Shirish Vinod Shah (HUF) Vs Bharti Telecom Limited (NCLAT Delhi)
The National Company Law Appellate Tribunal (NCLAT) considered fourteen appeals filed by thirty-five shareholders under Section 421 of the Companies Act, 2013 against the order of the National Company Law Tribunal, Chandigarh Bench, which had approved Bharti Telecom Limited’s reduction of share capital under Section 66 of the Companies Act, 2013. The appellants were shareholders whose equity shares were extinguished pursuant to a special resolution approving selective reduction of share capital. The principal objections related to the valuation of shares, the legality of selective capital reduction, alleged lack of transparency, and compliance with statutory provisions.
Bharti Telecom Limited was originally listed on several stock exchanges before being delisted between 1999 and 2000 after the promoter group acquired more than 90% of its shares. Thereafter, the company became an investment company holding a majority stake in Bharti Airtel Limited. In June 2018, its Board approved a proposal to reduce its issued, subscribed and paid-up share capital by cancelling 2,84,57,840 equity shares held by identified public minority shareholders, representing approximately 1.09% of its paid-up share capital. The proposal was approved through a special resolution passed by postal ballot and electronic voting.
The appellants contended that minority shareholders had never sought an exit opportunity and had consciously continued their investment despite previous exit offers following delisting. They relied on previous buyback and purchase offers, participation in the 2016 rights issue, and the company’s subsequent transformation into the holding company of Bharti Airtel Limited. They alleged that the explanatory statement incorrectly described their investments as locked in and overstated administrative costs associated with servicing minority shareholders. They further argued that the valuation report and fairness opinion were not initially provided, rendering their voting rights ineffective and violating Section 102 of the Companies Act, 2013. According to the appellants, the valuation of ₹163.25 per share (₹196.80 inclusive of dividend distribution tax) was inconsistent with an earlier valuation of ₹310 per share adopted for a preferential allotment to SingTel and improperly applied a 25% discount for lack of marketability (DLOM) while ignoring any control premium. They also alleged that the valuation lacked independence and that conducting the voting through postal ballot and electronic voting deprived minority shareholders of meaningful participation.
