Vedanta vs. Viceroy: Is Legality Masking Governance Failures?

Viceroy Research’s explosive allegations against Vedanta Ltd. spark a debate on financial transparency, while regulators and auditors remain silent. What’s at stake for investors?

By P SESH KUMAR

NEW DELHI, July 24, 2025 – A corporate storm is brewing in India. Viceroy Research, a global short-seller known for exposing financial vulnerabilities, has accused Vedanta Ltd., a sprawling Indian conglomerate, of orchestrating an opaque financial structure to prop up its debt-laden UK parent, Vedanta Resources Ltd. (VRL).

Vedanta brandished a legal opinion from former Chief Justice of India D.Y. Chandrachud, asserting compliance with Indian laws.

Does this legal shield address Viceroy’s core claims of governance lapses? And why are India’s regulators and auditors conspicuously silent?

Is legality being used to mask deeper governance concerns? And, what are statutory auditors and regulators doing to assuage investor and public sentiment?

The Making of a Corporate Firestorm

On July 11, 2025, Viceroy Research released a scathing report titled “Vedanta: A House of Cards” alleging that Vedanta Ltd. was being hollowed out to funnel cash to its financially stressed UK-based parent company, Vedanta Resources Ltd. (VRL), which was under severe pressure to service external debt and avoid default on dollar bonds maturing in the next two years. Viceroy accused the group of deploying a strategy of “cash traps” and intercompany circular financing, where entities such as Twin Star Holdings and Volcan Investments acted as black-box vehicles that rerouted liquidity without creating real value.

Viceroy contended that dividend payouts were being pushed despite Vedanta Ltd.’s own tight cash flows, solely to meet debt servicing obligations at the promoter level. The report flagged inconsistencies between reported cash balances and observable bank liabilities, raising the spectre of creative accounting.

The charge was serious: while Indian investors believed they were holding a cash-rich dividend-yielding powerhouse, Viceroy argued they were being “financially cannibalized” to delay default at the top.

Vedanta’s Counterstrike: Legal Might or Legal Gloss?

In rapid response, Vedanta Ltd. disclosed on July 19, 2025, a formal legal opinion from former Chief Justice of India D.Y. Chandrachud, now acting in his post-retirement capacity as an independent legal expert. The opinion, which Vedanta filed with the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), gave the company a clean bill of legal health, addressing whether the intercompany transactions and dividend declarations violated Indian corporate or securities laws.

The opinion concluded that:

• Vedanta’s fund transfers and dividend declarations were “in compliance with the Companies Act, 2013 and applicable SEBI LODR regulations.”
• Board resolutions and shareholder authorisations were properly obtained.
• There was no violation of directors’ fiduciary duties, nor of provisions regarding related-party transactions under Section 188 of the Companies Act.

In effect, the former CJI certified that no legal red flags existed under Indian statutory and regulatory norms.

However, a close reading reveals significant caveats. The opinion was based solely on documents furnished by Vedanta’s internal legal and finance teams. It explicitly disclaimed any independent verification or audit, and expressly did not opine on the commercial soundness, tax consequences, or reputational implications of the transactions.

The Unanswered Core of Viceroy’s Allegations

While Vedanta claimed legal vindication, Viceroy’s core questions remain unanswered. The report was not alleging technical illegality—it was questioning whether Vedanta’s actions, though legal, were consistent with sound financial governance:

• Why did Vedanta Ltd. raise debt or undertake loans from subsidiaries while simultaneously claiming surplus cash?
• Were dividend decisions aligned with long-term shareholder interest, or were they subordinated to promoter debt obligations?
• Did the cash equivalents disclosed on Vedanta’s balance sheet actually include instruments unavailable for operational liquidity?
• Is there a recurring pattern of upstreaming cash from profitable Indian units to the financially fragile VRL, even as operational investments remain underfunded?

These questions probe intent and economic rationale, not compliance checklists. Unsurprisingly, Chandrachud’s opinion offers no analysis on financial prudence, economic risk, or investor fairness—its scope was purely legal-formalistic.

The Legal Cloak: Sanctification or Smokescreen?

There is little doubt about the eminence of Justice Chandrachud, who retired as the 50th Chief Justice of India in November 2024. But critics argue that the use of retired Supreme Court judges to issue legal opinions in high-stakes corporate disputes creates a perception of institutional sanctification—even when such opinions rely entirely on internal representations.

Moreover, such opinions can be brandished in the public domain to suggest exoneration, even when the author makes it clear that he is not assessing commercial wisdom or factual correctness.

