AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 522
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....Jyoti Lamba w/o Shri Manish Lamba, Shri Rajneesh Lamba s/o Shri Nand Kishore Lamba, Shri Nand Kishore s/o Late Shri H.C. Lamba, Versha Talwar w/o Shri Vikram Talwar, Rajesh Jain, Pannalal Bhansali S/o Late Hira Lal Bhansali, Mrs. Anuradha Modi Wife of Sh. Krishan Kumar Modi, Mr. Krishan Kumar Modi Son of Sh. SR Modi, Ms. Bhavini Modi Daughter of Sh. Krishan Kumar Modi, Ms. Somya Modi Wife of Sh. Harsh Hari Modi, Ms. Aniha Modi Daughter of Sh. Krishan Kumar Modi And Mr. Harsh Hari Modi Son of Sh. Krishan Kumar Modi versus Bharti Telecom Limited, The Registrar of Companies, NCT of Delhi & Haryana, The Regional Director, Northern Region, Ministry of Corporate Affairs, Bharti Telecom Limited, The Registrar of Companies, NCT of Delhi & Haryana, The Regional Director, Northern Region Ministry of Corporate Affairs,Bharti Telecom Limited, The Registrar of Companies, NCT of Delhi & Haryana, The Regional Director, Northern Region Ministry of Corporate Affairs, Bharti Telecom Limited, The Registrar of Companies, NCT of Delhi & Haryana, The Regional Director, Northern Region Ministry of Corporate Affairs, Bharti Telecom Limited, The Registrar of Companies, NCT of Delhi &Haryana, The Regiona....
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....Company Appeal (AT) No. 273 of 2019. This case has been pleaded by Mr. Anirudh Suresh. 3. Mr. Hasmukh Mithalal Nagori is the Appellant in Company Appeal (AT) No. 274 of 2019. This case has been pleaded by Mr. Anirudh Suresh. 4. There are three Appellants in Company Appeal (AT) No. 275 of 2019 i.e., Adwaeet A. Shah, Adwaeet A. Shah (HUF) and Arvind M Shah (HUF) ('Appellants'). This case has been pleaded by Mr. Anirudh Suresh. 5. There are seven Appellants in Company Appeal (AT) No. 276 of 2019 i.e., Mr. Mahendra A. Shah, Dr. Kumar H. Shah, Mrs. Dipti K. Somaiya, Mr. Krishnakumar D. Somaiya, Mrs. Jyoti Sunil Desai, Mr. Abhay Y. Dadbhawala & Mr. Vipul Jayantilal Modi ('Appellants'). This case has been pleaded by Mr. Anirudh Suresh. 6. Mrs. Chhaya Kamlesh Parekh is the Appellant in Company Appeal (AT) No. 277 of 2019. This case has been pleaded by Mr. Anirudh Suresh. 7. Mrs. Kanta Shah is the Appellant in Company Appeal (AT) No. 278 of 2019. This case has been pleaded by Mr. Anirudh Suresh. 8. Mr. Ramesh Shah is the Appellant in Company Appeal (AT) No. 279 of 2019. This case has been pleaded by Mr. Anirudh Suresh. 9. Mrs. Bharti Vinod Shah is the Ap....
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....hareholders (Constituting approx. 0.11% of the shareholding of R1) who have raised certain objections with respect to the valuation of the shares for the purposes of capital reduction. 20. It is noted that the Respondent No.1, i.e. BTL was incorporated on 29th July, 1985, under the erstwhile Companies Act, 1956. Initially, BTL was listed on the stock exchanges of Delhi, Ludhiana, Kolkata, and Bombay. 21. In 1986, BTL issued a total of 16.5 lakh shares to various stakeholders, including promoters, directors, employees, associate companies, and the public and all 31,800 equity shares allocated for public subscription were successfully subscribed. 22. In the year 1991, various shareholders including the promoters, employees, and the general public again subscribed to all 1.525 crore shares offered. Similarly other subscription of all equity shares offered by BTL were also subscribed. 23. It is significant to note that in October 1999, BTL was delisted from the Bombay Stock Exchange due to the Promoter Group (Bharti) acquiring more than 90% of BTL's shares. This delisting was followed by similar actions on other stock exchanges: Kolkata, Ludhiana, and Delhi, with effect....
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.... as a subsidiary of BTL, as detailed in the Notice of Rights Issue. The Appellants stated that the minority public shareholders demonstrated their commitment by making significant investments and subscribing to this Rights Issue, indicating that they did not perceive their investments in the unlisted Company as locked up. Subsequently, on 03.11. 2017, after a gap of 15 years and 8 months from BAL's listing on 18.02.2002, BAL became a subsidiary of BTL, fulfilling the stated objective of the Rights Issue. Despite this development, the minority shareholders continued to remain invested and never sought an exit opportunity. 30. The Appellants elaborated that BTL planned to involve SingTel as partner in their telecom business and in this backdrop, a Valuation Report was obtained from J C Bhalla & Co, estimating the fair value per equity share BTL at Rs. 310/- per share, with 18th January, 2018, as the relevant date for valuation. The Appellants clarified that the valuation was determined using the "Adjusted Net Assets Method", considered most appropriate for an investment company and an internationally accepted pricing methodology. The Appellants clarified that this method align....
