Vedanta demerger: NCLAT stays NCLT order staying the process

New Delhi: In a relief to Vedanta Ltd, the appellate tribunal NCLAT has stayed the National Company Law Tribunal (NCLT) orders against the demerger of the multinational mining company into separate entities and subsequent listing.

The Mumbai bench of NCLT had on March 4, 2025 rejected the first motion petition moved for the composite scheme of arrangement between Vedanta in the matter of Talwandi Sabo Power Ltd (TSPL), observing that "material facts have not been disclosed" regarding its debt obligations, which was against the Companies Act.

This was immediately challenged before the National Company Law Appellate Tribunal (NCLAT), which earlier this week stayed the order passed by the NCLT bench till its next hearing, scheduled on August 4, 2025.

The appellate tribunal said "issues raised before us need to be considered at length and presently in view of the submissions made the scheme is severable and thus in case the stay is not granted to the impugned order it may affect the second motion application filed in respect of other three transferor companies pending in different tribunals".

A two-member NCLAT bench also agreed to the proposal of submission of a bank guarantee of Rs 1,245 crore claimed by its creditor Sepco Electric Power Construction Corporation, without prejudice to their rights.

"In these circumstances, it would be appropriate to list the matter for detailed hearing on 04.08.2025 and in the meanwhile the impugned order, so far as it only relates to rejection of the scheme is hereby stayed till the next date of hearing upon the appellant giving a bank guarantee to the tune of Rs 1,245 crore to protect the interest of the respondent herein, within two weeks from today," said NCLAT.

Under the composite scheme of arrangement between Vedanta and its four wholly owned subsidiaries, it had proposed the demerger of all of them. Subsequent to the demerger, each of the five subsidiaries was to be listed in the stock exchange.

On November 21, 2024, the first motion application for the demerger of three businesses was approved by NCLT. However, the demerger regarding the business unit of generation and sale of power of Vedanta Ltd and its merger with the resulting company TSPL was rejected by the impugned order on the objection of SEPCO.

TSPL had entered into a contract with SEPCO for setting up a power plant, for which certain aspects, like ESP modifications, were pending. SEPCO was shown as a creditor in the accounts of TSPL, though in the notes to accounts, it was mentioned that payment will be due once the work is completed.

However, the agreement with SEPCO was terminated in February 2024 as they had failed to complete the work. In TSPL's accounts for FY24 termination of contract was noted, as also the write-back of contractual obligations.

The first motion application was filed on October 10, 2024 and Shandong, China-based Sepco Electric Power Construction Corporation opposed it before NCLT, which rejected it.

Challenging it, Vedanta group contended that net worth of TSPL, the resulting company, is positive Rs 3,008 crore and will further go up to Rs 4,535 crore on the scheme being implemented.

This was not a scheme of arrangement with creditors and citing previous judgements, it contended that the meeting of creditors was dispensed with on the grounds of the positive net worth of the resulting/transferee company.

Moreover, it also submitted appellant is willing to secure the amount of Rs 1,245 crore approximately claimed by TSPL, without prejudice to their rights, by giving bank guarantee.

In a demerger, the "first motion" involves seeking NCLT's approval for a meeting or dispensation of meetings, while the "second motion" is where it considers the scheme on its merits after considering objections and observations.

The first motion application is usually filed before the NCLT by the transferor and transferee companies. The second motion then follows after the first motion is granted, allowing for the court to fully evaluate the scheme.