Jain, Ms. Shefali Munde, Arjun
Bhatia, Arpith Jacob Varaprasad, Ankur Singhal, Ms. Pooja Singh,
B P Singh, Soumya Dutta, Khowaja Siddiqui, Arvind Gupta, Kshitij
Arora, Ms. Rachita Sood, Ms. Priyamvada Paneru, Rahul Bhaskar.
Judgment / Order of the Supreme Court
Judgment
K. Vinod Chandran, J.
1. The appellants, investors in a minority, cry foul on the allegation of
their being arbitrarily disgorged of their shareholdings and eased out
of the 1st respondent company, (BTL for brevity) in a grossly unfair
manner, making a sham of an evaluation fixing the share price at
an unreasonably low value. Shorn of the details, the 1st respondent,
[2026] 3 S.C.R. 497
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
a closely held company having 1.09% of its shareholding with
individuals, decided to reduce its share capital under Section 66 of
the Companies Act 20131 by cancelling 28,457,840 equity shares
held by the identified minority shareholders by paying an amount of
Rs.163.25/- per equity share of Rs.10/- each. The resolution was
passed by a Special Resolution with a majority of more than 99.90%,
the sanction for which was sought before the National Company Law
Tribunal (the NCLT hereinafter). The NCLT found that the decision
to deduct the Dividend Distribution Tax from the price fixed for the
individual shares was arbitrary and directed the BTL to pay the
identified individual investors; without the tax deduction, Rs.196.80/-
per equity share. BTL acceded to the NCLT’s order but thirty-five of
the shareholders, those who voted in favour of the reduction of share
capital, filed appeals before the National Company Law Appellate
Tribunal (NCLAT hereinafter), unsuccessfully, some of whom are
before us; precisely eleven of them. The intervention attempted by
some others were disallowed by us.
2. Sri. K. Parmeshwar, learned Senior Counsel led the arguments
on behalf of appellants and forcefully urged the unfairness in the
fixation of share value, which edged out the individual investors
with a raw deal for the shares held for long. The Directors and the
majority have a fiduciary relationship with not only the Company but
also with the minority, negated totally in fixing the share prices. The
challenge according to Sri. Parmeshwar is on three counts which
are subtly encapsulated as the Manner, the Method and Matter,
which he styles as the three objectionable Ms. The manner being
the procedure followed, the method being the measure employed
in valuation and the matter being the very low price determined.
Insofar as the manner is concerned, it is pointed out that the Board
resolution does not speak of a request made by the shareholders
to give them an escape route, which is included in the notice of the
General Meeting; misleading since such a request was absent. The
Board peremptorily decided to reduce the shareholding and entrusted
the valuation to the company’s own internal auditor’s associate, a
related entity. Though a fairness report was obtained, it has the same
date as the valuation report, indicating the hasty manner in which
valuation and fairness evaluation were proceeded with, a clear sham.
1 For brevity ‘the Act of 2013
498 [2026] 3 S.C.R.
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3. Further, there were essential aspects of valuation as revealed from
documents, which were relevant insofar as the consideration of the
value fixed for reduction of shareholding, which was never supplied
to the independent shareholders, who were in a minority. Those were
merely kept in the registered office as indicated from the notice of
the General Meeting, which is insufficient as has been declared by
the decisions of this Court. Despite some of the shareholders having
asked for a copy of the valuation and fairness reports, the same were
not supplied. There are serious procedural infractions and inadequate,
misleading disclosures, in violation of the mandate of Section 102
of the Act of 2013, which vitiates the entire process of reduction of
shareholding. On a summing up of the procedural infractions, it is
urged that the explanatory note of the General Meeting is a ‘tricky
notice’ for : (i) it does not have a summary of or the valuation report
itself, (ii) non-disclosure of the methodology adopted in valuation;
reference not being made to the share value of Bharti Airtel Limited
(BAL for brevity), a subsidiary company the shareholding in which
is the only business of the first respondent company and (iii) the
valuation having been made by an interested entity. The ‘tricky notice’
disabled an informed decision by the individual shareholders, is the
contention, fortified with decisions. This encompasses the challenge
to the manner in which the procedure was carried out.
4. Insofar as the methodology is concerned, it is argued that the BTL,
earlier listed in the Stock Exchanges was delisted between 1999-2000
and BAL was incorporated as a subsidiary. On the BAL launching an
IPO in January 2002, it was listed on the Bombay Stock Exchange
and the majority shareholding of the first respondent in BAL fell
considerably, making BAL & BTL associate companies. It was by a
rights issue brought out in the year 2016 and the resultant capital
increase in BTL, BAL again became a subsidiary of BTL. Since, the
BTL’s only business was the investment made in BAL, the share
price fixed of BTL should have been fixed with reference to the
share value of BAL. The valuation report indicates the share value
of BAL at Rs.368.22/- as it’s listed price while the value of BTL was
calculated based on the market value of BAL and the Net Asset Value
of BTL. More importantly, arbitrarily and without legal sanction, the
method of Discount for Lack of Marketability (DLOM) was applied
to further reduce the value of share. The method of DLOM applied
is against the accepted norms of valuation as has been deprecated
[2026] 3 S.C.R. 499
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
internationally too, as revealed from the judgment of the Court of
Appeal of Singapore in Kiri Industries Ltd. v. Senda International
Capital Ltd.2 The reliance on Professor Aswath Damodaran’s opinion
also is not relevant, since it applies to valuation of private companies
plagued with illiquidity. The method applied hence is arbitrary and
unfair is the contention.
5. Insofar as the material irregularity, the price fixation is argued to
be wholly deficient and arbitrarily low. It is argued that in the year
2001, the first respondent had offered an exit price of Rs.96/- per
share and later in the year 2006 @ Rs.400/- per share. There was
a private offer by a commodity broker in the year 2007 @ Rs.2000/-
per share. Reliance is also placed on the various purchase offers,
as produced at Annexure 2 series, in the Convenience Compilation.
It is based on the capital infusion of the rights issue that the first
respondent again rose to the position of a holding company of BAL
and in the year 2018 for the induction of a foreign entity, an estimate
of fare share value was made by a qualified agency, which put
the per share price @ Rs.310/- as is evident from Annexure A5. It
is at this price SingTel purchased 49% of the shares in BTL. The
reduction of the share capital then made was intended at edging
out the investors from amongst the public, who were in a minority,
in which circumstance there should have been a higher standard of
fairness and transparency applied.
6. The reference to market value is no basis since the investors had
remained in the company for long, admittedly even without payment
of dividends. A fair value for their exit from the company cannot
be equated with the fair market value. The several offers made for
buy-back and purchase at a higher value and the value at which
SingTel purchased shares in the BTL, almost simultaneous to the
reduction in share capital would definitely regulate valuation under
Section 66. Reference is also made to Section 68 and Section 230
of the Act of 2013, respectively of a voluntary exit and one based
on compromise which procedure ought to have been applied to
bring in the standard of fairness even under Section 66, which is
an involuntary purchase made by the majority in oppression of the
minority shareholders; a forced exit. The material defect is the low
2 [2022] SGCA (I) 5
500 [2026] 3 S.C.R.
