NCLT Mumbai: Vedanta Seeks Time to Seek Secured Creditor’s Approval for Transfer of Reserves

NCLT Mumbai: Vedanta Seeks Time to Seek Secured Creditor’s Approval for Transfer of Reserves

The National Company Law Tribunal (NCLT), Mumbai by its division member bench of Kuldip Kumar Kareer (Judicial Member) and Anuradha Sanjay Bhatia (Technical Member) has allowed Vedanta Limited’s request for more time to seek secured creditor’s approval to distribute its general reserves in order to enhance shareholder value.

The company had gotten its equity shareholders' approval in October 2022 but is yet to get secured creditor’s approval.

"We are seeking a longer adjournment to seek the approval of all creditors," argued senior Advocate Guarav Joshi and Himanshu Vidhani of law firm Khaitan & Co on behalf of Vedanta.

Vedanta has accumulated Rs. 12,570 crore in general reserves over the years, which exceeds the company's foreseeable operational and business needs.

The company stated that the NCLT has allowed companies to make such transfers through a scheme of arrangement under Section 230 of the Act. On 4 October, 2022 NCLT had permitted the company to convene a meeting of equity shareholders. Its shareholders had approved the distribution of the general reserves as dividend.

Apart from that, Vedanta Limited's board is scheduled to meet on March 28 to consider and approve the fifth interim dividend on equity shares for 2022-23. The company has already announced interim dividends of Rs. 12.5 per share in February (ex-date), Rs. 17.50 in November, Rs. 19.5 in July and Rs. 31.50 in April.

Sakate Khaitan, Senior Partner, Khaitan Legal Associates, said, “Vedanta is in the unfortunate position of cash flow being in operating companies and debt obligation in the holding structure. Distributions to holding companies lead to tax leakage. A scheme is an innovative way to create cash flow in holding companies to meet its debt obligation.”

Vedanta's parent company, Vedanta Resources, is said to be exploring the possibility of selling a 10% stake in the company. The move comes as Vedanta Resources looks to address debt maturities totalling around Rs. 4.1 billion in 2023-24, of which Rs. 1.6 billion is due in the first quarter, including US dollar bonds of Rs. 400 million in April and Rs. 500 million.

The NCLT bench has adjourned the matter to 19 May, 2023.