Palak Shah
The family dispute between the promoters of Pune-based Kirloskar Brothers Ltd (KBL) has reached SEBI. Rahul Kirloskar has accused his brother Sanjay of influencing the market regulator to issue a show-cause notice against him for alleged ‘insider trading’ in certain stock market transactions done nearly a decade ago.
“SEBI was being continuously bombarded by complaints from Sanjay and KBL. Repeated meetings were held by Sanjay with past and present SEBI Chairman and other high ranking officials of SEBI alleging inaction and seeking direct intervention in respect of this matter,” Rahul told SEBI Chairman Ajay Tyagi, in a letter dated August 13.
Show-cause notice
In December 2019, SEBI issued a show cause notice (SCN) to the promoters and erstwhile employees of Kirloskar group, including Rahul, for ‘insider trading.’ SEBI found that KBL promoters, including Rahul and Atul Kirloskar and few others, together sold 1.07 crore shares in the company to another of the group’s listed company Kirloskar Industries Ltd (KIL).
Certain promoters were common in both the companies and they influenced KIL to buy promoter shares of KBL. SEBI further found that the transaction was done with the knowledge of deteriorating financial condition of KBL and based on unpublished price sensitive information. The decision to make KIL set aside around ₹275 crore or more was forced by some Kirloskar family promoters, including Rahul and employees, SEBI found. SEBI has also alleged that fraud was committed with minority shareholders of KIL.
According to Rahul’s letter, Sanjay held a meeting with then SEBI Chairman UK Sinha on January 30, 2017 and subsequently wrote an email to him. It read, “Thank you for meeting my son Alok and me on 30th January. I thought I would send you the letter attached for greater clarity on the various issues regarding KBL. This is because there is an insider trading issue from the year 2010 and a different and unrelated issue regarding the trading in shares of KBL in 2016.”
Rahul further said that Sanjay wrote another letter to the current SEBI Chairman Tyagi dated May 12, 2017. Thereafter, vide a letter dated June 18, 2018, Sanjay, acting through KBL, had requested SEBI’s whole-time member and executive director to direct the hastening of process of a detailed investigation and he even met SEBI’s ED Anand Baiwar on December 28, 2018, Rahul said.
Rahul alleged that SEBI was being biased as it did not look into a similar transaction done by Sanjay’s wife. According to him, Sanjay’s wife undertook an identical trade merely a few days later and yet no SCN was issued to her. “It reeks of bias and one-sided approach,” Rahul told SEBI.
‘No similarity’
Responding to BusinessLine’s queries, Sanjay said, “The allegations that SEBI acted on my behalf is laughable, which cannot be made by a person who has been accused of fraud by SEBI itself. KBL was ‘legally obliged’ under the SEBI regulations to notify SEBI about the insider trading aspect. SEBI based on its own investigation reached the conclusion of insider trading and fraud. In the case of my wife, it was a sale of shares to her private company. There is no similarity between the two transactions because one was to a public listed company for which SEBI has charged him with fraud and the other was to her own private company.”
On SEBI's allegations of insider trading, Rahul said, “We reject any suggestion of wrongdoing and refute these allegations. The sale of shares (in 2010) was completed in line with the applicable laws, appropriate stock exchange disclosures and necessary regulatory pre-clearances. We continue to cooperate fully with SEBI in relation to its ongoing enquiries and remain confident of our position.”
Genesis of feud
The dispute at the 130-year-old Kirloskar group began in 2018 with Rahul Kirloskar and Atul Kirloskar filing a plea in the National Company Law Tribunal (NCLT) to oust sibling Sanjay Kirloskar as Chairman and Managing Director of Kirloskar Brothers Ltd. The genesis of this feud seems to be the 2009 deal, which Sanjay claimed that the other two brothers have reneged.