According to a new report by Viceroy, and reported by Economic Times, Hindustan Zinc may have violated its shareholder agreement (SHA) with the Government of India by:
- Not seeking government approval for the 2023 brand fee agreement with Vedanta.
- Entering into a contract that includes an undisclosed termination clause and lacks commercial justification.
The Government of India owns 27.92% of HZL, while Vedanta Ltd (VEDL) owns 61.84%. The SHA signed during Vedanta’s acquisition of HZL in 2002 includes special provisions that require government-nominated directors’ approval for: - Related-party transactions (Provision 14)
- Guarantees or securities to group companies (Provision 16)
- Loans or advances above ₹20 crore (Provision 24)
Event of Default!
If HZL is found to have breached the SHA:
- It triggers an event of default.
- Vedanta must remedy the breach within 15 days.
- If not resolved, the Government of India has two powerful options:
- Buy Vedanta’s stake in HZL at a 25% discount to market value.
- Force Vedanta to buy the government’s stake at a 25% premium.
This clause was designed to protect public interest in a partially privatized company like HZL.
If this is true, this could lead to legal or regulatory action, or even a forced change in ownership.
The board meeting today is expected to address these concerns.