A minority shareholder, R Dasgupta, has sued Anil Agarwal-led Cairn India in the Bombay high court for extending a $1.25 billion (Rs 8,200 crore) loan to its parent firm, Vedanta Limited, alleging violation of Section 67 (2) of the Companies Act, 2013.
The $1.25 billion inter-company loan becomes due to Cairn India in July 2016.
But Vedanta has announced its intention to merge its subsidiary, Cairn India, with itself. If the merger goes through, the $1.25 billion loan will be written off, claimed the petitioner, whose suit asked the court to ensure repayment of the loan before the merger.
Lawyer Janak Dwarkadas confirmed that a petition has been moved to the court and that he will appear for the plaintiff.
Aspi Chinoy and Ravi Kadam are representing Cairn and Vedanta, respectively.
A Cairn India spokesperson said, in response to a query from The Hindu, “We strongly refute the allegation and [would] like to state that Vedanta Limited and its subsidiaries including Cairn India follow the laws of the land in all their activities and operations. The proposed merger of Cairn India with Vedanta and the loan transaction mentioned are in line with provisions of Companies Act and listing regulations.”
Sources in Cairn India said that the loan was issued in March 2014, whereas the petitioner had bought Cairn India shares only in October 2015. Vedanta acquired Cairn India for $9 billion in 2011, mostly through raising debt.
It then took a loan from its new subsidiary, the $1.25 billion that is the subject of this lawsuit, to pay off $800 million of principal and $450 million for interest on unrelated inter-company loan.
According to the plaintiff, the only debt that is referred to as an ‘inter-company loan to Vedanta Resources’ in the financial statements of Vedanta India is the one that is part of the debt for acquisition, and the grant of this loan is a violation of the Companies Act.
The court has agreed to hear the matter, and has asked Cairn India and Vedanta India to file their replies by January 5; after which the petitioner will have to file a rejoinder by January 15, 2015.
Cairn India shares closed up marginally at Rs 126.5 valuing the company at Rs 23,717 crore while Vedanta Limited shares gained 1% to close at Rs 83.15, valuing the company at Rs 24,651 crore.
