The Kirloskar family along with their two listed businesses have now been engaged in a legal battle for over two years and at the heart of the dispute is a ‘deed of family settlement’ or DFS signed in 2009. Ironically DFS is a tool used by family-owned businesses to address differences in respect of ownership and management of the said businesses. It typically pertains to personal properties, shares and stakes.
The current debate is whether the DFS signed by the brothers – Atul, Rahul, Sanjay Kirloskar – is binding or impacts public listed companies and whether it needs to be disclosed to stock exchanges.
A BSE communication to Kirloskar Industries Ltd (KIL) on Friday has asked the company to clarify why the DFS was not disclosed to stock exchanges.
KIL has responded to BSE, said a KIL spokesperson.
“As KIL and other group companies have said on previous occasions in response to similar queries from Sebi (Securities and Exchange Board of India) and the stock exchanges, neither KIL nor to the best of its knowledge any other group company is party to the DFS, which was executed in 2009,” said KIL in a statement.
“Further, none has subsequently ratified, adopted or otherwise incorporated the DFS in its articles. Since none of the group companies were party to the DFS, authority was neither sought nor granted by any of the group companies authorising execution of the DFS on behalf of any group company,” the statement added.
On the other hand, KBL made disclosure of the DFS in 2016 soon after Sebi’s new norms for Listing Obligation and Disclosure Requirement (LODR) were notified.
A spokesperson for KBL declined to offer any comments.
“As per the law, if a DFS is purely related to the family and does not mention companies then it may not be applicable legally to listed companies. However, in the spirit of preserving family values and governance an existence of a DFS should be disclosed to shareholders,” said Mita Dixit, co-founder and head of family business advisory at Equations Management.
A prominent feature of the DFS was a non-compete clause, which bound the four signing parties from treading into each-others’ business areas, that is no family member could set up or acquire similar businesses which are run by other family members.
The situation took a legal turn in 2017 when Kirloskar Oils and Engines Ltd (KOEL; demerged entity of KIL) acquired a 76% stake in La-Gajjar Machineries Pvt Ltd, a company engaged in manufacturing and selling electric submersible and monoblock pumps and pump sets, a business similar to that carried out by KBL. This led to Sanjay Kirloskar filing a legal suit for breaking this clause.