Legal Analysis: Havells India’s Acquisition of 26% Stake in Kundan Solar (Pali)

Havells India Limited bought a 26% share in Kundan Solar (Pali) Private Limited. Kundan Solar is a company set up in April 2025 specifically for a solar power project that will provide electricity just for Havells. This deal looks simple on the surface, but it involves several important legal areas that need a close look. Even though it seems like a normal business deal, it touches on energy rules, stock market laws, how companies are run, and long-term contracts. This article will look at this deal through five main legal lenses: the Electricity Act of 2003, SEBI’s LODR Regulations, the Companies Act of 2013, and the Indian Contract Act of 1872. It will also check how it affects regulations and company management in general.

Kundan Solar (Pali) Pvt Ltd is a new company, or SPV, created to build a 21.43 MW DC / 15 MW AC solar power plant in Rajasthan. It’s doing this with Kundan Green Energy, and the plant will supply power only to Havells. An SPV is a special kind of company set up for one specific job. Its main purpose is to keep financial risks separate from the main company and to hold particular assets. In this case, setting up an SPV helps protect both Havells and Kundan Green Energy from project risks. It also provides the legal way for Havells to generate its own power under Indian law.

Five Legal Dimensions of the Transaction

1. The Electricity Act, 2003 – The 26% Captive Threshold

The rule that Havells must own at least 26% of the company isn’t about business strategy; it’s a legal minimum set by law. The Electricity Rules from 2005, which come under the Electricity Act of 2003, say that a company generating its own power must own at least 26% of the power plant. It also has to use at least 51% of the power the plant produces each year. If it doesn’t meet either of these conditions, the company loses its “captive” status. This means it would have to pay higher electricity rates, going back to when it started. So, Havells bought exactly 26% because it’s the minimum needed to qualify as a captive user. This lets them get cheaper renewable energy for their factories in Rajasthan without spending too much money upfront. This shows how legal rules directly shape how deals are put together in industries that are closely regulated.

2. SEBI LODR – The Related Party Transaction Framework

One tricky part of this deal is whether it counts as a “Related Party Transaction” (RPT) under SEBI’s rules for listed companies. The rules for RPTs were greatly expanded in 2021. They cover deals where a company’s owners (promoters) or people connected to them might benefit, either directly or indirectly. These 2021 changes added a “purpose and effect” test. This test was specifically designed to catch deals that are set up to avoid being formally called RPTs. Here, it’s said that one of Kundan Solar’s owners is linked to an owner in the Havells group. This immediately brings up the question of whether it’s an RPT. But since there’s no public proof that any specific owner directly benefits from this deal, SEBI didn’t have a reason to step in. So, the deal passed the RPT check. It’s important to remember that just because nothing was enforced doesn’t mean there’s no underlying risk in how the deal is set up. Deals that manage to stay just outside the formal RPT rules highlight a gap in how companies are currently required to report information.

3. Regulation 30 LODR – Disclosure Obligations

Regulation 30 of the LODR rules says that listed companies must tell the stock exchanges about any important event that could affect what investors think. Havells told the BSE and NSE on November 26, 2025, the same day its Executive Committee approved the purchase. They clearly explained why they were doing the deal and addressed the RPT issue. The market reacted calmly, with Havells’ stock dropping only 0.58% on November 27, which was similar to what other companies in the sector were doing. This suggests investors felt the company’s explanation was good enough and that the deal itself made sense.

4. Companies Act, 2013 – SPV Investment and Section 186

Kundan Solar was only set up seven months before Havells bought into it and hadn’t actually done anything yet. This means the project itself comes with higher risks. Instead of paying all at once, Havells decided to pay in stages as the project reaches certain goals. This gives them more control over the project’s performance. They aim to finish the project by June 2026. This way of paying involves Section 186 of the Companies Act of 2013, which deals with how companies lend money, invest, and provide guarantees to each other. The Executive Committee’s approval means this investment was within the spending limits allowed by Section 186. This was an important step to make sure the investment was legally valid under the Act.

