The National Company Law Tribunal (NCLT) has turned down the proposed demerger scheme involving Vedanta Limited, citing inadequate disclosures by Talwandi Sabo Power Limited (TSPL), one of the resulting entities. The decision was delivered by a bench comprising Judicial Member Reeta Kohli and Technical Member Madhu Sinha.
The tribunal clarified that it had not assessed the merits of the scheme itself but had based its ruling on the lack of necessary disclosures required under the law. "The objections raised by the Objector and considered by the Tribunal are only to the extent of the disclosures which the Applicant Company is required to make in terms of law," the bench stated while rejecting the scheme under Section 230 of the Companies Act, 2013.
Creditor Raises Red Flag Over Concealed Liability
The decision followed objections from SEPCO, a creditor of TSPL, which alleged that the company had failed to disclose a ₹1,251 crore liability in its list of creditors. This amount, acknowledged in TSPL’s financial statements since 2019, stemmed from a consent award issued on May 21, 2016. SEPCO claimed that the omission of this debt was deliberate, aimed at excluding it from creditor meetings and thereby undermining its rights.
TSPL’s failure to disclose the liability, the tribunal ruled, violated Section 230(2)(a) of the Companies Act, 2013. The tribunal also noted that the non-disclosure impacted the company's valuation, raising concerns about potential financial misrepresentation.
Structure of the Demerger Proposal
The rejected scheme, filed under Sections 230-232 of the Companies Act, aimed to divide Vedanta Limited’s business into five separate entities, each focused on a distinct business vertical:
- Vedanta Aluminium Metal Limited – Aluminium business
- Talwandi Sabo Power Limited – Merchant power business
- Malco Energy Limited – Oil and gas business
- Vedanta Base Metals Limited – Base metals business
- Vedanta Iron and Steel Limited – Iron ore business
The demerger was intended to enhance business independence and attract sector-specific investors. The plan had received board approvals between September and October 2023.
Tribunal Cites Public Interest Concerns
The tribunal took issue with TSPL’s handling of the liability, pointing out that the company only classified the amount as "contingent" after SEPCO raised objections. The order highlighted that TSPL’s arbitration notice against SEPCO, issued on June 31, 2024, followed this reclassification—an action that raised further concerns about the company’s financial transparency.
Observing that such non-disclosures could harm creditors and shareholders, the tribunal stressed that an inaccurate valuation of TSPL could mislead stakeholders and impact public interest.
Legal Representation
SEPCO was represented by Advocates Kapil Arora, Shikha Tandon, and Pravar Veer Misra from Cyril Amarchand Mangaldas, along with Advocates Mahesh Londhe and Darshan Ashar from Sanjay Udeshi and Co. TSPL, on the other hand, was represented by Advocates Hemant Sethi, Devanshi Sethi, and Tanaya Sethi.
The ruling marks a significant setback for Vedanta’s restructuring efforts, signaling the importance of full financial transparency in corporate demergers.