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....ppellants submitted that contrary to the reasons stated in the Notice, the Public Minority Shareholders did not request an exit opportunity to monetize their shareholding due to their investments being locked up, nor would BTL necessarily save administrative costs by servicing them. The Appellants argued that the Notice makes these claims, whereas relevant extracts from BTL's Annual Returns, specifically the shareholding pattern, demonstrate a significant volume of trading in the market and off-market, indicating liquidity in BTL's equity shares and contradicting the notion of "locked up" investments. 36. The Appellants submitted that the administrative costs for servicing the Public Minority Shareholders, as cited in the Notice, was minicule and negligible, as evidenced in the extracts of BTL's Annual Returns, and is reproduced for ready reference. Year Total Revenue from operations Communication Expenses Printing & Stationery Expenses Total Admin Expenses Admin Overheads to Revenue (%) 2013-14 1,85,50,02,000.00 24,000.00 76,000.00 1,00,000.00 0.0054 2014-15 6,16,88,12,000.00 23,000.00 64,000.00 87,000.00 0.0014 ....
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....would have likely exercised their right to vote. The Appellants elaborated that only 733 shareholders out of 4942 public shareholders, or 14.8% of 4942 Public Minority Shareholders casted their votes, as evidenced by the Scrutinizer's Report. 41. The Appellants submitted that, after receiving the notice, attempts were made to obtain clarifications by calling 0124-4222222, the contact number listed on the Postal Ballot form. The Appellants submitted that despite the mention of a Valuation Report and Fairness Opinion in the Notice, these documents, necessary for understanding the items of business, were not shared with them. The Appellants stated that the documents were also not provided during personal visits to BTL's office, as per the address in the Notice. The Appellants highlighted the emails sent by the Appellant to BTL as evidence of their sincere requests to BTL for sharing the Valuation Report and Fairness Opinion, even offering to pay for photocopying, scanning, or postal charges. The Appellants contended that this lack of transparency contradicts the Board of Directors' claim in the Notice of conducting the reduction of share capital in a fair and transparen....
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.... on the Valuation Date of 31.05.2018. The Appellants contrasts this with the preferential allotment of equity shares to SingTel at an issue price of Rs. 310 on 12th March, 2019 where the stated objective of the preferential issue was the repayment of BTL's debts, as detailed in the notice to shareholders. The Appellants argued that BTL obtained a Valuation Report from J C Bhalla & Co, who estimated that the fair value per equity share of BTL was Rs. 310/- per share in which the relevant date considered by the valuers for the purpose of valuation was 18th January, 2018. The Appellants clarified that the said valuation was done on the basis of Adjusted Net Assets Method which is appropriate method for an Investment company being an internationally accepted pricing methodology in contrast to Multiple Option Pricing Models and empirical studies used by Ernst & Young Merchant Banking Services Private Limited in valuation in the present case. The Appellants contended that this discrepancy highlight that the Reduction of Share Capital proposed by the Respondent No. 1/ BTL does not comply with the provisions of Section 66 of the Companies Act, 2013. 46. The Appellants submitted that....
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....rlier obtained a Valuation Report from J C Bhalla & Co who estimated the fair value per equity share of BTL Rs. 310/- per share in which the relevant date considered by the valuers for the purpose of valuation is 18th January, 2018 and the valuation was done on the basis of Adjusted Net Assets Method which was an appropriate method. 50. The Appellants submitted that the E&Y Valuation Report is flawed because it fails to include a control premium, which is required when minority shareholders where forced out and inappropriately applied a 25% discount for lack of marketability (DLOM) despite evidence of liquidity. The Appellants submitted that the 25% DLOM applied in the E&Y Valuation Report is arbitrary, based on outdated data from developed economies and foreign companies (1966-2006). The Appellants argued that as an investment holding company with over 90% of its assets in BAL of which it holds 50.10% (as of 31st March, 2019), and BAL being a liquid, actively traded index stock, BTL's shares were marketable among Public Shareholders. 51. The Appellants submitted that the act of selective capital reduction is not only unfair, unjustified, coercive, discriminatory, and ill....
