Squeezed Out: Supreme Court Upholds Selective Capital Reduction Targeting Minority Shareholders under Section 66 of the Companies Act in Bharti Telecom Case

EARLIER THIS YEAR, the Supreme Court of India in Pannalal Bhansali v. Bharti Telecom Ltd. (2026), upheld the articulate and lucid judgement of the National Company Law Appellate Tribunal (‘NCLAT’) in Shirish Vinod Shah v. Bharti Telecom Ltd. (2025) affirming that a company can carry out a selective share capital reduction to eke out minority shareholders as long as the conditions in Section 66 of the Companies Act, 2013 are fulfilled and prejudice (defined by a high bar) is not being caused to the shareholders whose capital is being reduced.

Facts

Bharti Telecom Limited (‘BTL’), incorporated in 1985, was originally a listed company but was delisted from the various stock exchanges between 1999 and 2000 after the Bharti promoter group acquired more than 90 percent of its shares, leaving the remaining public shareholders as minority shareholders. Bharti Airtel Limited (‘BAL’) was initially a subsidiary of BTL. However, upon BAL’s IPO and listing in February 2002, BTL’s holding in BAL fell to 46.4 percent, with the result that BAL became an associate of BTL.

In January 2016, BTL made a rights issue to its existing shareholders at 115 shares for each 1 share held by existing shareholders at the face value of ₹10 per share, including the minority shareholders, with the stated objective of raising funds to acquire further shares in BAL and restore BAL to subsidiary status.  

 Using the funds raised through the rights issue to acquire BAL shares, BTL increased its holding and, on November 3, 2017, BAL again became its subsidiary. BTL thereafter functioned essentially as an investment holding company, with over 90 percent of its assets invested in BAL and, by March 31, 2019, holding 50.10 percent of BAL’s paid-up share capital. BTL thereafter sought to bring the SingTel group in as a partner and obtained a valuation from J.C. Bhalla & Co., taking January 18, 2018 as the relevant date, which valued BTL at ₹310 per equity share. BTL proceeded with a preferential allotment to SingTel with the stated purpose being to raise resources for repayment of BTL’s debts and improvement of its financial position.

The minority shareholders’ case was that their participation in the 2016 rights issue had directly enabled BTL to acquire BAL shares, regain control of BAL and enhance BTL’s value, following which BTL raised further funds from SingTel at the ₹310 valuation. BTL then proposed a selective reduction of capital under Section 66 of the Companies Act, 2013: on June 19, 2018 its Board resolved to cancel and extinguish 2,84,57,840 equity shares held by the 4942 erstwhile public minority shareholders, representing 1.09 percent of BTL’s issued share capital (Identified Shareholders), while leaving the holdings of the Bharti and SingTel group entities untouched. For the reduction, the minority shares were valued by E&Y at ₹196.80 per share which included a 25 percent discount for lack of marketability (‘DLOM’).