Disclosure of family agreements must for listed firms: Sebi in HC

The regulator made these submissions to the Bombay HC in a petition filed by Kirloskar group firms

The Securities and Exchange Board of India (Sebi) has told the Bombay High Court that it is mandatory for listed entities to disclose any deed of family settlement (DFS) or such agreements as they are “material information” and in the interest of shareholders.

 

However, the regulator also clarified that regulations do not “bind” a listed company to the obligations of the agreements.

 

The market regulator made the submissions in a petition filed by Kirloskar Oil Engines (KOEL), documents reviewed by Business Standard showed.

 

The market regulator had in December 2024 directed Kirloskar Oil Engines to disclose a Deed of Family Settlement (DFS) entered in September 2009 to the stock exchanges under the Listing Obligation and Disclosure Requirement (LODR) Regulations.

 

 

Legal experts said that the decisions of the court will chart out the way for other listed companies embroiled in family disputes, and give clarity on disclosure of any shareholder agreements, joint venture agreements and family settlement agreements.

 

“The LODR Regulations have been enacted inter alia to ensure that the rights of shareholders are protected and transparency in disclosures made by listed entities is maintained,” said Sebi.

 

The DFS was for transfer of the ownership, management, and control of different businesses amongst the Kirloskar family members.

 

Five entities of the Kirloskar group, namely KOEL, Kirloskar Ferrous Industries, Kirloskar Pneumatic Company, GG Dandekar Properties and Kirloskar Industries had individually filed writ petitions challenging the disclosure related regulations by the Sebi.

 

Sebi has submitted that the disclosure of DFS was in the interest of shareholders who have the “right to be informed of such material information” as the settlement “restricts the company from carrying out certain businesses which are directly competitive or similar to the other entities in the DFS”. 

 

“It is the solemn duty of listed entities such as the petitioners and parties to the agreements to disclose agreements of the nature specified in Regulation 30A read with Clause 5A of Para A of Part A of the LODR Regulations in the interest of investors,” said Sebi.

 

Sebi has said that agreements which are “in the nature of creating obligation on the parties to such agreements to ensure that listed entities shall or shall not act in a particular manner, is deemed to be a material information requiring mandatory disclosure”.

 

The regulator has clarified that the provisions “do not create contractual obligations or bind a listed entity in terms of enforceability under the Contract Act”.

 

“It is falsely alleged that Regulation 30A of LODR Regulation seeks to ‘bind’ a listed entity to an agreement to which it is not a party,” said Sebi.

 

“Sebi has, in fact, confirmed that the purport of Regulation 30A is not to create or enforce private contractual obligations between parties, and as such a disclosure cannot have an impact on the management or control of the listed entity or impose any restriction or create any liability on the listed entities,” said a spokesperson on behalf of the petitioners in response to queries by Business Standard.

 

Emailed queries to Sebi remained unanswered till the time of press.

 

Sebi, in its submissions, has said that while the petitioners have relied that statements made in personal capacity are not binding on the company is well-settled in private law, however, securities law operates in “public interest” and the regulator is empowered to ask for disclosure of arrangements that materially affect the rights of shareholders.