Why is Vedanta Share Falling? Government Objects to the Demerger Plan

Vedanta Limited, a diversified natural resources group engaged in exploring, extracting, and processing minerals and oil & gas, opened the trading session under pressure on September 17, 2025, with its stock falling by over 4% intra-day on NSE. The decline comes as investors weigh recent developments around the company’s ambitious demerger plan, including fresh objections raised by the Government of India even after NCLAT approval.

Let’s take a closer look at the government concerns, the background of the demerger, and what it could mean for the company and its investors.

The Path to Demerger

Ambitious Demerger Plan: Vedanta Group intends to split its India operations into five independent, publicly listed companies: 

1. Vedanta Aluminium 
2. Vedanta Oil & Gas
3. Vedanta Power
4. Vedanta Iron & Steel
5. Restructured Vedanta Ltd (which will hold Hindustan Zinc)

Initial Hurdle: The demerger had faced a key hurdle when the NCLT Mumbai bench had initially rejected Vedanta’s demerger scheme, citing concerns over financial disclosures and liabilities.

NCLAT Approval: On September 15, 2025, the NCLAT overturned the NCLT order after Talwandi Sabo Power Limited (TSPL) (a Vedanta subsidiary ) and SEPCO Electric Power Construction Corporation settled all legacy disputes, clearing a major legal obstacle for the restructuring.

What are NCLT and NCLAT ?

• NCLT (National Company Law Tribunal): A special court in India that handles company-related disputes like mergers, demergers, insolvency, and other corporate issues.
• NCLAT (National Company Law Appellate Tribunal): The appellate body for NCLT. Companies or stakeholders unhappy with an NCLT decision can appeal here, where the decision can be upheld, modified, or overturned.

The Trigger: Government Objects Post-NCLAT Approval

Despite the NCLAT’s approval, the Government of India raised fresh objections at the NCLT hearing on September 17, 2025, highlighting potential risks:

• Financial Risk: The demerger could create instability, particularly for Malco Energy (a Vedanta subsidiary), potentially obstructing the recovery of pending payments under existing contracts.
• Transparency & Disclosure Concerns: Alleged misrepresentation of certain hydrocarbon assets and non-disclosure of key liabilities have raised doubts about the demerger’s transparency.
• Regulatory Compliance: The Ministry of Petroleum and Natural Gas flagged Vedanta’s declaration of government-allocated energy blocks as assets of Malco Energy, highlighting potential violations of listing and disclosure norms.
• SEBI Warning: SEBI issued a warning for modifying the demerger scheme after receiving a No Objection Certificate (NOC) from SEBI and stock exchanges, terming them a “serious breach” and adding regulatory scrutiny.

Next Steps: NCLT Hearing Deferred

• The Mumbai bench of the NCLT has deferred the latest hearing for Vedanta’s demerger to October 8, 2025, following strong objections from the government.
• The tribunal will use this time to further examine the concerns raised, including financial risks, compliance issues, and potential impacts on government dues.

Key Takeaways for Investors

• Stock Performance Under Pressure: Vedanta fell more than 4% intra-day to reflecting investor caution amid government scrutiny.
• Structural and Regulatory Risks: Government objections and SEBI warnings highlight potential hurdles in executing the demerger smoothly.
• Legal Hurdles Cleared: Settlement with SEPCO ensures withdrawal of pending arbitration, strengthening TSPL’s operational standing and removing a major legal obstacle for Vedanta’s demerger.
• Unlocking Value: Vedanta views the demerger as a way to unlock value and provide sector-specific focus. As per Chairman Anil Agarwal, each business will receive renewed focus, attract new investors, and have a unique opportunity to realize its full potential.

Conclusion

Vedanta’s demerger remains a high-stakes development. While NCLAT approval and settlements like the one with SEPCO have cleared key legal hurdles, fresh government objections and regulatory scrutiny add uncertainty.

The NCLT hearing’s deferment to October 8 highlights that the outcome is still pending. Investors should balance short-term risks and stock volatility against the long-term potential of the restructuring, which aims to unlock value and create more focused, growth-oriented companies.

Disclaimer
Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities are quoted as an example and not as a recommendation.This is nowhere to be considered as an advice, recommendation or solicitation of offer to buy or sell or subscribe for securities. INDStocks SIP / Mini Save is a SIP feature that enables Customer(s) to save a fixed amount on a daily basis to invest in Indian Stock. INDstocks Private Limited (formerly known as INDmoney Private Limited) 616, Level 6, Suncity Success Tower, Sector 65, Gurugram, 122005, SEBI Stock Broking Registration No: INZ000305337, Trading and Clearing Member of NSE (90267, M70042) and BSE, BSE StarMF (6779), SEBI Depository Participant Reg. No. IN-DP-690-2022, Depository Participant ID: CDSL 12095500, Research Analyst Registration No. INH000018948 BSE RA Enlistment No. 6428. Refer https://indstocks.com/pricing?type=indian-stocks; https://www.indstocks.com/page/indian-stocks-sip-terms-and-condition for further details.