Sebi’s Inconsistency In Kirloskar Saga: A Regulatory Crisis with Far-reaching I ...
EpilogueStock Market regulatorSEBI's LODR (Listing Obligations and Disclosure Rules) that mandate listed companies disclose all “material facts” to its shareholders, form the core of the Watch Dog's regulatory authority and governance. Yet, SEBI's aggressive enforcement of LODR—demanding Kirloskar firms reveal the 2009 family settlement as “material”—crumbled, exposing the regulator's panic under heat when one of the disputing parties challenged the regulator on its core rules.
In September 2025, before the Bombay High Court, SEBI diluted its stance on LODR by clarifying that mandatory disclosures under its famed LODR “impose no binding liabilities or admissions on companies,” allowing the petitioner to withdraw challenges without merits decided— a face-saving retreat that neuters its own rules' bite.
This capitulation puts SEBI itself on trial in the saga, revealing a toothless watchdog that falters at legal pushback, undermining the very market integrity it claims to guard.
The Story
The protracted dispute between Kirloskar Brothers Ltd (KBL) and Kirloskar Oil Engines Ltd (KOEL) over a 2009 Deed of Family Settlement (DFS) has evolved from a family feud into a defining moment for SEBI the Securities and Exchange Board of India (Sebi). The regulator’s inconsistent stance—from filing an additional affidavit before the Supreme Court of India demanding disclosure of the family settlement by both sides, followed by issuing a resolute mandate in December 2024, only to dilute it with a contradictory affidavit in September 2025—has cast a shadow over its credibility.
More critically, Sebi’s wavering approach risks undermining India’s corporate governance framework, eroding investor confidence, and jeopardising systemic vulnerabilities that could reverberate across the nation’s financial markets and beyond.
The Kirloskar Dispute: A Symptom of a Larger Malaise
At the heart of the Kirloskar saga lies a 2009 DFS, designed to delineate ownership, management, and control within the family’s storied industrial empire, which traces its origins to a 19th-century bicycle shop.
The agreement’s non-compete clauses, intended to ensure thatfamily entities do not encroach on each other’s businesses, were meant to ensure clarity and stability. Yet, its inconsistent application—evident in the ₹250 crore share transfer by KOEL of Toyota JV entities in 2009 , contrasted with KOEL’s 2017 acquisition of La Gajjar Machineries, a direct competitor to KBL—has fueled a legal battle now pending before the Supreme Court.
The DFS’s disclosure, mandated under Sebi’s Listing Obligations and Disclosure Requirements (LODR) Regulation 30A and Clause 5A, has become a flashpoint, exposing the fragility of Sebi’s regulatory resolve.
On December 30, 2024, Sebi issued a clear and robust order, mandating KOEL and other Kirloskar entities to disclose the DFS under LODR provisions. The regulator’s findings were unambiguous:
The DFS’s non-compete clauses indirectly bind listed entities, even if they are not signatories.
The agreement is “subsisting” and “material,” with implications for shareholder interests.
Disclosure is mandatory “regardless of whether the listed entity is a party,” to ensure “information symmetry” for informed decision-making.
This directive was a cornerstone of Sebi’s commitment to transparency and good corporate governance, particularly in India’s promoter-driven corporate landscape, where family agreements often shape corporate strategy. It signaled a robust defense of minority shareholder rights, earning praise from investors and governance advocates who saw it as a step toward curbing the opacity of promoter pacts.
The 2025 Reversal: A Step Backward
By September 2025, Sebi’s resolve faltered. Responding to writ petitions (Nos. 702, 495, 560, 607, and 710 of 2025) filed by KOEL, Kirloskar Industries Ltd, and three other group companies challenging the constitutional validity of Reg 30A, Sebi submitted affidavits before the Bombay High Court that marked a significant retreat.
The regulator stated that disclosures under the contested regulations “do not imply that companies admit to the binding nature of such agreements or incur liabilities.” This stance, allowing companies to append disclaimers to neutralize disclosures, effectively undermined the mandatory nature of its 2024 order. The Bombay High Court, in its September 23, 2025, order, permitted the petitioners to withdraw their challenges but clarified that Sebi’s statement did not dilute prior orders or impact ongoing disputes before the Securities Appellate Tribunal (SAT) or other forums.