Supreme Court Reports
value of the share fixed for the exit of the minority shareholders. Sri.
Parmeshwar while summing up cautions that we would be laying
down the law with respect to edging out of minority shareholders,
which necessarily has to satisfy the judicial conscience with a higher
standard of fairness than applicable in a voluntary or optional exit or
an exit by compromise, especially since it is the majority will running
roughshod over the minority rights.
7. Sri. Masoom K. Shah, learned counsel appearing in one of the
appeals, for the appellant while adopting the submissions of Sri.
Parmeshwar, points out a defect in the constitution of the NCLAT
insofar as it being comprised of two Technical Members and one
Judicial Member. Reliance is placed on Union of India v. Madras
Bar Association3 (2010-MBA) (paragraph 120 (xii)) to contend that a
Constitution Bench of this Court deprecated the practice of a majority
of Technical Members sitting in a Bench of the NCLT or the NCLAT,
which substitutes the High Court. In anticipation, to preempt that
contention, it is pointed out that there cannot be raised a ground of
acquiescence, insofar as the defect going to the root of jurisdiction
by reason of the illegal composition, as has been held in State of
M.P. v. B.R. Thakare4. Sri Shah also points out from the valuation
report and the documents pertaining to various associates of the
agency which carried out the valuation that it has an inextricable link
and connection with the Internal Auditor of BTL. The one who signed
the valuation report itself is in the Board of the internal auditor, thus,
throwing a cloud of absence of impartiality on the valuer, coupled with
a bias in favour of the majority shareholders revealing a collusion
in arriving at a lower value of shares for the exit of the individual
members from the public; which does not augur well on the facts of
the case especially on the minority shareholders being given a raw
deal and forced out of their shareholding.
8. Sri Sumit Kumar, learned counsel appearing for one of the appellants
refers to Annexure A7 in C.A. No.2864 of 2021, wherein there was a
status quo order, which is even now in force; and reduction of share
capital having been made in the interregnum, falling flat, requiring
immediate resumption of shares. The valuation made by the Custodian
also is pointed out to assail the price fixed now.
3 (2010) 11 SCC 1
4 (2002) 10 SCC 338
[2026] 3 S.C.R. 501
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
9. Sri Ramji Srinivasan & Sri. Shyam Divan learned Senior Counsel
appearing for BTL commenced their arguments with Section 423
of the Act, which jurisdiction the appellants have invoked, wherein
there should be a clear question of law raised, which is absent in
the present case. Every legal requirement has been complied with
for the reduction of share capital under Section 66 of the Act of 2013
and there is no violation complained of but for a mere allegation of
prejudice which the appellants have failed to substantiate as real and
compelling, enabling this Court to interfere. Valuation is dependent
on multiple factors and not possible of mathematical certainty. It is
urged that in the formation of companies, the shareholders come
together and enter into a contract or charter as revealed from the
Articles of Association to which each of them are bound. The decisions
are of the majority of such shareholders, failing which there would
be mayhem and no corporate entity would be able to perform its
functions and arrive at its collective goal of realizing its objectives.
In the present case, it is pointed out that the appellants, eleven
in number and those before the NCLAT, thirty-five in number do
not together satisfy the definition of a minority as coming out from
Section 244 of the Act of 2013. Neither do they have the number
of shareholders, nor do their total value of shareholding satisfy the
minimum requirement thereunder of a minimum 100 persons or 1/10th
of the share value, thus disabling even an application for oppression
or mismanagement on their combined efforts.
10. It is pointed out that there is no valuation provided under Section 66
as would be the requirement under various other provisions of the
Act of 2013 which demolishes the ground of an interested valuation
having been taken up by a related agency of the internal auditor of
the company. Even otherwise on that sole ground prejudice cannot
be found unless it is shown in reality. Section 66 does not require
a valuation and the safeguards as provided therein of a special
resolution being passed in the General Meeting of the Company and
more importantly confirmation by the Tribunal have been scrupulously
followed. Though, a valuation is not mandated as per the Section,
definitely there should be some method by which a fair value is
arrived at insofar as providing an exit for the identified shareholders.
A Valuer was appointed who is an agency, with its associates, having
a global presence and a reputation in corporate matters including
502 [2026] 3 S.C.R.
Supreme Court Reports
financial aspects. When the company could have done the valuation
by itself, then thought it fit to appoint an independent valuer only to
ensure transparency and to avoid a contention of bias being raised.
The valuer had examined the books of accounts and submitted the
valuation report, which was scrutinized by another agency who had
also affirmed the valuation as fair and reasonable by its fairness report.
11. The fact that the valuer was a sister concern of BTL’s Internal Auditor
does not bring forth any conflict of interest or validate the contention
of lack of independence. The Internal Auditor as is mandated by
the guidelines issued by the Institute of Chartered Accountants of
India (ICAI) is an independent agency appointed by the Company
for the purpose of carrying out audit, as per the mandate of the Act
of 2013. 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.
The Internal Auditor acts as an independent agency and so did the
valuer on accepted accounting norms. It is reiterated that the same
was affirmed by an independent agency and it also was affirmed as
a fair and true valuation by two other agencies having no connection
with BTL or the Internal Auditor as was sought for by the Custodian
who is a party in Civil Appeal No. 2864 of 2021. The valuation and
fairness report being on the same date only denotes the day of
issuance and is no reflection of the time taken for evaluation.
12. On facts it is pointed out that BTL having been delisted from all stock
exchanges made a buy-back offer of Rs.96/- per share in the year
2001, which was the only buy-back offered by the company itself.
One of the promoters of BTL, Bharti Overseas Trading Company had
offered Rs.400/- per share in May 2006. But for that there is nothing
substantial brought out from the various documents produced as to
a clear value of the share of BTL, whose only investment was in
BAL. In 2016, there was a rights issue which increased the share
base exponentially causing significant lowering of the monetary
value of the shares. This was followed up with a preferential
allotment of shares at the rate of Rs.310/- per share in favour of a
Strategic Long-Term Promoter, SingTel, so as to infuse funds into
the company. The share value for the said transaction was on the
basis of the prevailing market price of BAL and in accordance with
the applicable FEMA regulations mandating a certain floor price. In
any event, there can be no equation of the share price determined for
[2026] 3 S.C.R. 503
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
preferential allotment to the present reduction of shares. Therein the
investors were entering into a strategic partnership in the business
which definitely would have required a premium to be paid on the
share value. It is also pointed out that BAL share value fell sharply
from January 2018 to May 2018 due to the tariffs imposed and the
fierce competition in the telecom market, which also impacted the
share value of BTL. There is no misrepresentation insofar as the
shareholders having requested for a buyback, which is evident from
the Minutes of the various AGMs, some of which were handed over
across the Bar. The shares having been delisted and there being
no payment of dividend for long coupled with a constant clamor for
buy-back the reduction of share capital was proposed, by which
measure the Company out of its own funds, would purchase the
shares of the identified shareholders which had no marketability.
