Kirloskar Bros shareholders to vote on forensic audit starting Tuesday

Kirloskar Industries, a key investor in KBL, had sought the audit over legal fees of Rs 70 crore incurred by the latter. An EGM to consider this issue will be held on Dec 8

Investors of Kirloskar Brothers will begin voting on Tuesday, on a resolution seeking a forensic audit of the company as requested by Kirloskar Industries, one of KBL's key shareholders.

In a statement, Kirloskar Industries said as the largest minority shareholder of KBL, it is its duty to hold the KBL Board accountable to all stakeholders, instead of allowing it to be run as a "personal fiefdom" of its Chairman and Managing Director. KBL is chaired by Sanjay Kirloskar while Kirloskar Industries is run by his brothers, Atul and Rahul.

KIL had called for a shareholders meeting, seeking a forensic audit of the company over legal fees worth Rs 70 crore incurred by the listed company. The EGM will be held on December 8.

Kirloskar Industries owns 24.9 per cent stake in KBL, while Sanjay and family own 40 per cent stake (see chart). In order for the resolution to pass, a little over 50 per cent of shareholders must vote for a forensic audit on the resolution and hence the voting of minority shareholders like mutual funds will play a key role.

“There are several disputes between Sanjay Kirloskar and the other members of the Kirloskar family. We have observed that KBL is a party in most of the cases filed in these disputes. In fact, in an appeal filed by KBL before the Securities Appellate Tribunal against an order passed by Sebi, the regulator’s view is that KBL has been filing dressed up proceedings to agitate/ventilate private family disputes which is perceived by the regulator as an abuse of the process of law,” KIL’s managing director, Mahesh Chabbria said in a news conference.

He added: "Upholding Sebi’s order, SAT has dismissed KBL’s appeal. Further, in another matter, SAT in an order on October 12, 2022 had dismissed an appeal filed by KBL stating that it is not an aggrieved party. These instances made us, as minority shareholders, believe that there is a need to examine the legal expenses KBL is incurring.”

While Kirloskar Brothers did not comment on the statement issued by KIL today, a spokesperson had said on November 16 that KBL had issued a statement which said the bulk of the Rs 70 crore legal expenses incurred by the company were related to tax, labour matters, and arbitration.

This spokesperson had asserted that the expenses have no connection with the litigation currently going on with the requisitionists of the EGM. None of the shareholders, including Atul and Rahul, have voted against the company’s accounts till as recently as August this year, the KBL statement said.

Chabbria said it is disturbing to see that the KBL board, including independent directors, has recommended that the shareholders vote against the resolution on the forensic audit.

On the disputed Deed of Family Settlement, Chabbria said the KBL board has gone in great detail to analyse and sit in judgement on its interpretation of the settlement which is currently sub-judice. “I am given to understand that there are petitions pending before the Supreme Court of India. The only point before the Supreme Court is to decide whether the matter should be tried by civil courts or through the arbitration process envisaged under the DFS,” he said.

“Without going into the interpretation of the clauses of the DFS, I would like to point out a glaring fallacy. A  plain reading of the DFS put up by KBL in public domain clearly shows that the signatories to the DFS are five individuals of the Kirloskar family. It appears that the signatories to the DFS had exercised extreme caution to obtain consent letters from their family members, including infants (as young as two years old),” Chhabria said.

“If these individuals were so careful and cautious, it would have been logical for them to obtain signatures of companies or cause companies to adopt this DFS, immediately after signing had they even remotely intended that companies are to be bound by the same? Now various theories are being spun as to how by “implication” the DFS is binding on public listed companies who are neither signatories nor have adopted or ratified the said DFS,” Chabbria added.