### Discount for lack of marketability is a valid valuation principle in non-oppressive share capital reductions.

The 1st Respondent, Bharti Telecom Limited (BTL), a closely held company, sought to reduce its share capital under Section 66 of the Companies Act, 2013, by cancelling 28,457,840 equity shares held by minority shareholders.

The company offered Rs. 163.25 per share, later increased to Rs. 196.80 by the NCLT after it disallowed the deduction of Dividend Distribution Tax.

A special resolution was passed with 99.90% majority.

The Appellants, minority investors, challenged the reduction, alleging the valuation was arbitrarily low, the valuer was biased (being an affiliate of BTL’s internal auditor), and the notice was "tricky" due to non-disclosure of valuation reports.

Both the NCLT and NCLAT dismissed the objections.

1. Whether the composition of the NCLAT Bench (one Judicial and two Technical Members) was legally infirm.

2. Whether the notice for the General Meeting was a "tricky notice" due to the non-supply of valuation and fairness reports.

3. Whether the application of 'Discount for Lack of Marketability' (DLOM) in valuing shares for a forced exit under Section 66 is legally permissible and fair.

The Court primarily applied Section 66 of the Companies Act, 2013, regarding the reduction of share capital, noting it requires a special resolution and Tribunal confirmation but does not statutorily mandate a registered valuer's report, unlike Sections 62 or 230.

It relied on Union of India v. Madras Bar Association (2010) regarding the constitution of Tribunal Benches.

Regarding "tricky notices," it applied principles from Kaye v. Croydon Tramways and Baillie v. Oriental Telephone, which require disclosure of "material facts" to enable informed decisions.

It further integrated Indian Accounting Standards (Ind AS) 113 and ICAI Valuation Standard 103, which recognize 'Fair Value' as a market-based measurement and permit 'Discount for Lack of Marketability' (DLOM) for illiquid assets.

The Court found no jurisdictional defect in the NCLAT Bench, holding that while 2010-MBA suggested a majority of Judicial Members, the current statutory scheme under Section 418A only requires at least one Judicial Member, which was satisfied.

On the "tricky notice" allegation, the Court reasoned that since Section 66 does not statutorily require a valuation report, its absence in the notice did not constitute a material non-disclosure, especially since the reports were available for inspection at the registered office.

The Court rejected the bias claim against the valuer, noting that an internal auditor is an independent statutory requirement and their affiliation does not demonstrably prove "real danger of bias".

Regarding valuation, the Court held that 'fair value' under Indian accounting standards is market-linked.

Therefore, applying DLOM was appropriate because BTL was delisted and its shares were illiquid.

The Court noted that the Appellants had previously benefitted from a 115:1 rights issue, making the final exit price (Rs. 196.80 per share) commercially reasonable and not "egregiously wrong".

It held that the reduction of share capital is a domestic concern of the company governed by the majority will, provided it is not unfairly discriminatory.

The Court affirmed that (i) the NCLAT Bench composition was valid; (ii) the notice was not "tricky" as it complied with the specific requirements of Section 66; and (iii) the valuation methodology, including the use of DLOM, was consistent with recognized accounting standards and did not result in real prejudice to the minority.