Sebi pulls up Kirloskar’s promoters for fraud
The markets regulator has charged some of the promoters of Kirloskar Brothers Ltd (KBL) with fraud in a decade-old case of the promoter group selling a 13.5% stake in the then ailing company to Kirloskar Industries Ltd, harming the interests of minority investors.
In a showcause notice to the six promoters of KBL and two others, the Securities Exchange Board of India (Sebi) said that the promoter group was aware of the precarious financial condition of KBL when these shares were sold, committing a fraud on minority shareholders of Kirloskar Industries. The notice, reviewed by Mint, was sent in December 2019.
“Sebi’s assessment is that the ill-gotten gains in the transaction could be in excess of Rs 350 crore, which includes the value of the sale transaction and profit,” said a person with direct knowledge of the matter.
The promoter group on 6 October 2010 sold 10.72 million shares of KBL worth Rs 275 crore in the company to Kirloskar Industries.
The markets regulator has charged the individual promoters of KBL and two others under Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) regulations, 2003. The regulator alleged that Gautam Kulkarni, Rahul Kirloskar, Atul Kirloskar, Alpana Kirloskar, Jyotsna Kulkarni and Arti Kirloskar were the direct beneficiaries of the sale.
Sebi observed in the notice that four out of the five directors of Kirloskar Industries were aware of the deteriorating financial position of KBL and, thus, were duty-bound to check if the decision to buy those shares were in the interest of the firm and its stakeholders. Further, these directors, by inducing Kirloskar Industries to buy shares of KBL, allowed the six individual promoters to dump their shares of KBL into Kirloskar Industries.
According to the showcause notice, Sebi during the course of investigation had sought information from Kirloskar Industries whether it was aware of KBL’s financial position in 2009 and 2010 before it arrived at a decision to buy its shares. Kirloskar Industries replied that it had only considered the growth and profitability of KBL.
The financial position of KBL as of September 2010 had deteriorated on all aspects. It had also written off a loan amount of Rs 300 crore due from its wholly owned subsidiary, Kirloskar Construction and Engineers Ltd, Sebi observed.
A spokesperson for promoters of Kirloskar Industries 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.”
A spokesperson for KBL declined to comment.