Vedanta wins approval for demerger plan from Mumbai NCLT, overcomes petroleum ministry's objections

The National Company Law Tribunal allowed Vedanta Ltd to go ahead with a proposed demerger of its India operations into five separate entities, marking a key milestone in billionaire Anil Agarwal’s two-year efforts to simplify and list the mining conglomerate's businesses.

The ministry of petroleum and natural gas had opposed the restructuring plan, alleging misrepresentation of India’s hydrocarbon assets and inadequate disclosure of liabilities.

The NCLT upheld Vedanta’s demerger and granted sanction to the scheme, holding that it is fair and reasonable, does not violate any law, and is not contrary to public policy, as all statutory compliances have been met.

The company court rejected the government’s claim that the demerger involved material non-disclosures or statutory violations, accepting Vedanta’s submission that it had made all required disclosures and secured approval from over 99.9% of its shareholders and creditors.

“From the material on record, the scheme appears to be fair and reasonable, is not violative of any provision of law, and is not contrary to public policy. Since all requisite statutory compliances have been fulfilled,” the NCLT said in its order.

The approval, however, is subject to conditions that must be fulfilled within two months of the order or before the scheme becomes effective, whichever is earlier. These include releasing charges over Vedanta’s fixed assets and updating the same with the Registrar of Companies.

The tribunal clarified that its sanction does not bar any ongoing or future litigation, arbitration, tax proceedings, or regulatory action. All assets, liabilities, legal proceedings, and employees will transfer to the respective resulting companies on a going-concern basis, in compliance with applicable tax, stamp duty, and accounting laws.

“The approval marks a key milestone in Vedanta’s transformation into focused, sector-leading companies with clear strategic mandates and dedicated capital structures," a Vedanta spokesperson said in response to Mint's query. "The company will now proceed with the necessary steps to implement the scheme."

Following the demerger, the five listed firms will be Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Iron and Steel, and Vedanta, which will continue as the parent entity and hold the shares of Hindustan Zinc Ltd. The shareholders of Vedanta will receive one share in each of the four newly demerged companies.

“I see this as an incremental move rather than something transformational,” said Suman Kumar, assistant vice-president for metals and mining at brokerage Philip Capital. “There’s nothing especially rewarding in terms of restructuring or remodelling. The exercise is mainly aimed at monetizing some non-core assets or bringing some international companies through the JV/stakeholder route.”

The entire effort appears to be designed to generate revenue at the group level. That cash can then be used either to invest in core projects or to meet other periodic funding requirements, said Kumar.

The petroleum ministry had raised multiple objections during the proceedings, flagging concerns over the potential financial risks arising from the restructuring, alleged misrepresentation of India’s hydrocarbon assets, and inadequate disclosure of liabilities. The ministry’s opposition emerged as a key hurdle to the proposed demerger.

The ministry's key concern was related to Malco Energy Ltd, a Vedanta subsidiary that would emerge as a separate entity after the planned demerger. The ministry argued that Malco faces serious liquidity risks, pointing out that the company had a negative net worth of ₹94 crore as of 31 March 2024, and reported cash losses of ₹85.64 crore in FY24 and ₹244 crore in FY23.

The ministry said Malco could, “in all probability,” slip into liquidation, making recovery of government dues “virtually impossible.”

The ministry also highlighted a long-pending dispute concerning Vedanta’s RJ oil and gas block in Rajasthan, noting that a substantial portion of the company’s debt was related to government claims linked to the block. According to the ministry, Vedanta has not adequately disclosed these liabilities in its demerger scheme.

Government’s claim

The dispute stems from a partial arbitral award involving ₹5,600 crore in dues to the government, which the ministry said had been ‘brushed aside.’ The amount is related to the government's claim over the disallowance of costs and reallocation of common costs among fields in the oil block. The matter is pending before the Delhi High Court, where orders have been reserved.

Vedanta, however, contested the ministry’s objections. The company informed the tribunal that it had already obtained approval from the Securities and Exchange Board of India (Sebi) after revising its demerger scheme in accordance with regulatory requirements.

Vedanta argued that while the ministry is a sectoral regulator, it is neither a creditor nor a stakeholder in the company and therefore lacks the locus standi to oppose the scheme before the tribunal.

Vedanta told NCLT that the company was not required to meet what it described as a “wish list” of the ministry, but only to address any statutory deficiencies.

The Vedanta Group announced its demerger plan in 2023, proposing to split its Indian operations into five separately listed entities: Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Iron and Steel, and a restructured Vedanta Ltd. The parent entity would retain the zinc and silver businesses through Hindustan Zinc and act as an incubator for new ventures.

Shareholder value

Initially, Vedanta had planned to split into six entities, including a separate base metals company. Under the revised scheme, the base metals business will remain within Vedanta Ltd. The restructuring is aimed at reducing debt, sharpening management focus and unlocking shareholder value.

Nuvama Research estimates cited by The Hindu BusinessLine on 23 November suggest that the demerger could unlock value of about ₹84 per share across Vedanta’s business verticals as the move is expected to remove the conglomerate discount, improve transparency and allow each business to be valued independently.

Vedanta shares reversed a decline after the NCLT order and gained 3.5% to ₹569.35 at the close on BSE. The shares have advanced 23.61% year-to-date and 7.46% over the past five days.

Subsidiary Hindustan Zinc was little changed at ₹567.75. The benchmark Sensex dropped 0.63%.

Still, the management was confident of its plan. The company pushed back its demerger timeline and, after missing the revised September deadline, set March 2026 as the completion date.

“We have made substantial progress on the proposed demerger, which is a pivotal step towards unlocking further shareholder value,” Vedanta Resources CEO Deshnee Naidoo said during a post-earnings call with analysts in September.