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2019 (9) TMI 1427
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.... as per master data at Annexure A-14 of the petition. The registered address is Airtel Centre Plot No. 16, Udyog Vihar, Phase-IV, Gurugram 122001. Therefore, the jurisdiction lies with this Bench of the Tribunal. 2. It is stated that the authorized capital of BTL is Rs. 50,000,000,000 divided into 5,000,000,000 of Rs. 10/- each of which 2,610,774,176 shares have been issued and fully paid up. It is stated that BTL was delisted from all stock exchanges on which it was previously listed i.e. stock exchanges of Delhi, Mumbai, Ludhiana and Kolkata in accordance with the provisions of the applicable laws. It is stated that BTL has around 4942 public shareholders holding equity shares representing approximately 1.09% of the share capital of the BTL (Identified Shareholders) as on 15.06.2018 who had not accepted exit at the time of delisting or those who have become shareholders through private dealings/off market dealings amongst public shareholders. The shareholding pattern of BTL as on the date of filing of the petition on 02.08.2018 is stated to be as follows:- Shareholders Number of Shares Percentage(%) Bharti Group 1,305,663,49....
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....was passed by the shareholders and the voting status is as under :- Particulars Mode Yes No Total No. of shareholders Evoting + Ballots 616 118 734 No. of Shares 2,590,287,113 2,468,435 2,592,755,548 Percentage 99.90 0.10 100.00 Final Voting Status - Identified Shareholders Particulars Mode Yes No Total No. of shareholders Evoting + Ballots 608 118 726 No. of shares 7,968,887 2,468,435 10,437,322 Percentage 76.35 23.65 100.00 7. It is submitted that as on 31.07.2018, BTL is not in arrears in the repayment of the deposits or the interest thereon and certificate issued by the auditor of BTL and declaration by a Director is annexed as Annexures A-11 and A-12 of the petition. 8. The certificate issued by the statutory auditor of BTL to the effect that the Accounting Standard proposed by BTL for the reduction of share capital is in conforming with the Accounting Standard specified in....
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....rux of the complaints and the reply furnished by BTL was given. It was concluded that in light of the discussion and in terms of Section 66(2) of the Act, the matter may be decided on merits. 15. The Regional Director, Northern Region, Ministry of Corporate Affairs, New Delhi submitted report by Diary No. 457 dated 29.01.2019. The copy of the report of the ROC dated 29.11.2018 was enclosed. The submissions of BTL submitted by letter dated 16.11.2018 before the ROC were also considered. It was finally stated by the Regional Director, Northern Region, Ministry of Corporate Affairs that having examined the scheme and considering the reply of BTL and report of ROC, it appears that the BTL has followed the procedure prescribed in the Act for the reduction of share capital and the Tribunal may pass orders as may deem fit and proper in the facts and circumstances of the case. 16. Vide order 01.02.2019, it was noted that as per office report, various representations of certain more persons objecting to the scheme have been received and the Registry will supply copies thereof to the Senior Counsel for BTL. The affidavit on behalf of BTL in reply to the representation received was subm....
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....s, the Intervenors having contracted to permit capital reduction through special resolution, cannot now claim discrimination arising from exercise of such contractual rights of the company. Further, there are several judicial precedents to show that selective capital reduction is permissible. Thus, in Reckitt Benckiser (India) Ltd., (2005) 122 DLT 612 the Hon'ble Delhi High Court has arrived at the finding that a company limited by shares is permitted to reduce its share capital in any manner, meaning thereby a selective reduction is permissible within the framework of law. The aforesaid decision was followed in a subsequent decision dated March 31, 2014 of the Delhi High Court In the matter of RS Livemedia Pvt. Ltd. [Co. Pet 572 of 2013] wherein it was held as follows: "37. In view of the above discussion, the questions viz,: Whether it is permissible for a company to reduce its share capital in a disproportionate manner and whether it is permissible that consideration payable to different shareholders on account of reduction of share capital is calculated at different rates, must be answered in the affirmative. The mode, manner and incidence....
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.... that the discount has been imposed with a view to extinguish the shares of the minority shareholders at the lowest possible price. The allegation concerning 25% DLOM/Illiquidity Discount is completely baseless. DLOM is an adjustment which according to the independent Valuers is required for the lack of marketability, in order to arrive at the fair value of the Petitioner Company shares held by Identified Shareholders. For arriving at a figure, the independent Valuers have taken into consideration various factors including the event of no liquidity post delisting of the shares and the prospects of liquidity event for minority shareholders, and non-payment of dividends post delisting. The independent Valuers have further assessed two primary approaches to arrive at DLOM namely Multiple Option Pricing models and empirical studies. The same has been substantiated in detail in the valuation report dated June 19, 2018 submitted by the Valuers and provided as Annexure A4 to the Petition. The aforesaid opinion of the Valuers has also been considered by M/s SPA Capital Advisors Ltd., who is a category I Merchant banker in its Fairness Report. In, In Re....