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....nal has got jurisdiction to interfere and decline this scheme proposing selective reduction of share capitals since it has been found to be prima-facie unreasonable as the minority shareholder have not been offered a reasonable price for shares. 56. The Appellants conceded that the identified shareholders were indeed minority public shareholders as their voting strength was only 1.09%, which is not very significant in comparison to majority promoter shareholders i.e., Bharti SingTel Group who have conjoint voting strength of 98.91%. The Appellants however pleaded that being minority shareholders it was the duty of majority public shareholders as well as the Tribunal to proceed with the scheme in reasonable, unbiased and transparent manner. 57. The Appellants pointed out that they themselves appointed a registered valuer Mr. Mayur Popat holding Registration No. IBBI/RB/06/2019/1173 which categorically stated that DLOM should not have been applied in the present scheme. 58. The Appellants also pointed out the alleged irregularities by independent valuer Ernst & Young Merchant Banking Services Private Limited who contravened various provisions laid down in model code of condu....
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....hermore, the Respondent No.1 has sufficient reserves and funds to execute this capital reduction. While the primary objective is to provide a fair exit mechanism for these shareholders, the reduction would also enable the Respondent No. 1 to save on administrative and other costs associated with servicing a dispersed and minimal percentage of shareholding across India and overseas. 65. The Respondent No.1 submitted that the Board of Directors, after a detailed examination and analysis of various available options, concluded that reorganizing the capital structure through a reduction of equity share capital held by the identified shareholders would be the most appropriate solution. This decision was made in accordance with Section 66 of the Companies Act, 2013, read with the National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016, as it provides a lawful and structured mechanism to offer an exit to these shareholders while ensuring compliance with applicable legal provisions. 66. The Respondent No.1 submitted that to ensure fair consideration for the proposed reduction of share capital held by the identified shareholders, the Respondent ....
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....eholders approved the proposed capital reduction under Section 66(1) of the Companies Act, 2013. The Respondent No. 1 submitted that the Special Resolution was passed with an overwhelming majority of 99.90% of the total shareholders voting in favour. 70. The Respondent No.1 submitted that following the Board's approval and shareholder resolution, the Respondent No. 1 it filed a petition with the Tribunal on 2^nd August, 2018, seeking approval for the proposed capital reduction. The Respondent No. 1 also placed on record the consents and no-objections from all creditors, ensuring compliance with legal requirements. The Regional Director/ Respondent No. 3 herein, subsequently filed a no-objection report dated 23^rd January, 2019, confirming that the Respondent No. 1 had adhered to due process under the law. The Respondent No. 1 submitted that after considering detailed submissions and objections raised by intervenors, including the present Appellants, the Tribunal approved the capital reduction and confirmed it through its impugned order dated 27th September, 2019. 71. The Respondent No. 1 denied that public shareholders did not seek an exit opportunity, arguing that the Ap....
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....ion application. 75. The Respondent No.1 denied the arguments of the Appellants that the capital reduction is not in favour of or beneficial to the identified shareholders. The Respondent No. 1 emphasised that on the contrary, numerous identified shareholders had repeatedly requested an exit route following the delisting of the Respondent's shares, which rendered them unmarketable on any stock exchange in India. In compliance with legal requirements, the Respondent No. 1 sent a Notice of Postal Ballot/Electronic Voting along with an explanatory statement dated June 19, 2018, to all shareholders. The resolution for capital reduction was approved with overwhelming support, as 99.90% of the shareholders who voted were in favor, including approximately 76.35% of the identified shareholders. The Respondent No. 1 submitted that after going through entire process, the Tribunal rightly relied on the precedent set in Reckitt Benckiser India Ltd [(2005) SCC OnLine Del]. and observed that decisions regarding share capital reduction are matters of domestic concern, where the majority decision prevails. 76. The Respondent No.1 asserted that all shareholders, including the identified s....
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.... a preferential allotment based on the prevailing market price of Bharti Airtel Limited, which was trading at approximately Rs.500 per share at the time, translating to a valuation of Rs.310 per share for the Respondent No. 1's shares. The Respondent No. 1 stated that the proceeds from this allotment were utilized for deleveraging the Respondent No. 1's balance sheet, thereby benefiting all shareholders, including minority shareholders, by emphasising equity valuation. However, since the preferential allotment, telecom stocks have declined by approximately 30% due to ongoing tariff wars and industry challenges, making any comparison between the preferential allotment price and the present capital reduction price misleading. 80. The Respondent No.1 submitted that the offered price to the identified shareholders was Rs.196.80 per equity share, not Rs.163.25 as alleged by the Appellants. This includes Rs.163.25 as the base price and an additional amount accounting for dividend distribution tax. 81. The Respondent No. 1 denied that the Valuation Report failed to account for a control premium or that the Respondent orchestrated the capital reduction to gain 100% control ov....
