S. 66 Companies Act | Valuation Report Not Mandatory For Share Capital Reduction : Supreme Court

The Supreme Court on Tuesday (March 10) held that obtaining or circulating a valuation report is not a statutory requirement when a company undertakes a reduction of share capital under the Companies Act, 2013, though companies may obtain one as a matter of prudence.

“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…”, observed a bench of Justices Sanjay Kumar and K Vinod Chandran, while dismissing a batch of appeals filed by the minority shareholders against the reduction of the Bharti Telecom Limited's share capital.

The case arose after Bharti Telecom decided to reduce the shares held by certain public shareholders as part of a capital reduction exercise and compensate them monetarily. The company had obtained a valuation from an external agency which determined the share value at ₹163.25, applying a Discount for Lack of Marketability (DLOM) due to the unlisted and illiquid nature of the shares.

A fairness report from another financial entity also supported the valuation. Subsequently, the National Company Law Tribunal increased the payout to ₹196.80 per share while approving the capital reduction.

Despite the approval of the reduction by an overwhelming majority of shareholders, certain minority shareholders challenged the process, alleging that the valuation was unfair and that the company failed to disclose the valuation report to shareholders along with the notice convening the meeting.

Rejecting the Appellant's contention, the judgment authored by Justice Chandran observed that the absence of the valuation report in the meeting notice did not invalidate the process, since the provision itself does not require such disclosure for capital reduction.

“We do not think that the notice in the present case is vitiated by non-disclosure or mis-disclosure merely for reason of the valuation and fairness report not being placed before the shareholders. As we found, the measure adopted was a reduction in capital as permitted by Section 66, hedged in by various protections but does not require a valuation report as would be required in other circumstances.”, the court observed.

The Court emphasised that while valuation reports are mandatory in certain corporate actions such as mergers, amalgamations or preferential allotments, Section 66 does not impose such a requirement.

“An amalgamation or merger as contemplated in Section 232 also stipulates a report of the expert with regard to valuation by sub-section (2)(d). So does Section 236(2) in the context of a buyback or purchase of minority shares, which is conspicuously absent in a reduction of share capital, which also results in an exit of certain shareholders.”, the court noted.

The Court further observed that expert valuation of shares undertaken in the course of a capital reduction should ordinarily not be interfered with, unless it is demonstrated that the valuation is manifestly erroneous, biased, or illegal, none of which was established in the present case.

Accordingly, the appeals were dismissed.

Also from the judgment - NCLAT Order Not Invalid Merely Because Bench Had Majority Technical Members : Supreme Court

Headnote

Companies Act, 2013 – Section 66 – Reduction of Share Capital – Validity of Selective Reduction and Forced Exit of Minority Shareholders - The Supreme Court upheld the reduction of share capital under Section 66, even if selective and resulting in an involuntary exit of minority shareholders – Held that reduction of share capital is a domestic concern of the company decided by the majority - As long as the procedure is followed and the transaction is not unfair, inequitable, or against public interest, the majority has the right to decide how to carry out the reduction, including extinguishing certain shares while retaining others. [Relied on: Re: Reckitt Benckiser (India) Ltd.; British and American Trustee and Finance Corporation v. Couper 2005 SCC Online Del 674; Paras 42-47]

Companies Act, 2013 – Section 66 – Requirement of Valuation Report – Statutory Interpretation – Held that unlike Sections 62, 230, and 232, Section 66 does not statutorily mandate a valuation report from a registered valuer for the reduction of share capital - The primary safeguards are a special resolution and confirmation by the Tribunal - The absence of a valuation report being sent with the notice does not constitute a "tricky notice" if the fair value and methodology are disclosed or made available for inspection. [Paras 24-37]

Valuation – Discount for Lack of Marketability (DLOM) – Applicability in Unlisted Companies - held that the application of a Discount for Lack of Marketability (DLOM) is a valid accounting principle for valuing shares of unlisted or delisted companies - While DLOM may be declined in court-ordered buyouts involving "oppression," it is applicable in a standard Section 66 reduction where no oppression is proved and the shares lack liquidity - noted that "Fair Value" under Indian Accounting Standards (Ind AS 113) is a market-based measurement that accounts for restrictions on sale. [Relied on: Liew Kit Fah v. Koh Keng Chew [2020] 1 SLR 275; Paras 39-45]

Companies Act, 2013 – Section 418A & 419 – Composition of NCLAT Benches – Validity of Technical Member Majority - Supreme Court rejected the challenge to a three-member NCLAT Bench comprising two Technical Members and one Judicial Member - held that while a Bench must have at least one Judicial Member, the current law does not mandate a majority of Judicial Members in larger Benches - Technical and administrative members are not to be treated with "disdain" or labeled lower in status, as their expertise aids in holistic adjudication - A notice is "tricky" if it is artfully framed to mislead or conceal material facts from shareholders - the disclosure of the exit price and the availability of valuation reports at the registered office satisfied the requirements of Section 102. [Relied on: Kaye v. Croydon Tramways & Co. Ltd.; Baillie v. Oriental Telephone and Electric Co. Ltd.; In Re: Cadbury India Limited; Mihir H. Mafatlal v. Mafatlal Industries Ltd. 2014 SCC Online Bom 4934; Paras 18-22, 23-37, 48, 50]

Cause Title: Pannalal Bhansali Versus Bharti Telecom Limited & Ors. (with connected appeals)

Citation : 2026 LiveLaw (SC) 222

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Appearance:

For Appellant(s) Mr. K. Parameshwar, Sr. Adv. Mr. Masoom K. Shah, Adv. Mr. Udit Gupta, Adv. Ms. Veda Singh, Adv. Mr. Prasad Hegde, Adv. Mr. N Sai Kaushal, Adv. Mr. Adit Garg, Adv. Mr. Rohan Chawla, Adv. Ms. Aashvi P. Shah, Adv. M/s. Udit Kishan And Associates, AOR

For Respondent(s) Mr. Shyam Divan, Sr. Adv. Mr. Ramji Srinivasan, Sr. Adv. Ms. Arti Singh, AOR Mr. Kamal Shankar, Adv. Mr. Tanmay Sharma, Adv. Mr. Aakashdeep Singh Roda, Adv. Mr. Arjun Narang, Adv. Mr. Shivam Jain, Adv. Ms. Shefali Munde, Adv. Mr. Arjun Bhatia, Adv. Mr. Arpith Jacob Varaprasad, Adv. Mr. Ankur Singhal, Adv. Ms. Pooja Singh, Adv. Mr. B P Singh, Adv. Mr. Soumya Dutta, AOR Mr. Percival Billimoria, Sr. Adv. Mr. Khowaja Siddiqui, Adv. Mr. Arvind Gupta, AOR Mr. Kshitij Arora, Adv. Ms. Rachita Sood, Adv. Ms. Priyamvada Paneru, Adv. Mr. Rahul Bhaskar, Adv.