SELECTIVE CAPITAL REDUCTION AFTER PANNALAL BHANSALI: WHAT THE SUPREME COURT SETTLED, AND THE LEGAL GAP THAT REMAINS
AUTHOR – HARSHA SUTHAR, NALSAR UNIVERSITY OF LAW, HYDERABAD
BEST CITATION – HARSHA SUTHAR, SELECTIVE CAPITAL REDUCTION AFTER PANNALAL BHANSALI: WHAT THE SUPREME COURT SETTLED, AND THE LEGAL GAP THAT REMAINS, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (10) OF 2026, PG. 210-213, APIS – 3920 – 0001 & ISSN – 2583-2344.
On March 10, 2026, the Supreme Court decided Pannalal Bhansali v. Bharti Telecom Limited & Ors. (2026 INSC 213)[1], a case that finally answers a question Indian company law had left unsettled for over two decades: can a company use Section 66 of the Companies Act, 2013[2] to reduce its share capital by targeting only a defined group of shareholders, while leaving everyone else’s holding untouched?
The Bench of Justices Sanjay Kumar and K. Vinod Chandran said yes. That holding closes one debate and opens another: once selective reduction is confirmed as lawful, what actually stops a company from using Section 66, rather than a scheme of arrangement or the statutory squeeze-out route, precisely because Section 66 asks less of it?
Bharti Telecom Limited (BTL) is an unlisted, closely held company that came off the stock exchanges between 1999 and 2000. Its only real business is holding a large stake in Bharti Airtel Limited (BAL), the listed telecom company. Individual investors held about 1.09% of BTL.
In 2018, BTL moved to cancel 28,457,840 equity shares held by these individual shareholders under Section 66, offering them an exit price. It first set that price at Rs. 163.25 per share after deducting Dividend Distribution Tax. Shareholders approved the resolution by a margin above 99.90%. The NCLT confirmed the reduction but held the tax deduction was arbitrary and raised the price to Rs. 196.80 per share. BTL paid that amount, but thirty-five shareholders still challenged the reduction itself before the NCLAT, and lost. Their appeal reached the Supreme Court wherein three objections were before the Court. First, on valuation method: since BTL’s only asset was its BAL shareholding, the appellants argued the price should track BAL’s listed market value directly, without any Discount for Lack of Marketability (DLOM), citing the Singapore Court of Appeal’s approach in Kiri Industries Ltd. v. Senda International Capital Ltd.[3] Second, on price: they pointed to a 2007 private offer of Rs. 2,000 per share and SingTel’s 2018 purchase of BTL shares at Rs. 310 per share as proof that Rs. 196.80 undervalued their stake. Third, on procedure: they argued the notice calling the meeting did not properly disclose the valuation methodology and that the valuer’s link to BTL’s internal auditor was a conflict of interest.[4]
[1]Pannalal Bhansali v. Bharti Telecom Limited & Ors., 2026 INSC 213.
[2]Companies Act, 2013, § 66(1).
[3]Kiri Industries Ltd v Senda International Capital Ltd & Anor, [2022] SGCA(I) 5 (Sing. CA).
[4]supra note 1.