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....o. 1 stated that Section 66(1) of the Companies Act, 2013, explicitly permits companies to reduce their share capital in any manner, provided it is approved by a special resolution and complies with statutory requirements. The Respondent No. 1 submitted that Article 82C of the Respondent No. 1 Articles of Association also allows for such reduction through a special resolution. The Respondent No. 1 stated that the Articles of Association form a contractual agreement between BTL and its members, as well as among the members themselves. Therefore, the Appellants, having agreed to these terms, cannot now claim discrimination arising from their enforcement. The Respondent No. 1 submitted that judicial precedents have consistently upheld the legitimacy of selective capital reduction when conducted in compliance with legal requirements and Courts have emphasized that such reductions are permissible if they are fair, equitable, and not malafide. The Respondent No. 1 cited the judgement Sandvik Asia Ltd v. Bharat Kumar Padamsi, where it was held that selective reduction is valid if non-promoter shareholders are paid fair value for their shares and an overwhelming majority approves the resol....
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....hares and provided a detailed report supported by a Fairness Opinion from SPA Capital Advisors Limited, a reputed Category I Merchant Banker. The Tribunal reviewed the Valuation Report dated 19th June, 2018, and found it reasonable and consistent with applicable case laws. The Respondent No. 1 also denied that past offers or recent transactions should be relied upon to determine the offer price under the scheme. The Respondent No. 1 took pain to explain that each transaction has its unique context and pricing considerations and the current scheme of capital reduction is distinct from a buy-back under Section 68 of the Companies Act, 2013 and has been undertaken in compliance with Section 66 of the Companies Act, 2013. 87. The Respondent No. 1 denied that the Tribunal failed to give due weight to the fact that the existing minority shareholders did not desire an exit route. On the contrary, numerous identified shareholders had repeatedly approached the Respondent No. 1 seeking an exit after the delisting of its shares from stock exchanges, which rendered them unmarketable. The Respondent No. 1 stated that the Tribunal correctly noted that delisting had effectively eliminated any ....
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.... 1 emphasized that the Tribunal's decision was well-reasoned. 92. The Respondent No. 1 denied that the valuation report was not independent. The respondent argued that the Tribunal found no evidence of a relationship between the internal auditors (Ernst & Young) and the independent valuers that would compromise the report's independence and the Tribunal also concluded that the valuation was reasonable and did not necessitate another report. 93. The Respondent No. 1 contended that the Respondent No. 1 was not obligated to allow objectors to retain their shares as the overwhelming majority of Identified Shareholders approved the scheme, and no objector had the right to amend the scheme approved by the majority. 94. The Respondent No. 1 submitted that the Tribunal correctly distinguished the judgments cited by the Appellants, noting that they were not applicable to the facts of this case and the Tribunal after a detailed analysis, allowed Respondent No. 1's Petition for capital reduction. 95. The Respondent No. 1 denied that the notice given to the shareholders implied that the votes of the Identified Shareholders would have no meaning. The Identified Sharehold....
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....ce for Bharti Airtel 368 Rs ii Total shares held in Bharti Airtel 200.27 cr iii Implied value of holdings of Bharti Airtel 73,747 in Rs cr iv Net debt of Bharti Telecom 5,251 in Rs cr v Equity Value of Bharti Telecom 68,497 in Rs cr vi Discount due to lack of mobility (DLOM) 25% % vii Total shares of Bharti Telecom 261.07 Cr viii Effective price per share 196.8 Rs ix DDT (Dividend distribution tax) 33.55 Rs x Offer price to minority shareholders /share) 163.25 Rs /share 99. The Appellants have challenged the Impugned Order on several grounds based on which, we find that the various issues raised are required to be examined and determined in the present appeals. 100. Issue No. I (a) Whether reduction of capital by the Respondent No. 1/ BTL was in accordance with Section 66 of Companies Act, 2013. (b) Whether selective capital reduction was permissible in terms of Section 66(1)(b)(ii) of the Companies Act, 2013. (c) Whether the Appellants minority shareholders could have been compelled to be ousted from the equity holding by passing resolution by majority of s....
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....e legal framework. (ii) It may be noted that, in the first instance, the shareholders of Respondent No. 1 ratified the capital reduction by passing a Special Resolution through a postal ballot and electronic voting, with a majority of 99.90% of total shareholders in value voting in favour of selective capital reduction. Additionally, 76.35% of the Identified Shareholders present and voting approved the Special Resolution for selective capital reduction, thereby complying with Section 66(1) of the Companies Act, 2013. It is observed that Respondent No. 1 had not accepted any deposits and was not in arrears of repayment of principal or interest. Consequently, the proviso to Section 66(1) does not apply. Section 66(1) states that: - "66 (1) Subject to confirmation by 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 ....
