Business Standard

Kirloskar brothers spar over non-compete, settlement deed

Sanjay Kirloskar moves SC to enforce family settlement


One of India’s oldest business families is witnessing yet another sibling rivalry with Sanjay Kirloskar, promoter of Kirloskar Brothers, moving Supreme Court (SC) to enforce a family settlement signed in 2009.

While the apex court has adjourned the hearing to July 24, 64-year-old Sanjay, who is in an ownership dispute with brothers Atul and Rahul, wants to move Pune civil court for any dispute resolution instead of arbitratio­n.

At stake is a combined business empire valued at ~16,000 crore by market capitalisa­tion. Of this, Sanjay-owned Kirloskar Brothers (KBL) market cap is ~3,800 crore. This has grown 88 per cent since 2017 when the brothers started the current legal fracas.

As of now, Atul, 65, runs Kirloskar Oil Engines and Kirloskar Ferrous Industries, while Rahul, 58, is managing Kirloskar Pneumatic. Their cousin, Vikram Kirloskar, 62, manages Toyota Kirloskar Motors. The group was founded by their great grandfathe­r Laxman Kirloskar in 1910 and most of the listed firms are doing well financiall­y.

KBL reported sales of ~1,800 crore and profit of ~93.2 crore in FY21. Kirloskar Oil Engines, chaired by Atul, saw sales of ~2,700 crore and profit of ~170 crore, while Kirloskar Ferrous posted sales of ~2,038 crore and profit of ~302 crore in the same period. Kirloskar Pneumatic, chaired by Rahul, clocked sales of ~823 crore and profit of ~64 crore.

The three brothers are among the fourth generation of the Kirloskar family who fought many battles with each other in the past. “The good news is that all the companies are doing well and demand for their products is rising. Both Rahul and Atul are now looking to diversify into other businesses and this dispute is dragging them down,” said a Mumbai-based lawyer. Their mother, Suman, is with the Rahul and Atul faction, thus giving it an edge, he said.

Legal tangle

The dispute between the siblings ignited after Rahul and Atul-led Kirloskar Oil acquired La Gajjar Machinerie­s in June 2017, a firm that competes with pumps made by Kirloskar Brothers. According to Sanjay, the firms run by his siblings cannot compete with KBL, in accordance with a family settlement signed in 2009. Sanjay wants the dispute to be tried in a Pune civil court but the Bombay High Court sent the entire dispute to arbitratio­n, according to the family settlement agreement of 2009.

Sanjay told the HC though he had complied with all the obligation­s of the settlement, he was shocked to learn that the other members ventured into a business which was competing, and hence, acted in breach of the non-compete pact signed among the family members.

The family settlement prohibits any party or any Kirloskar Group company from engaging in a directly competitiv­e business with one another. On June 21, 2017, Sanjay said he learnt from media that Kirloskar Oil had acquired 76 per cent stake in La Gajjar Machinerie­s — which was manufactur­ing and selling electric submersibl­e pumps in direct competitio­n with his own business. The continued sale of such submersibl­e pumps by La Gajjar was in contravent­ion of the family settlement. Since the family

members had agreed not to enter competing businesses as a matter of policy, some engaged in mala fide transactio­ns to undermine the settlement, according to Sanjay. They had committed gross and fundamenta­l violations of the settlement by systematic­ally attempting to erode its basic tenets, Sanjay told the court. In its submission, the Rahul-atul faction argued that the original agreement was in possession of late Gautam Kulkarni and his family and was produced in court; therefore, the matter may be referred to arbitratio­n.

In the June 21 order, the HC observed that the SC has held that the judicial authority is bound to refer the matter to arbitratio­n once the existence of a valid arbitratio­n clause is establishe­d.

The HC said the findings of the Civil Judge Pune, which said the arbitratio­n clause had expired along with the family settlement, is erroneous. The court said as long as signatory entities to the agreement are operationa­l, the family settlement would continue to govern the relationsh­ip between parties.

“In my view, in the facts at hand, the appellants (Rahul and Atul) have establishe­d that a valid arbitratio­n agreement exists. On the other hand, it is not possible to hold, at this stage, that the arbitratio­n clause in the family settlement is invalid,” the HC said and referred the dispute to arbitratio­n. The matter is now pending before the SC.

 ??  ?? Sanjay Kirloskar
Sanjay Kirloskar
 ??  ?? Rahul Kirloskar
Rahul Kirloskar
 ??  ?? Atul Kirloskar
Atul Kirloskar

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