KBL strongly objected, arguing that Sebi’s shift weakened its own regulatory framework. The damage, however, was done: Sebi’s inconsistency provided a pathway for prolonging disputes and diminished accountability.
KOEL’s Strategic Maneuvering Amid Sebi’s Inconsistency
KOEL swiftly leveraged Sebi’s softened stance. In a September 26, 2025, stock exchange disclosure, it cited Sebi’s “non-binding” position to assert that the DFS imposed no enforceable restrictions. But KBL, in a pointed October 3, 2025, letter to BSE and NSE, described this as a “serious misrepresentation” to investors, urging action against KOEL’s board and com0pliance officer for violating Reg 30A.
KOEL’s ability to navigate Sebi’s inconsistency—maintaining ambiguity over the DFS’s scope while pursuing litigation across Sebi, SAT, and the High Court—has prolonged a dispute that has lingered for nearly a decade since LODR’s introduction. This selective adherence to the DFS, evident in its compliance with the Toyota joint venture share transfers obligated by the DFS, but disregard for non-compete clauses, highlights the risks of regulatory uncertainty.
Systemic Implications: A Threat to India’s Financial Ecosystem
Sebi’s inconsistent stance in the Kirloskar case transcends the specifics of a family dispute, posing profound risks to India’s financial markets and corporate governance framework. By signaling that disclosures under Reg 30A can be diluted with disclaimers, Sebi has inadvertently created a loophole that undermines the LODR’s core objective: ensuring transparency in promoter agreements that influence management or control. This is in stark contrast to all other promoters who have disclosed their private agreements.
The broader implications are alarming and far-reaching:
Erosion of Investor Confidence: India’s markets, with over 5,000 listed companies, rely on transparent disclosures to empower investors. Permitting diluted disclosures creates information asymmetries, leaving shareholders unable to assess risks tied to promoter agreements. When undisclosed pacts surface—potentially altering corporate control or strategy—the resulting market shocks could erode billions in investor wealth, particularly for retail investors who form the backbone of India’s equity markets.
Weakening of Corporate Governance: Promoter-driven firms dominate India’s corporate landscape, with family agreements often dictating strategic decisions. Sebi’s precedent allows promoters to disclose such pacts selectively, appending disclaimers to evade accountability. This undermines the LODR’s foundation, fostering opacity and weakening governance standards critical to investor protection.
Prolonged Regulatory Uncertainty: Sebi’s inconsistent enforcement emboldens companies to engage in prolonged litigation, as seen in KOEL’s multi-forum strategy. This delays compliance, frustrates justice, and burdens India’s judicial and regulatory systems, eroding public trust in market oversight.
Damage to Global Competitiveness: As India positions itself as a global financial hub, Sebi’s wavering stance signals regulatory weakness to international investors. Foreign capital, already cautious about governance risks in promoter-driven markets, may shy away, hampering India’s ability to attract the $1 trillion in annual foreign direct investment targeted by its economic policies.
A self-weakened Sebi risks diminishing India’s standing relative to global financial centers like Singapore or London.
A Precedent for Evasion: The Kirloskar case sets a dangerous precedent, offering promoters a playbook to sidestep LODR obligations. By disclosing agreements with disclaimers, companies can obscure their true impact, fostering ambiguity that benefits promoters at the expense of shareholders and market integrity.
A Pivotal Moment for Sebi and India’s Markets
The Kirloskar saga is a litmus test for Sebi’s ability to uphold market integrity. While KBL’s October 3, 2025, letter to the exchanges could be a clarion call, pressing BSE and NSE to address KOEL’s alleged misrepresentations, the responsibility rests squarely with Sebi to restore confidence.
The regulator must reconcile its contradictory positions, clarify its stance, and enforce Reg 30A with unwavering consistency. Failure to do so risks entrenching a culture of regulatory evasion, where promoters exploit loopholes to obscure critical agreements, leaving investors vulnerable and markets unstable.
India stands at a critical juncture. Its ambition to become a global economic powerhouse hinges on a robust, transparent financial ecosystem. Sebi’s handling of the Kirloskar case will determine whether it can rise as a steadfast guardian of market integrity or falter, allowing governance gaps to undermine investor trust and global confidence.
The stakes extend beyond one family’s feud to the heart of India’s financial future. Sebi must act decisively—reaffirming its commitment to transparency and accountability—or risk a legacy of diminished credibility that could haunt India’s markets for years to come.
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