In a blow to Vedanta's demerger plan, a Mumbai bench of the National Company Law Tribunal (NCLT) has rejected the demerger scheme of one of its subsidiaries, Talwandi Sabo Power Ltd (TSPL). The court cited inadequate disclosure in the restructuring plan for its ruling.
While TSPL plans to appeal the order, it could potentially delay Anil Agarwal-led Vedanta's plan to split into five companies. The process was initially planned to be completed by the end of FY25.
The NCLT's order on Talwandi Sabo Power's restructuring scheme came after challenge raised by Chinese engineering and construction company SEPCO Electric Power Construction Corporation (SEPCO). SEPCO claimed that TSPL owed it Rs 1251 Crores, but this debt was not disclosed in the demerger scheme.
SEPCO, represented by law firm Cyril Amarchand Mangaldas, pointed out that TSPL’s own records from October 2023 recorded this debt. SEPCO argued that TSPL has recognised SEPCO as a creditor for several years. This includes acknowledgment in balance sheets dating back to FY 2019-2020 and for FY 2022-2023, where SEPCO’s debt is listed as a foreign currency exposure.
What TSPL Owes Vedanta's Talwandi Sabo Power
The debt arises from a consent award in 2016, where TSPL agreed to pay $138 million and Rs. 122 Crores to SEPCO. Chinese firm argued that excluding this debt from the scheme is a deliberate attempt by TSPL to prevent SEPCO from participating in the creditors’ meeting. This omission, they argue, could have a major impact on the valuation of the scheme, potentially leading to a negative net worth of TSPL after the demerger.
The director of TSPL filed an affidavit saying that SEPCO had raised an objection about a change of its registered office and that this issue was subject to arbitration in Singapore. TSPL committed to making provisions for the amount owed to SEPCO once the dispute is resolved, whether in TSPL's favor or not.
However, the NCLT rejected the Vedanta subsidiary's argument, saying that material facts had not been disclosed by the company, violating Section 230 (2)(a) of the Companies Act, 2013, which, in the court’s opinion, would prejudice the public interest.
"Keeping 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," said the bench comprising judicial member Reeta Kohli and technical member Madhu Sinha in its order on March 4.
In February, Vedanta's shareholders and creditors approved the conglomerate's demerger plan. It was approved by the board in September 2023, and the company has already received the No Objection Certificate (NOC) from the exchanges for the demerger.
