Sebi penalises Kirloskar promoters over alleged breach of securities norms

Over a dozen individuals and entities asked to cough up Rs 31 crore in penalty and disgorgement

The Securities and Exchange Board of India (Sebi) on Wednesday charged the three Kirloskar brothers — Atul, Rahul and Sanjay — and their family members with alleged violation of regulations. It barred Rahul and Atul Kirloskar from the securities market for six months.

At present, Rahul and Atul Kirloskar are at odds with their brother Sanjay Kirloskar. Sanjay heads Kirloskar Brothers (KBL), while Rahul and Atul are in charge of Kirloskar Industries.

In three separate orders, the regulator asked over a dozen entities and individuals belonging to both factions to cough up over Rs 31 crore in penalties and disgorgement.

The Atul and Rahul camp has been asked to cough up Rs 28 crore plus interest of 4 per cent per annum for 10 years. The Sanjay camp has been asked to pay just Rs 47 lakh in penalties and disgorgement.

The case dates back to 2010, when Kirloskar Industries was made to buy shares of KBL. Also, certain family members sold KBL shares while in possession of unpublished price sensitive information, violating insider trading rules.

Sebi launched a probe after receiving complaints of alleged insider trading and bad corporate governance practices at KBL. In December 2019, Sebi issued initial set of show-cause notices to the promoter entities and later sent supplementary notices.

The regulator’s investigation revealed some promoters had submitted incorrect information to the company to obtain pre-clearances to sell KBL shares. Sebi said they committed fraud on the public shareholders of Kirloskar Industries, which was made to buy KBL shares.

“Atul and Rahul Kirloskar reject any suggestion of wrongdoing and maintain that the share sale reflected all appropriate stock exchange disclosures and necessary regulatory pre-clearances at the time. We are currently reviewing Sebi’s order and seeking appropriate legal advice. We remain confident of our position and plan to appeal the ruling shortly,” said a spokesperson belonging to the group.

In their submission to Sebi, the entities belonging to the Atul and Rahul camp argued that they had applied for pre-clearance from the company on September 28, 2010, to conduct the trades, which were executed on October 6, 2010. They also argued that the transactions were of the nature of inter-se promoter transfers and, hence, didn’t fall under the purview of insider trading. These arguments failed to cut the ice with Sebi.

Atul and Rahul Kirloskar alleged Sebi’s action was motivated and exclusively based on complaints from Sanjay. 

Sebi said the argument didn’t hold merit as it also took enforcement action against Sanjay.