A fresh governance storm has engulfed Hindustan Zinc Ltd (HZL) after US-based short-seller Viceroy Research alleged that the company’s Rs1,060 crore brand fee transfer to Vedanta Ltd violates multiple provisions of SEBI (Securities and Exchange Board of India) regulations and the Companies Act, including mandatory shareholder approval requirements for material related-party transactions. The explosive charges come soon after HZL’s annual general meeting (AGM), where the issue was conspicuously absent from discussion, despite its scale and implications for minority shareholders and the government of India which holds a 29.54% stake in the company.
According to Viceroy, HZL paid Rs1,060 crore in the first quarter (Q1) of FY25–26 under the head of brand and strategic services (BSS) fees to Vedanta Ltd. This payment, routed further to Vedanta Resources Ltd, the debt-laden parent of Vedanta, was made without obtaining mandatory shareholder approval, as required by law. The report, supported by a detailed legal opinion, says the brand fee transaction qualifies as a material related-party transaction under both regulation 23 of SEBI’s LODR Regulations and Section 188 of the Companies Act, 2013.
Under regulation 23(1A), shareholder approval is mandatory for brand or royalty payments exceeding 5% of turnover, while regulation 23(1) requires approval for related-party transactions above RS1,000 crore. The Companies Act also requires shareholder consent for such transactions and imposes fiduciary obligations on directors under Section 166. Both thresholds, 5% of turnover and Rs1,000 crore, are cumulative, as clarified by SEBI’s primary market advisory committee (PMAC) in 2021 and reinforced in the 2022 amendments.
The legal opinion cited by Viceroy states that since no shareholder approval was sought, the transaction could be deemed voidable at the instance of minority shareholders. It further warns that directors who allowed the transfer may face personal liability for failing to discharge fiduciary duties.
Viceroy’s note accuses HZL’s board, including three government-nominated directors — Vivek Kumar Bajpai, Ashish Chatterjee and Dinesh Mahur — of enabling the transfer without raising objections. The report highlights that, while these directors have overseen governance reforms in other public sector companies, they “presided over a Rs1,060 crore diversion without shareholder approval” at HZL. It also alleges that HZL’s independent and non-executive directors are 'completely captured', having abdicated their fiduciary responsibilities by remaining silent on the issue.
The report argues that the diversion of over Rs1,000 crore during a period when HZL’s revenues fell 14.5%, earnings before interest, taxes, depreciation, and amortisation (EBITDA) dropped 19.9%, and EPS (earnings per share) declined 25.6% is not only a regulatory violation but a systemic governance failure.
“Allowing over Rs1,000 crore to be funnelled through opaque brand fees, during a sharp earnings decline, is not merely a governance lapse. It is a systemic failure in fiduciary duty,” Viceroy says, adding that the government of India risks reputational damage if its nominees do not act.
The short-seller has called for immediate suspension of further brand fee payments to Vedanta until shareholder approval is obtained, full disclosure of all brand and strategic services contracts, a shareholder resolution under regulation 23(4) requiring disinterested shareholder approval for all transactions above Rs100 crore, promoter abstention in voting on related-party resolutions and an independent audit of past payments with the possibility of clawbacks.
HZL, one of India’s most strategic natural resource companies, has long been a crucial cash source for Vedanta Resources which carries heavy debt obligations. Minority shareholders have repeatedly raised concerns that intercompany charges disproportionately benefit Vedanta’s parent at the expense of HZL’s operational integrity. With Viceroy’s latest allegations backed by a formal legal opinion, questions around the company’s governance standards and regulatory compliance have acquired new urgency.
Neither HZL nor Vedanta issued a statement in response to the allegations at the time of publication.
You may also want to read...
