The National Company Law Tribunal (NCLT) on Tuesday rejected the scheme of arrangement presented by Talwandi Sabo Power Limited (TSPL) in relation to the demerger of Vedanta..A Bench of NCLT comprising Judicial Member Reeta Kohli and Technical Member Madhu Sinha said, “It is made clear that the merits of the Scheme proposed by the Applicant has not been gone into and 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. Therefore, keeping in view of 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.”.The decision came after objections were raised by SEPCO, a creditor of TSPL, one of the resulting companies in the proposed demerger..The scheme of arrangement, filed under Sections 230 to 232 of the Companies Act, 2013, involved the demerger of Vedanta Limited’s business verticals into five separate entities:Vedanta Aluminium Metal Limited – To take over the Aluminium Business.Talwandi Sabo Power Limited – To manage the Merchant Power Business.Malco Energy Limited – To oversee the Oil and Gas Business.Vedanta Base Metals Limited – To handle the Base Metals Business.Vedanta Iron and Steel Limited – To operate the Iron Ore Business.The scheme aimed to create independent, globally competitive companies, each focusing on its core business, thereby attracting specialised investors and stakeholders. The boards of the respective companies had approved the scheme between September and October 2023..SEPCO opposed the scheme, alleging that TSPL had concealed material information about its liabilities. It claimed that TSPL owed it ₹1,251 crore, a debt that was acknowledged in TSPL’s financial statements since 2019. However, this liability was excluded from the list of creditors presented in the scheme.SEPCO argued that this omission was deliberate and aimed at excluding it from the creditor meetings, thereby prejudicing its rights. SEPCO’s counsel highlighted that the debt arose from a consent award dated May 21, 2016, and was reflected in TSPL’s balance sheets. It contended that the exclusion of this liability would distort TSPL’s valuation and negatively impact its net worth post-demerger..The NCLT found merit in SEPCO’s objections, noting that TSPL had failed to disclose material facts, including the ₹1,251 crore liability to SEPCO, in violation of Section 230(2)(a) of the Companies Act, 2013.“It is pertinent to note that till this time, the said amount was not stated to be contingent. It is only once SEPCO submitted its objection before the Regional Directors that TSPL permitted the contracts and this unilateral termination of contract is subsequently reflected in balance-sheet for the Financial Year ended on 31.03.2024 and it is only after this that TSPL had issued a notice of Arbitration on SEPCO on 31.06.2024,” the Tribunal said. .The Tribunal emphasised that the non-disclosure of such a significant liability could prejudice the interests of creditors and shareholders. It also observed that the valuation of TSPL, conducted without factoring in SEPCO’s claim, was flawed and could impact public interest..SEPCO was represented by Advocates Kapil Arora, Shikha Tandon and Pravar Veer Misra from Cyril Amarchand Mangaldas and Advocates Mahesh Londhe and Darshan Ashar from Sanjay Udeshi and Co.Talwandi Sabo was represented by Advocates Hemant Sethi, Devanshi Sethi and Tanaya Sethi..[Read Judgment]
The National Company Law Tribunal (NCLT) on Tuesday rejected the scheme of arrangement presented by Talwandi Sabo Power Limited (TSPL) in relation to the demerger of Vedanta..A Bench of NCLT comprising Judicial Member Reeta Kohli and Technical Member Madhu Sinha said, “It is made clear that the merits of the Scheme proposed by the Applicant has not been gone into and 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. Therefore, keeping in view of 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.”.The decision came after objections were raised by SEPCO, a creditor of TSPL, one of the resulting companies in the proposed demerger..The scheme of arrangement, filed under Sections 230 to 232 of the Companies Act, 2013, involved the demerger of Vedanta Limited’s business verticals into five separate entities:Vedanta Aluminium Metal Limited – To take over the Aluminium Business.Talwandi Sabo Power Limited – To manage the Merchant Power Business.Malco Energy Limited – To oversee the Oil and Gas Business.Vedanta Base Metals Limited – To handle the Base Metals Business.Vedanta Iron and Steel Limited – To operate the Iron Ore Business.The scheme aimed to create independent, globally competitive companies, each focusing on its core business, thereby attracting specialised investors and stakeholders. The boards of the respective companies had approved the scheme between September and October 2023..SEPCO opposed the scheme, alleging that TSPL had concealed material information about its liabilities. It claimed that TSPL owed it ₹1,251 crore, a debt that was acknowledged in TSPL’s financial statements since 2019. However, this liability was excluded from the list of creditors presented in the scheme.SEPCO argued that this omission was deliberate and aimed at excluding it from the creditor meetings, thereby prejudicing its rights. SEPCO’s counsel highlighted that the debt arose from a consent award dated May 21, 2016, and was reflected in TSPL’s balance sheets. It contended that the exclusion of this liability would distort TSPL’s valuation and negatively impact its net worth post-demerger..The NCLT found merit in SEPCO’s objections, noting that TSPL had failed to disclose material facts, including the ₹1,251 crore liability to SEPCO, in violation of Section 230(2)(a) of the Companies Act, 2013.“It is pertinent to note that till this time, the said amount was not stated to be contingent. It is only once SEPCO submitted its objection before the Regional Directors that TSPL permitted the contracts and this unilateral termination of contract is subsequently reflected in balance-sheet for the Financial Year ended on 31.03.2024 and it is only after this that TSPL had issued a notice of Arbitration on SEPCO on 31.06.2024,” the Tribunal said. .The Tribunal emphasised that the non-disclosure of such a significant liability could prejudice the interests of creditors and shareholders. It also observed that the valuation of TSPL, conducted without factoring in SEPCO’s claim, was flawed and could impact public interest..SEPCO was represented by Advocates Kapil Arora, Shikha Tandon and Pravar Veer Misra from Cyril Amarchand Mangaldas and Advocates Mahesh Londhe and Darshan Ashar from Sanjay Udeshi and Co.Talwandi Sabo was represented by Advocates Hemant Sethi, Devanshi Sethi and Tanaya Sethi..[Read Judgment]
