SEBI Takes Action On Vedanta: Dissecting The Dodgy Disclosures That Led To It

SEBI alleged that Vedanta misled market disclosures about the joint venture. 

The Core had earlier reported how metals giant Vedanta Limited had evidently misled investors in their communications around its parent company and promoter, London-based Vedanta Resources, investing in a new and major semiconductor plant and investment along with Foxconn.

While Vedanta Resources clarified in February 2022 that the semiconductor business was not part of the Indian-listed entity Vedanta Limited, the company listed in India continued to be vague in subsequent engagements with investors through media interactions, earnings conference calls and the annual general meeting. 

When a memorandum of understanding was signed with the Gujarat government in September 2022 for the location of the semiconductor plant, the stock exchanges had again sought clarification from the listed entity about the structure of the deal. Vedanta then said it was not part of the listed entity.

Examining SEBI’s Actions

SEBI acknowledged that Vedanta had clarified in February 2022 that the semiconductor business was not part of the listed entity in India. 

Despite that Vedanta Limited released the update on signing an MoU with the Gujarat government on the listed entity’s website in September 2022. The release was on the listed entity’s letterhead even though the business was not housed under it. This would be tantamount to a misleading disclosure. 

Vedanta in response to SEBI’s show cause notice said that the press release was inadvertently put out using the stationary of “Vedanta Limited” and immediately rectified this. It said that necessary steps were taken by Vedanta Limited to inform the public at large of this error through disclosures and newspapers. It also clarified that the brand ‘Vedanta’ did not necessarily refer to Vedanta Limited. The use of 'Vedanta' was global and common among various companies.

In their words, the disclosure in question was not made by the company, and was not and could be construed as misrepresentation for the following reasons: 

1. 
   An inadvertent error that was immediately corrected cannot be regarded as a misrepresentation.
   ii. There was no misstatement in the erroneous disclosure, nor has the SCN alleged this.
   iii. The inadvertent error was unintentional and made in good faith.
   iv. There was no motive or incentive for the company to make the error
   v. There was no financial gain or loss avoidance involved.
   vi. No investor has alleged that any company representation was relied upon to cause losses, and there is no such allegation in the SCN.
   vii. The company acted diligently in placing the clarification promptly, fulfilling its duty of care to stakeholders.
   
   Conceptually any events or actions pertaining to a listed company should be carried on the website of the listed company. Here, some actions of the promoter (Vedanta Resources), not related to the listed company (Vedanta Limited), had been put out on the website of the listed company. 

This raises questions about how an update related to the ultimate holding company, Volcan Investments Limited (VIL), found its way to the website of Vedanta Limited.

Repeat Offenders

Actually, Vedanta Limited has been communicating various developments concerning its promoters on its website and on the listed company’s letterhead. Thus, it appears that the listed company is a repeat offender said SEBI in its order.

Here are the laws that govern Vedanta or any listed company on such disclosures.

As per provisions of Regulation 4(1)(c) of Listing Obligation and Disclosure Requirement or LODR Regulations, a listed company shall refrain from making misrepresentations and ensure that information provided to investors and stock exchanges is not misleading. 

As per Regulation 30(11) read with Regulation 30(12), a listed company may on its own issue clarifications by confirming or denying reports available in public, by intimating to the stock exchanges. Also, the listed entity shall make adequate disclosures of material events. As per Regulation 46(3), a listed entity shall ensure that the content on its website is correct.

SEBI noted that Vedanta Limited has violated the provisions of Regulations 4(1)(c), Regulation 30(11) read with 30(12) and Regulation 46(3) of LODR Regulations by making false representations through press release on its letterhead regarding a material event, which was not pertaining to the Vedanta Limited, in actuality, and publishing the press release on its website.

Sebi also pointed out that the misleading news of semiconductor manufacturing in Gujarat led to share price rising by 13% on 13 September 2022 and post clarification it fell by 8% on 15 September 2022. This means the the news was 'material’.

SEBI said in its investigation that having had this knowledge as well as being fully aware of the fact that the event was in no way related to the Notice, i.e. the listed company, Vedanta Limited egregiously hosted the press release on its website. Not only this, it made the press release on its letterhead itself giving a clear indication that the news pertained to the listed entity.

Further, despite the exchange seeking clarification on the press release on 15th September-23, the company merely replaced the press release with a press release without its letterhead. However, it continued to host the news on the website. It never delineated the event from the listed company as the press release continued to carry Vedanta Limited’s profile at the end of the press release that “Vedanta Limited is listed on the Bombay Stock Exchange and the National Stock Exchange.”

Vedanta’s Defence

In response to SEBI's allegations, Vedanta contends that the appearance of the stationery referencing "Vedanta Limited" was an inadvertent error, promptly rectified. The company asserts that the brand name 'Vedanta' is used globally and does not exclusively refer to Vedanta Limited. It argues that the disclosure in question was not made by the company and cannot be construed as misrepresentation.

Vedanta presents several arguments to defend its position. First, it states that an inadvertent error, swiftly corrected, should not be regarded as a misrepresentation. Second, it emphasises that there was no misstatement in the erroneous disclosure, as alleged by SEBI. 

Third, Vedanta claims that the error was unintentional and made in good faith, without any motive or financial gain involved. Furthermore, it points out that no investor has alleged reliance on the representation to cause losses, and the company promptly clarified the matter to fulfil its duty of care to stakeholders.

In the intricate world of corporate communications, the lines between listed entities and their affiliated companies can sometimes blur. However, in the case of Vedanta, a multibillion-dollar conglomerate with a global presence, the events of its promoters found an unexpected place on the website of Vedanta Limited, the listed entity in India. This raises alarming questions about the company's adherence to investor interests and its commitment to transparent disclosure practices.

Finally, SEBI imposed a monetary penalty of INR 30 Lakhs on the company. What makes it more interesting is the fact that the company did not disclose to the exchanges the SEBI order and the monetary penalty imposed. This further enlightens the misleading intentions the company might have.

The misses

While most of the SEBI’s investigation has been already covered in The Core’s investigative report, some crucial events (Concalls, AGM, Media Interactions) where Vedanta Limited continued to mislead its investors about the semiconductor business seem to have been missed out. If SEBI has considered this, there might be a larger monetary penalty for the company.

Further, there have been some instances in the aftermath of SEBI issuing a show cause notice (SCN) SCN where the company misled investors with business updates related to its promoter or holding company. On May 8, 2023, Vedanta Group for example signed a MoU with 20 Korean vendors to stimulate the electronic manufacturing ecosystem in India. This was welcome news for the manufacturing ecosystem but was posted by Vedanta Ltd through its official Twitter social media account.

Will Upcoming Regulations Improve Disclosures?

The case highlights the fact that a company can keep misleading investors about a material event and get untraced by various stakeholders. Or worse, will get away with a paltry penalty. 

In this case, Sebi has laid down a standard that a company cannot mislead the investor in any manner and should be uniform across all its stakeholder interactions and should be fact-based as well as based on legal requirements.

The upcoming regulations (from October 1, 2023) which compulsorily require the top 100 listed entities to respond to media reports by confirming or denying the media is a good step which SEBI has taken to address such instances.

These regulatory measures signal a step in the right direction, emphasizing the importance of investor protection and holding companies accountable for their actions. However, there remains a long road ahead in strengthening the regulatory landscape to ensure transparency, fair practices, and investor trust. It is imperative that stakeholders and regulators continue to work collaboratively to foster an environment that safeguards the interests of investors and promotes a level playing field for all market participants.

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