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....take in the Petitioner Company ("Identified Shareholders") using selective reduction of the share capital as a tool to acquire total control over the just value of the shares of the Petitioner Company. The last capital infusion by SingTel was in February, 2018, wherein the Petitioner Company had allotted 85.45 million of its shares (1.73%) to SingTel through a preferential allotment. The preferential allotment to SingTel was done basis the then prevailing market price of BAL i.e., when BAL shares were trading at approx. Rs. 500/- per share on Stock Exchanges, which translated into the Petitioner Company's share price of Rs. 310/- per share. The proceeds of the preferential allotment had gone towards deleveraging the Petitioner Company's balance sheet and which thereby aided the equity valuation for all the shareholders, including the minority shareholders. Since the preferential allotment, the telecom stocks have all declined by approximately 30% levels given the continued tariff wars, leading to softness in the industry. Hence, the pricing provided in the proposed scheme of capital reduction is not comparable to preferential allotment made to SingTel and is a deliberate....
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....s of May 31, 2018. The share price of BAL has suffered through much market fluctuation in the time frame of January, 2018 to May, 2018 -the share price going as high as Rs. 542/- and as low as Rs. 352/-. At the beginning of the year, the share price was in the range of early Rs. 500, and has since declined. It is alleged that the period of 2 weeks is a short period of time to determine the value of an investment based on VWAP. It is submitted that two week of VWAP reflects the true value and is considered by the Valuer who has submitted a detailed valuation report which has been shared with the Interveners. The valuation report states as follows: "We have considered it appropriate to take an average of total turnover and total traded quantity for two weeks preceding 31 May 2018 to arrive at the market value per share of BAL" 9. Certain brokerage reports in relation to share price of BAL during the period Apri-May, 2018 indicated that the stock price of BAL during this period was depressed and there was an opportunity for investors to purchase the shares and gain value in the long term, as the target price for BAL shares was much higher than the prevailin....
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....o the Stock Exchanges and SEBI. It has been alleged that the two different methods being adopted for valuation of BAL shares acquired by the Petitioner Company from the promoters themselves is unfair and the same method of valuing shares at premium should be adopted in valuation of the Petitioner Company shares. It is submitted that the transaction mentioned is an independent transaction between the Petitioner Company and ICIL, which was executed on a Stock Exchange viz. BSE Limited and was done at the then prevailing price quoted at the Stock Exchanges in compliance with all applicable laws and regulations. The said transaction was in the shares of BAL and has no nexus or relationship with the proposed scheme of capital reduction undertaken by the company. It is further worthwhile to note that the Petitioner Company is the promoter company of BAL, and ICIL is a person acting in concert with the Petitioner Company. In November 2017, the Petitioner Company had acquired 4.62% stake of BAL from ICIL. The provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Regulations") requires that the acquisition price per share for an inter-se transa....
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....me of capital reduction along with its Affidavit filed under Rule 5 of the National Company Law Tribunal (Procedure for Reduction Of Share Capital of Company) Rules, 2016 bearing Diary Number 421 of 2019. Therefore, once the creditors have expressed their consent to the proposed scheme of capital reduction, the Interveners have no locus to stall a legitimate and fair process initiated by the Petitioner Company, for the benefit of Identified Shareholders. It is denied that the stated reason for selective capital reduction is saving of administrative costs, as alleged. On the contrary, the primary objective for selective capital reduction, as clearly set out in the affidavit dated September 27, 2018 filed by the Petitioner, is to provide the Identified Shareholders a mechanism to monetize their shareholding at a fair price and through a transparent process. Further, the Petitioner has filed the present petition only after an overwhelming majority of the shareholders, constituting 99.90% of the shareholders, who cast their votes, including the Identified Shareholders voted in favour of resolution for selective capital reduction. 14. The Petitioner Company'....
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....ch objections were also raised by the learned counsel for IAs filed vide CA No. 226/2019 and 227/2019. As regard CA No. 746/2019 filed by Shari Panna Lal Bhansali shareholder on 13.09.2019, notice of the application was directed to be issued to BTL on 13.09.2019; it was submitted that no reply is to be filed; it was further submitted that the application may be heard on 13.09.2019 along with other applications; and accordingly, arguments in CA No. 746/2019 were also heard along with other CAs. 21. We may add that CA No. 499/2019 in CA No. 59/2019 is an application for directions filed on behalf of the intervention applicants in CA No. 59/2019 under Rule 11 of National Company Law Tribunal Rules, 2016 for placing on record the additional documents along with supporting affidavits relating to purchase of equity shares of Bharti Airtel Ltd. (BAL) by BTL as per intimation filed on 29.10.2017 under Regulation 10 (5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for acquiring 4.62 shares of BAL at a price not exceeding 25% weighted average of last six days average closing price. The broad allegations/objections are included in the common reply affidavit f....
