Big update in Bharti Telecom share capital reduction case; SC upholds company decision

The Supreme Court of India on Tuesday, March 10, upheld the decision of Bharti Telecom Limited to reduce its share capital and cancel shares held by minority investors, dismissing a batch of appeals that challenged the valuation offered to shareholders. The ruling clears a long-running dispute related to the company’s 2018 move to streamline its shareholding structure and ease out individual investors from the closely held promoter entity of Bharti Airtel Limited.

A bench comprising Justices Sanjay Kumar and K Vinod Chandran ruled that the valuation of shares is a specialised exercise best left to financial experts and valuation professionals.

The court said Bharti Telecom did everything by the book under the Companies Act, 2013 when it reduced its share capital. There wasn’t any legal reason to step in. With this judgment, the long-running dispute finally ends. Minority shareholders had challenged the company’s valuation, and the issue bounced through several legal forums before landing here. Now, it’s settled.

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Dispute over valuation offered to minority investors

This case started back in 2018, when Bharti Telecom - the main holding company behind Bharti Airtel - decided to shrink its share capital. Basically, they planned to cancel the shares owned by minority investors, who together held just over 1% of the company. To make up for the cancelled shares, the company offered these minority shareholders Rs 163.25 per share. This number came from an expert valuation done during the restructuring. They said the price didn’t match what the company was really worth. In fact, they argued it was way below the fair market value.

NCLT raised valuation to Rs 196.80 per share

The dispute first reached the National Company Law Tribunal (NCLT), which reviewed the valuation methodology used by the company.

While the tribunal did not overturn the capital reduction decision itself, it revised the payout to minority investors. The NCLT increased the valuation to Rs 196.80 per share after removing a tax deduction component that had reduced the earlier offer price.

Despite this increase, a group of 35 minority shareholders continued to challenge the decision and moved the Supreme Court, arguing that the valuation process lacked transparency and fairness.

Supreme Court rejects claims of unfair pricing

During the hearings, the appellants alleged that the valuation exercise was a “sham” and claimed the price offered for their shares was “arbitrarily low”. They also argued that the notice issued for the shareholders’ meeting approving the reduction was misleading. The Supreme Court shot down these claims.

In its order, the bench also made a pointed observation about the nature of the investors involved in the dispute.

“We cannot but reiterate that the appellants herein are not wary investors, cautious retirees or mere speculators, but seasoned retail investors who blend in equal measure prudence with calculation,” the court noted while dismissing the appeals.

The court further remarked that the shareholders had continued to hold the shares despite the lack of listing, liquidity or dividend payments.

Why Bharti Telecom reduced share capital?

Bharti Telecom works as a private investment company and plays a big role as one of Bharti Airtel’s main promoter groups. Since its shares aren’t listed on any stock exchange, outside investors don’t have many ways to cash out.

Back in 2018, the company decided to cut down its share capital. The idea was to make the ownership structure simpler and let the main stakeholders tighten their grip on control.

Indian company law actually lets companies do this kind of restructuring through a share capital reduction, as long as shareholders sign off on it and the courts give their okay.

Bharti Airtel stock performance

Shares of Bharti Airtel saw a mild decline on Tuesday following the developments. The stock closed at Rs 1,850.40, down 0.59 per cent from the previous close of Rs 1,866.70. During the trading session, the share price was around Rs 1,855.70, marking a difference of Rs 16.30 compared with the previous closing level.