SEBI pulls up Kirloskar Industries promotors for fraud

Pune, August 12th, 2020: The markets regulator has charged promotors of Kirloskar Industries, Atul and Rahul Kirloskar with fraud in a decade-old case of the promoter group selling a 13.5% stake in the then-ailing company KBL to Kirloskar Industries Ltd, harming the interests of minority investors.

In a show-cause notice to the six promoters of KBL and two others, Securities and Exchange Board of India (SEBI) alleged that the promoter group was aware of the precarious financial condition of KBL when these shares were sold, committing fraud on minority shareholders of Kirloskar Industries. The notice was sent in December 2019.

SEBI assesses that the ill-gotten gains in the transaction could be more than Rs 350 crore, which includes the value of the sale transaction and profit.

The promoter group on October 6, 2010, sold 10.72 million shares of KBL worth Rs 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 investigation had sought information from Kirloskar Industries whether it was aware of KBL’s financial position in 2009 and 2010 before it decided to buy its shares. Kirloskar Industries replied that it had only considered the growth and profitability of KBL.

A spokesperson for Kirloskar Industries said: “We reject any suggestion of wrongdoing and refute these allegations. The sale of shares (in 2010) was completed in line with the applicable laws, appropriate stock exchange disclosures and necessary regulatory pre-clearances. We continue to cooperate fully with SEBI in relation to its ongoing enquiries and remain confident of our position.”