Bombay High Court.
Kirloskar Group Challenges SEBI Disclosure Norms in Bombay High Court: Mumbai – Five Kirloskar group companies have initiated a significant legal challenge in the Bombay High Court against recent amendments to the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015. The petitioners contend that the 2023 amendments, which mandate the disclosure of certain private agreements even when the listed company itself is not a signatory, are “manifestly arbitrary, unreasonable and ultra vires the Constitution.”
The Bombay High Court, represented by a Bench of Justice MS Sonak and Justice Jitendra Jain, has taken cognizance of the petitions filed by Kirloskar Oil Engines Limited and others. On June 11, the Court directed SEBI to submit its response by July 31, with the petitioners granted until August 14 to file their rejoinder affidavits. The matter is slated for a final hearing on August 20.
The petitions have been filed by Kirloskar Oil Engines Ltd., Kirloskar Pneumatic Co. Ltd., Kirloskar Ferrous Industries Ltd., Kirloskar Industries Ltd., and G.G. Dandekar Properties Ltd. At the heart of their challenge are Regulation 30A, Clause 5A of Part A of Schedule III, and Regulation 30(13) of the SEBI LODR Regulations, all of which were inserted in 2023.
The Core of the Challenge: Disclosure of Third-Party Agreements
The contentious provisions require listed entities to disclose agreements entered into by their promoters, shareholders, key managerial personnel, employees, and related parties. The crucial aspect under dispute is that this obligation to disclose applies if such agreements have the effect of, or the potential to impact, the management, control, or impose any restriction or liability on the listed entity, even when the listed company is not a signatory or party to the agreement.
The petitioners argue that this new disclosure regime, further clarified by SEBI in 2024, is unlawful and fundamentally contrary to the Indian Constitution, particularly Articles 14 (equality before law) and 19 (freedom of speech and expression). They further assert that these provisions violate fundamental principles of Indian contract law.
According to the petitions, compelling companies to disclose agreements executed “behind its back” runs counter to the basic contractual principle of “consent” or “consensus ad idem,” which is essential for the formation of a valid contract under Indian law.
Furthermore, the Kirloskar companies allege that SEBI has overstepped its mandate by assuming adjudicatory powers typically reserved for civil courts. They claim that SEBI is unilaterally determining whether such third-party agreements impact a company’s obligations without providing the affected company an opportunity to contest the applicability or enforceability of the agreement in question.
Immediate Trigger: The 2009 Family Settlement
The immediate catalyst for these legal challenges appears to be SEBI’s directives, issued on October 7 and December 30, 2024. These communications specifically instructed Kirloskar companies to disclose a 2009 Deed of Family Settlement entered into among members of the Kirloskar family, some of whom are promoters of the company. Despite the companies not being a direct party to this family settlement, SEBI deemed that the agreement imposed indirect restrictions on them, thus necessitating its disclosure under Regulation 30A read with Clause 5A.
Challenge to Disclosure of Regulatory Communications
Beyond the agreements, the petitioners are also challenging Regulation 30(13) of the SEBI LODR Regulations. This provision obligates listed entities to disclose events that are the subject of communications from any regulatory or enforcement authority, irrespective of the company board’s own assessment of the materiality of such events.
The Kirloskar companies contend that this provision effectively deprives the board of directors of their discretion in determining materiality, thereby violating principles of corporate autonomy.
Representing the Kirloskar group of companies are Senior Advocate Darius Khambata, alongside advocates Tushar Hathiramani, Tushar Ajinkya, Sukanya Sehgal, and Vedant Lathi, instructed by ThinkLaw. The outcome of this case will undoubtedly have significant implications for corporate governance and disclosure practices across India’s listed entities.
