Kirloskar says Tribunal order reinforces allegations of mismanagement in KBL 

Kirloskar Industries Limited (KIL) has claimed that the recent National Company Law Tribunal order reinforces the allegations regarding the mismanagement of Kirloskar Brothers Limited (KBL) and confirms the lack of independence of the Board of Directors of KBL. 

KIL in a statement issued on Thursday has said that this also once again raises questions on the huge legal expenses being incurred by KBL to fight the personal battles of its Chairman and Managing Director, Sanjay Kirloskar.

Meanwhile KBL in its announcement on the exchange has stated,  that it does not foresee any material impact of the said order on the business operations of the Company, and it shall keep the exchanges informed of any material developments in this regard.

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“The National Company Law Tribunal has in its order passed on May 21, 2024, held that the affairs of KBL are being mismanaged and are not being conducted in a transparent and independent manner, confirming that a case of oppression and mismanagement under Section 241 and 242 of the Companies Act, has been made out by KIL and others (Petitioners), against KBL, its Board of Directors and Mrs. Pratima Kirloskar” the press statement issued by KIL spokesperson added.   

KIL has said that the Tribunal has further held that the affairs of KBL are influenced and coloured by the aspirations of Sanjay Kirloskar and his family members, in running the affairs of KBL as per their desires and without any interference [from any other shareholder].

The Tribunal has further held that this has impacted the decisions of the Board of Directors of KBL and its compliance officer and its participation in legal proceedings. 

KIL added, that looking at the partisan conduct of KBL, a public listed company, the Tribunal has observed that KBL has not remained a neutral party in the matter, contrary to settled law. The Tribunal observed that most of the submissions made by KBL and Sanjay Kirloskar overlapped and KBL has defended Sanjay Kirloskar wholeheartedly.

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The Tribunal has observed that the manner and timing (almost 7 years after execution) of taking the Deed of Family Settlement (DFS) on record by KBL’s Board, makes it evident that this was done under Section 58(2) of the Companies Act, 2013 without taking into consideration the purport of DFS perhaps at the behest of Sanjay Kirloskar to ensure that KBL is bound by the same, in furtherance of Sanjay Kirloskar’s claim of complete ownership and control thereof.

The Tribunal has categorically held that Section 58(2) of the Companies Act, 2013 is not applicable in respect of shares of KBL as the DFS does not have any provision that casts any restrictions on any party from transferring or dealing in the shares of KBL.

“The Tribunal has also rejected the claims made by Sanjay Kirloskar and his family that pursuant to the DFS, he and his family has exclusive ownership and control over KBL and has categorically opined that the Tribunal did not find any clause in the DFS giving exclusive ownership to any one party” KIL spokesperson stated.

Pointing out the instances of mismanagement, the Tribunal has categorically stated that “the record reflects that the compliance officer of Respondent No. 1 company [KBL] as well as the Board of Directors have acted arbitrarily in contravention of the Code of Conduct of Respondent No. 1 company [KBL] and by relying on the private DFS.”

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The Tribunal has observed that the principle of wealth equalization was embodied in the DFS and to say that the shares of KBL must continue to be held by the Petitioners for the benefit of Sanjay Kirloskar and his family members was a contradiction thereto and these shares were not contemplated to be rendered mere piece of paper.

The Tribunal has further opined that restriction on transferability of shares is not found in the DFS in respect of KBL. The Tribunal has observed that shares of KBL were allotted to members of the Kirloskar family to equalize the wealth of the factions of the Kirloskar family, which the Petitioners are entitled to monetize in the manner they wish.

KBL’s Disclosure

KBL in the disclosure to the BSE and NSE under Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”) as amended, stated, “The Company is currently in the process of seeking legal advise on the impact of the order and will take necessary action as advised”. KBL added, “While we do not foresee any material impact of the said order of the Hon’ble NCLT on the business operations of the Company, we shall keep the exchanges informed of any material developments in this regard”.