Mumbai: The National Company Law Appellate Tribunal (NCLAT) has cleared the way for Talwandi Sabo Power Ltd’s (TSPL) demerger from its parent company Vedanta Ltd, setting aside a lower court’s order that put the proposed demerger on hold.

The order comes after the counsel for Talwandi Sabo informed the NCLAT that it has reached a settlement with China’s Sepco Electric Power Construction Corp. (Sepco) on 11 September. Sepco is one of the creditors of TSPL that objected to the demerger for alleged non-payment of dues worth ₹1,251 crore.

The details of the settlement, however, have not been disclosed.

“This settlement agreement provides for a full and final resolution of all claims and counterclaims and includes withdrawal of pending arbitration proceedings. This marks the closure of legacy disputes and strengthens TSPL’s operational position,” Vedanta said in an exchange filing on Friday. TSPL is one of Vedanta Group entities that has its power assets.

The latest court decision is a relief for Vedanta because the proposed demerger is a step towards reducing the company’s debt and improving value for the shareholders by creating focused independent businesses. According to a JP Morgan report on 1 August, the net debt of Vedanta in FY25 stood at ₹54,437 crore and is expected to reduce to ₹42,445 crore in FY28.

A bench led by Justices Yogesh Khanna and Ajai Das Mehrotra held that “During the course of the pendency of the appeal, the matter has been amicably settled between the parties. To that effect, an affidavit dated 12 September 2025 has been filed by Sepco(respondent). In view of the settlement between the parties, the impugned order is set aside”.

In March 2025, the National Company Law Tribunal (NCLT) held that TSPL’s proposed demerger scheme of arrangement lacked the necessary disclosures, specifically regarding the company’s debt obligations. TSPL and Sepco were locked in a legal battle relating to the engineering, procurement and construction (EPC) contracts entered between the two companies for setting up a thermal power project.

In May this year, the NCLAT put on hold the NCLT’s order, granting a conditional stay that required TSPL to furnish bank guarantees worth ₹1,245 crore.

Senior counsel Arun Kathpalia, representing TSPL, urged the tribunal NCLAT to release these guarantees, noting that the company had already complied with the directive and submitted them.

“The only observation made by NCLT for rejecting the merger was that Sepco’s status as a creditor to the company was undisclosed,” Kathpalia argued.

Under the demerger scheme, Vedanta Ltd. proposed to spin off five of its businesses into respective subsidiary companies. Subsequent to the demerger, each of the five subsidiaries was to be listed on the stock exchange. Vedanta Ltd later decided to retain the base metals business, and only four businesses were proposed to be demerged.

The NCLT approved an application for the demerger of three businesses in November 2024. However, the demerger of Vedanta Ltd’s business unit of generation and sale of power and its merger with the resulting company Talwandi Sabo was rejected by the impugned order on Sepco’s objection. The senior counsel for TSPL informed the tribunal that Sepco had withdrawn such objection.

Separately, Talwandi Sabo filed an appeal with NCLAT on Monday for convening a meeting of the secured and unsecured creditors. The NCLAT questioned the tribunal’s authority to allow the meeting. The bench said that it is the NCLT that allows such appeals. The appellate tribunal has directed the NCLT to consider convening and dispensing the meeting.