In a huge corporate governance controversy the minority shareholders of Bharti Telecom Ltd, the parent company of Bharti Airtel – have voiced serious criticisms of the company’s capital reduction plan. The core of the issue is the buyback cost at Rs 196 for each equity share that they claim was a significant amount lower than the current market price at that time. The issue has led to allegations against unfair valuation procedures as well as the discrimination against minority investors.

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Background of the Dispute

Bharti Telecom’s capital reduction plan to buy the shares back and decrease the share capital of the company has been scrutinized because of the wide gap between the purchase price and the market value of the shares. Minority shareholders say that the Rs196 buyback price was disproportionately low, particularly when compared to an issuance of shares within five months and in which Bharti Telecom allotted shares to the SingTel Group at Rs 310 each.

To add to their worries, investors point to the January 2018 valuation which put their fair market value for every Bharti Telecom share at Rs 310. They argue that the buyback price should have reflected the 26-week average price of Bharti Airtel shares that were priced Rs 438, rather than the 10-day average used by the company. 

Minority shareholders who have 1.09 percent of the share capital, believe that the valuation procedure unfairly discriminated against them. The case is currently being reviewed through the National Company Law Appellate Tribunal (NCLAT).

Legal and Ethical Concerns

A variety of ethical and legal issues have been brought up in the dispute. The main issue is the selection by Ernst & Young Merchant Banking Services as the independent appraiser in the case. The shareholder’s counsel suggested they believed that Ernst & Young, being an affiliate of Bharti Telecom’s internal auditor, could not be able to provide an impartial appraisal, which could compromise the fairness of the procedure.

In addition, the counsel pointed out that the appraiser added a 25% discount on the share price that they believe is an infraction under the law. This substantial discount raises concerns about the fairness and justice of the purchase price and could lead to accusations of discrimination against minority shareholders.

Implications for Corporate Governance

A legal dispute raging between NCLAT,  set to take place on the 19th of July, will highlight the significance of fair valuation and an openness to corporate governance. This case provides an opportunity for companies to ensure that each shareholder, regardless of stake, is treated with respect. What happens in this instance could be the basis for the manner in which Capital reduction programmes are managed and implemented in India and could result in more oversight of the regulatory process.

Conclusion

The fight by minority shareholders of Bharti Telecom’s capital-reduction plan has exposed the complicated issues surrounding how corporate assets are valued as well as the management. The core of the debate are questions regarding fairness, transparency, and the apprehensive discrepancies in valuation of shares.

The trial is in the final stages of its development and could be able to establish a precedent for the way the plan for capital reduction is assessed and implemented in India. The result could be critical for ensuring fair treatment of investors of every kind and ensuring confidence for investors and could affect the development of corporate governance as well as the rights of shareholders across the country.

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