PANNALAL BHANSALI v. BHARTI TELECOM LIMITED
Validity of Share Capital Reduction and Application of Marketability Discounts (DLOM) in Minority Buyouts under the Companies Act, 2013.
Court: Supreme Court of India
Citation: 2026 INSC 213
Decision Date: 10-03-2026
List of Laws
The Companies Act, 2013; The Companies Act, 1956; Indian Accounting Standards (Ind AS) 113; ICAI Valuation Standards; Constitution of Benches (Section 418A and 419); Reduction of Share Capital (Section 66)
- Facts: The 1st Respondent, Bharti Telecom Limited (BTL), a closely held unlisted company, proposed a reduction of its share capital under Section 66 of the Companies Act, 2013. The scheme involved the cancellation of equity shares held by minority individual shareholders (comprising approximately 1.09% of the total shareholding) in exchange for a cash payout. Initially fixed at Rs. 163.25 per share, the price was enhanced to Rs. 196.80 by the NCLT to exclude arbitrary tax deductions. The Appellants, a group of minority shareholders, challenged the reduction, alleging that the valuation was suppressed, the valuer was biased due to links with the internal auditor, and the notice for the meeting was "tricky" and lacked sufficient disclosures. They particularly objected to the application of a "Discount for Lack of Marketability" (DLOM) in determining the share price.
- Procedural Posture: The NCLT confirmed the reduction of share capital. The minority shareholders appealed to the NCLAT, which dismissed the appeals. The Appellants subsequently approached the Supreme Court under Section 423 of the Companies Act, 2013.
- Issue: (i) Whether the NCLAT Bench was improperly constituted; (ii) Whether the notice for capital reduction was a "tricky notice" vitiating the proceedings; and (iii) Whether the application of DLOM and the valuation methodology were legal and fair under Section 66.
- Holding: The Supreme Court dismissed the appeals, upholding the concurrent findings of the NCLT and NCLAT.
- Reasoning: The Court held that a Bench of the NCLAT consisting of one Judicial Member and two Technical Members is valid under Section 418A. Regarding the "tricky notice" allegation, the Court found that Section 66 does not statutorily mandate a valuation report to be annexed to the notice, unlike Sections 62 or 230; hence, keeping reports at the registered office for inspection was sufficient compliance. On valuation, the Court noted that "fair value" under Indian Accounting Standard (Ind AS) 113 is market-based. Since BTL was unlisted and its shares were illiquid, the application of DLOM (Discount for Lack of Marketability) was a recognized accounting principle supported by ICAI Valuation Standards. The Court emphasized that valuation is an expert exercise and judicial interference is only warranted if the results are "egregiously wrong" or "off-track", which was not the case here, especially as a majority of the minority shareholders had voted in favour of the resolution.
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