Inside the Kirloskar family feud and SEBI's involvement

Inside the Kirloskar family feud and SEBI's involvement

In today’s Finshots, we talk about how a family agreement in the Kirloskar Group has caused problems for its businesses and drawn SEBI into the mix.

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The Story

When you invest in a company that’s listed on the stock market, you trust it to follow the rules. If it doesn’t, the Securities and Exchange Board of India (SEBI), India’s capital markets regulator, steps in to make sure all shareholders are treated fairly, whether you own one share or a million.

But what happens when a company thinks SEBI’s decision isn’t fair? That’s when the Securities Appellate Tribunal (SAT) comes in to settle the argument.

So, why are we talking about this?

Because one of India’s oldest business families, the Kirloskars, is in the middle of such a dispute. It’s about a 2009 family agreement called the Deed of Family Settlement (DFS) and SEBI’s demand that it should be made public. But the Kirloskar family members don’t agree on this, and things have spiralled into a full-blown legal saga. They have reached out to SAT to challenge SEBI’s directive very recently.

Let’s break it down.

You see, the Kirloskar Group is a famous name in Indian industry with a legacy dating back over a century. Over time, the family’s companies grew and specialised in different industries. But with this growth came complications. So, in 2009, the family made the DFS to divide ownership and control of their businesses among different family branches.

Under the DFS, Sanjay Kirloskar got control of Kirloskar Brothers Ltd. (KBL), a company that makes pumps. Meanwhile, Atul and Rahul Kirloskar took charge of Kirloskar Oil Engines Ltd. (KOEL). Since both companies are listed on the stock exchange, SEBI got involved.

Now, the DFS also included a non-compete clause that barred family members from entering into businesses that would compete with one another. 

And here’s where the trouble began.

Sanjay Kirloskar of KBL accused KOEL of breaking the DFS in two ways. First, by selling their shares in KBL to Kirloskar Industries, another family company, which he said was against the DFS rules. And second, by buying La Gajjar Machineries in 2017, a pump company that started using the Kirloskar name.

Sanjay Kirloskar said this confused customers and hurt KBL’s business.

The matter went to the High Court, which suggested settling things outside of court. But Sanjay wasn’t okay with that, so the feud over the DFS continued.

So, in 2018, KBL asked SEBI to step in, accusing KOEL of not disclosing the DFS. SEBI dismissed the complaint, and KBL took the matter to SAT in 2021. SAT upheld SEBI’s decision, but KBL wasn’t done yet and it escalated the issue further to the Supreme Court in 2022.

Then came a twist in 2023. SEBI introduced new rules which said that listed companies must disclose any agreements that could affect their management or shareholders. And these regulations brought the DFS back into the spotlight. SEBI argued that since the DFS outlined restrictions and conditions affecting KOEL, it qualified as crucial information that investors must know.

And by late 2024, SEBI had advised KOEL to disclose the DFS. But KOEL disagreed. They argued that the DFS didn’t impose any restrictions on their operations and, didn’t bind KOEL, and therefore, didn’t require public disclosure. KOEL also argued that the DFS was a private family matter and that SEBI’s directive overstepped the boundaries of corporate law by trying to make private family agreements public.

And that’s where things stand as of now.

Now, the SAT and the courts will ultimately decide whether the DFS should be disclosed.

Whatever the verdict, it could have implications for Kirloskar businesses. And it could set a big example for how family agreements are treated under corporate law in the future.

What do you think? Should KOEL make the DFS public? On the one hand, transparency could help SEBI and investors understand the family’s agreements they’ve settled on better. Additionally, it would shed light on whether KOEL's acquisition of a competing pump business is a strategic move or a potential misstep. 

On the other hand, KOEL might argue that it’s a private matter.

For now, the Kirloskar saga continues, and everyone is waiting to see what the SAT decides.

Until then…

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