Pannalal Bhansali v. Bharti Telecom: section 66 capital reduction and the NCLAT bench

The facts in brief

Bharti Telecom Limited — an unlisted holding company in the Bharti group — undertook a reduction of its share capital under section 66 of the Companies Act 2013 by cancelling equity shares held by a class of minority shareholders. The valuation that informed the reduction was performed by an internal auditor, whom the minority shareholders characterised as an interested party. The resulting valuation report was not circulated to the minority shareholders before the special resolution authorising the reduction was placed for vote.

The reduction was approved by the requisite special resolution and was confirmed by the National Company Law Tribunal. Pannalal Bhansali, leading a group of minority shareholders, appealed to the National Company Law Appellate Tribunal. The NCLAT dismissed the appeal. The appellate bench that heard the matter included a majority of technical members alongside a single judicial member, which the appellants treated as a separate ground of challenge.

The minority shareholders carried both grounds to the Supreme Court. On the substantive ground they argued that the reduction was vitiated by the absence of an independent valuation, the non-disclosure of the internal valuation, and the application of a Discount for Lack of Marketability to the cancelled-share price. On the institutional ground they argued that a NCLAT bench that does not have a majority of judicial members offends the principles the Court had articulated in Madras Bar Association v. Union of India on tribunal composition. The Supreme Court heard both grounds together and pronounced judgment on 10 March 2026.

The questions before the Court

The substantive question was whether a valuation report from a registered valuer is a statutory requirement for a section 66 capital reduction and, if not, whether the absence or non-disclosure of such a report can independently vitiate the reduction. The DLOM question — whether a Discount for Lack of Marketability is a valid valuation methodology for unlisted shares — sat alongside as a related but distinct question.

The institutional question was whether a NCLAT bench composed of a majority of technical members satisfies section 418A of the Companies Act 2013. The provision sets out the composition requirements for NCLAT benches and the appellants read it to require at least a parity, if not a majority, of judicial members. The respondents argued that the section requires only the presence of at least one judicial member.

What the Court held

Section 66 does not require a valuation report

The Bench began with a comparative reading of the Companies Act 2013. Sections 62 (further issue of shares), 230 (compromises and arrangements) and 232 (mergers) all expressly require a valuation report from a registered valuer. Section 66, by contrast, contains no such requirement. The Bench treated the silence as deliberate. A statute that prescribes a valuation requirement in three closely related provisions and omits it in a fourth is not the victim of a drafting oversight; the omission carries legislative intent.

That second pillar of the holding — on NCLAT bench composition — is taken up below. On the section 66 question, the Court held that non-disclosure or mis-disclosure of an internally-prepared valuation does not by itself vitiate a capital reduction. The protective architecture that section 66 provides is the requirement of a special resolution plus tribunal confirmation. The tribunal's confirmation is not a rubber stamp; it is a judicial gating step at which the reduction's fairness is examined. Disclosure infirmities that fall short of fraud or palpable injustice are cured at that gating step.

Discount for Lack of Marketability is a valid methodology

On the DLOM question, the Court endorsed the application of a Discount for Lack of Marketability as a valid valuation principle for unlisted or delisted companies. Marketability of a share is a real economic feature; an unlisted share that cannot be sold in a liquid market is, all else equal, worth less than a listed share with the same underlying fundamentals. The Court treated DLOM as an established methodology in valuation practice and refused to displace it on the strength of minority-shareholder objections that did not engage its analytical foundations.

A NCLAT bench may have a majority of technical members

The institutional question turned on the text of section 418A. The Court read the section as requiring the presence of at least one judicial member on a NCLAT bench, not as requiring a majority of judicial members. A bench comprising one judicial member and a majority of technical members therefore satisfies the statutory composition requirement.

The Court's treatment of the Madras Bar Association line of decisions was that those decisions had emphasised judicial-member primacy in particular tribunal contexts and at particular times, and that the legislative response — including section 418A as it currently stands — had set the composition rule by statute. The appellate bench in this matter satisfied that rule.

The doctrinal architecture

The judgment makes four doctrinal moves that will travel beyond the Bharti Telecom dispute.

First, it deploys the statutory-silence canon in a corporate-law setting. The Bench reads section 66's silence on valuation reports against the express valuation requirements in sections 62, 230 and 232 and treats the silence as a deliberate legislative choice. The reasoning is a textbook application of the rule that, where the legislature has provided expressly in some sections and not in others, courts should not read the omission as a casus omissus to be filled by judicial intervention.

