Kirloskar Brothers Ltd (KBL)’s promoters violated norms onprohibition of insider trading. The promoters were aware of private stock price-sensitiveinformation and instead of looking after the interests of their investors, wentahead and traded in the stock of their company.
The promoters made wrongful gains by avoiding losses. The Governmentof India’s regulator of securities and commodities market, Securities andExchange Board of India (SEBI) found the promoters and the directors guilty
Further, the promoters and directors had also submitted anincorrect undertaking or declaration to the company.
In three separate orders in the matter, the capital marketsregulator said that it had received various complaints alleging insider tradingand bad corporate governance practices in KBL.
On the basis of the complaint, the SEBI conductedinvestigation during the period from March 1, 2010 to April 30, 2011 and examinedthe matter relating to dealings in the scrip of KBL. It then ascertainedpossible violation of norms for prohibition insider trading and prohibition offraudulent and unfair trade practices.
Promoters Alpana R. Kirloskar, Arti Atul Kirloskar, JyotsnaGautam Kulkarni, Rahul Chandrakant Kirloskar and Atul Chandrakant Kirloskar,along with others, have been asked to pay over Rs 31.21 crore in total, whichincludes both penalty and digorgement. SEBI had sent show cause notices to themin December last year.
Reacting to the development, a spokesperson for theKirloskar family rejected any suggestion of wrongdoing and added that they planto appeal against the ruling shortly.
"SEBI has today issued a ruling against certainpromoters and directors of KIL, in relation to their sale of shares inKirloskar Brothers, in 2010. Mr Atul Kirloskar and Mr Rahul Kirloskar rejectany suggestion of wrongdoing and maintain that the share sale reflected allappropriate stock exchange disclosures and necessary regulatory pre-clearancesat the time," the spokesperson said.
"We are currently reviewing SEBI's order and seekingappropriate legal advice. We remain confident of our position and plan toappeal the ruling shortly," he added.
In a separate order in the matter, the SEBI asked SanjayKirloskar, the Trustee of Kirloskar Brothers Ltd Employees Welfare TrustScheme, Pratima Sanjay Kirloskar, Prakar Investments Pvt Ltd, Karad Projectsand Motors Ltd to pay a total of over Rs 42.77 lakh, including penalty anddisgorgement.
The regulator has also barred all the noticees from buying,selling deal in shares in any manner whatsoever for a period of three months.
In another order, the SEBI said that as per the thecomplaint, six individual promoter entities of KBL had together sold1,07,18,400 number of shares to Kirloskar Industries Ltd (KIL), the promoterentity of KBL, on October 06, 2010, and this inter se transfer of shares of KBLamong these promoters of the company through block deal on stock exchangemechanism was to take advantage of price sensitive information that they wereprivy to.
The investigation found that as per the Equity ListingAgreement, inter alia, the company is required to immediately inform theexchange of all events, which will have bearing on the performance/operationsof the company as well as price sensitive information.
The decision to acquire shares of KBL from the promotersamounting to upto Rs 275 crore, was a material and price sensitive informationfor the shareholders of the company, it said.
"The subject decision which had a bearing on theperformance/operations of KIL warranted a disclosure to the stock exchanges assoon as the decision was taken by the KIL Board. However, the same was notdisclosed to the stock exchanges by KIL," it said.
Kirloskar Industries Ltd has been asked to pay a penalty ofRs 5 lakh.
A primary reason for the insider trading being illegal in exchangesis that it undermines the transparency of the markets. Investor confidence in animpartial price-discovery mechanism is paramount for the stock markets to beable to continue to provide cheap capital for businesses.