13. We were taken through the valuation report, figure by figure and
page by page pointing out the manner in which the valuation was
arrived at and the DLOM applied at the rate of 25%, at the minimum,
for reason of the existing illiquidity, approved by Indian Accounting
Standards as brought out in the ICAI Valuation Standards. The
valuation as earlier pointed out was approved in the fairness report
issued by a totally different agency. The same was placed in the Board
of Directors and a resolution was passed subject to the approval
of the shareholders for which notice was issued as per Annexure
A18. The notice specifically indicated the relevant documents having
been kept in the Registered Corporate Offices of BTL, available for
inspection between 19.06.2018; the date of notice and 26.07.2018;
the last day of receipt of postal ballot or e-voting. It is emphasized
that there can be no case raised of the relevant documents having
not been supplied, especially since the voting period extended over a
month and in fact the Advocate of one of the investors had inspected
the documents and sought for further details as is evident from the
e-mail projected by the appellants themselves. It is emphatically
contended that 99.90% of the equity shareholders of BTL passed
and approved a special resolution and 76.35% of the identified
shareholders present and voting also voted in favour of the special
resolution approving the share value of Rs.196.80/-. No Objection
Certificates were also received from all the creditors and hence,
the petition under Section 66 of the Act seeking confirmation of the
scheme of capital reduction before the NCLT.
504 [2026] 3 S.C.R.
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14. The NCLT as is the mandate, called for a report from the Regional
Director of the Department who confirmed compliance of the
procedure prescribed under the Act for reduction of capital. The
NCLT having confirmed the capital reduction after looking at the
objections filed by public shareholders, the NCLAT has also approved
the same. There is hence no scope for interference, especially since
no prejudice is shown. It is pointed out that the capital reduction
was proceeded with immediately after the rights issue which put the
identified shareholders in a position enhancing their shareholding
exponentially, especially since the rights issue offered 115 shares at
par for Rs.10/-, as against every single share held by an investor.
Hence, the capital reduction after the rights issue put the investors
in a very favorable position and the appellant in Civil Appeal No.
7655 of 2025 who would have obtained Rs.16 lakhs before the rights
issue, on the very same valuation went home with an astronomical
amount of Rs.47.30 crores. The fair value cannot be fixed at the
ipse dixit of the investor, and it has to be with reference to the
market value. There cannot be a fair value fixed divorced from the
market value, especially in the case of BTL which had no other
commercial activity other than the investment in BAL. The shares
of BAL were listed in the stock market, and the value therein could
not have been adopted for BTL which was the holding company,
having only investment in the listed company; the shareholdings
of which holding company was not marketable by reason of the
delisting. It is pointed out that the identified investors are neither
fly-by-night operators nor persons unfamiliar to investor domains but
are shrewd operators who have earned substantial payouts; though
not by way of periodic dividends which were practically absent, in
the reduction of share capital, despite their shares being locked in
for long. They have waited patiently and benefited with bountiful
yields and crave more on an impulsive caprice, with nothing more
and in total absence of any real prejudice having been shown to
have visited them.
15. Both sides have placed reliance on a host of decisions to buttress
their contentions which we shall refer to, as are applicable, in the
course of our adjudication. We also refer from the documents in the
Convenience Compilation and otherwise from the specified volumes
of the numbered appeals.
[2026] 3 S.C.R. 505
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
Jurisdictional defect on the composition of the NCLAT & the
status-quo order:
16. The contention first taken is of the constitution of the Bench of the
NCLAT running foul of the mandate declared in 2010-MBA3. The
Constitution Bench in 2010-MBA3 considered the challenge against
the Companies (Second Amendment) Act, 2002, constituting the
NCLT & NCLAT; pointedly for our purpose, with reference to Section
10-FL insofar as the constitution of Benches. Paragraph 120(xii),
one of the several corrections suggested, required two members of
the Tribunal to always have a Judicial Member and any Larger or
Special Benches constituted to have more Judicial Members than
Technical Members.
17. Section 10-FL by sub-section (1) provided for the Tribunal to exercise
the powers conferred by Benches constituted by the President out
of which one shall be a Judicial Member and another a Technical
Member. The first proviso empowered the President of the Tribunal by
general or special order to permit Members to sit single and exercise
the jurisdictional powers and authorities of the Tribunal with respect
to such class of cases or matters with respect to a class of cases,
as specified. The above provision is no more applicable since the
Companies Act, 1956 has been replaced by the Companies Act,
2013. Sections 418A and 419 of the new statute speak of Benches
of the NCLAT and that of the NCLT. The proviso to sub-section (1)
of Section 418A requires a Bench of the NCLAT to have at least
one Judicial Member and one Technical Member and the proviso
to Section 419(3) mandates a similar composition in constitution
of Benches of two Members. Section 419 further provides that the
Tribunal shall exercise the powers in respect of such class of cases
or such matters pertaining to a class of cases as the President by
general or special order specifies, by a Bench consisting of a Single
Judicial Member.
18. The provisions leading to the constitution of the NCLT and NCLAT
were again challenged in Madras Bar Association v. Union of India5
(2015-MBA). Section 419, as we see from the law reports, was not
challenged before the Constitution Bench and Section 418A came to
be introduced by Act 29 of 2020, later to the decision. Three issues
5 (2015) 8 SCC 583
506 [2026] 3 S.C.R.
Supreme Court Reports
arose in the 2015-MBA5, which were with respect to (i) the constitution
of NCLT and NCLAT, held to be valid; (ii) qualification of President
and the Members of NCLT and NCLAT, Section 409(3)(a) & (e) as
also Section 411(3) held invalid as making eligible a person other
than a Secretary or Additional Secretary to be a Technical Member
and (iii) the constitution of the Selection Committee for Members;
held to be possible if comprising of only four Members, two from the
Judicial side being the Chief Justice of India or his nominee and a
Senior Judge of the Supreme Court or the Chief Justice of a High
Court and two Secretaries, one from the Ministry of Finance and
Company Affairs and the other from the Ministry of Law and Justice,
with the Chief Justice of India or his nominee having a casting vote;
following the earlier judgment. Thus, ensuring that the Judiciary
has the final say, untrammeled by any governmental influence or
interference in the appointment of a Member of the Tribunal, be it a
Judicial Member or a Technical Member.
19. The provisions as of now do not require a majority of Judicial Members
in the Larger Benches of the NCLT or the NCLAT. We cannot but
notice the extract made in 2010-MBA3 from State of West Bengal v.
Anwar Ali Sarkar6 in the context of Article 14, applies equally to
the issue raised before us, attempting a distinction drawn between
judicial members and technical members. The extract was made
consequent to the finding in paragraph 102 that “The fundamental
right to equality before law and equal protection of laws guaranteed
by Article 14 of the Constitution, clearly includes a right to have
the persons rights adjudicated by a forum which exercises judicial
power in an impartial and independent manner, consistent with the
recognized principles of adjudication” (sic). Anwar Ali Sarkar6 held
that even a criminal is entitled to set up a defense, and a special
trial, as was contemplated in the legislation under challenge though
is in public interest, would interfere with his fundamental rights.
