NCLT rejects Talwandi Power's demerger in Vedanta restructuring plan

The National Company Law Tribunal has dismissed the demerger scheme filed by Talwandi Sabo Power Ltd (TSPL) after objections were raised by SEPCO, a creditor of TSPL, in relation to the demerger of Vedanta.

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 Corporation 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.

SEPCO opposed the scheme, alleging that TSPL had concealed material information about its liabilities.

The NCLT order said, "this has been done deliberately to defeat SEPCO's rights."  A Vedanta spokesperson said 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 per cent 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, and the valuation of TSPL conducted without factoring in SEPCO's claim, was flawed and could impact public interest.

The scheme, filed under Sections 230 to 232 of the Companies Act, 2013, involved the demerger of Vedanta's business verticals into five separate entities-- Vedanta Aluminium Metal, Talwandi Sabo Power, Malco Energy, Vedanta Base Metals and Vedanta Iron and Steel.

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

The boards of the respective companies had approved the scheme between September and October 2023.