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....capital shall be sanctioned by the Tribunal unless the accounting treatment, proposed by the company for such reduction is in conformity with the accounting standards specified in section 133 or any other provision of this Act and a certificate to that effect by the company's auditor has been filed with the Tribunal." (iv) It is also noted that although there was no specific direction from the Tribunal on publishing the order, Respondent No. 1 published a newspaper advertisement on 30.09.2019, stating that the Tribunal had approved the capital reduction scheme and notified the record date. This action fulfilled the requirements of Section 66(4) which is stated below: - "(4) The order of confirmation of the reduction of share capital by the Tribunal under sub-section (3) shall be published by the company in such manner as the Tribunal may direct." (v) Also, the Respondent No. 1 filed a certified copy of the order with the Registrar, who issued a certificate to that effect. This satisfies the requirements of Section 66(5) as mentioned below: - "(5) The company shall deliver a certified copy of the order of the Tribunal under sub-section (3) and of a minute....
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....) 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, meaning thereby a selective reduction is permissible within the framework of law (see Re. Denver Hotel Co., 1893 (1) Chancery Division 495). (v) When the matter comes to the Court, before confirming the proposed reduction the Court has to be satisfied that (i) there is no unfair or inequitable transaction and (....
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....dge in the impugned judgment has observed/found/held: - (i) that Section 100 of the Act expressly permits a Company if so authorized by its Articles of Association, to reduce its share capital by following the procedure prescribed therein; (ii) Clauses (a), (b) and (c) of Section 100(1) of the Act are mere illustrations and not the only manner in which share capital of a company can be reduced; the power of reduction of capital else is general and extends to any possible method of reduction subject to compliance with the applicable provisions; (iii) that the judgments relied upon by the appellant were pertaining to a Scheme of Arrangement under Section 391 of the Act and had no applicability to reduction of share capital under Section 100 of the Act; (iv) that the Articles of Association of the respondent Company permitted such reduction; the respondent Company had only one class of shareholders and the equity shares of the respondent Company were delisted from the Bombay, Calcutta and National Stock Exchanges between the years 2003-05 in accordance with Regulation 21(3)(a) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 19....
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....he equity shareholders of the respondent Company and did not require any interference." (Emphasis Supplied) (xiii) Another judgment passed by the Hon'ble Bombay High Court in the matter of In Re: Cadbury India Limited vs. ---- [(2014) SCC OnLine Bom 4934] decided on 09.05.2014 which highlights the meaning of "prejudice". The relevant portion of the said judgment reads as under :- "7.1.1. Section 100 requires three things: that (1) the Articles of Association of the company must permit such a reduction of share capital; (2) the scheme for reduction must be approved as a special resolution, i.e., at an extraordinary general meeting called for that purpose; and (3) the Court's sanction must be obtained to such a resolution, if passed by the requisite majority. 7.1.2. In considering the application for sanction, the Court must ensure that (1) the scheme is not against the public interest; (2) the scheme is fair and just, and not unreasonable; and (3) the scheme does not unfairly discriminate against or prejudice a class of shareholders. 7.1.3. "Prejudice" here must mean something more than just receiving less than what a particular shareho....
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....f the few. The court will take into account, but not be bound by, the views of the majority. In particular, the court will see what the views are of most of the non-promoter (minority) shareholders at the meeting. If the bulk of them have voted in favour, the court will not lightly disregard this expression of an informed view, one that lies in the domain of corporate strategy and commercial wisdom. 7.1.8. The unfairness must apply to a class, even if that class is of one. This class is not to be identified not by a shared ire against the petitioning company or even an ideological animosity, but by the character or nature of their holding, and by the way that class is sought to be singled out for differential, unfair treatment. 7.1.9. The sanctioning court has no power or jurisdiction to exercise any appellate functions over the scheme. It is not a valuer. It does not have the necessary skills or expertise. It cannot substitute its own opinion for that of the shareholders. Its jurisdiction is peripheral and supervisory, not appellate. The Court is not "a carping critic, a hair-splitting expert, a meticulous accountant or a fastidious counsel: the effort is no....
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....y, MFL on whose Board of Directors appellant himself was a members. M/S. C.C. Chokshi & Co., a reputed firm of Chartered Accountants, having considered all the relevant aspects suggested the aforesaid exchange ratio keeping in view the valuation of shares of respective companies. It must at once be stated that valuation of shares is a technical and complex problem which can he appropriately left 1 to the consideration of experts in the filed of accountancy. ..... It is not for the Court to sit in appeal over this value judgment of equity shareholders who are supposed to be men of the world and reasonable persons who know their own benefit and interest underlying any proposed scheme. We may also refer to a decision of the Gujarat High Court in Kamala Sugar Mills Limited (1984) 55 Comp Cas 308 (Mad) dealing with an identical objection about the exchange ratio adopted in the Scheme of Compromise and Arrangement. The Court observed as under : "Once the exchange ratio of the shares of the transferee- company to be allotted to the shareholders of the transferor- company has been worked out by a 36ecognized firm of chartered accountants who are experts in the field of va....