20. Examining the special law contrasted with the ordinary law of the
land, Vivian Bose J. in paragraph 87; Anwar Ali Sarkar6 opined
that the test is not merely academic, for equality should be tested
on the collective conscience of a sovereign democratic republic as
to whether substantially equal treatment would be found by ‘men of
6 AIR 1952 SC 75
[2026] 3 S.C.R. 507
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
resolute minds and unbiased views’. Whether these men would find
it right or proper in a democracy of the kind we have proclaimed
ourselves, is the true test. We respectfully adopt the definition as
applicable to adjudications in every sphere and branch involving
interpretation and resolution of disputes, complex and simple, both.
All adjudicators first and foremost are or should be reasonable
persons having resolute minds and unbiased views. Though judicial
experience is valuable, administrative officers and technocrats; to
whom judicious consideration is not alien in their long tenures of
service dealing also with quasi-judicial matters, statutory appeals
and the like, when permitted by the legislature to be included as
Tribunal Members to aid, assist and promote a holistic adjudication
of disputes and interpretation of laws, having administrative and
technical ramifications, we cannot after permitting them to sit side-
by-side treat them or their capabilities, with disdain or label them
lower in status or in quality.
21. In the present case, we also have to notice that the Bench was
headed by a Judicial Member and had two Technical Members, and
the opinion was unanimous at the NCLAT. We also find no parallel
infirmity as arising from B.R. Thakare4, wherein a single Member
of the Tribunal, an Administrative Member, was tasked with the
adjudication of a dispute relating to cadre determination involving
interpretation of the respective rules. It was held as a measure of
proper administration of justice that ‘… while allotting work to a Single
Member, whether judicial or administrative, the Chairman should keep
in mind the nature of the litigation and where questions of law and
its interpretation are involved, they should be assigned to a Division
Bench of which one of them is a Judicial Member’ (sic). No distinction
was drawn with reference to the source from which the Members
come and there is no application to the facts of the present case.
As of now, the Companies Act permits a Single Bench to sit only in
the NCLT and that too a Bench of a Judicial Member. The NCLAT
as provided in Section 418A always comprises of two Members, one
of whom is a Judicial Member or such larger composition where the
prescription is only of the presence of a Member from the Judicial
side and not in the majority.
22. We find absolutely no reason to interfere with the order on the
question raised of the composition of the Bench of the Appellate
Tribunal. We also notice the further contention taken based on the
508 [2026] 3 S.C.R.
Supreme Court Reports
order of status quo, wherein the first respondent company was not a
party, to only reject it immediately. Obviously, the matter arose from
a scam in which a Custodian was appointed for the sale of assets
of the person involved in the scam, the assets being represented
by the legal representatives. The Custodian had proceeded to
sell the properties belonging to the legal representatives in which
circumstance this Court had issued a status quo order which binds
the Custodian and not the first respondent company, who was not a
party to that proceeding. The status quo order is only insofar as the
preservation of the assets, which in the circumstance of a reduction
of shareholding, as is the subject matter of the present case, would
only have the consequence of the shareholding being converted to
money which would be held by the Custodian, the disbursement and
adjustment of which would depend on further orders passed by this
Court in the pending appeal. Reference is also made to Annexure-22
in Civil Appeal No. 2864 of 2021 to contend that the undertaking
before the Custodian to disclose the Special Courts order before
the NCLT was not complied with. The Special Courts order or even
this Court’s as we perceive it has no bearing on the share capital
reduction of BTL. What assumes relevance is the custody of certain
shares being with the Custodian, in which circumstance the proceeds
with respect to that, on reduction of share capital, will have to be
submitted to the Custodian. It does not have any significance to
the reduction of share capital or the proceedings before the NCLT.
The Manner; The procedural infraction:
23. Under this head is raised issues of; (i) a request from the shareholders,
though disclosed in the notice having not been indicated in the Board
Resolution; (ii) the ‘tricky notice’ issued insofar as the elements
constituting valuation having not been disclosed, especially the
valuation and fairness reports; (iii) the valuation having been effected
by a related agency; (iv) the fairness report having been issued on
the very same date of the valuation report and (v) the valuation and
fairness reports having not been sent along with the notice and kept
out of reach of the investors by making it open for verification only
at the Registered Office of the Company. As was pointed out by the
respondent company, the shares of the company remained locked
in for long after the initial buyback offer, pursuant to delisting. There
were also no dividends paid, in which circumstance the individual
[2026] 3 S.C.R. 509
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
investors had sought for an exit option at the Annual General Meetings
(AGM), the minutes of which were handed over to us, across the
Bar. That the investors herein did not opt for the buyback offer and
had been holding the shares despite no payment of dividend for
long is crystal clear from the minutes of the AGM. Also, it is revealed
that there were requests made for buyback or another opportunity
by which an exit is provided to the shareholders. That the company
resorted to reduction in share capital, which in turn provided an exit
option, as sanctioned under the Act of 2013 cannot also be disputed.
24. Even when the request made by the individual shareholders from the
minutes of the AGM was pointed out, there was stiff opposition by
the appellants on the ground that they never asked for a forced exit
from the company. Be that as it may, when it cannot be denied that
the reduction of capital is a valid means, legally permissible under
the Act of 2013 which is also hedged in by safeguards insofar as a
sanction being required by a special resolution in an extraordinary
general meeting with a further sanction by the Tribunal, wherein the
Central Government and the Registrar of Companies is entitled to
offer their opinions; there is little room to find a request for exit from
the investors being necessary. The Board having decided to go in
for a reduction in capital, which definitely is not a buyback option
but would all the same be an exit measure, there is no infirmity
in the notice having indicated the request made by the investors.
Especially since the shares of the company were locked in and it was
decided that the capital reduction process is the best possible route
to provide an exit opportunity in a fair and transparent manner. The
observations in the notice though not a part of the resolution would
have weighed with the Board of Directors in arriving at a decision for
reduction of capital by purchase of the shares held by the identified
investors, members of the public.
25. The further contention is with respect to a ‘tricky notice’ which is
argued on the basis of reliance placed on various decisions of the
High Courts and this Court relying on Baillie v. Oriental Telephone
and Electric Co. Ltd.7 We would in that circumstance, look at the
decision from the source, which coined the term ‘tricky notice’ and in
that context a bit of the history of corporate law would be apposite.
7 [1915] 1 Ch 503
510 [2026] 3 S.C.R.
Supreme Court Reports
Foss v. Harbottle8 is a leading precedent in corporate law which
brought in the principle of ‘proper plaintiff rule’ wherein the alleged
wrongs against a company had to be agitated by the company
itself. There were exceptions, subsequently carved out, by judicial
precedents, sanctioning an individual action in the event of (i) ultra
vires actions, (ii) a fraud on the minority, (iii) an illegal action by the
majority and (iv) a ‘tricky notice’ without relevant material or without
sufficient disclosure, the last of which is the contention herein.