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....the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may-- (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid up; or (b) either with or without extinguishing or reducing liability on any of its shares,-- (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly: Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon. (2) The Tribunal shall give notice of every application made to it under sub-section (1) to the Central Government, Registrar and to the Securities and Exchange Board, in the case of listed companies, and the creditors of the company and shall....
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....ubmitted that selective reduction of the share capital can be made. 29. In Reckitt Benckiser (India) Ltd. 2005 SCC OnLine Del 674, the Hon'ble Delhi High Court in para No. 21 held as under:- "21. The principles, which can be distilled from the aforesaid judicial dicta, are summarised as under: (i) The question of reduction of share capital is treated as matter of domestic concern, i.e. it is the decision of the majority which prevails. (ii) If majority by special resolution decides to reduce share capital of the company, it has also right to decide as to how this reduction should be carried into effect. (iii) While reducing the share capital company can decide to extinguish some of its shares without dealing in the same manner as with all other shares of the same class. Consequently, it is purely a domestic matter and is to be decided as to whether each member shall have his share proportionately reduced, or whether some members shall retain their shares unreduced, the shares of others being extinguished totally, receiving a just equivalent. (iv) The company limited by shares is permitted to reduce its share capital in any manner,....
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....d that the Tribunal is only required to be satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent obtained. It is pleaded that the consent affidavits of the creditors have been filed, notices were also issued to the creditors and there is no objection from any of the creditors. 34. The issue remaining for consideration is whether the proposed reduction is fair and equitable and it is also just and reasonable. 35. One of the contentions raised by the learned authorized representative/counsel for the intervention applicants is that the proposed reduction is a selective reduction and hence, BTL should take voting only from the identified shareholders. A similar submission was made before the Hon'ble Delhi High Court in Reckitt Benckiser India Ltd. supra. It was held by the Hon'ble Delhi High Court in para No. 31 as follows:- "31. A submission was made by learned Counsel for the objector about the holding of the class meetings. However, it is rightly contended by learned Counsel for the petitioner that holding of class meetings is not a requirement under the provisions of Section 100 ....
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....cs would therefore, show that even the identified shareholders have concluded that the scheme for capital reduction having effect only on them is fair and reasonable. 38. It has been pleaded by the learned authorized representative/counsel for the intervention applicants that BTL made preferential issue to SingTel at Rs. 310/- per share by issuing 85,450,000 equity shares and collected Rs. 2649 crores by way of equity and premium in February, 2018 and therefore, the claim that BTL has paid up share capital which in excess of wants of BTL in June, 2018 against the intent of Section 66 of the Act. It is also pleaded that BTL does not have an investor friendly attitude since dividend was not declared. It is pleaded that there are minimal shareholders expenses and therefore, one of the reasons given in the explanatory statement pursuant to Section 102 of the Act is not justified. It is also pleaded that the shares of BTL are marketable among public shareholders. 39. We may first state that the averment made in the explanatory statement pursuant to Section 102 of the Act regarding capital reduction enabling BTL to save the administrative and other costs is an additional reason giv....
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....al." 44. We find that in all the cases referred, the respective petitioner company had agreed that the objectors may retain their shares. In the present case, there is no such averment by BTL that the objectors may retain their shares. Therefore, the plea raised cannot be accepted. 45. In the representations received by the Tribunal, the objections inter alia were that the scheme of 'buy back' is violative of Section 129 of the Act and BTL was liable to be taxed under the provisions of Income Tax Act. In the affidavit on behalf of BTL filed in reply to the representations received (Diary No. 796 dated 15.02.2019), it has been submitted by BTL that the present scheme is filed in pursuance to Section 66 of the Act and the objectors are deliberately misleading the Tribunal by terming the scheme as a 'buy back'. 46. We find that the provision regarding purchase of its own shares by a company is contained in Section 68 of the Act. The petition presently under consideration is filed under Section 66 of the Act for confirmation of reduction of share capital. Therefore, the satisfaction of the conditions provided for under Section 68 of the Act are irrelevant in th....