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....lusion. Even this argument does not commend to me. As aforesaid, on reading the reports clause by clause and as a whole, no fault can be found with the ultimate opinion reached by the experts regarding share swap ratio, which is founded on tangible material and basis. I am not at all impressed by the argument of the objectors that the report is manifestation of conflicting opinion in any manner. The fact that the language of the report would give an impression that the Expert does not take the responsibility of the accuracy of the figures furnished to them by the Company or that they have not made any independent valuation of the assets and liability of the companies on their own, does not mean that the relevant factors for determination of swap ratio have not been considered by the experts. Obviously, the opinion of the Experts is based on the information provided by the Company. There is nothing to show that the figures available in the Books of Accounts provided to the Experts were incorrect or otherwise. Thus, there is nothing in the said Reports to indicate that the consideration weighed with the Experts in arriving at the opinion is impermissible or unacceptable. It is not po....
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.... stated that it is common to apply a discount for lack of marketability in the range of 25% to derive the Fair Value of equity of an unlisted company. The Hon'ble Bombay High Court, considered the same and approved the fair value arrived at by the petitioner in the said case." (Emphasis Supplied) (xvi) The Hon'ble Supreme of India had passed a judgment in the matter of Hindustan Lever Employees' Union vs. Hindustan Lever Ltd [(1995) Supp (1) SCC 499]. The relevant portion of the said judgment reads as under:- "3. But what was lost sight of was that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as better as it would have been if another method would have been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair to the shareholders of the company which was being merged. The Court's o....
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....and Hon'ble High Courts, we can draw the following principles about capital reduction :- ➢ The mode of capital reduction as mentioned in the Companies Act, 2013 are the only illustrative and not exhaustive. ➢ It is the prerogative of majority of shareholders of the company to decide about reduction of share capital in any manner as long as it complies with the laws of the land and company's own Article of Association. ➢ Companies Act, 2013 although requires passing of special resolution by equity shareholders but does not require passing of separate class of resolution as required in the scheme of arrangements. ➢ Companies Act, 2013 do not stipulate reduction to be spread either equally or ratables overall of the shareholders of the company. ➢ Valuation of shares is a technical matter requiring suitable skills and expertise and courts are not supposed to interfere, when such valuation report have been prepared by experts. ➢ The difference of opinion between the minority shareholder and the majority shareholders regarding valuation should not be over emphasised and it is the majority will....
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....eholders to provide them with an option to exit after receiving fair consideration for their shares, because otherwise de-listing of shares consequent upon public shareholding below 10% would deprive them of trading at the stock exchange. Therefore, when the valuation made by the valuers was fair and based on cogent reasoning, the proposed reduction had to be allowed. This is supported by the judgment in the case of Organon (India) Ltd. In Re, [(2010) 98 CLA 480 (Bom)]. (xxiii) The role of the court while approving the scheme of reduction of share capital is limited to the extent of ensuring that it is not unconscionable or illegal or unfair or unjust. Merely because some other method of valuation could be resorted to, which would possibly be more favourable that it cannot mitigate against granting approval to the scheme propounded by the company alone. The court's obligation is to be satisfied that the valuation was in accordance with the law and it was carried out by an independent body. This is supported by the judgment in the case of Warsila India Ltd., In Re [(2010) 160 Com Cases 508 (Bom)]. (xxiv) Valuation shares in the scheme of reduction of capital is an importan....
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....ake into account the grievances of the Appellants that disparity between the Valuation Report and the valuation done by J. C. Bhalla for the Singtel preferential allotment was significant. In this connection, we note that, position, at the time of preferential allotment to SingTel was different as, the prevailing market price of BAL was higher. However, since the preferential allotment, the telecom stocks had declined by approximately 30% as was informed to us by the Respondent No. 1 during pleading based on market information. ii. We also note from the submissions of the Respondent No. 1 in the case of preferential allotment, money was coming directly to the company and when the allottee SingTel was non-resident, shares could have been allotted below a floor price, in accordance with FEMA regulations. Thus, it seems appropriate considerations for a preferential allotment to SingTel where the Respondent No. 1/ BTL was raising resources for its specific needs, are very different and cannot be compared with considerations for providing exit to minority shareholders (the Appellants) with approx. 1% unlisted shares. iii. The Appellants alleged that valuation report discounts almo....
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....thod, asset-based valuation assesses a company's net asset value, while market capitalization reflects the total value of outstanding shares based on market price. These methods help investors and companies to assess the intrinsic value of shares beyond market fluctuations. v. It needs to be appreciated that, which valuation method is to be used will entirely depend in the context of need of valuation, and is best to leave the domain of valuation experts who will choose the most appropriate methodology for valuation of shares. We hold that there cannot be any straight line formula for the same. vi.We have already noted the contentions of the Appellants that, share valuation as done by the E&Y Merchant Banking Division in the present case, was not appropriate and this Appellate Tribunal should reject the same. In this connection, we would like to refer to ratio laid down in the case of Cadbury India Ltd. (Supra) which noted that before a court can decline sanction to a scheme on account of valuation, an objector to the scheme must first show that the valuation is ex-facie unreasonable i. e. so unreasonable that it cannot be accepted. It was also held that plausible rationa....
