Markets regulator Securities Exchange Board of India on Tuesday told the Supreme Court that Kirloskar Oil and Engines (KOEL) and Kirloskar Brothers (KBL) will have to disclose their 2009 Deed of Family Settlement (DFS) pursuant to the amendment in its 2015 LODR Regulations, in a new development in the family dispute.
This was in line with the stand taken by Sanjay Kirloskar-led Kirloskar Brothers (KBL) that a family settlement agreement is deemed to be a material event and KOEL being a listed entity was mandatorily required to make its disclosure.
While KBL is majority owned by Sanjay Kirloskar, KOEL is controlled by younger brothers Atul, Vikram and Rahul Kirloskar.
Sebi, in its latest affidavit, said that both KBL and KOEL are “listed entities and dealing with public much less investors of all sizes; whether small or big, it is paramount for them to make disclosure of DFS involved in the present appeal, in terms of amendment in the Sebi (Listing Obligations and Disclosure Requirements) Regulations 2015.”
The Sebi (LODR) (Second Amendment) regulations 2023, which came into effect from July 15, 2023, “brought into force, any subsisting agreement either directly or indirectly or potentially; impacting the management or control of the listed entity; imposing any restriction on the listed entity; and creating any liability upon the listed entity, is required to be disclosed on the stock exchange within the permitted timeline,” the market regulator told the SC.
“If the entities resort to interpreting the documents for the purpose of disclosure, it becomes muddled as different parties will interpret the documents and their relativity to the public or investors in their own ways leading to all round confusion and throw out regulatory certainty which is cardinal requirement for an effective regulatory regime,” Sebi said, adding this was necessary to establish the clear position of law pursuant to the amendment.
A Bench led by Justice A. S. Bopanna, after a brief hearing, gave two weeks to KOEL to “verify” and file its response to the Sebi’s stand.
The apex court had in October 2022 issued notice to SEBI on an appeal filed by KBL alleging that KOEL had failed to comply with the listing regulations.
Senior counsel AM Singhvi and counsel Ujjwal Rana, appearing for KBL, argued that it had already made the disclosure, but KOEL is yet to do so. The DFS should have been mandatorily disclosed by KOEL and no person in control of a listed company can be excused from making a disclosure of the DFS, they said.
Senior counsel Balbir Singh represented KOEL, saying KBL’s stand was earlier rejected by SEBI.
On September 11, 2009, a deed of family settlement was entered into between KBL chairman and managing director Sanjay Kirloskar and KOEL promoters Atul, Atul, Rahul and late Gautam Kulkarni, former executive vice- chairman of KOEL, giving the ownership, management and control of each branch of the Kirloskar family business to the parties specified in the settlement. The DFS was amended in October 2009 before some share sale between the signatories.
Stating that the SAT had erred in its finding that LODR cannot apply retrospectively, KBL in its 2022 appeal had alleged that “the real intention behind the non-disclosure of the DFS by KOEL and its board seems to be to continue to conceal the contents of DFS, which inter alia contains material clauses relating to ownership, management and control of KOEL and other entites, and non-compete obligations, from the stock exchange and the public.”
While KBL had then sought a direction to Sebi to intervene and investigate, the latter had refused saying its LODR Regulations were prospective in nature and KOEL was not a party to the DFS which is a private agreement entered into between the Kirloskar family members in their individual capacities, Sebi had told KBL.
Since no action was taken by Sebi, Sanjay Kirloskar-led firm had moved the SAT which rejected its complaint against KOEL and its board of directors.
