NCLT Rejects Talwandi Power's Vedanta Demerger Scheme For Not Disclosing Material Facts

The National Company Law Tribunal has dismissed Talwandi Sabo Power Ltd.'s scheme to demerge from Vedanta Ltd.

The development follows objections raised by Talwandi Sabo Power creditor SEPCO Electric Power Construction India Pvt. to the scheme.

The Mumbai bench of NCLT in its ruling on Tuesday said, “...keeping in view the facts and circumstances of the present case, we deem it appropriate to reject the scheme presented by the Applicant under Section 230 of the Companies Act”.

It further observed that “...material facts have not been disclosed by the Applicant company, violating Section 230 (2)(a) of the Companies Act, 2013, which in our considered opinion is bound to prejudice the public interest at large”.

The decision came after China-based SEPCO Electric Power Construction Corp. raised objections to the demerger, saying that the power unit had deliberately excluded their outstanding debt of Rs 1,251 crore from the list of creditors.

While opposing the scheme, SEPCO alleged that TSPL had concealed material information about its liabilities.

The NCLT order said, “this has been done deliberately to defeat SEPCO's rights”.

Meanwhile, a Vedanta spokesperson said that the NCLT ruling pertains only to the TSPL application and the power business undertaking and does not impact or alter the progress of the other business undertakings proposed to be demerged.

“Vedanta remains fully committed to maintaining the highest standards of corporate governance and transparency, and will keep all stakeholders informed of any further developments,” the spokesperson added.

TSPL is likely to file an appel against the NCLT order.

SEPCO was listed as an unsecured creditor to the extent of Rs 1,251 crore, 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 tribunal said, the non-disclosure of such a significant liability could prejudice the interests of creditors and shareholders. It added that the valuation of TSPL conducted without factoring in SEPCO's claim, was flawed and could impact public interest.

Originally, the Vedanta's plan involved the demerger of Vedanta's business verticals into five separate entities—Vedanta Aluminium Metal Ltd., Talwandi Sabo Power Ltd., Malco Energy Ltd., Vedanta Base Metals Ltd., and Vedanta Iron and Steel Ltd.

However, later, Vedanta tweaked the scheme to demerge only four companies, and continue to house its base metals operations.

It was aimed to create independent, globally competitive companies, each focusing on its core business and attracting specialised investors and stakeholders.

Shares of Vedanta Ltd. closed 5.51% higher at Rs 429.15 apiece on the BSE, compared to a 1.01% advance in the benchmark Sensex.

—With PTI inputs