In a big development having ramifications for the demerger of Vedanta Ltd, by an order dated March 4, 2025, the NCLT Mumbai, Bench V, dismissed the Scheme filed by Talwandi Sabo Power Ltd (TSPL).
Significantly, this order dismissing the scheme (qua TSPL) has been passed at the threshold viz. at the first motion stage- when normally, meetings of creditors/shareholders etc are ordered.
In the present matter, SEPCO Electric Power Construction Corporation (SEPCO), had raised objections at the first motion stage, represented by Kapil Arora, Partner, Shikha Tandon, Partner, Pravar Veer Misra, Senior Associate- Cyril Amarchand Mangaldas and Mr. Mahesh Londhe, Partner and Darshan Ashar, Partner,.Sanjay Udeshi and Co.
Mr. Kapil Arora, argued the matter before the NCLT, highlighting non-disclosure of material facts necessary at the stage of the first motion petition- under Section 230 of the Companies Act, 2013 (Act) read with the Companies
(Compromise, Arrangement and Amalgamation) Rules 2016 (CAA Rules).
In particular, Mr. Arora submitted that an incorrect list of creditors had been filed, excluding SEPCOs dues amounting to INR 1250 Crore (approx). It was further pointed out that these dues had been showed consistently since FY 2019-20, including at the time of approval of the scheme by the directors of TSPL. But, in the first motion, unsecured dues of INR 250 Crore were only shown by TSPL- by excluding SEPCO, and not even showing SEPCO to be contingent/disputed.
TSPL was represented by Gaurav Joshi, Sr. Adv and Mr. Hemant Sethi, Adv. In response to the objections, Mr. Joshi objected to SEPCOs locus to object at the first motion stage- when merits are not to be considered, relying on the Supreme Court judgement in Rainbow Denim and NCLAT judgment in MEL Windmills. SEPCOs intervention was also opposed on the ground that disputed creditors cannot raise objections and that such objections cannot be used for recovery.
Arora, rebutted these submissions arguing that that (a) Rule of 5 CAA Rules specifically confers jurisdiction to reject a scheme, even at the first motion (b) merits of the scheme are not being agitated. (c) SEPCO not seeking adjudication or recovery of its dues by NCLT (d) only absence of requisite disclosures being highlighted (e) applicant at first motion duty bound to transparently disclose all facts (f) admitted debt cannot be extinguished based on a unilateral termination of contract.
The NCLT allowed the objections by SEPCO and rejected the scheme by TSPL- only on the grounds of absence of full disclosures requried under Section 230 of the Act, without any observations on the merits.
This is a significant ruling in the jurisprudence of mergers and demergers, especially on the aspect of material disclosures to be made even at the first motion.