26. The term itself was coined in Kaye v. Croydon Tramways &
Co. Ltd.9 which was concerned with an agreement between two
companies for sale of one to the other. The company which was to
be sold called a meeting of its shareholders by a notice issued for
approval of the agreement. The purpose for convening the meeting
as disclosed in the notice was to confirm the agreement of sale with
the purchase price specified and the compensation to be paid for
loss of office of the Directors and the Secretary. The compensation
was based on an arrangement; in deviation of the original proposal
to take over the Directors and the Secretary, to relieve them of their
duties. It was found that the notice was artfully framed to mislead
the shareholders that the entire purchase price would come to the
selling company, making it a ‘tricky notice’, playing with words to
mislead the shareholders to consider a contract of sale, concealing
from them that a large portion of the purchase money would go into
the pockets of the Directors and Secretary.
27. Baillie7 was again a case in which the decision of the company was
annulled on the ground of a ‘tricky notice’ without proper disclosure.
Therein two special resolutions were under challenge with respect
to enhancement of remuneration of the Directors in a subsidiary
company, completely controlled by the holding company. The
increased remuneration of the Directors of the subsidiary included
20% of the net profits of that company. On an auditor’s report pointing
out that the remuneration fixed in the subsidiary company required
authorization by the holding company, a meeting was convened with
three resolutions, one of which required ratification of all actions
taken with respect to the subsidiary, including ratification of the
8 67 E.R. 189
9 [1898] 1 Ch. 358
[2026] 3 S.C.R. 511
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
remuneration already paid to the Directors and the other, authorising
the articles to be altered, bringing in sweeping changes with respect
to the remuneration of the Directors in the subsidiary company. On a
challenge made by the individual shareholder it was found that there
was no disclosure of the actual amount received by the Directors
which was alleged to be enormous and sedulously concealed. The
notice was found to be not frank, not open, not clear and not in any
way satisfactory, making it a ‘tricky notice’.
28. LIC v. Escorts Ltd and Others10 is an authority for the proposition
that a shareholder calling an extraordinary general meeting of the
company is not bound to disclose its reasons as is incumbent on
the management so to do under Section 173(2) of the Companies
Act, 1956. Claude-Lila Parulekar (SMT.) v. Sakal Papers (P) Ltd.
and Others11 dealt with transfer of shares denying the right of pre-
emption to the existing shareholders, the appellant therein. The
decision to raise the issued capital of the company and to allot the
shares at par, to any person whether a member of the company or
not was to be ratified by a General Body Meeting. The notice issued
subsequently for an Annual General Meeting contained the details
of ordinary and special business but no indication whatsoever of the
increase in the share capital and allotment of shares. It was argued
by the respondents that after the notice of AGM, the Ministry of
Finance had given notice extending the validity of a sanction for a
foreign exchange loan, clarifying that no further extension would be
granted, based on which the foreign financier advised the company
to increase its share capital in view of its expansion programme.
This Court held that since the increase in share capital did not fall
within the exceptions carved out in Article 94, which reflected the
substance of Section 173 of the Act of 1956, it was incumbent for
notice to be given not only indicating the issuance of share capital
as a special item of business but also setting out all material facts
relating thereto.
29. 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
10 (1986) 1 SCC 264
11 (2005) 11 SCC 73
512 [2026] 3 S.C.R.
Supreme Court Reports
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. A
valuation in the process of reduction of capital was resorted to by
the company only to arrive at a fair value and the fair value arrived,
after the deduction of tax was disclosed in the notice and the
method adopted itself was kept open for verification by the identified
shareholders at the registered office. It was disclosed fully in the
proceedings before the NCLT where the investors objected, despite
the special resolution having been passed with a thumping majority.
The NCLT did not reject their contentions in limine on the ground
that they had participated in the extraordinary meeting convened and
voted in favour of the capital reduction with a majority of 99.90% of
the total shareholders and 76.35 % of the identified shareholders
present and voting in favour of the resolution, but dealt with the
contention of an unfair value having been fixed and rejected the
same on an examination of the attendant facts and figures. We are
quite conscious of our confined jurisdiction under Section 423 of
the Act of 2013, which is to consider a question of law. As held in
Devas Multimedia (P) Ltd. v. Antrix Corpn. Ltd.12 when NCLT &
NCLAT have recorded concurrent findings it is not for this Court to
reappreciate evidence in the usual course. However, we are obliged
to look into the question of whether there is any perversity in the
findings, which it is trite is one of law.
30. A comparison was attempted to be drawn from other provisions,
which also are exit options available to the shareholders. Section
62 dealing with further issuance of share capital by sub-section
(1)(c) requires a valuation report from a registered valuer, which in
that circumstance would have to be enclosed with the notice to the
existing shareholders. Likewise, Section 230 of the Act of 2013 under
Chapter XV deals with compromise, arrangement and amalgamation
with creditors and members. When a compromise or arrangement
is made with the creditors or the members, the provision speaks of
two motions before the Tribunal, one to convene a meeting of the
creditors or a class of creditors or members or a class of members
to be held and conducted in such manner as the Tribunal directs.
In the first motion made before the Tribunal, as is evident from
12 (2023) 1 SCC 216
[2026] 3 S.C.R. 513
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
sub-section (2)(v), a valuation report in respect of the shares and
the property and all assets, tangible and intangible, movable and
immovable of the company by a registered valuer is required to be
annexed. If the meeting sanctions the resolution by 3/4th majority,
then again the compromise or arrangement has to be sanctioned
by the Tribunal by an order, for which a second motion is stipulated
by sub-section (6).
31. 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. Similarly, a buyback under Section 68 is optional and
it is for the shareholder to decide whether the buyback is accepted
or not, looking at the value at which the buyback is offered, which
provision also does not stipulate a valuation report. Hence, whenever
a valuation report was found expedient, it was statutorily required,
but not under Section 66.
32. 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. However, it
is pertinent to notice that the company despite any legal requirement
had adopted a valuation exercise, which was further affirmed in a
fairness evaluation by a different agency, both of which reports were
retained in the Registered Office of the Company, kept open for
verification by the investors. As has been factually found one of the
investors, through his advocate had verified the reports and made
a subsequent request only for the details of the shareholders and
raised no dispute against the value adopted. We have to pertinently
also notice that as argued by the learned Senior Counsel for the
respondent, the individual investors are not fly-by-night operators,
but are shrewd investors who are aware of the changing trends in
businesses especially when the respondent company is only having
the business of holding shares in a telecom company. We do not
find any procedural infraction or misleading disclosure to style the
notice as a ‘tricky notice’. The notice contains the full disclosure
514 [2026] 3 S.C.R.
Supreme Court Reports
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.
