Section 66 of the Companies Act, 2013

Source: Supreme Court

Why in News?

A bench of Justices Sanjay Kumar and K. Vinod Chandran of the Supreme Court, in the case of Pannalal Bhansali v. Bharti Telecom Limited & Others (2026), held that a valuation report from an approved or registered valuer is not a statutory prerequisite for undertaking a reduction of share capital under Section 66 of the Companies Act, 2013.  

• The Court dismissed a batch of appeals filed by minority shareholders challenging the capital reduction exercise undertaken by Bharti Telecom Limited, affirming that the absence of a valuation report in the notice convening the shareholder meeting did not vitiate the process.

What was the Background of Pannalal Bhansali v. Bharti Telecom Limited & Others (2026) Case? 

• Bharti Telecom Limited decided to reduce the shares held by certain public shareholders as part of a capital reduction exercise, compensating them monetarily in lieu of their shares. 
• The company obtained a valuation from an external agency, which determined the share value at ₹163.25 per share, applying a Discount for Lack of Marketability (DLOM) owing to the unlisted and illiquid nature of the shares. 
• A fairness report from a separate financial entity independently supported this valuation. 
• The National Company Law Tribunal (NCLT), while approving the capital reduction, enhanced the payout to ₹196.80 per share. 
• The capital reduction was approved by an overwhelming majority of shareholders through a special resolution. 
• Despite this, certain minority shareholders challenged the process, alleging that the valuation was unfair and that the valuation report was not disclosed to shareholders along with the notice convening the meeting. 
• The matter eventually reached the Supreme Court by way of appeals filed by the aggrieved minority shareholders.

What were the Court's Observations? 

• The Court held that Section 66 of the Companies Act, 2013 does not impose a statutory obligation to obtain or circulate a valuation report as part of the capital reduction process, unlike in cases of mergers, amalgamations, or preferential allotments. 
• The Court observed that a reduction of share capital can be validly achieved through a special resolution and confirmation by the Tribunal alone, without the requirement of a registered valuer's report. 
• The bench drew a pointed contrast with Section 232 (amalgamation/merger), which expressly mandates an expert valuation report under sub-section (2)(d), and Section 236(2) (buyback or purchase of minority shares), which similarly requires such a report — noting that no such requirement is "conspicuously" present in Section 66. 
• The Court rejected the minority shareholders' contention that non-disclosure of the valuation and fairness reports in the meeting notice amounted to mis-disclosure or vitiated the process, holding that the statute itself does not demand such disclosure in the context of capital reduction. 
• It was further held that expert share valuations undertaken in the course of capital reduction proceedings ordinarily should not be interfered with by courts or tribunals, unless the valuation is shown to be manifestly erroneous, biased, or illegal — none of which was demonstrated in the present case. 
• Accordingly, all appeals were dismissed.

What is Section 66 of the Companies Act, 2013? 

Section 66 — Reduction of Share Capital 

Who can reduce capital? 

• Only companies limited by shares, or limited by guarantee having a share capital. 
• Requires a special resolution + Tribunal (NCLT) confirmation. 

How can capital be reduced? 

• Extinguish/reduce liability on unpaid share capital. 
• Cancel paid-up capital that is lost or unrepresented by assets. 
• Pay off paid-up capital that is excess to the company's needs. 
• Bar: Cannot reduce if company is in arrears on deposit repayments or interest thereon. 

Tribunal Process 

• Tribunal notifies Central Government, Registrar, SEBI (listed companies), and creditors. 
• Creditors get 3 months to raise objections; silence = no objection presumed. 
• Tribunal confirms reduction only if all creditor debts are discharged, secured, or consented to. 
• Auditor's certificate confirming compliance with accounting standards under Section 133 is mandatory before sanction. 

Post-Confirmation Obligations: 

• Company must publish the Tribunal's order as directed. 
• Must file certified copy of order and an approved minute with the Registrar within 30 days. 
• Registrar registers the same and issues a certificate. 

Protection of Members: 

• No member (past or present) is liable beyond the difference between amount paid and the reduced share value. 

Protection of Creditors (Omitted Creditors) 

• If a creditor is unknowingly left off the creditor list and the company later defaults, every member as of the registration date is liable to contribute up to their winding-up contribution limit. 
• Tribunal may settle a contributory list and enforce calls if the company is wound up. 

Penalties: 

• Officers who conceal creditor names, misrepresent debt amounts, or abet such acts are liable under Section 447 (fraud). 
• Exclusion: 
• Does not apply to buyback of securities under Section 68.