Vedanta Group's subsidiary, Hindustan Zinc, owned by prominent businessman Anil Agarwal, appears to be embroiled in controversy once again. Viceroy Research, a well-known short-seller research firm in the US, has leveled serious allegations against Hindustan Zinc. The firm claims that the company did not obtain necessary government approval for the brand fee agreement, which directly violates the shareholder agreement.
Government Stake, Yet No Approval Obtained
The Government of India holds a 27.92 percent stake in Hindustan Zinc, while Vedanta owns 61.84 percent. Despite this, Viceroy alleges that the company did not seek the government's consent for the brand fee agreement entered into in 2023. This violates several provisions of the shareholder agreement. Neither Vedanta nor Hindustan Zinc has made any public comment on this matter so far.
Recalling the 2002 Disinvestment
This dispute is linked to the disinvestment deal in 2002, in which Vedanta acquired a stake in Hindustan Zinc. At that time, a clear shareholding agreement was signed between the government and Vedanta, with both parties obligated to adhere to several points. Viceroy Research asserts that the company has disregarded these points.
Three Major Provision Violations Alleged
According to Viceroy's report, Hindustan Zinc has violated three key provisions:
- Provision 14: This provision prevents taking any decision at the board level that could give rise to a conflict of interest without the approval of government-nominated directors.
- Provision 16: According to this provision, Hindustan Zinc cannot provide any guarantee or security to companies of its kind.
- Provision 24: Under this point, the company cannot be obligated to give a loan or advance of more than ₹200 million to any person or entity unless there is explicit consent at the board level.
- Viceroy claims that the company violated all three points and did not seek any prior approval from the government despite this.
Questions Raised Regarding Brand Fee
Vedanta implemented a brand fee (Brand Royalty) on Hindustan Zinc in October 2022. This fee was described as part of a corporate branding strategy among the group's other companies. However, Viceroy argues that this is a non-commercial and biased contract aimed at transferring money within the group.
The research firm also stated that there was no transparency regarding this brand fee, and the information was neither provided to investors nor approved with the consent of the shareholders.
Fears of Default and Legal Turn
Viceroy Research's report states that this move by Hindustan Zinc directly creates a situation of default. Under the shareholding agreement, if any condition is violated, Vedanta must resolve it within 15 days. If this does not happen, the government has special rights.
Under These Rights, the Government
- Can buy Vedanta's stake at a 25 percent discount.
- Or can order Vedanta to buy the government's stake at a 25 percent premium.
This option makes it clear that the government has b legal and financial rights to handle the situation.
Impact on the Stock Market
After this controversy came to light, Hindustan Zinc's share closed on the BSE with a slight gain at ₹436, while Vedanta's share closed with a slight decline at ₹446.25. However, analysts say that if this matter progresses further, it could have a profound impact on Vedanta's credibility and shares.
Questions Have Been Raised Before
This is not the first time that questions have been raised about the transparency of Vedanta or its affiliated companies. Serious comments have been made several times before regarding the company's working methods and corporate governance. This time, the American short seller's report has deepened this controversy even further.
