National Company Law Tribunal, Mumbai: In an application challenging the demerger plan of Vedanta Limited into multiple resulting companies, a Division bench of Madhu Sinha (Technical Member) and Reeta Kohli (Judicial Member), rejected the demerger plan on the ground of non-disclosure of material facts which violated Section 230 (2)(a) of the Companies Act, 2013, and is bound to prejudice the public interest at large.
Factual Matrix
The instant matter pertains to a Scheme of Arrangement under Sections 230 to 232 of the Companies Act involving the demerger of Vedanta Limited into multiple resulting companies. The parties involved includes –
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Vedanta Limited (Demerged Company / First Non-Applicant Company)
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Vedanta Aluminium Metal Limited (Resulting Company 1)
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Talwandi Sabo Power Limited (TSPL) (Applicant Company / Resulting Company 2)
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Malco Energy Limited (Resulting Company 3)
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Vedanta Base Metals Limited (Resulting Company 4)
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Vedanta Iron and Steel Limited (Resulting Company 5)
The scheme aimed to segregate different business verticals, including Aluminium, Merchant Power, Oil & Gas, Base Metals, and Iron Ore into separate independent companies, with an objective to provide greater focus and specialization to each business sector and unlock shareholder value.
The Board of Directors of Vedanta Limited and its subsidiaries approved the Scheme on various dates in September and October 2023 and Stock Exchanges (BSE and NSE) issued no-objection letters in July 2024.
The TSPL is designated as Resulting Company 2 and is to take over the Merchant Power Business from Vedanta Limited. The appellant company filed an application before NCLT seeking its approval for the demerger and stated that it is in the best interest of shareholders and creditors.
Issues Raised by SEPCO (Objector)
1. Non-Disclosure of SEPCO’s Debt
SEPCO, a creditor of TSPL, claimed that the applicant Company concealed material facts regarding its outstanding debt. TSPL allegedly excluded SEPCO’s claim of Rs 1251/- Crores from the list of unsecured creditors. It was contended that the concealed debt would have significantly impacted TSPL’s valuation and net worth calculations. SEPCO contended that as per Rule 5 of the Companies (Compromise, Arrangement and Amalgamation) Rules, 2016, all material facts must be disclosed, failing which the application should be dismissed at the threshold.
2. Procedural Irregularities & Misrepresentation
SEPCO argued that TSPL misled stakeholders by showing only Rs 235 Crores as admitted debt instead of Rs 1251 Crores. It was contended that the company’s balance sheets from 2019 to 2023 acknowledged SEPCO’s debt, yet the Scheme omitted this crucial liability. It was stated that SEPCO was a major unsecured creditor and should have been included in voting for the Scheme, as its stake exceeded 75% of unsecured debt.
3. Timing of Arbitration & Legal Proceedings
TSPL had a settlement agreement with SEPCO from 2016, but initiated an arbitration dispute only in June 2024, after SEPCO raised objections.
4. Impact on Shareholders & Public Interest
SEPCO contended that concealing Rs 1251/- Crores would mislead investors, creditors, and regulatory authorities. It was contended that the fair valuation of shares would be affected, impacting market transparency and shareholder rights. It was further contended that had SEPCO’s dues been accounted for, it would have influenced the creditors’ voting on the scheme.
Applicants’ Contentions
The applicant (Vedanta & TSPL) contented that the dues to SEPCO were contingent and subject to arbitration in Singapore. It was contended that the approval of the scheme by the Board of Directors and the stock exchanges (BSE & NSE) supported its validity. It was contended that the NCLT should not interfere at the First Motion stage before creditors and shareholders’ vote.
NCLT’s Findings
The NCLT noted that it is mandated under Section 230 (2)(a) of the Companies Act that all the material facts relating to the Company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company have to be disclosed before the NCLT.
From the perusal of the documents available on record, the NCLT noted that it is an undisputed position that the Intervenor SEPCO is a creditor of TSPL, however, TSPL conveniently excluded SEPCO from the process of consideration and approval of the Scheme by not projecting SEPCO as a creditor to the extent of Rs. 1251 Crores. The NCLT noted that the same is done deliberately to defeat SEPCO’s rights as “SEPCO was listed as an Unsecured Creditor to the extent of Rs. 1251 Crores, which would constitute more than 75% of the Unsecured Debt by value and as a result of the same, the vote by SEPCO itself would have been against the Scheme, potentially impacting the interest of TSPL.”
The NCLT held that TSPL’s omission of SEPCO’s claim from disclosures violated Section 230(2)(a) of the Companies Act, 2013. The NCLT deemed the concealment of material facts as prejudicial to creditors and shareholders, thereby impacting the net worth and valuation.
“The non-disclosure of the amount due to be paid to the Intervenor not only is bound to affect the net worth but also the valuation having been arrived at as while calculating “Fair Exchange Share Ratio”, the valuer has not carried out any independent valuation thereby not factoring the dues of Rs. 1251 Crores of SEPCO. These dues would have a great impact on any valuation and are bound to impacting the public interest at large.”
The NCLT further noted that the timing of TSPL’s arbitration proceedings against SEPCO further indicated an attempt to evade liabilities. The NCLT deemed, the precedents cited by TSPL’s irrelevant, as the present case is primarily about non-disclosure rather than the merits of the Scheme.
“TSPL is well aware of the huge liability towards SEPCO, they are duty bound to inform the Shareholders and also the Creditor with respect to this liability (Even if contingent) as the same is subsequently bound to affect the interests of the Shareholders and also the Creditors. The concealment of this fact on the part of the TSPL is a matter of grave concern for the Tribunal.”
NCLT’s Decision
While emphasising that it had not examined the scheme’s merits, the NCLT rejected Vedanta Ltd.’s demerger scheme under Section 230 of the Companies Act solely due to TSPL’s failure to comply with disclosure requirements of material financial liabilities and procedural non-compliance.
[Vedanta Ltd. v. Talwandi Sabo Power Ltd., C.A.(CAA) / MB/220 /2024, Decided on 04-03-2025]
Advocates who appeared in this case:
Mr. Hemant Sethi, Ms. Devanshi Sethi and Ms. Tanaya Sethi, Counsel for the Applicants
