Bombay High Court Seeks SEBI’s Response On Kirloskar Group’s Plea Challenging Amendment Norms

Bombay High Court Seeks SEBI’s Response On Kirloskar Group’s Plea Challenging Amendment Norms

The final hearing will be held on 20 August

The Bombay High Court has sought a response from the Securities and Exchange Board of India (SEBI) after five Kirloskar Group companies filed a plea challenging the constitutional validity of recent amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The amendments mandate disclosure of certain private agreements despite the listed companies not being a party.

The petitions were filed by Kirloskar Oil Engines Ltd, Kirloskar Pneumatic Co Ltd, Kirloskar Ferrous Industries Ltd, Kirloskar Industries Ltd and G.G. Dandekar Properties Ltd.

The petitioners submitted that the new rule (introduced through the 2023 Second Amendment and clarified by SEBI in 2024) was unlawful, arbitrary, unreasonable and contrary to Articles 14 and 19 of the Constitution of India and basic principles of the Indian Contract Law.

A bench comprising Justice MS Sonak and Justice Jitendra Jain ordered SEBI to file its replies by 31 July and directed the petitioners to file their rejoinder affidavits by 14 August.

The pleas challenge the validity of SEBI’s LODR Regulation 30A, Clause 5A of Para A of Part A of Schedule III and Regulation 30(13).

Inserted in 2023, the provisions require listed entities to disclose agreements with their promoters, shareholders, key managerial personnel, employees and related parties. This was obligatory even if the listed company was not a signatory, or party to the agreement.

The Kirloskar companies contended that forcing companies to disclose agreements executed behind its back, was “contrary to the basic principle of ‘consent’ or ‘consensus ad idem’, a condition based on the formation of a ‘contract’ under Indian laws.

The petitions added that SEBI assumed adjudicatory powers reserved for civil courts by determining whether such agreements affected a company’s obligations. It did not provide the company an opportunity to contest the enforceability of the agreement.

The issue was triggered after 7 October and December 30, 2024, directions of the market regulator requiring Kirloskar companies to disclose a 2009 Deed of Family Settlement among members of the Kirloskar family, some of whom are company promoters.

Despite the company not being a party to the agreement, SEBI imposed indirect restrictions on it to make disclosures under Regulation 30A read with Clause 5A.

The Kirloskars’ challenged Regulation 30(13), which obligates listed entities to disclose events that are the subject of communications from any regulatory or enforcement authority regardless of the board’s assessment of materiality. It stated that the direction deprived the board of directors of their discretion and violated the principles of corporate autonomy.

Senior Advocate Darius Khambata, along with advocates Tushar Hathiramani, Tushar Ajinkya, Sukanya Sehgal and Vedant Lathi, instructed by ThinkLaw, appeared for Kirloskar group of companies.

Advocate General Birendra Saraf, along with advocates Vishal Kanade, Nidhi Singh, Nishin Shrikhande and Nidhi Faganiya, instructed by Vidhii Partners, represented SEBI.

Senior Advocate Janak Dwarkadas, along with advocates Chirag Kamdar, Rustam J Gagrat, Ipshita Sen, Suresh Khannan and Priscilla Daolagupu, appeared for Kirloskar Brothers.