This case thus reopens the broader debate on “opinion shopping”, and the potential erosion of judicial neutrality in post-retirement roles. When a former Chief Justice lends his name to a document that is weaponized in media campaigns to discredit financial critics, the boundary between legal advice and public relations strategy becomes blurred.

To be fair, former CJI Chandrachud’s note is careful to include disclaimers: he does not opine on the commercial wisdom of the transactions or their tax implications, nor does he express views on potential market perception. But these very disclaimers also neuter the force of the opinion in countering Viceroy’s thesis, which is primarily about the prudence, sustainability, and integrity of the financial practices—not just their surface legality.

Where the Watchdogs Snoozed: Auditors, SEBI & NFRA in the Vedanta Mess

When Viceroy Research fired its truth torpedoes at Vedanta, uncovering alleged Ponzi-style cash flows, circular inter-company loans, and overstated liquidity, the expectation was clear: India’s corporate watchdogs should bark, not nap. Instead—radio silence.

Statutory Auditors: Sleeping at the Switch

Vedanta’s Indian and global statutory auditors—ranging from Big Four outfits to small-time firms—signed off multi-billion‑dollar balance sheets that, according to Viceroy, were riddled with misstatements, opaque transfers via Twin Star, Volcan, and Serentica, and circular borrowings that bailed out the parent at the cost of operational entities. The auditors affirmed that cash statements were reasonably accurate, related-party loans met arm’s-length norms, and dividend distributions had no financial alarm bells. Yet, the Viceroy report challenges every one of these claims, describing a financial architecture built on thin air and forced resource shuffling.

These are not moonshot allegations—they fall squarely within statutory audit duties: digging into footnotes, verifying bank balances, analyzing related-party pricing, and calling out transactions that strain “going concern” assumptions. Instead, auditors leaned on thin veneers: management representations, board minutes, and thresholds of “materiality.” No qualifications. No “emphasis of matter” notes. Just seals of approval—even when independent oversight and skepticism were warranted. Viceroy captured it best: “A patchwork of smaller firms…a governance arbitrage” that masked structural rot.

SEBI: Regulator or Rubber-Stamp Agency?

When Viceroy sent its Vedanta – Limited Resources forensic report in early July and followed up with submissions to SEBI on July 10, SEBI’s official response was…wait for it…crickets. Weeks later, according to Viceroy’s co‑founder, SEBI had still done nothing substantive.

In a scandal marked by alleged misleading financial disclosures, alleged Ponzi‑like structures, and overseas debt mules funneling rupees uphill, SEBI’s inaction speaks volumes. No discretion, no expedited inquiry, no public guidance to protect shareholders—just a glaring regulatory vacuum.

This is not a routine shareholder complaint—it’s an existential threat to investing integrity. Yet, SEBI appears content letting Vedanta wave a legal-blessed opinion and carry on. Market watchers call this “deafening regulatory silence,” a dereliction of its core duty.

If the regulator can’t act on such damning forensic evidence, what hope do retail investors have?

NFRA: The Audit Watchdog Napping on the Job

The National Financial Reporting Authority (NFRA) was born post-Satyam to be India’s audit cop—from mistakes to malfeasance. It has grilled big audit names—PwC, Deloitte, SRBC, Walker Chandiok—for related-party testing lapses, document gaps, and independence failures.

In the Vedanta case, though, NFRA has done zero. Zero inquiries. Zero field visits. Zero action—despite Viceroy’s claim that some conglomerate subsidiaries were audited by small firms “sanctioned by NFRA” for poor procedures.

NFRA didn’t even need a formal referral—Viceroy’s report is enough prima facie cause for a suo motu review under corporate audit oversight rules.

So where is NFRA’s muscle when complex, high-risk group structures with multiple related-party deals are in play? Missing. MIA. Mere aspirational mission statements and statistics against minor CA firms are not enough. The regulators must ask: are they failing to protect the public interest in the world’s second-largest democracy?

A Broken Guard Chain

Here’s the naked truth: Viceroy—a short-seller with profit incentives—is acting as a forensic watchdog not by chance, but by necessity. Because those with statutory authority to truth-test—auditors, SEBI, NFRA—have all played background extras instead of headliners.

Even if Vedanta commissioners, legal opinions, or court filings show no laws were broken, investors deserve answers: Were the numbers real? Was cash genuinely available? Were transactions economically justified? Or did structure and shell games serve a deeper, hidden agenda?

Until Indian audit and regulatory bodies find their bark, not just their bite, the skepticism will grow—and the cracks in capital-market faith will widen. This is more than a Vedanta controversy—it’s a referendum on institutional courage.

(This is an opinion piece, and views expressed are those of the author only)

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