Kirloskar cos drag Sebi to court—say key disclosure rules are ‘unconstitutional'

Mint

26-06-2025

Mumbai: In a dramatic escalation of the long-running Kirloskar family dispute, five listed Kirloskar Group companies have moved the Bombay High Court challenging the constitutional validity of a regulation that mandates disclosure of private agreements by promoters, directors, and other stakeholders.
Kirloskar Oil Engines Ltd (KOEL),Kirloskar Ferrous Industries Ltd,Kirloskar Pneumatic Company Ltd,Kirloskar Industries Ltd, and GG Dandekar Properties Ltd have individually filed writ petitions challenging regulations laid down by the Securities and Exchange Board of India. Mint has seen a copy of the petitions.
The companies said Sebi's disclosure rules were 'manifestly arbitrary', 'disproportionate', and 'impermissibly retrospective'. They argued that the regulator had overstepped its mandate by effectively compelling listed companies to treat third-party agreements—including those they may not have signed or ratified—as binding and material.
The Bombay High Court has sought Sebi's response and is expected to hear the matter on 20 August. The outcome could have wide-ranging implications for corporate disclosures, particularly for companies with complex ownership or family-led structures.
The petitioners have contested Regulation 30A and Clause 5A of Para A of Part A of Schedule III of the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015, as well as Sebi circulars dated 13 July 2023 and 11 November 2024, which operationalised these rules.
Regulation 30A and Clause 5A require listed companies to disclose certain types of agreements even if the entity is not a direct party, if such agreements impact the company's management, control, or impose any restriction or liability.
The petitioners have also challenged Regulation 30(13), which requires listed entities to promptly disclose significant communications received from regulatory, statutory, enforcement, or judicial authorities.
'The regulations run contrary to the basic principle of 'consent' or 'consensus ad idem'—a pre-condition to formation of a contract under the Indian Contract Act,' the companies have stated in their petitions.
The legal actions come amid the ongoing Kirloskar family feud over a 2009 'Deed of Family Settlement' (DFS), a private arrangement that outlined the distribution of control, management, and ownership across various Kirloskar companies among family branches.
Sanjay Kirloskar-led Kirloskar Brothers Ltd, a listed entity from the Kirloskar Group, has demanded that Kirloskar Oil Engines Ltd (KOEL) and other group firms disclose the DFS under Regulation 30A. KOEL maintains it is not a party to the DFS and therefore should not be compelled to disclose it.
Sebi, in a communication issued in December 2024, had advised KOEL to disclose the DFS, stating that the document 'remains subsisting in nature and indirectly imposes restrictions' on the company.
In their petitions, the listed Kirloskar Group companies have argued that Sebi's disclosure rules violated well-established principles of company law and contract law, including the doctrine of privity and a board's exclusive authority over decisions binding a company.
Sebi's move also raised concerns over unintended consequences and unreasonable outcomes, such as being forced to disclose agreements made by unrelated or disgruntled individuals, they said.
'It envisages absurd and unreasonable circumstances where… any employee (at whatever post or even a disgruntled employee)… can bind a listed entity to an agreement… merely upon informing the listed entity of such agreement,' the petitioners stated.
They also argued that Sebi was encroaching on the domain of civil courts.
'By interpreting disputed agreements which are in fact sub judice… Sebi is assuming the role of a civil court… and encroaches on the jurisdiction of the civil court,' the petitions state.
Kirloskar Brothers Ltd (KBL) has filed an intervention application arguing that several other listed companies—such asHikal Ltd,DCM Ltd,TVS Motor Co. Ltd, andAdani Wilmar Ltd—have already complied with Sebi's disclosure requirements without challenging the regulation's legality.
"Given that the regulation has already been acted upon and complied with by multiple listed entities… there exists no justifiable basis for the companies for challenging its constitutional validity at this belated stage apart from the petitioners' mala fide motives,' KBL's application states.
Vishwanath Iyer, partner at law firm Anand Sharma and Associates, said calling Regulation 30A as 'unconstitutional' was a stretch.
'Courts have repeatedly affirmed Sebi's wide rule-making power over listed companies. Earlier precedents make it clear that a mere requirement to place a decades-old family deed on the stock exchange website is nowhere near a violation of fundamental rights,' Iyer said.
'It is unusual that a listed company is claiming Sebi's LODR guidelines as unconstitutional. The Bombay High Court is likely to ask why a company that benefits from public markets thinks it can opt out of the transparency bargain that every other issuer accepts,' he added.