PANNALAL BHANSALI Vs. BHARTI TELECOM LIMITED

JUDGEMENT

(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, a closely held company having 1.09% of its shareholding with individuals, decided to reduce its share capital under Sec. 66 of the Companies Act 2013 [For brevity 'the Act of 2013] 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.10.00 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.

(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 Sec. 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.