33. On the finding that there was no statutory mandate for a valuation
report for the reduction of a share capital, we could reject the
arguments raised of a related agency having been employed for
valuation, but we proceed to consider the ground of a perceivable
bias raised. The specific argument is that the valuer was an associate/
affiliate of the internal auditor of the company. It was buttressed by
reference to documents, including the valuation report displaying the
same logo, having common partners/directors and the internal auditor
having a controlling interest in the valuer. There was a contention
by the respondent that no allegation of mala fide or bias can be
raised without making the entity against whom such an allegation
is raised, a party to the lis. We are not persuaded to reject the
contention only on that ground since here the lis was initiated by the
company for the purpose of obtaining a confirmation of the special
resolution, which is strictly not adversarial in nature, but in which
the stakeholders are entitled to raise their objections and argue
against such confirmation. Hence, when an objection is raised as
to the independence or lack of it, of a valuer, it is for the Tribunal
to look into it and if satisfied implead that entity or otherwise reject
it in limine; which later procedure was adopted in the present case.
34. Before us, the learned Senior Counsel appearing for the respondent
company had produced the Basic Principles Governing Internal Audit
which mandates that the internal auditor shall be free from undue
influence and shall resist any undue pressure or interference in
establishing the scope of the assignments or the manner in which
the audit is conducted and reported. The internal auditor in the nature
of an in-house vigilance machinery, is mandated by the Act of 2013,
under Section 138 read with The Companies (Accounts) Rules,
2014. Rule 13 of the said Rules by its Explanation also permits an
employee to be appointed as an internal auditor, which in the present
case has not been resorted to. Though, distinguished from statutory
audits under Chapter X, the internal auditor, here an outside agency,
merely by their appointment by the company cannot be said to be
related in any manner to the company. Appointment as an internal
auditor, does not bring in a bias with respect to the activities of the
company which would essentially go against the scope and spirit of
[2026] 3 S.C.R. 515
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
an audit carried out of the accounts of the company as an in-house
verification, which is also a statutory requirement, available for scrutiny
before a statutory auditor. It has been held in N.K. Bajpai v. Union
of India13 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, was the law declared. We do not find even a
probability that the internal auditor would act in a biased manner,
leave alone the valuation agency which is an affiliate of the former.
35. We have to further notice that the fairness report has been obtained
from a different agency which has no connection with the internal
auditor and in any event, the valuation report is accepted as valid
and proper by the ICICI Securities Limited and SBI Caps Securities
Limited, totally unrelated to the respondent company as is revealed
from Annexures A-30 & A-31 produced in Civil Appeal No. 2864 of
2021 as obtained by ‘The Custodian, Appointed under Special Court
(Trial of Offences relating to Transactions in Securities) Act, 1992’
the 2nd respondent in that appeal. All the more as per the proviso
to Section 66(3) the Tribunal considering the reduction of capital
measure has to obtain a certificate from the Company’s auditor that
the accounting standards adopted is in conformity with that specified
in Section 133, which is produced as Annexure A13 in the application
under Section 66 before the NCLT produced as Annexure-A/14 in
the Convenience Compilation.
36. The fairness report signed on the same day as the valuation report
does not raise any apprehension of levity since the fairness is of the
approach in valuation, which does not require a threadbare analysis
or a reverification of the books of accounts. The figures are more
than explicit and so is the method adopted as discernible by financial
experts. We also reckon the contention raised by the respondent
company that the date of the report indicates the day of issuance and
not necessarily the time taken or the diligence exercised in arriving
at the valuation or even affirming the fairness.
37. One other contention is of the reports being kept in the Registered
Office not being sufficient based on Firestone Tyre & Rubber
13 (2012) 4 SCC 653
516 [2026] 3 S.C.R.
Supreme Court Reports
Co. vs. Synthetics and Chemicals Ltd.14 highlighting the difficulty
and disinclination of shareholders to travel to the Registered Office.
We cannot subscribe to the said view at least in today’s scenario of
ease of travel, especially since most of the 35 appellants before the
NCLAT lived in Delhi, when the Registered Office was in Gurgaon,
Haryana. Some had their residence at Mumbai & Pune and only
three were abroad, as revealed from the cause title of the order of
the NCLAT. None except one thought it fit to verify the reports. We
hence find absolutely no reason to sustain the procedural infraction
on the grounds of non-disclosure or bias, as alleged by the appellants.
The Method and The Matter; DLOM and the share price:
38. The above aspects are considered together since they are inextricably
linked. The share value determined for reduction of share capital is
termed unfair solely because of the application of DLOM, which is
said to be inapplicable in a situation of this kind where there is a
forced exit of the shareholders. Both sides relied on Kiri Industries
Ltd.2. On a reading of the same, we do not find any international
denouncement of the application of DLOM in all situations, as
argued by the appellants. True, in the aforesaid case wherein there
was a forced buyout as per the order of the Singapore International
Commercial Court, wherein the minority shareholders were asked
to be bought out by the majority shareholders, DLOM was declined.
Insofar as the DLOM principle is concerned, the decision in Thio
Syn Kym Wendy and Others v. Thio Syn Pyn and Others15 and
the decision in Liew Kit Fah and Others v. Koh Keng Chew and
Others16 were referred to. Liew Kit Fah16 held that liquidity, after
all is a valuable attribute of an investment and the lack of it is a
depreciatory factor, giving rise to application of DLOM in the valuation
of unquoted shares. However this was observed to be laid down
in a consent order where there was no Court order on account of
a finding of oppression. The principle laid down in Thio Syn Kym
Wendy15 that DLOM will apply to illiquid privately held shares, save
in exceptional circumstances proven by the party alleging it, was
held to be an incidental observation which cannot be elevated into
14 (1971) Comp. Cases 377 (Bom.)
15 [2018] SGHC 54
16 [2020] 1 SLR 275
[2026] 3 S.C.R. 517
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
a principle of law. In the context of a Court ordered buyout in an
action alleging oppression, DLOM was found to be inapplicable, not
as a universal principle but more on the facts of that case.
39. Interestingly the Court referred to an article of Professor Douglas
Moll titled “Shareholder Oppression and ‘Fair Value’: of Discounts,
Dates and Dastardly Deeds in Close Corporation” (2004) 54 (2)
Duke LJ 293, wherein the distinction between fair value and fair
market value was brought out which we have read, as available on
the internet. ‘Fair value’, as distinguished from ‘fair market value’, is
the enterprise value; the pro-rata portion of the company’s overall
value as an operating business. ‘Fair market value’ on the other hand
involves the Court valuing the minority’s share by considering what
a hypothetical purchaser would pay for them. Professor Moll was
of the opinion that in a ‘fair market value’ situation, a marketability
discount is applied since a hypothetical purchaser is likely to pay
less for shares which lack a ready market. Professor Moll was also
of the opinion that valuation is inherently contextual and buyout
proceedings in the context of an oppression setting, would make
the marketability discounts inappropriate. The report is an interesting
read and affords insights in the context of an oppressive setting
with respect to Close Corporations, in the United States of America.
