No restriction on Kirloskar Industries selling Kirloskar Brothers shares: NCLT

The Mumbai bench of the tribunal agreed that petitioners KIL and Atul and Rahul Kirloskar have been able to make out a case of oppression and mismanagement against KBL.  

Offer of sale to Sanjay Kirloskar first

However, the tribunal directed the petitioners to first make an offer for sale of their shares to KBL chairman Sanjay Kirloskar and his kin, in keeping with the spirit of a deed of family settlement (DFS) entered by members of the family in 2009. If the second party fails to make a binding offer within 30 days, the shares can then be sold to a third party. 

If the second party buys the shares of KBL from KIL, such a transfer would be between promoters of the company and, thus, would be considered an inter-se transfer, not triggering the requirement to make an open offer, the tribunal further observed.

The fourth generation of the Kirloskar family is engaged in a protracted feud and has multiple ongoing legal disputes. On one side are brothers Atul Kirloskar and Rahul Kirloskar, along with multiple members of the industrialist family, while on the other end is their estranged brother Sanjay Kirloskar.

Kirloskar Brothers pulled up

The tribunal also pulled up KBL, observing that the affairs of the listed company were not being conducted in a “completely transparent and independent manner”. The company’s actions were “definitely influenced and coloured by the aspirations” of Sanjay Kirloskar and his family members, the tribunal said in its 73-page order.

KIL and other petitioners collectively hold 24.92% stake in KBL. Sanjay Kirloskar and his family own 39.5%.

KIL, along with Atul and Rahul Kirloskar, had moved NCLT alleging oppression and mismanagement of operations at Kirloskar Brothers. 

The petitioners had alleged that KBL had arbitrarily rejected pre-clearance applications filed by them for buying or selling of shares of KBL.

The respondents argued that the DFS granted Sanjay Kirloskar and his family exclusive control over KBL and, hence, the other family faction cannot buy more shares of the company.

The tribunal observed that the DFS has no such mention granting exclusive ownership of KBL to Sanjay Kirloskar, ruling that the rejection of such pre-clearances by KBL’s compliance officer and board of directors was contrary to the rights of the petitioners as the company’s shareholders.

“These findings reinforce the allegations of the Petitioners regarding mismanagement of KBL and confirm the lack of independence of the Board of Directors of KBL,” a spokesperson for KIL said in a press statement Thursday.

Hurting minority investors

The NCLT made critical remarks against the warring family members and how their feud was affecting the minority investors of the ₹13,000-crore company.

“The parties before us have developed such animosity between them that it will be impracticable and impossible for them to co-exist in [KBL] as shareholders,” the tribunal observed in its order. “The company cannot function properly if these warring groups continue to hold the shares without either having a clear majority.”

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Published: 23 May 2024, 10:30 PM IST