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.... 1, an average of total turnover and total traded quantity for two weeks preceding 31.05.2018 has been taken to arrive at the market value per share of BAL at Rs. 368.22. In step 2, the value of BTL has been calculated considering the market value of BAL and adding/deducting other assets/liabilities and the net worth computed at Rs. 6,84,980 million. In step 3, the discount for lack of marketability (DLOM) has been computed at 25%. The value per equity share of BTL after DLOM is thereby computed at Rs. 196.80. 50. It is pleaded by the learned authorized representative/counsel for the intervention applicants that the methodology adopted by the valuers for making a deduction of 25% DLOM is arbitrary and flawed and imposed with a view to extinguish the shares of the minority shareholders at the lowest possible price. As regards dividend distribution tax (DDT) it is pleaded that the tax is to be borne by BTL and cannot be transferred to the shareholders. It is pleaded that while raising funds by preferential shares to SingTel, the value was Rs. 310 per share whereas the price offered to the minority shareholders is nearly half the said price. It is argued that for estimating the val....
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....ase with reference to the above judgements. The learned counsel for intervention applicants have stated that two week volume weighted average price of BAL should not have been taken and the time frame adopted should have been from January, 2018 to May, 2018. The valuers have come to a conclusion that average of total turnover and total traded quantity for two weeks preceding 31.05.2018 be taken. Being experts, it is within the realm of the jurisdiction of the valuer to decide the time frame and also to take into consideration other matters claimed by the intervention applicants e.g. significant investments by BAL in Africa and trading/transactions in shares of BAL before the two week period. As regards preferential allotment to SingTel in February 2018, it is stated by BTL that this was done on the basis of the then prevailing market price of BAL of approx. Rs. 500 per share on stock exchanges which translated into share price of BTL of Rs. 310 per share. It is stated by BTL that the value of the shares issued to SingTel was as per independent valuation report in compliance with the applicable provisions of the Act. It is submitted by BTL that since the preferential allotment, the ....
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....f the capital reduction amounts to Rs. 196.80 per equity share which is equal to the value determined by the valuers. It is pleaded by the learned counsel for BTL that DDT is a liability which will arise to BTL solely on account of capital reduction and would not have arisen to BTL otherwise and it is only fair that the outflow of the company on account of capital reduction should factor in such DDT liability as well. 55. We find that in the valuation report dated 19.06.2018, while considering the basis for DLOM and assessment of DLOM, the valuers have taken into consideration the tax incidence/implications. It was observed by the valuers that where BTL's minority shareholders get an opportunity to sell/liquidate their shares, there would be tax incidence in the hands of the respective minority shareholders and in the current proposed scheme for selective capital reduction, the tax incidence in the form of DDT would have to be incurred by BTL over and above the consideration being paid to the minority shareholders. The valuers considered the implication of potential sales of some shares in BAL to arrange funds for distribution to minority shareholders and estimated the net s....
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.... existence of a relationship between the internal auditors and the valuers to justify the contention of the report of valuers not constituting an independent report. We may add that we have examined the valuation report dated 19.06.2018 with reference to the case laws discussed above and have found that the valuation is not ex-facie unreasonable and therefore, reference to an independent valuer is not required in the present case. 59. It is submitted by the learned counsel for the intervention applicants that the explanatory statement pursuant to Section 102 of the Act was not accompanied by a copy of the valuation report as well as the fairness opinion and therefore, the sanctity of the postal ballot was defeated. We find that in the explanatory statement pursuant to Section 102 of the Act, it was noted that the valuation report as well as fairness opinion are available for inspection at the registered office and corporate office of BTL on all working days between 11.00 a.m. (IST) to 1.00 p.m. (IST) up to and including the last date of voting on the postal ballot/e-voting. The learned counsel in CA No. 553/2018 referred to para 6 F of the application and stated that the advocat....
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....aid is way less and even the overwhelming majority of non-promoter shareholders having voted in favour of the resolution shows that the Court will not be justified in withholding its sanction to the resolution" (para 9) An SLP (Petition for Special Leave to Appeal (Civil) No. 12418/2009) filed therefrom, was dismissed by the Hon'ble Apex Court, by its order dated 13th July, 2009. Thus this Court is bound by the decision of the Learned Division Bench and cannot withhold sanction to the special resolution for reduction of capital, unless there is some patent unfairness regarding the fair value of the shares or there is lack of an overwhelming majority of non-promoter shareholders who vote in favour of the resolution. 62. In the present case, we have found no patent unfairness in the valuation report dated 19.06.2018. We have however held that the deduction of DDT from the value per share as per the valuation report dated 19.06.2018, causes prejudice to the identified shareholders and is a concerted attempt to force a class of shareholders to divest themselves of their holdings at a rate far below what is reasonable, fair and just and connotes a form of discrimination. We note ....