Sebi pulls up Kirloskar’s promoters for fraud

THE PROMOTERS SOLD THEIR STAKE KNOWING THE FIRM’S FINANCES WERE PRECARIOUS

nMUMBAI: 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, Sebi alleged 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 ₹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 October 6, 2010 sold 10.72 million shares of KBL worth ₹275 crore in the company to Kirloskar Industries. Sebi has charged the individual promoters of KBL and two others under the Prevention of Fraud and Unfair Trade Practices. 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 company and its stakeholders.

Further, these directors, by inducing Kirloskar Industries to buy shares of KBL, allowed the six individual promoters to dump their shares.

According to the 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 ₹300 crore due from its wholly owned subsidiary, Kirloskar Construction and Engineers Ltd, Sebi observed.