Pannalal Bhansali vs Bharti Telecom Limited & Ors.

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 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]

Companies Act, 2013 – s.66 – Reduction of share capital – Requirements – Explained. [Para 47]