Why has Vedanta moved SAT against Sebi?

Vedanta

The market regulator on March 12 asked Vedanta Ltd., formerly known as Cairn India Ltd., to pay Cairn UK Holdings Ltd. (CUHL) Rs 77.62 crore as interest for delayed payment of dividend. The Securities and Exchange Board of India asked Vedanta to pay the fine within 45 days.

Sebi acted on a complaint of CUHL in April 2017, claiming that dividend of Rs 340.65 crore for its stake of over 180 million shares in the company was not paid.

Vedanta has now decided to approach the Securities Appellate Tribunal.

Moneycontrol explains the details of the case.

What is the appeal about?

Vedanta moved the SAT against a March 12 order of Sebi, which found the company and 10 former directors guilty of withholding dividend payable to Cairn UK.

Sebi asked Vedanta to pay Cairn UK Rs 77.62 crore as interest for not paying timely dividend to the UK company. Sebi also imposed restrictions on former directors of the company, which is also under challenge currently.

What are the grounds on which Vedanta is appealing the case?

Vedanta claims Sebi acted ‘beyond its jurisdiction’ by taking action against former directors of the company, according to people privy to the development. The company is also taking the stance that it cannot be asked to pay interest because it did not withhold the dividend intentionally.

According to Vedanta, the dividend could not be paid on time due to confusion over income tax attachments against CUHL, the people said.

What are the allegations against Vedanta?

The dispute pertains to dividend worth Rs 666 crore that CUHL was entitled to from Vedanta from 2014 to 2017, when Vedanta was called Cairn India.

In January 2014, the income tax department issued a provisional attachment against CUHL, freezing all the entitlements of the UK company in Vedanta. Once this notice was issued, Vedanta started withholding the dividend payable to CUHL. The tax attachment was lifted in March 2016.

In 2016, CUHL approached Vedanta for payment of the dividend that had been held back. Vedanta sought the opinion of the tax department, which said the attachment was no longer in force and payment of dividend was a shareholder issue that Vedanta and Cairn had to resolve. However, Vedanta didn’t release the dividend.

In June 2017, the tax department passed an attachment order to the tune of Rs 10,395 crore against Cairn India in connection with a retrospective tax demand, after which Vedanta remitted the unpaid dividend of Rs 666 crore to the tax department.

CUHL moved Sebi against Vedanta's action, alleging that the company had violated the Companies Act, which mandates that all shareholders should be paid timely dividends.

Why did Sebi act against former directors of Vedanta?

The Sebi order names 10 directors who were on the Vedanta board during 2016-17. All these directors have been barred from accessing the capital markets for a period from one to two months.

The former directors facing the regulatory action include Navin Agarwal, Tarun Jain, Thomas Albanese, and GR Arun Kumar.

Sebi's view was that under the Companies Act, directors are liable for any transgressions by a company if they happened with their knowledge. While Vedanta withheld the dividend, CUHL had written to the board of directors of Vedanta, urging them to process the dividend payment.

Sebi concluded that the directors were aware of the issue and yet they did not act.