Kirloskar cos drag Sebi to court-say key disclosure rules are ‘unconstitutional’

Kirloskar Group Battles SEBI in High-Stakes Legal Showdown

Five listed Kirloskar Group companies have launched a dramatic legal challenge against the Securities and Exchange Board of India (SEBI), arguing that new disclosure regulations are unconstitutional and overly broad. The dispute, unfolding in the Bombay High Court, throws a spotlight on the complexities of corporate governance and family-controlled businesses.

The Companies Involved:

• Kirloskar Oil Engines Ltd (KOEL)
• Kirloskar Ferrous Industries Ltd
• Kirloskar Pneumatic Company Ltd
• Kirloskar Industries Ltd
• GG Dandekar Properties Ltd

These companies contend that SEBI's regulations, specifically Regulation 30A and Clause 5A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, are:

• Manifestly Arbitrary: The rules unduly burden companies with disclosing agreements they didn't directly sign.
• Disproportionate: The requirements impose excessive burdens and outweigh the benefits of disclosure.
• Impermissibly Retrospective: The rules unfairly apply to past agreements.

At the heart of the dispute lies a 2009 Deed of Family Settlement (DFS) involving the Kirloskar family. Sanjay Kirloskar's Kirloskar Brothers Ltd (KBL) demands disclosure of this private agreement, while KOEL and others argue they are not parties to the DFS and should not be compelled to disclose its contents.

SEBI's Stance: SEBI maintains that the DFS indirectly impacts KOEL and that disclosure is necessary for transparency. The regulator issued a communication in December 2024 advising KOEL to disclose the document.

Key Arguments of the Petitioners:

• The regulations violate the principle of "consent" required for contract formation.
• SEBI is overstepping its authority by encroaching on the domain of civil courts.
• The rules create unreasonable outcomes, potentially forcing disclosure of agreements involving unrelated or disgruntled individuals.

Counter-Argument: KBL, in an intervention application, points out that other listed companies have complied with the regulations without legal challenge. Legal expert Vishwanath Iyer suggests the "unconstitutional" claim is a stretch, citing SEBI's broad rule-making powers and questioning the petitioners' motives.

The Stakes: The Bombay High Court's decision, expected on August 20th, will have significant implications for corporate disclosure practices, especially for companies with complex ownership structures. The outcome could set a precedent for how far SEBI's regulatory reach extends and redefine the transparency requirements for publicly listed entities in India.

Further Reading: Kirloskar Family dispute escalates at SAT How Kalanithi Maran spent ₹ 37 crore to take control of Sun TV