SEBI Asks Vedanta India to Pay Penalty for Late Dividend Payout

13 Mar 2024 , 01:52 PM

In order to make up for the delayed dividend payment, the market regulator has ordered Vedanta India, formerly known as Cairn India Ltd, to pay Cairn UK Holdings Limited (CUHL) ₹77.62 Crore plus simple interest at the rate of 18% annually.

Additionally, the company’s chairman and managing director (CMD), Navin Agarwal, full-time director Tarun Jain, full-time director and CEO Thomas Albanese, and full-time director and CFO GR Arun Kumar have been asked by the Securities and Exchange Board of India (SEBI) to abstain from using the securities market for a period of two months. Additionally, non-executive director Priya Agarwal and independent directors K Venkataramanan, Lalita D Gupte, Aman Mehta, Ravi Kant, and Edward T. Story have been asked to refrain from using the market for a month.

Vedanta notified the exchanges that the regulator had issued this ruling in a filing dated March 12. The company stated in the filing that it is “in the process of taking appropriate legal steps in respect of the same”.

“No major financial impact” is what the company’s filing said the injunction has.

CUHL filed a complaint with SEBI in April 2017, claiming that Cairn India Limited—which merged with Vedanta on April 11, 2017—had failed to pay dividends totaling ₹340.64 Crore on 184,125,764 equity shares of CIL that CUHL controlled.

In response to a recovery notice from the Deputy Commissioner of IT, International Taxation, New Delhi, issued on June 19 and 20, 2017, under Section 226(3) of the Income Tax Act, 1961, CIL had submitted that all outstanding unpaid dividends of ₹666.53 Crore to the account of CUHL had been paid to the Income Tax Department (“ITD”). After the IT department took up the matter, SEBI closed the CUHL complaint.

After CUHL approached SAT, SAT requested that SEBI reevaluate the complaint. The tribunal stated that CUHL should contact the income-tax authorities to request the return of the dividend amount, partially concurring with SEBI’s decision. However, the panel further stated that SEBI should look into this and take appropriate action if there has been a violation if Cairn India (now Vedanta India) had not released the dividends when there was no restriction on it.

The IT Department’s directive, which served as a brake on dividend payments, ran out on March 31, 2016. The IT Department letters that CUHL provided as evidence of the relaxation of this restriction, according to CIL, were merely internal departmental communications and could not be implemented.  According to the SEBI order, the regulator does not believe that this argument has any merit.

CIL has further stated that it should not be penalized with an interest charge because it has not “enriched itself from unpaid dividend” by transferring the entire dividend amount into an account.

“The purpose of award of interest is to compensate for the time value of money that the person was unlawfully deprived of,” the SEBI order responded to this.

It went on, “Such interest should take into consideration the probable purpose to which the party would have applied the relevant sum in the absence of the illegal dividend withholding. Awarding interest serves more than just keeping the wrongdoer from becoming rich. Its objective is to account for the harm done to the claimant or the individual who was unjustly denied their entitlement.”

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