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....ave a registered valuer provide a valuation report. Therefore, Section 247 Companies Act, 2013 is inapplicable for the purposes of Section 66 of the Companies Act, 2013. x.The case relied by the Appellants i.e. Cushman & Wakefield v. Union of India [(2019) SCC Online Del 6863] to argue principles governing a registered valuer, is not inapplicable to the present case due to different facts. xi. The Appellant has also relied upon the NCLAT judgement passed in Company Appeal (AT) No. 220 of 2020 in the matter of Devinder Parkash Kalra & Ors. vs. Syngenta India Limited which was further appealed in the Hon'ble Supreme Court of India in Syngenta India Limited vs Devinder Parkash Kalra & Ors. vide Civil Appeal No. 1809 of 2021, where it has been dismissed. The relevant paragraph is reproduced as under: - "In view of these developments and the acceptance of the offer by the respondents, this Court hereby directs as follows: 1. Syngenta shall remit to all public shareholders (to 3.59% of the all shareholders) who were to be given the valuation accepted by the NCLT i.e. Rs. 2445 per equity share, a sum equivalent to 20.56% of the said amount (Rs. 2445) within eig....
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....up an assignment if he/it or any of his/ its relatives or associates is not independent in terms of association to the company. Rule 14: A valuer shall maintain complete independence in his/ its professional relationships and shall conduct the valuation independent of external influences. Rule 15: A valuer shall wherever necessary disclose to the clients, possible sources of conflicts of duties and interests, while providing unbiased services. Rule 17: A valuer shall not indulge in "mandate snatching" or offering "convenience valuations" in order to cater to a company or client's needs. " xvi. From above, Rule 13 we note that the valuer is obligated not to take any assessment if he or his relatives or associates is not independent in terms of association of the company. In this regard, during entire pleadings, we could not see any fact establishing the same. xvii.Similarly, Rule 14 stipulate that the valuer shall conduct the valuation independent of external influence. No pleadings or documents have been brought to our notice to establish that the independent valuer were influenced externally. We hold that mere suspiciousness is not valid ground....
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....a valuer on the historic price to be considered of a volatile listed share, that would represent the value of such shares correctly. This seems quite logical. xxiv.As regard, further evidence that the valuation done by independent valuers was appropriate and correct in the given context, it has been brought to our notice that certain shares of the Respondent No. 1/ BTL were attached by custodian under provisions of TORTS Act and in this connection additional independent valuers were also appointed by the custodian. We note that out of the 2,84,57,840 shares that were approved to be extinguished/ reduced by the Tribunal total 23,21,276 shares were attached by the Custodian under the provisions of the Special Courts (Trial of Offences Relating to Transaction of Securities) Act, 1992 ("TORTS Act"). The Custodian filed an application (Misc. Appl. No. 10 of 2020) before the Special Court under the TORTS Act (presided by a sitting judge of the Bombay High Court), inter alia seeking permission to accept the offer of Respondent No. 1 in terms of the Impugned Order. Along with the said application, the Custodian also submitted reports by two other independent valuers, namely ICICI Securi....
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....e "Control Premium" instead of "DLOM" i. We need to understand clearly that valuation of shares is rather intricate and subjective matter for experts who has got domain knowledge of not only the valuation methodology but also have fair knowledge about relevant industry for which valuation is being done with the help of the relevant financial facts and figures. While doing these valuations there may be more challenges in case of valuation of unlisted companies like the Respondent No. 1/ BTL as the relevant market shares dates is not available. ii. By no stretch of imagination, someone can expect that the court/ tribunal shall have such expertise to go into the correctness or otherwise of the valuation done by the independent valuers. The only duty of the court/ tribunal is to ensure that the whole process has been fair and unbiased and has not caused any prejudice to the rights of shareholders including and especially the minority shareholders. iii.In the present case, we do not find any such reason to come to the conclusion that whole process has been biased or unfair iv.Fundamentally, the valuation is a matter of perception, assumptions and presumptions, in addition to....
