Securities Appellate Tribunal
Kirloskar Brothers Ltd vs Sebi on 13 May, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved: 21.3.2022
Date of Decision:13.5.2022
Misc. Application No.553 of 2021
And
Appeal No.311 of 2021
Kirloskar Brothers Ltd.
'Yamuna', Survey No.98/(3 to 7),
Plot No.3, Baner,
Pune - 411 045. ...Appellant
Versus
1.Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, G Block, Near Bank of India, Bandra Kurla Complex, Bandra East, Mumbai-400051, Maharashtra.
2. Kirolaskar Oil Engines Ltd.
Laxmanrao Kirloskar Road, Khadki, Pune - 411 003. ...Respondents Mr. Janak Dwarkadas, Senior Advocate with Mr. Chirag Kamdar, Ms. Ragini Singh, Mr. Rustam Gagrat, Ms. Ipshita Sen, Ms. Meghna Talwar and Ms. Shreya Shankar, Advocates for the Appellant. 2 Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent no.1. Mr. Pesi Modi, Senior Advocate with Mr. Kunal Katariya, Mr. Tushar Ajinkya and Ms. Misha Matlani, Advocates i/b. ThinkLaw for the Respondent no.2. CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Ms. Meera Swarup, Technical Member Per: Justice Tarun Agarwala, Presiding Officer
1. The present appeal has been filed against the communication/decision dated 17th February, 2021 rejecting the complaint of the appellant against Kirolaskar Oil Engines Ltd., respondent no.2 and its board of directors.
2. Shorn of details, the relevant facts leading to the filing of the present appeal is, that a deed of family settlement dated 11th September, 2009 was entered into and executed inter alia between Mr. Sanjay Kirloskar, Chairman and Managing Director of the appellant Company, Mr. Vikram Kirloskar, Promoter of 3 Kirolaskar Oil Engines Ltd. (hereinafter referred to as respondent no.2), Mr. Atul Kirloskar, Executive Chairman of respondent no.2, Mr. Rahul Kirloskar, Non-Executive Director of respondent no.2 and late Mr. Gautam Kulkarni, former Executive Vice- Chairman of respondent no.2. By this deed of family settlement, the ownership, management and control of each branch of the Kirloskar family business was to be passed on to the parties specified in Schedule II of the deed of family settlement.
3. For facility, Clause 2 of the deed of family settlement is extracted hereunder:
"2. It is broadly agreed that the family settlement shall be effected in such a manner that the ownership, management and control (to the extent of Kirloskar family's interest therein) shall be passed to the Party specified in Schedule II hereto in respect of companies mentioned under/against their respective names and to the extent mentioned therein."
4. The deed of family settlement was amended by an amendment agreement dated 12th October, 2009 which 4 dealt with shares being purchased by some of the signatories thereto and payments being made to others.
5. Since there was no provision under Clause 36 of the Listing Agreement this deed of family settlement was consequently not disclosed on the stock exchange platform.
6. On 2.9.2015, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as 'LODR Regulations) was notified and came into force. Under Clause 30 of the aforesaid Regulation, certain events as specified in Para A of Part A of Schedule III were required to be disclosed on the stock exchange platform. For facility, Regulation 30 is extracted hereunder.
"Disclosure of events or information.
30. (1) Every listed entity shall make disclosures of any events or information which, in the opinion of the board of directors of the listed company, is 5 material.
(2) Events specified in Para A of Part A of Schedule III are deemed to be material events and listed entity shall make disclosure of such events.
(3) The listed entity shall make disclosure of events specified in Para B of Part A of Schedule III, based on application of the guidelines for materiality, as specified in sub-regulation (4).
(4) (i) The listed entity shall consider the following criteria for determination of materiality of events/ information:
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date;
(c) In case where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event/ information is considered material.
(ii) The listed entity shall frame a policy for determination of materiality, based on criteria specified in this sub-regulation, duly approved 6 by its board of directors, which shall be disclosed on its website.
(5) The board of directors of the listed entity shall authorize one or more Key Managerial Personnel for the purpose of determining materiality of an event or information and for the purpose of making disclosures to stock exchange(s) under this regulation and the contact details of such personnel shall be also disclosed to the stock exchange(s) and as well as on the listed entity's website.
(6) The listed entity shall first disclose to stock exchange(s) of all events, as specified in Part A of Schedule III, or information as soon as reasonably possible and not later than twenty four hours from the occurrence of event or information:
Provided that in case the disclosure is made after twenty four hours of occurrence of the event or information, the listed entity shall, along with such disclosures provide explanation for delay:
Provided further that disclosure with respect to events specified in sub-para 4 of Para A of Part A of Schedule III shall be made within thirty minutes of the conclusion of the board meeting.
(7) The listed entity shall, with respect to disclosures referred to in this regulation, make disclosures updating material developments on 7 a regular basis, till such time the event is resolved/closed, with relevant explanations.
(8) The listed entity shall disclose on its website all such events or information which has been disclosed to stock exchange(s) under this regulation, and such disclosures shall be hosted on the website of the listed entity for a minimum period of five years and thereafter as per the archival policy of the listed entity, as disclosed on its website.
