WHETHER MINORITY SHAREHOLDERS OF A COMPANY CAN OPPOSE SELECTIVE CAPITAL REDUCTION?

 

WHETHER MINORITY SHAREHOLDERS

 OF A COMPANY CAN OPPOSE

 SELECTIVE CAPITAL REDUCTION?

NCLAT DELHI DECISION ON SELECTIVE CAPITAL REDUCTION OF BHARTI TELECOM LIMITED.

The National Company Law Appellate Tribunal (NCLAT) in New Delhi upheld Bharti Telecom Limited's (BTL) selective capital reduction scheme, confirming its compliance with the Companies Act, 2013.

The scheme involved reducing BTL's share capital by ₹28.46 crore, representing 1.09% of its total capital, by canceling shares held by 726 identified minority shareholders.

GOOD CASE STUDY

This is a good case law to quote, where minority shareholders UNJUSTLY oppose the majority’s decision for the exit of the minority in unlisted companies ( selective capital reduction )

Overall , 14 appeals have been filed by 35 Appellants in this case and the main observations of the Appellate Tribunal upholding the Order of NCLT Chandigarh bench allowing the capital reduction.

NCLAT HELD THAT

1.   Selective capital reduction is permissible in terms of Section 66(1)(b)(ii) of the Companies Act, 2013.

·      VALUATION CERTIFICATE –

·      The complaint of the minority shareholders was that they were not given a copy of the valuation report in compliance with Section 102 and 120 of the Companies Act, 2013 r/w Rule 27 to Rule 29 of the Companies (Management and Administration) Rules, 2014.

·      NCLAT is of the view that it is NOT mandatory to be attached to the Notice for the general meeting where the approval for capital reduction u/s 66 of CA 2013 is sought as in the case of n the case of preferential allotment u/s 62.

·  The passing of the resolution through postal ballot and e-voting without conducting personal/physical voting was not violative of the rights of the Identified Shareholders

 VALUATION AND FAIRNESS:

BTL appointed independent Valuers and obtained a fairness opinion to determine the buyback price of ₹196 per share, which was later increased to ₹310 per share. The NCLAT found no patent unfairness in the valuation process and deemed the reduction fair and reasonable.

SHAREHOLDER APPROVAL:

The capital reduction was approved by 99.90% of shareholders, including 76.35% of the identified minority shareholders, indicating broad support for the scheme.

LEGAL PRECEDENTS:

The NCLAT referenced previous judgments, such as Reckitt Benckiser (India) Ltd. and RS Live Media Pvt. Ltd., affirming that selective capital reduction is permissible under Section 66 of the Companies Act, provided it is fair and equitable.

The NCLAT's decision underscores that, in the absence of patent unfairness or lack of majority approval, courts are unlikely to withhold sanction to a capital reduction scheme.

R V Seckar FCS , LLB 79047 19295