5. Contract Law – The 25-Year Power Purchase Agreement.

The main business part of this deal is a 25-year Power Purchase Agreement (PPA). Through this agreement, Havells promised to buy electricity from Kundan Solar at a price they agreed on beforehand. Under the Indian Contract Act of 1872, this PPA creates duties for both sides. Havells gets a stable price and protection from changing energy costs, while Kundan Solar gets a guaranteed income. This makes it much easier for Kundan Solar to get loans for the project. However, there’s a big risk involved. If Havells doesn’t use at least 51% of the power from the plant at any time over the 25 years – say, if their demand changes, they reorganize, or change factories – they could face extra charges, going back in time. So, the parts of the PPA that cover not using enough power, rights for one party to take over if the other fails, and how to handle rule changes are key to how long the deal will legally stand. Since the details of the PPA aren’t public, it’s impossible to fully assess the risks.

Impact: Commercial, Regulatory, and Governance Dimensions:

Commercial Impact

For Havells, this purchase should lead to good savings on energy costs for their factories in Rajasthan. They expect this to happen within 12 to 18 months of the plant starting up, as they switch from buying power from the grid to using their own solar power at a fixed rate. Over 25 years, even small savings per unit of energy add up to a lot. Also important is the environmental and social side (ESG). More and more big investors are looking for companies that are sustainable. Showing that they’re committed to using their own renewable energy makes Havells look more attractive to investors, and it doesn’t cost them much financially.

For Kundan Solar, this deal changes everything. As a company that was only seven months old and hadn’t actually done any work, it would have been very hard for them to get project funding on their own. But by partnering with a big, reliable listed company like Havells, who promises to buy their power for 25 years, Kundan Solar’s financial standing completely changes. This makes it much easier for them to get loans on good terms. Basically, this acquisition turned a risky new company into a solid asset that banks are happy to lend money for.

Governance and Regulatory Impact

The impact on how the company is run is a bit more complicated. Smaller shareholders in Havells aren’t directly at much financial risk because the amount paid for this deal is small compared to Havells’ total assets. The bigger worry, though, is that not everyone has the same information. Even if the deal makes business sense and follows all the rules, smaller shareholders didn’t have a way to independently check if the deal was fair and unbiased, especially given the known connections between the owners of both companies. If these kinds of deals are set up to just avoid the RPT rules, then the current system for checking compliance doesn’t offer enough protection. This isn’t just a concern for Havells; it’s a wider issue in the system. As more listed companies put money into renewable energy companies (SPVs) that are backed by developers connected to their own owners, SEBI’s current “either it’s an RPT or it’s not” approach will be put to the test more and more. The Havells-Kundan Solar deal might be an early example that kickstarts a larger discussion about rules for how companies should be run when they invest in their own energy projects.

Lessons and Policy Observations

Legal rules directly shape how business deals are set up. The 26% ownership rule is the legal requirement to be considered a captive power user. Without meeting it, the deal wouldn’t make financial sense. In regulated industries, you have to think about the legal structure right from the start, not try to fix it later.

Investing in these special purpose companies (SPVs) needs strong contract protections. It’s naturally risky to invest in a brand new SPV that hasn’t done anything yet. Things like “step-in rights” (where an investor can take over if the project goes wrong), guarantees that the construction will be done right, ways to check yearly power use, and clauses for reviewing rules in long-term power agreements are not just options. They are essential to protect the investor over many decades.

We should think about creating a new category for reporting deals that are “close to a promoter.” SEBI’s current rules are black and white: either a deal is an RPT and gets fully checked, or it’s not and mostly doesn’t need to be reported. In a market like India, where owners’ networks are so tightly connected, this black-and-white approach isn’t good enough. Having a specific category that requires the audit committee to review and publicly report these “promoter-adjacent” deals – even if they don’t quite hit the RPT level – would fix a problem that is already showing up in real-world situations.

Conclusion

Overall, Havells India’s purchase of a 26% share in Kundan Solar (Pali) seems like a well-handled deal. It was legally structured correctly, makes business sense, and was properly reported. However, looking at the five legal areas together shows just how many rules now apply to renewable energy investments.What’s most interesting about this deal might be what almost happened: a deal connected to a promoter that skirted the RPT rules without actually breaking them. How regulators, investors, and companies deal with these kinds of transactions will really influence how companies are run in India’s fast-growing renewable energy sector.

Aditi Srivastava [Author]