Vedanta Ltd’s proposed demerger has come under fresh scrutiny, with the ministry of petroleum and natural gas (MoPNG) raising objections before the National Company Law Tribunal (NCLT). At a hearing on Wednesday, the ministry alleged Vedanta had painted a misleading “rosy picture” of the proposed demerger, and had not fully disclosed regulatory and financial risks. The Anil Agarwal-led company denied the allegations.

Shares of Vedanta fell nearly 4% following the news and ended the session over 1% lower.

The ministry’s objections were filed on the application of Vedanta seeking regulatory clearance from the NCLT on its proposed demerger under section 230-232 of the Companies Act.

“Whoever intends to merge or demerge must come with clean hands. They must ensure transparency and put forth correct facts before all the stakeholders and the board before a scheme is approved,” the ministry said. “It must place all facts on records before Sebi and BSE, so that a proper no-objection is obtained.”

The tribunal directed both the parties to file their written submissions by next week and posted the matter for hearing on 8 October.

The Anil Agarwal-led Vedanta Group had in 2023 announced its plan to split its India operations into five separate, publicly listed companies—Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Iron and Steel, and a restructured Vedanta Ltd that would hold the zinc and silver businesses (via Hindustan Zinc) and serve as an incubator for new technologies and ventures.

The proposed demerger aims to reduce the company’s debt with focus on creating independent businesses and providing value for the stakeholders.

The ministry’s allegations in the tribunal have led to a major hurdle for the demerger process. In March, the deadline was extended by the NCLT to 30 September as certain approvals were pending.

The senior counsel appearing for the ministry clarified that being a sectoral regulator it has raised concerns with regard to the potential liquidity risk of resulting company Malco Energy Ltd, a subsidiary of Vedanta.

Malco had a negative net worth of ₹94 crore as of 31 March 2024 and cash losses amounting to ₹85.64 crore in FY24 and ₹244 crores in FY23.

The ministry’s counsel, additional solicitor general Brijender Chahar, said Malco, in all probability, would go into liquidation, making the recovery of the government dues “virtually impossible”.

He said Vedanta’s demerger plan involved financial risks, including misstatements regarding the company’s hydrocarbon assets and insufficient disclosure of its liabilities that was a concern for the ministry.

The ministry also said there was a long pending dispute with regard to the RJ-oil and gas block in Rajasthan. “The largest chunk of their debt is towards the government of India, which is concerning the RJ Block. There is no mention of it by Vedanta,” the ministry said.

The issue pertains to a partial arbitral award in which there were ₹5,600 crore worth of dues to the government, which has been “brushed aside”, the ministry argued. The matter is pending before the Delhi high court, with the order reserved in the matter.

Vedanta argued that even if the ministry is a sectoral regulator, it is neither a creditor nor a stakeholder in the company. “We are not supposed to meet some wishlist that is given by the MopNG; we have to fulfill statutory shortcomings if any,” argued senior counsel Ravi Kadam, who represented Vedanta.