Second, it relocates minority-shareholder protection in section 66 contexts. The protective architecture is the special-resolution-plus-tribunal-confirmation procedure, not a separate court-imposed disclosure obligation. The tribunal's confirmation is the judicial moment at which the reduction's fairness is examined; disclosure infirmities that fall short of fraud or palpable injustice are addressed at that moment, not through after-the-fact invalidation.

Third, it gives DLOM an explicit imprimatur as a valuation methodology. Indian judgments had treated DLOM with varying degrees of scepticism in earlier contexts. The Court's endorsement removes much of that scepticism and clarifies that the methodology is available for valuing unlisted and delisted shares in capital-reduction proceedings.

Fourth, it sets a clean rule on section 418A NCLAT composition: at least one judicial member must sit, but a technical-member majority is permissible. The rule will draw critical commentary because of its uneasy relationship with the Madras Bar Association line, but as a matter of statutory reading it sits squarely on the text.

What the judgment did not decide

The Court did not consider the application of the holding to listed companies undertaking capital reductions. Bharti Telecom was an unlisted holding company; the disclosure regime under the SEBI Listing Obligations and Disclosure Requirements Regulations may require independent valuation and circulation of valuation reports in connection with reductions by listed companies. Those requirements arise under a separate regulatory framework and are not affected by the section 66 holding.

The judgment did not lay down a comprehensive standard for what amounts to "fraud or palpable injustice" sufficient to vitiate a section 66 reduction. The standard will continue to be worked out in case law. What is clear is that disclosure imperfections short of that threshold are not enough; what is not clear is exactly where the threshold sits in marginal cases.

The Court did not address whether the section 418A holding survives a review petition or a future legislative amendment. The appellants are likely to seek review, and the Government may take a fresh look at section 418A in light of the doctrinal critique that the Madras Bar Association line continues to attract. Those subsequent moves will determine the medium-term stability of the institutional holding.

After the judgment

The judgment will be a touchstone for corporate counsel advising on selective capital reductions targeting minority shareholders. The structure has gained currency in private-equity exits and group-restructuring contexts and the Court's holding clarifies the substantive and procedural landscape. Expect a steady stream of similar transactions, supported by the doctrinal stability the judgment introduces.

Counsel will continue to advise that obtaining a valuation report — even where not statutorily required — remains a prudent step, because the tribunal-confirmation gating step will engage with the fairness of the reduction and a well-supported valuation strengthens the company's position at that step. The judgment removes the legal compulsion to commission a registered-valuer report under section 66 but does not displace the practical wisdom of doing so.

The NCLAT-composition holding will draw critical commentary in the months ahead. Bar and Bench's view-point coverage has already flagged concerns that the ruling may sit uneasily with the Madras Bar Association line on tribunal composition. Watch for a review petition, for legislative attention to section 418A, and for the consequential question of whether the holding extends to other tribunals constituted on similar lines.

The DLOM endorsement will be cited in valuation disputes well beyond corporate capital reductions — in IBC contexts, in family-law and matrimonial-property valuations, and in tax-driven valuation disputes. The judgment's understated endorsement of an established valuation methodology may turn out to be one of its most durable contributions.

Related on Valkya

• Adani Power v. Union of India: SEZ-to-DTA customs duty without authority of law
• State Bank of India v. Union of India: Aircel spectrum and the IBC moratorium
• Madras Bar Association v. Union of India: tribunal composition and judicial-member primacy

Sources

1. LiveLaw judgment page (2026 LiveLaw SC 222): https://www.livelaw.in/sc-judgments/2026-livelaw-sc-222-pannalal-bhansali-versus-bharti-telecom-limited-ors-525896
2. LiveLaw report on the section 66 valuation holding: https://www.livelaw.in/supreme-court/s-66-companies-act-valuation-report-not-mandatory-for-share-capital-reduction-supreme-court-525894
3. Bar and Bench coverage of the NCLAT composition holding: https://www.barandbench.com/amp/story/news/litigation/nclat-bench-can-have-majority-of-technical-members-supreme-court-in-bharti-telecom-capital-reduction-case
4. SCC OnLine Law Reports (SCO.LR 2026 Vol. 3 Issue 3) case-note on the judgment.