Minority Exit under S. 66: The Supreme Court on Fairness, Valuation, and the Limits of Judicial Scrutiny

Introduction

Reduction of share capital, particularly when structured as a mechanism for minority exit, presents a recurring tension between the deference owed to corporate decision-making and the need to safeguard minority interests against unfair prejudice. The Supreme Court’s decision in Pannalal Bhansali v. Bharti Telecom Ltd. & Ors.[i]  engages with this issue by examining not merely the legality of a selective reduction scheme under s.66 of the Companies Act, 2013 (‘Act’), but more importantly, the standard of judicial scrutiny applicable to valuation and fairness in such transactions.

Brief Facts

• The dispute arose from a scheme of reduction of share capital under s.66 of the Act, whereby Bharti Telecom Ltd. (BTL), a closely held company, proposed to extinguish the shareholding of minority investors by offering them an exit for Rs. 163.25 per share (face value Rs. 10), as determined through a valuation exercise. The scheme was approved by an overwhelming 99.90% of shareholders and subsequently confirmed by the National Company Law Tribunal (‘NCLT’), which found certain adjustments unwarranted and revised the exit price to Rs. 196.80 per share. The minority shareholders challenged the scheme up to the Supreme Court, contending that it amounted to a compulsory exit at an unfairly determined value.

• The challenge was structured around issues relating to the manner, method, and matter of the capital reduction, focusing on alleged deficiencies in disclosure, the validity of the valuation methodology (including the application of Discount for Lack of Marketability (‘DLOM’)), and the fairness of the exit price.

  
  

Held

• The Supreme Court upheld the scheme and dismissed the appeals, finding no infirmity in the manner, method, or matter of the capital reduction

• On disclosure, the Court held that s. 66 does not mandate annexing valuation or fairness reports to the notice, and that disclosure of the exit price, coupled with the availability of relevant documents for inspection, was sufficient. The contention that the notice was misleading or constituted a ‘tricky notice’ was rejected.

• On valuation methodology, the Court upheld the application of DLOM, recognising it as a valid and accepted valuation principle, particularly in the context of unlisted and illiquid shares. It clarified that exclusion of such discounts is not a universal rule and depends on the factual setting, especially where oppression is established, which was absent in the present case.

• On the fairness of the exit price, the Court held that Rs. 196.80 per share was fair, reasonable, and not prejudicial, placing reliance on expert valuation, a fairness opinion, and overwhelming shareholder approval, including participation by minority shareholders.

• The allegation of bias in valuation was rejected, the Court holding that bias must be real and demonstrable, and that mere association between the valuer and the internal auditor was insufficient to establish a lack of independence.

• The Court further reiterated the limited scope of its jurisdiction under s. 423 of the Act, holding that it would not reappreciate concurrent findings of fact in the absence of perversity, particularly in matters involving expert valuation.

  
  

Our analysis

While the judgment may appear as a straightforward affirmation of capital reduction under s. 66, its significance lies in the framework through which the Court assessed fairness, particularly in relation to valuation and disclosure.

S. 66 is structured as a comparatively flexible mechanism, requiring a special resolution and Tribunal confirmation, but notably omitting any statutory requirement for a valuation report. The Supreme Court’s reasoning is therefore consistent with the provision in holding that disclosure of the exit price, coupled with the availability of supporting documents for inspection, satisfies the statutory threshold. The decision, in that sense, cannot be faulted for refusing to read into s. 66 obligations that Parliament has consciously not imposed.

The more nuanced issue, however, lies in how the Court approaches valuation. The acceptance of DLOM marks a clear alignment with market-based valuation principles under Ind AS 113. The Court treats illiquidity as an inherent economic disadvantage and permits its reflection in price determination. At one level, this brings doctrinal clarity by confirming that valuation under s. 66 is not insulated from commercial realities. At another level, it raises a structural concern: the same discount that is justified on market principles may operate harshly in a compulsory exit scenario, where the shareholder has no real choice but to exit.

This tension becomes more apparent when one considers the distinction between ‘fair value’ and ‘fair market value,’ a distinction often emphasised in minority protection jurisprudence. In jurisdictions dealing with oppression-based buyouts, the exclusion of marketability discounts is sometimes justified on the ground that the minority should receive a proportionate share of enterprise value. The Supreme Court does not reject this distinction outright but confines its relevance to cases involving oppression. In doing so, it implicitly narrows the circumstances in which minority shareholders can resist market-based discounts. In effect, valuation in non-oppression scenarios is anchored in market-based considerations rather than equitable redistribution.

Another important aspect of the decision is the weight accorded to shareholder approval. The Court treats overwhelming majority approval, including participation from minority shareholders, as a strong indicator of fairness. This reflects a continued judicial preference for process legitimacy over outcome scrutiny. Once statutory safeguards are met and the process is found to be compliant, the Court shows limited inclination to independently reassess valuation, even in the context of a forced exit.

The role of judicial review is also clearly delineated. By invoking the limited scope of appeal under s. 423, the Court reinforces that valuation is an expert domain and that, in the absence of oppression, scrutiny remains deferential, with concurrent findings of the NCLT and NCLAT not to be disturbed absent perversity. This effectively insulates valuation exercises from appellate re-examination, unless there is demonstrable illegality or procedural unfairness.

The broader implication of the judgment is that s. 66 is affirmed as a legally permissible and commercially workable mechanism that may, in appropriate cases, operate as a vehicle for minority exit, particularly in closely held companies with illiquid shareholding. At the same time, minority protection in such cases appears increasingly contingent on satisfying statutory thresholds, such as those under s. 244, or establishing clear instances of prejudice, rather than relying on broader equitable arguments relating to the fairness of the price.

In that sense, the decision does not eliminate judicial scrutiny, but it recalibrates it. The Court signals that where the statutory framework is complied with, and the process is not shown to be vitiated, questions of valuation will largely remain within the domain of commercial judgment rather than judicial intervention.

End Notes

[i] 2026 SCC Online SC 349 dated 10.03.2026

Authored by the Editorial Board at Metalegal Advocates. Views expressed are strictly personal and do not constitute legal opinion.