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Minority shareholders question Bharti Telecom’s plan to cut capital

In a significant corporate governance dispute, minority shareholders of Bharti Telecom Ltd, the parent company of Bharti Airtel, have raised serious concerns over the company’s 2018 capital reduction scheme. The controversy centers on the buyback price of ₹196 per equity share, which the shareholders argue is significantly lower than the prevailing market rate, leading to allegations of unfair valuation and discrimination.

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Background of the Dispute

Bharti Telecom’s capital reduction scheme allows the company to buy back shares from its shareholders, effectively reducing its share capital. However, this corporate action has come under scrutiny due to the significant discrepancy between the buyback price and the market value of the shares. According to the shareholders’ counsel, just five months prior to the capital reduction, Bharti Telecom issued shares at ₹310 to the SingTel Group, further highlighting the disparity. Moreover, the estimated fair value per equity share of Bharti Telecom Limited as of January 2018 was ₹310, adding to the shareholders’ concerns about the buyback price being set unfairly low.

The minority shareholders, who collectively hold 1.09% of Bharti Telecom’s share capital, contend that the shares should have been valued based on the 26-week average of Bharti Airtel’s share price, which stood at ₹438, rather than the 10-day average used by the company. This difference in valuation methods has sparked a legal challenge, with the case now being considered by the National Company Law Appellate Tribunal (NCLAT).

Legal and Ethical Concerns

Several legal and ethical issues have been raised in this dispute. The primary concern is the appointment of Ernst & Young Merchant Banking Services as the independent valuator for the transaction. The shareholders’ counsel argued that Ernst & Young, being a subsidiary of Bharti Telecom’s internal auditor, might not provide an unbiased valuation, thereby compromising the fairness of the process.

Additionally, the counsel highlighted that the valuator applied a 25% discount to the share price, which they claim is a violation of the law. This significant discount raises questions about the fairness and justness of the buyback price, leading to allegations of discrimination against the minority shareholders.

Implications for Corporate Governance

The ongoing legal battle at NCLAT, which is set for a hearing on July 19, underscores the critical importance of fair valuation and transparency in corporate governance. This case serves as a reminder for companies to ensure that all shareholders, regardless of the size of their holdings, are treated equitably. The outcome of this dispute could set a precedent for how capital reduction schemes are executed and scrutinized in India, potentially leading to stricter regulatory oversight.

Conclusion

The minority shareholders’ challenge against Bharti Telecom’s capital reduction scheme underscores the complexities and potential pitfalls in corporate valuation and governance. The case, which highlights significant discrepancies in share valuation and concerns over transparency and fairness, could set a precedent for how such schemes are executed and regulated in India. The outcome will be crucial for ensuring equitable treatment of all shareholders and maintaining investor confidence, potentially reshaping the landscape of corporate governance and shareholder rights in the country.

READ: https://drive.google.com/file/d/1hRlbySz0Nlm-W5tibE3dAgBYcloWNuRJ/view?usp=drive_link

https://drive.google.com/file/d/1CDDaeYBOXxvo2JOmk3DY72gdLFozcWov/view?usp=drive_link