Regulator SEBI has imposed a Rs 31 crore penalty on promoters of Kirloskar Brothers Ltd (KBL) and others for indulging in insider trading and fraud committed against public shareholders of Kirloskar Industries Ltd.
Understanding Kirloskar Brothers Limited Case Study
Since, the entities were also barred from the stock market for a period ranging from 3 months to 6 months, the regulator said in three separate orders.
Of the total Rs 31.21 crore, they were asked to disgorge Rs 16.6 crore of ill-gotten gains along with 4 percent interest, and they were required also pay a penalty of Rs 14.5 crore.
SEBI received various complaints alleging insider trading and poor corporate governance activities within Kirloskar Brothers Ltd.
Subsequently, during the period from March 2010 to April 2011, the regulator conducted an investigation concerning the transactions in the Kirloskar Brothers Ltd accounts to assess potential violations of the rules on insider trading and the PFUTP (Prohibition of Illegal and Unfair Trade Practices) related to stock market standards.
Investigation of Kirloskar Brothers Ltd
Investigation found that KBL’s promoters and directors had traded in KBL film adaptation. Loss prevention mistakenly benefited.
In addition, they sent incorrect statements to Kirloskar Brothers Ltd claiming that they did not have UPSI in their possession. Kirloskar Industries Ltd (KIL) and its public shareholders committed the fraud.
KIL’s officials had persuaded KIL to purchase shares from the six promoters of KBL. It allowed them to sell KBL’s shares to KIL. Hence, its disadvantageous to KIL and its minority shareholders.
According to SEBI, the promoters of KBL and KIL were Alpana Rahul Kirloskar, Arti Atul Kirloskar, Jyotsna Gautam Kulkarni, Rahul Chandrakant Kirloskar, Atul Chandrakant Kirloskar and the late Gautam Achyut Kulkarni.
The nine entities had fraudulently caused unfair treatment to KIL’s minority shareholders. Therefore, it breached the provisions of PFUTP requirements.
It further claimed that the late Gautam Achyut Kulkarni’s legal representatives would disgorge the sum.
Through a separate order, for violating listing terms, SEBI placed a penalty of Rs 5 lakh on Kirloskar Industries Ltd.
The company’s board decided to invest upto Rs. 275 crore in KBL shares. Hence, fraud committed against KIL and its shareholders.
SEBI’S understanding of Kirloskar Brothers Ltd
SEBI explained fraud is price-sensitive information that impacted on KIL’s results. Accordingly, as per the Share Listing Agreement, KIL was expected to notify the stock market immediately of the decision, but failed to comply with the standard.
Since, SEBI ordered that both camps sold shares of Kirloskar Brothers Ltd. Its based on advance knowledge of the company’s deteriorating financial position.
Four companies, Sanjay Kirloskar, Trustee of Kirloskar Brothers Ltd; Pratima Sanjay Kirloskar; Prakar Investments Pvt Ltd. SEBI excluded Karad Projects and Motors Ltd in a separate order from the capital markets for three months for breaching insider trading standards.
Sanjay Kirloskar, his wife Pratima Sanjay Kirloskar held the total liability of Karad Projects and Motors.
Final Words of Kirloskar Brother’s Ltd
SEBI issued a ruling against some KIL promoters and directors.Its related to their 2010 sale of shares in Kirloskar Brothers. Atul Kirloskar and Rahul Kirloskar denied the wrongdoing. SEBI’s order reviewed and pursued suitable legal advice. They remain sure of their stance and plan to appeal the decision shortly.