(9) The listed entity shall disclose all events or information with respect to subsidiaries which are material for the listed entity.
(10) The listed entity shall provide specific and adequate reply to all queries raised by stock exchange(s) with respect to any events or information:
Provided that the stock exchange(s) shall disseminate information and clarification as soon as reasonably practicable.
(11) The listed entity may on its own initiative also, confirm or deny any reported event or information to stock exchange(s).
(12) In case where an event occurs or an information is available with the listed entity, which has not been indicated in Para A or B of Part A of Schedule III, but which may have material effect on it, the listed entity is required to make adequate disclosures in regard thereof."8
7. A perusal of the aforesaid provision indicates that every listed company was required to make disclosures of any event or information which in the opinion of the board of directors was material. However, events specified in Para A of Part A of Schedule III of the LODR Regulations were deemed to be material events and, accordingly, listed companies were required to make disclosures of such events. Under Regulation 30(6), events specified in Para A of Schedule III was required to be disclosed within 24 hours from the occurrence of the event. Under the second proviso events specified in sub-para 4 of the Para A of Part A of Schedule III was required to be disclosed within 30 minutes of the conclusion of the Board meeting. One such event which was required to be disclosed was a family settlement as per Clause 5 of Para A of Part A of Schedule III of the LODR Regulations. For facility, 9 Clause 5 of Para A of Part A of Schedule III of the LODR Regulations is extracted hereunder:
"5. Agreements (viz. shareholder agreement(s), joint venture agreement(s), family settlement agreement(s) (to the extent that it impacts management and control of the listed entity), agreement(s)/treaty(ies)/contract(s) with media companies) which are binding and not in normal course of business, revision(s) or amendment(s) and termination(s) thereof"
8. Thus, under Regulation 30(2) of the LODR Regulations, a family settlement agreement was deemed to be a material event and a listed entity was mandatorily required to make a disclosure of such event.
9. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') issued a circular dated 9th September, 2015 relating to continuous disclosure requirement for listed entity under Regulation 30 of the LODR Regulations. This circular indicates that events which are required to be disclosed under Regulation 30 10 are broadly divided in two categories, namely, the events which are necessarily required to be disclosed without applying any test of materiality are those events indicated in Para A of Part A of Schedule III of the LODR Regulations and Para B of Para A of Part A of Schedule III indicates those events that should be disclosed by the listed entity, if considered material.
10. Annexure 1 to this circular indicates the details that needs to be provided while disclosing events given in Para A and Para B of Schedule III. Para 5 of the Annexure 1 of this circular provides the details that are required to be given for disclosure relating to agreements such as name of parties with whom agreement is entered, purpose of entering into the agreement, shareholding etc. For facility, Para 5 of Annexure 1 is extracted hereunder:
"5. Agreement (viz. shareholder agreement(s), joint venture agreement(s), family settlement agreement(s) (to the extent that it impacts management and control of the listed entity), 11 agreement(s)/treaty(ies),/ contract(s) with media companies) which are binding and not in normal course of business, revision(s) or amendment(s) and termination(s) thereof:
5.1 name(s) of parties with whom the agreement is entered;
5.2 purpose of entering into the agreement;
5.3 shareholding, if any, in the entity with whom the agreement is executed;
5.4. significant terms of the agreement (in brief) special rights like right to appoint directors, first right to share subscription in case of issuance of shares right to restrict any change in capital structure etc;
5.5 whether, the said parties are related to promoter/promoter group/group companies in any manner. If yes, nature of relationship.
5.6 whether the transaction would fall within related party transactions? If yes, whether the same is done at "arms length";
5.7 in case of issuance of shares to the parties, details of issue price, class of shares issued;
5.8 any other disclosure related to such agreements, viz. details of nominee on the board of directors of the listed entity, potential conflict of interest arising out of such agreements, etc;12
5.9 in case of termination or amendment of agreement, listed entity shall disclose additional details to the stock exchange(s):
a) name of parties to the agreement;
b) nature of the agreement;
c) date of execution of the agreement;
d) details of amendment and impact thereof or reasons of termination and impact thereof."
11. Para 4 of this circular provides that the circular would come into force 90 days from September 2, 2015, i.e., the date when the LODR Regulations, 2015 were notified. The purpose of this circular was to enable listed entities to provide details of the events as contained in the Annexure 1 and 2 of the circular dated 9th September, 2015.
12. In so far as the appellant is concerned, the Board of Directors of the appellant Company passed a resolution on 18th April, 2016 recording the deed of family settlement and the same was disclosed to the stock exchange under Regulation 30(2) of the LODR Regulations on 19th April, 2016.
13
13. It is alleged that the respondent no.2 did not disclose the deed of family settlement to the stock exchange with a view to intentionally conceal the true position to the investors thereby violating Regulation 30 of the LODR Regulations. The appellant accordingly made a complaint on 9th June, 2018 and 3rd July, 2020 requesting SEBI to take appropriate action against respondent no.2. Since no action was taken by SEBI the appellant filed appeal no.27 of 2021 which was disposed of by this Tribunal on 15th January, 2021 directing SEBI to dispose of the complaint within four weeks. Based on the direction of this Tribunal the impugned communication dated 17th February, 2021 was passed whereby the complaint of the appellant was rejected.