The illustrative reference to minority with a 33% shareholding in
an oppressive setting also is distinguishable from the instant case,
which deals with a far lesser minority and in the Indian setting. The
statutory language was also pertinently pointed out as standing
against a marketability discount being applied, when the specific
term used was ‘fair value’ as distinguished from ‘fair market value’,
employed in comparable statutes.
40. It is recognised even by Prof. Moll that investors generally pay a
premium for liquidity and conversely extract discounts for illiquidity.
In the present case, there is no oppression complained of by the
minority shareholders and in any event, 11 appellants do not, by their
sheer number or with their combined holdings, constitute a collective
which could validly raise an allegation of oppression under Section
244 of the Act of 2013. We have to immediately also notice that the
shareholders identified for the purpose of capital reduction, together
far exceeded the minimum number; one hundred under Section 244.
There was no complaint of any oppressive action existing. All the
same in the setting of the present proceedings, even the objection
518 [2026] 3 S.C.R.
Supreme Court Reports
raised by an individual shareholder as to the reasonableness of the
price fixed has to be looked into, which pertinently is not in a setting
of oppression.
41. In Baillie7, the decision in Foss v. Harbottle8 was noticed and the
exception carved out to the ‘proper plaintiff’ rule even while rejecting
the challenge against the action of its Directors enabling purchase of
the personal properties of the Directors for prices far exceeding its
actual value that too by mortgaging and encumbering other properties
of the company and applying these proceeds to make the purchases.
However, it was observed that it would not be proper to hold that
a society of private persons associated together in an undertaking,
are deprived of their civil rights inter se, because the Crown or the
Legislature has conferred on them a corporate character to make
more attainable, the common objects. The ‘claims of justice’ then
would be found superior to any difficulties arising out of technical
rules regarding the mode in which the corporations are required to
sue. Even in Foss v. Harbottle8 it was held that if a case arises as
to an injury to a corporation or to some of its members, for which
no adequate remedy remains except that of a suit by an individual
corporator in their private character, requiring protection of those
rights entitled in their corporate character, then the ‘claims of justice’
would override procedural technicalities. It is the said principle that is
enshrined in the Act of 2013 where even when a special resolution
is passed the Tribunal is required to scrutinise a reduction in capital
under Section 66, after hearing all the stake holders, ex debito justitiae.
42. Coming back to the present case, here the measure employed was
of a reduction in capital as permitted by the statute. In Re: Reckitt
Benckiser (India) Ltd.17 encapsulated the principles regulating a
reduction of share capital after referring to British and American
Trustee and Finance Corporation v. Couper18. The broad principles
distilled were that (i) reduction of share capital is a strictly domestic
concern depending on the decision of the majority, (ii) if reduction of
share capital is approved by a special resolution, the majority also
has the right to decide how it should be carried out, (iii) reduction
of share capital can be brought about by extinguishing some of the
17 2005 SCC OnLine Del 674
18 (1894) SC 399
[2026] 3 S.C.R. 519
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
shares while retaining others even in the same class or making a
proportionate reduction for all or even for some, while for others it is
totally extinguished. The reduction thus can be in any manner and
even if it is selective it is permissible.
43. The reduction of capital was sanctioned by the Board and it was put
up as a special resolution before the general meeting convened. The
special resolution was passed by not only the majority shareholders
but also by 3/4th of the majority individual shareholders, present and
voting, identified for the purpose of reduction of share capital, which
makes it consensual. Even the appellant in C.A. No.7655 of 2025,
who holds the majority of the minority shareholding voted in favour
of the special resolution. An argument was raised that only 733 out
of the 4942 identified shareholders voted and the 3/4th majority from
those present and voting is a mirage. We cannot accept the said
contention, first for reason of the statute not prescribing any majority
from the identified shareholders. Then, the others thought it fit to
abstain and in a democratic set up where the will of the majority
reigns supreme, the abstainers are deemed to have left the choice
to those who vote and they acquiesce to the majority will of those
present and voting in the extraordinary general meeting. It is only
later, finding the application of DLOM that an objection was taken.
Thus there is no oppression setting in the present case and there
can be no distinction drawn from the statutory words employed of
a ‘fair value’ and a ‘fair market value’.
44. The statutory scheme also does not restrict the use of DLOM.
Examining the statutory scheme under Section 66, in addition to
the special resolution and notice to the Central Government and
the Registrar of Companies, sanction is accorded by the Tribunal for
capital reduction only if it is satisfied that the accounting treatment
proposed by the company for such reduction is in conformity with the
accounting standards specified in Section 133 or any other provision
of the Act and a certificate to that effect by the company’s auditor
has been filed with the Tribunal, as per the proviso to Section 66(3);
which we have found was furnished. Section 133 enables the Central
Government to prescribe accounting standards as recommended
by the Institute of Chartered Accountants of India constituted under
Section 3 of the Chartered Accountants Act, 1949 in consultation with
and after examination of the recommendations made by the National
Financial Reporting Authority, constituted under Section 132 of the
520 [2026] 3 S.C.R.
Supreme Court Reports
Act of 2013. The Indian Accounting Standards (Ind AS) 113 provides
for fair value determination as a market based measurement and
not an entity specific measurement, quite contrary to the statutory
scheme found in the United States as described by Professor Moll.
45. The definition of fair value as per the Ind AS 113 is ‘the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date’(sic). It is required that when measuring fair value, an entity
shall take into account the characteristics of the asset or liability,
if market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. These
characteristics include, not exhaustively, but as stated in the Ind
AS 113, as an example, the condition and location of the asset
and restrictions if any on the sale or use of the asset. Hence, the
approved accounting standards, as statutorily brought out, treats
the fair price as one linked with the market especially in the context
of Section 66, reduction of share capital. The Valuation Standards
Board ICAI and the ICAI Registered Valuers Organisation of the
Institute of Chartered Accountants of India has brought out ‘ICAI
Valuation Standard 103-Valuation Approaches and Methods’. The
Discount for Lack of Marketability (DLOM) is one of the subheadings
under the heading “Adjustment and Valuation”. It is stated therein
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.’ ‘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.’
46. Looking at the valuation report it definitely reckoned the share value of
BAL for a reasonable period since that would have a nexus in deciding
the value of shares of BTL whose only business is investment in the
listed BAL. BTL admittedly was not listed having been delisted in the
year 1999-2000 and continued without any payment of dividend to
the shareholders. The only buyout, which was statutorily prescribed,
was offered at the rate of Rs.96/- per share, long back in the year
2001. In 2006, one of the promotor firms of BTL had offered to
purchase the shares of public shareholders at Rs.400/- per share.
