NCLT Junks Talwandi Sabo’s Demerger Scheme In Vedanta After SEPCO’s Objection
The ruling underscores the importance of transparency in the merger process
The Mumbai bench of the National Company Law Tribunal (NCLT) has dismissed the demerger scheme of Talwandi Sabo Power Ltd in Vedanta Ltd due to insufficient disclosure of material facts.
The order was passed at the first motion stage when meetings of creditors/shareholders are directed.
SEPCO Electric Power Construction Corporation had objected to it, highlighting the exclusion of its Rs.1,250 crore dues.
Representing SEPCO, senior counsel Kapil Arora argued that non-disclosure of material facts was necessary at the stage of the first motion petition under Section 230 of the Companies Act, 2013, read with the Companies (Compromise, Arrangement and Amalgamation) Rules, 2016.
He submitted that an incorrect list of creditors was filed, excluding SEPCOs dues since Financial Year 2019-20. This included the time of the scheme’s approval by the TSPL directors.
The counsel added that in the first motion, unsecured dues of only Rs.250 crores were shown by TSPL. It excluded SEPCO’s dues and did not show the company as a contingent.
Appearing for TSPL, Senior Counsel Gaurav Joshi and Hemant Sethi, Advocate objected to SEPCOS locus at the first motion stage.
Joshi cited the decision of the Supreme Court in the Rainbow Denim and National Company Law Appellate Tribunal (NCLT) judgment in the MEL Windmills case.
He opposed SEPCO intervention stating that disputed creditors could object, and the objections could not be used for recovery.
However, SEPCO’s counsel Arora, rebutted the submissions. He contended:
(a) Rule of 5 CAA Rules specifically confers jurisdiction to reject a scheme even at the first motion.
(b) Merits of the scheme are not being agitated.
(c) SEPCO not seeking adjudication or recovery of its dues by NCLT (d) Only absence of requisite disclosures being highlighted
(e) The applicant at first motion was duty-bound to transparently disclose all facts
(f) Admitted debt cannot be extinguished based on a unilateral termination of contract.
The tribunal allowed SEPCO’s objections and rejected TSPL’s scheme under Section 230, without observations on the merits.
The ruling is significant in the jurisprudence of mergers and demergers, especially on material disclosures at the first motion.
SEPCO was represented by Partners Kapil Arora and Shikha Tandon and Pravar Veer Misra, Senior Associate of Cyril Amarchand Mangaldas. The team included Partners Mahesh Londhe and Darshan Ashar of Sanjay Udeshi and Co.
TSPL was represented by Gaurav Joshi, Senior Advocate and Hemant Sethi, Advocate.