Srikrishna finds Kirloskar promoter group guilty of insider trading

Former Supreme Court judge BN Srikrishna has found Atul and Rahul Kirloskar guilty of insider trading. The probe was ordered by markets regulator SEBI. The company had asked for an opinion from Srikrishna, and its report has been submitted to the regulator for further action.

It is alleged that on October 6, 2010, few members of the promoter group including Gautam Kulkarni, Rahul Kirloskar, Atul Kirloskar, Alpana Kirloskar, Jyotsna Kulkarni and Arti Kirloskar (transferors) sold 1,07,18,400 shares of KBL, representing 13.51 per cent stake in the company to Kirloskar Industries (KIL) another public limited company managed by the transferors.

Srikrishna, in his report, seen by

BusinessLine, said, “I perused certain e-mail correspondences and noted that Vinayak Kulkarni had shared certain documents pertaining to financial performance of the company on a monthly basis with the said members of the promoter group. I am of the opinion that the transferors namely Rahul Kirloskar, Atul Kirloskar, Gautam Kulkarni are insiders as well as connected persons of KBL and their respective wives, namely Alpana Kirloskar, Aarti Kirloskar and Jyotsna Kulkarni, are ‘persons deemed to be connected’ with the meaning of the Regulation 2(c), (e) and (h) of SEBI (Prohibition of Insider Trading) Regulations 1992.”

“There is no doubt that the price-sensitive information of the nature referred to herein above, was unpublished price-sensitive information as only a handful of people were privy to the same and it was not available or published to the general public.”

SEBI did not comment on an email query. KBL said, “We are unable to comment on the same as a related matter is pending before the NCLT and the same is sub judice.” An email sent to Atul and Rahul Kirloskar did not elicit any response.

Further, Srikrishna is of the view that the minutes of the board meeting (of KBL) held on July 27, 2010, and September 3, 2010, respectively, revealed that the attendees had detailed discussions on the projects, which were put on hold and lower sales and profit margins. These were the projects that eventually led to the downfall of the business in Andhra Pradesh. This information was extremely confidential and price-sensitive as it purportedly had a long-term effect on the financial position of KBL.

“Apart from this information, the financial performance of the company was being shared with the board and the members of the promoters group on a monthly basis. This was also price-sensitive information and only a limited number of people were privy to the same,” Srikrishna report noted.

Srikrishna maintained in his report that “testing the nature of information which was being shared with the board and members of the promoter group who were transferors, on a monthly basis, I am of the opinion that the transferors were in possession of material which could be deemed as unpublished price-sensitive material at the time of carrying out the transaction. Thus, they could be held guilty of insider trading.”