14. By the impugned communication SEBI held that deed of family settlement came into existence on 11th September, 2009 and there was no specific requirement 14 under Clause 36 of the erstwhile Listing Agreement to disclose the family agreement. Further, Regulation 30 the SEBI LODR Regulations came into existence in 2015 which is prospective in nature. Further, respondent no.2 is not a party to the deed of family settlement which is a private agreement entered between the Kirloskar family member in their individual capacity.
15. Aggrieved by this decision of SEBI the present appeal has been filed.
16. We have heard Mr. Janak Dwarkadas, Senior Advocate assisted by Mr. Chirag Kamdar, Ms. Ragini Singh, Mr. Rustam Gagrat, Ms. Ipshita Sen, Ms. Meghna Talwar and Ms. Shreya Shankar, Advocates for the appellant and Mr. Mustafa Doctor, Senior Advocate assisted by Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates for the respondent no.1 and Mr. Pesi Modi, Senior Advocate 15 assisted by Mr. Kunal Katariya, Mr. Tushar Ajinkya and Ms. Misha Matlani, Advocates for the Respondent no.2.
17. Having heard the learned counsel for the parties at some length, we are of the opinion that the impugned communication/decision does not suffer from any error of law.
18. No doubt under Clause 36 of the erstwhile Listing Agreement there was no provision to disclose the family arrangement to the stock exchange. The erstwhile Listing agreement stood rescinded by virtue of Regulation 103 of the LODR Regulations, 2015. Regulation 30 of the LODR Regulations required certain events specified in Para A of Part A of Schedule III to be disclosed. The circular dated 9th September, 2015 was issued under Regulation 30 read with Regulation 101(2) of the Listing Regulations. Through this circular every listed company was given 16 three months' time to comply with the disclosure of material event mentioned in Para A of Part A of Schedule III of Regulation 30(2) of the LODR Regulations.
19. LODR Regulations was notified on 2nd September, 2015 and came into force from that date itself. Material events under Para A of Part A of Schedule III of Regulation 30(2) of the LODR Regulations was required to be mandatorily disclosed within 24 hours and in some cases within 30 minutes by listed companies including respondent no.2. The details of the information that was required to be disclosed became known after the circular dated 9th September, 2015 was issued. Prior to that, no details were provided and, therefore, it was not possible for any listed company to disclose details of material events which took placed between 2nd September, 2015 to 9th September, 2015. Further, in our opinion, it is not 17 possible not practicable for any listed company to comply with the directions given in Annexure 1 and 2 immediately from 9th September, 2015 onwards. Some latitude is required to be given to the companies to make adequate arrangements and infrastructure under Regulation 10(2) and file such information with the stock exchange within the period specified by the Board by Regulation 10(1) of the LODR Regulations. Period is specified under Regulation 30 to disclose within 24 hours/30 minutes. The Regulation came into force w.e.f. 2nd September, 2015. The details of information to be disclosed was made known on 9th September, 2015. It was, thus, not possible to comply with Regulation 30 within the time prescribed.
20. Regulation 101 of LODR Regulations provides that in order to remove any difficulties in the application of any provision of the Regulation, the Board may issue any circular to provide the procedural aspects 18 including intimation to be given or documents to be submitted. For facility, Regulation 101 is extracted hereunder:
"Power to remove difficulties
101.(1) In order to remove any difficulties in the application or interpretation of these regulations, the Board may issue clarifications through guidance notes or circulars after recording reasons in writing.
(2) In particular, and without prejudice to the generality of the foregoing power, such guidance notes or circulars may provide for all or any of the following matters, namely:
i. procedural aspects including intimation to be given, documents to be submitted; ii. disclosure requirements;
iii. listing conditions."
21. Thus, a circular dated 9th September, 2015 was issued under Regulation 30 read with Regulation 101 providing details of information that was required to be disclosed. Further, time of 90 days as per para 4 of the circular was given to comply with the requirements of 19 disclosure under Regulation 30. Thus, we are of the opinion that the LODR Regulations, 2015 came into effect from 2nd September, 2015 and is prospective in nature. The circular dated 9th September, 2015 required listed companies to disclose details of material events as specified in Annexures 1 and 2. For the said purpose 90 days' time was given to comply. The circular does not allow past events prior to 2nd September, 2015 to be disclosed under Regulation 30 of the LODR Regulations, 2015.
22. In view of the aforesaid, the impugned communication/decision cannot be faulted. The appeal fails and is dismissed with no order as to costs. Misc. application no.553 of 2021 is also disposed of accordingly.
23. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy 20 of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Justice M.T. Joshi Judicial Member Ms. Meera Swarup Technical Member RAJALA Digitally by signed 13.5.2022 KSHMI RAJALAKSHMI NAIR H Date: 2022.05.13 H NAIR 12:12:48 +05'30' RHN