More importantly, BTL conducted a rights issue in 2016 whereby the
[2026] 3 S.C.R. 521
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
existing shareholders were offered and issued 115 shares for every
one share held by them which resulted in diminishing the monetary
value of BTL shares. The various offers relied on in the Convenience
Compilation, at Annexure 2, even though not authenticated, reveals
only a price of Rs.35-Rs.55 that too before the rights issue of the
shares. A commodity broker is said to have offered an amount of
Rs.2000/- in the year 2007 that too, far prior to the rights issue. The
further issue of share capital for the purpose of bringing in an investor
as a strategic long-term promoter made a valuation at Rs.310/- per
equity share which is not parallel with the reduction of capital now
attempted by the respondent company. The marketability of the
shares is absent, and it has to be reiterated that the company had
not been paying any dividends. There were also requests made by
the shareholders for an exit option as is revealed from the minutes
of the AGMs. In the totality of the circumstances, the applicability
of DLOM cannot be held invalid and in any event, what has to be
looked at by the Tribunal in scrutinising the scheme of reduction of
capital is only as to whether there was a fair measure employed
which cannot be termed unreasonable or prejudicial to the individual
shareholders.
47. In Re: Reckitt Benckiser (India) Ltd.17 held that when the matter
comes to Court, the satisfaction of the Court is as to whether (i) there
is an unfair or inequitable transaction and (ii) whether the creditors
entitled to object to the reduction have either consented or are paid
or are secured. In Re: Cadbury India Limited19 examined Section
100 of the Act of 1956; analogous to the purpose of Section 66, to
find three requirements; (i) the Articles of Association should permit
a reduction of share capital; (ii) the scheme for reduction should
be approved by a special resolution and (iii) the Court’s sanction
(sic- now the ‘Tribunal’) must be obtained if the special resolution is
passed. The consideration of sanction of the scheme of reduction
is regulated insofar as being (i) not against public interest; (ii) fair
and just and not unreasonable and (iii) not unfairly discriminatory
or prejudicial against a class of shareholders. As for prejudice it
was held to be something more than just receiving less than what
a particular shareholder may desire. To find prejudice there should
be an attempt to force a class of shareholders to divest themselves
19 2014 SCC OnLine Bom 4934
522 [2026] 3 S.C.R.
Supreme Court Reports
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. It was also held that reasonableness can
be tested on the basis of past open offers, extinguishments or buy-
backs and the rates at which they were effected. If the rates offered
in the scheme of reduction is more than the past offers then, the
burden on the objector is exponentially high when raising the plea
that the offer is unfair or unreasonable, to establish real prejudice,
palpable bias and demonstrable arbitrariness. Allegation of violation
of principles of fairness, when raised should be substantiated by
obvious and blatant unfairness as revealed from the consequent
action; which is absent here.
48. 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. The
test insofar as considering a sanction as held in In Re: Cadbury
India Limited19 is as to whether (i) a fair and reasonable value was
offered to the minority shareholders? (ii) The majority of the non-
promoter shareholders have voted in favour of the resolution? (iii) the
resolution read by any fair-minded and reasonable person, without
microscopic scrutiny, finds it to be egregiously wrong offending the
judicial conscience? (iii) the valuer has gone so off-track that the result
of valuation return can only be wrong? We cannot but notice that all
the above tests are satisfied in the above case. We have already
found that a fair and reasonable value was offered to the minority
shareholders and the majority of the identified shareholders present
and voting, voted in favour of the resolution. Even on a microscopic
scrutiny the valuation cannot be found to be egregiously wrong
especially looking at the previous offers and also the rights issue
offered at par, prior to the reduction of share capital, exponentially
increasing the take aways of the individual shareholders and the
valuation cannot at all be said to have gone off-track, so as to make
it egregiously wrong.
49. In this context, we cannot but notice that the share value now fixed
by the Board and approved by the majority of the shareholders
of the company which on modification by the Tribunal stands at
Rs.196.80/- for each equity share. Even taking the highest offer at
Rs.2000/- by a commodity broker as claimed by the appellants, prior
[2026] 3 S.C.R. 523
Pannalal Bhansali v. Bharti Telecom Limited & Ors.
to the rights issue, as of now on a further purchase of 115 shares
at par, expending Rs.1150/- in the rights issue, the single share
available with the identified shareholders becomes 116 at the rate
of Rs.196.80/-, which by no stretch of imagination or any standard
of scrutiny adopted, can be said to be unreasonable. Arguments
raised on the valuation initiated at the behest of the Custodian, is
available at Annexure A-9 & A-11, both in the year 2012, based on
the purchase offers received. The purchase offers ranged between
Rs.550/- to Rs.3,650/-. The valuation too by SBI Caps Securities and
ICICI Securities ranged between Rs.12,707/- to Rs.20,215/- after
applying discounts ranging from 20% to 30%. The above valuation
was in the year 2012, while consequent to the reduction of share
capital, the Custodian had sought for a verification of the valuation
conducted by the very same agencies. ICICI Securities by Annexure
A-30 while affirming the valuation as fair specifically noticed that the
adverse effect by reason of the huge liability created on BAL, by a
ruling of the Supreme Court was not captured in the earlier valuation.
They also emphatically notice that the Valuation was by a reputed
international firm and the Fairness Report by a SEBI registered
category-I merchant banker. SBI Caps Securities also confirmed
the valuation by A-31.
50. We cannot but reiterate that the appellants herein are not wary
investors, cautious retirees or mere speculators, but seasoned retail
investors who blend in equal measure prudence with quite calculation.
The share value of BAL was in the public domain, being a listed
company. The appellants were aware of the fact that BTL had only
investment in BAL, which confined its operations. The appellants
were aware and many had participated in the rights issue brought
about and if not participated, at their peril. The shareholders were
also aware of the price at which SingTel was brought in, as a strategic
long-term promoter, pursuant to which the reduction of share capital
was attempted which gave them enough material for making an
informed and calculated decision as to whether they should opt for
it. Far from the bullish and bearish trends that regulate the flexible
share value of listed companies in a volatile market, the appellants
held on to the shares of BTL; with zero listing, zero marketability,
zero dividend payment, zero exit options also declining purchase
offers, with the stoic resolve of a feline waiting patiently for its prey.
524 [2026] 3 S.C.R.
Supreme Court Reports
The move was made when the AGM was constituted quite realising
the price offered for each equity share, which was even minus the
taxes payable by the company. The decision taken at the EAGM
passing the special resolution clinches the issue. Only on finding the
DLOM having been applied, the objections were raised despite the
fact that at the time of EAGM the appellants were satisfied with the
price offered. The objection is only in applying DLOM with nothing in
substantiation as to how the price fixed is unreasonable. The identified
shareholders voted in majority or abstained, finding the price offered
to be reasonable and not prejudicial, which though pounced upon
was resiled from later. The nature’s wild offers no second pounce
at the prey nor do the hinterlands of financial wilderness and in any
event, valuation is an exercise which is best left to the experts as
has been held in Mihir H. Mafatlal v. Mafatlal Industries Ltd.20
51. On the above reasoning, we reject the appeals.
52. Pending applications, if any, shall stand disposed of.
Result of the case: Appeals dismissed.
†
Headnotes prepared by: Nidhi Jain
20 (1997) 1 SCC 579
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