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....t the Discount for Lack of Marketability (DLOM) is an important valuation adjustment applied to an asset's price and it is relevant for privately held companies, as it accounts for their lower liquidity compared to publicly traded assets. We observe that assessing the DLOM is rather complex aspect of business valuation because the illiquidity of a company's shares cannot be directly quantified. We understand that there are several methods used to determine DLOM, which can generally be categorized into quantitative and qualitative approaches. Quantitative methods rely on mathematical models and empirical data, while qualitative methods focus on the unique attributes of the company and its shares. x.The main quantitative methods commonly used to determine the DLOM are :- • The Restricted Stock Method: This approach compares the price of restricted shares-those with sales limitations-to the price of freely tradable shares in the same company. The restriction typically involves a period during which shares cannot be sold or transferred. • The IPO Method: This method compares the share price before and after a company goes public. The difference in pric....
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....any determined value depending on host of factors. Thus, we may assume control premium to be as difference between the pro-rata controlling interest and the pro-rata non-controlling interest and therefore, control Premium is the extra amount a buyer has to pay (compared to buying a minority stake), if they are buying a controlling stake. Control premiums are only applicable in valuations where one is starting with lack of control value and is trying to arrive at control value. xvii. We have already examined the concept of DLOM which is the discount for market illiquidity a buyer gets for buying a minority stake (compared to buying a controlling stake) to compensate them for the fact they don't have control of the company. xviii. From above, we observe that the contention of the Appellants that Ernst & Young Merchant Banking Services Pvt. Ltd. submitted flawed Valuation Report as it failed to include a control premium, is not found convincing. The majority shareholders in the Respondent No. 1/ BTL already had control over majority of the shares and the remaining of 1.09% of shareholders were not in any significant position or say in the dealing with the company matters. Fu....
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.... (a) the nature of concern or interest, financial or otherwise, if any, in respect of each items of- (i) every director and the manager, if any; (ii) every other key managerial personnel; and (iii) relatives of the persons mentioned in sub-clauses (i) and (ii); (b) any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon. (2) For the purposes of sub-section (1), - (a) in the case of an annual general meeting, all business to be transacted thereat shall be deemed special, other than- (i) the consideration of financial statements and the reports of the Board of Directors and auditors; (ii) the declaration of any dividend; (iii) the appointment of directors in place of those retiring; (iv) the appointment of, and the fixing of the remuneration of, the auditors; and (b) in the case of any other meeting, all business shall be deemed to be special: Provided that where any item of special business to be transacted at a meeting of the company relates to or affects any other com....
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....nd other security holders, shall maintain its records, as required to be maintained under the Act or rules made there under, in electronic form. Explanation- For the purposes of this sub-rule, it is hereby clarified that in case of existing companies, data shall be converted from physical mode to electronic mode within six months from the date of notification of provisions of section 120 of the Act. (2) The records in electronic form shall be maintained in such manner as the Board of directors of the company may think fit, Provided that - (a) the records are maintained in the same formats and in accordance with all other requirements as provided in the Act or the rules made there under; (b) the information as required under the provisions of the Act or the rules made there under should be adequately recorded for future reference; (c) the records must be capable of being readable, retrievable and reproducible in printed form; (d) the records are capable of being dated and signed digitally wherever it is required under the provisions of the Act or the rules made thereunder; (e) the records, once dated and signed digitally....
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....tion of non-electronic original records in electronic form is complete, authentic, true and legible when retrieved; (l) arrange and index the records in a way that permits easy location, access and retrieval of any particular record; and (m) take necessary steps to ensure security, integrity and confidentiality of records. 29. Inspection and copies of records maintained in electronic form- Where a company maintains its records in electronic form, any duty imposed by the Act or rules made thereunder to make those records available for inspection or to provide copies of the whole or a part of those records, shall be construed as a duty to make the records available for inspection in electronic form or to provide copies of those records containing a clear reproduction of the whole or part thereof, as the case may be on payment of not exceeding ten rupees per page." (Emphasis Supplied) iii. On the other hand, the Respondent No. 1 pleaded that Section 102 of the Companies Act, 2013 has been complied with the company as the explanatory statement was sent along with notice to shareholder containing all information and facts that may enable members....
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....Preferential Allotment of shares like in the case of SingTel. Under Section 62(1)(c) read with Companies (Share Capital and Debentures) Rules, 2014, Rule 13, it is mandatory for a company to (a) obtain a valuation report and (b) send the valuation report along with the notice under Section 102 of the Companies Act, 2013. This requirement of law was duly complied for the SingTel Preferential Allotment. x. In contrast to the above provision relating to Preferential Allotment, in the case of Capital Reduction under Section 66 of the Companies Act, 2013 there is no such stipulated requirement to send the valuation report along with the notice. The only requirement is to permit an inspection by virtue of Section 102 (3) of the Companies Act, 2013 which was duly complied by the Respondent No. 1 company. Thus, we are not convinced with the arguments of the Appellants that failure to send the valuation report together with the notice has caused legal infirmity or any prejudice to the interest of the Appellants. In fact, the right to inspect was availed from by some of the Appellants as is evident from the email dated 12.07.2018, where an inspection was provided to the counsel of the App....