NCLAT bench can have majority of technical members: Supreme Court in Bharti Telecom capital reduction case

The Supreme Court on Tuesday held that a bench of the National Company Law Appellate Tribunal (NCLAT) can have a majority of technical members [Pannalal Bansal Vs Bharti Telecom & Ors]..A Bench of Justices Sanjay Kumar and Vinod Chandran said that Section 418A of the Companies Act, 2013 requires the presence of at least one judicial member only on the Bench."The NCLAT as provided in Section 418A always comprises of two members, one of whom is a judicial member or such larger composition where the prescription is only of the presence of a member from the Judicial side and not in the majority," the Court said.The ruling came in appeals filed by minority shareholders challenging a capital reduction scheme of Bharti Telecom Limited (BTL). .The Court noted that in the present case the NCLAT bench was headed by a judicial member and included two technical members, and its decision was unanimous. .Bharti Telecom is the promoter holding company of Bharti Airtel. It also has Singapore Telecommunications Limited (Singtel) as a strategic shareholder.The dispute arose from a capital reduction exercise undertaken by Bharti Telecom under Section 66 of the Companies Act, 2013.The company proposed to cancel 28,457,840 equity shares held by identified minority shareholders, representing about 1.09% of the company’s shareholding. The minority shareholders were offered ₹163.25 per share for the extinguishment of their shares.The proposal was approved through a special resolution supported by more than 99.90% of shareholders, after which Bharti Telecom approached the National Company Law Tribunal (NCLT) for sanction of the capital reduction. The NCLT approved the scheme but directed that the minority shareholders be paid ₹196.80 per share, holding that dividend distribution tax should not be deducted from the payout. Several shareholders challenged the order before the National Company Law Appellate Tribunal (NCLAT), which dismissed the appeals and upheld the reduction of capital..They alleged that the valuation of the shares was unfair and that the process adopted by the company was flawed.The NCLAT dismissed the appeals and upheld the reduction of capital.The tribunal’s bench comprised of one judicial member and two technical members, and the decision was unanimous.The minority shareholders then approached the Supreme Court.Apart from challenging the valuation and procedure, they argued that the NCLAT bench itself was improperly constituted because it had a majority of technical members.They relied on earlier Supreme Court rulings, including the Madras Bar Association decisions, to argue that judicial members must be in the majority..The Supreme Court rejected this contention.It noted that the earlier rulings examined provisions under the Companies Act, 1956, particularly Section 10-FL, which dealt with the constitution of benches of the company law tribunals.“Section 10-FL by sub-section (1) provided for the Tribunal to exercise the powers conferred by Benches constituted by the President out of which one shall be a Judicial Member and another a Technical Member… The above provision is no more applicable since the Companies Act, 1956 has been replaced by the Companies Act, 2013,” the Court observed..The Court noted that the present framework under the Companies Act, 2013, particularly Sections 418A and 419, governs the constitution of benches of the NCLT and NCLAT.Under this framework, the statute requires the presence of at least one judicial member on the bench but does not mandate that judicial members must outnumber technical members..The Court also noted that in the present case the NCLAT bench was headed by a judicial member and included two technical members, and its decision was unanimous. The Supreme Court ultimately upheld the orders of the NCLT and NCLAT approving the capital reduction scheme..The appellants were represented by Senior Advocate K Parameshwar and advocates Masoom K Shah, Udit Gupta, Veda Singh, Prasad Hegde, N Sai Kaushal, Adit Garg, Rohan Chawla, Aashvi P Shah and Vallari KM.Bharthi Telecom was represented by Senior Advocate Shyam Divan and Ramji Srinivasan and advocates Kamal Shankar, Tanmay Sharma, Aakashdeep Singh Roda, Arjun Narang, Shivam Jain, Shefali Munde, Arjun Bhatia, Arpith Jacob Varaprasad, Ankur Singhal, Pooja Singh and BP Singh..One set of respondents was represented by Senior Advocate Percival Billimoria and advocates Khwaja Siddiqui, Arvind Gupta, Kshitij Arora, Rachita Sood, Priyamvada Paneru and Rahul Bhaskar. .Other respondents were represented by advocates Kausik Chatterjee, Soumya Dutta Samriddhi and Siddhant Upmanyu..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.