The objections include concerns over the company raising foreign loans by offering national oil assets as collateral, said a person directly aware of the government’s case.

The ministry also objected to Vedanta withholding $578 million in payments to the government as part of the production-sharing agreement for India’s largest onshore crude oil block in Rajasthan, which is operated by Vedanta subsidiary Cairn Oil & Gas.

Vedanta had announced its plan to demerge into six separately listed entities back in September 2023, aiming to complete the process by March 2025. On Wednesday, the National Company Law Tribunal asked Vedanta to respond within four weeks after the petroleum ministry objected to the proposed demerger, which could be delayed beyond September 2025 due to pending regulatory approvals—particularly from the tribunal.

The ministry’s other concerns include the liquidity position of Malco Energy, which has revenue- and production-sharing agreements for oil and natural gas with the Indian government. Malco is set to become a part of Vedanta Oil & Gas after the demerger.

 

The ministry made its observations during a hearing at the NCLT in Mumbai, where Vedanta’s application for the demerger was heard. 

The arguments of Vedanta’s counsel could not be heard in the court on Wednesday due to a paucity of time. The case is next listed for hearing on 17 September.

A spokesperson for Vedanta said that since the matter was sub-judice, the company would not be able to comment. The company will be making its submissions before the NCLT.

“The proposed demerger is a strategic step to unlock long-term value by creating sector-focused, pure-play businesses with independent management teams. The petition for sanction of the Scheme was heard by the Hon’ble NCLT on 20 August and the hearing will continue on 17 September. Notably, the NCLT has also observed that arguments in a matter of this scale and significance cannot be concluded in a single hearing and fixed the next date of hearing after discussions with all parties,” the spokesperson said.

To assuage the concerns of the government, Vedanta has offered to submit an affidavit that it will release the pledge against the national assets against which foreign debt to the tune of ₹1,500-2,000 crore was raised, the person cited earlier said. However, the ministry was not satisfied with the offer.

Vedanta has also offered to provide corporate guarantees to the ministry from Vedanta Ltd against the dues of Vedanta Oil & Gas after the demerger. The government has rejected this offer as well.

The Vedanta Ltd stock ended 0.3% higher on the BSE on Thursday at ₹446.8. It has gained over 110% since the day the demerger was first announced on 29 September 2023. The benchmark Sensex has gained just under 25% during this period.

Rajasthan dispute

While Vedanta has offered to assuage the concerns of the ministry with regard to its offshore loans and liquidity position, no such offer has been made regarding the $578 million dispute over the Rajasthan oil and gas block.

The dispute dates back to 2020 over revenue-sharing from the block, which produces over a quarter of India’s domestic crude oil. The Directorate General of Hydrocarbons disallowed the sharing of almost $1.2 billion of development costs that Vedanta incurred on the development of the block.

The case went into arbitration and an Arbitration Tribunal ruled in favour of Vedanta in November 2023. The Indian government then challenged the decision in the Delhi High Court, where it is being heard.

Vedanta, however, recognized a benefit of $ 578 million ( ₹4,761 crore) in revenue from operations in FY24 and adjusted it against its liabilities to the government under the production-sharing agreement. However, the government said the award should be lower and has claimed a sum of $224 million from the company.

In the NCLT, the petroleum ministry has objected to the company unilaterally enforcing the award even though the amount is yet to be officially quantified by the adjudicating authority and the case is pending before the Delhi High Court.

“The Group is of the view that the GoI computation is prima-facie contrary to the Award including clarifications issued by the Tribunal,” as per notes to Vedanta’s latest annual earnings report. “As the Parties are unable to agree on quantum of the calculations, the matter will be decided by the Tribunal in the quantum proceedings.”

Other objections

These are only three of the more than dozen objections raised by the ministry against Vedanta’s planned demerger. The ministry also red-flagged the company’s decision to demerge into five companies instead of six after receiving the approval of the Securities and Exchange Board of India (Sebi) and the two main stock exchanges.

On 13 August, Sebi issued an administrative warning to Vedanta for this breach. However, the market regulator’s assent to the demerger stands, said a second person aware of the matter.

A spokesperson for Vedanta told Mint on Wednesday that Sebi has offered no further comments on the merits of the demerger scheme in the NCLT.

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