SEBI Penalises Kirloskar Brother's Promotors for Committing Fraud

SEBI Penalises Kirloskar Brother's Promotors for Committing Fraud

The Security Exchange Board of India (SEBI) on Tuesday passed an order and levied penalties on the three Kirloskar Brothers for acts committing fraud while dealing in the shares of Kirloskar Brothers Ltd. On the other hand, Kirloskar Industries Ltd has been charged for non-compliance with listing regulations.

The SEBI imposed a penalty of (Rs. 5,00,000 + Rs. 26,11,960) approximately of Rs 31 crore on Kirloskar Brothers Ltd.'s promoters and others for reportedly indulging in insider trading and committing fraud on public shareholders. The case relates to trading and transactions made in back 2010. The entities currently have been barred from entering capital markets for the time being, for three months to six months, as per the order passed by the regulator in three separate orders. From the total amount of Rs 31.21 crore, they have been asked to release Rs 16.6 crore of ill-gotten gains along with 4% interest, and in addition a penalty of Rs 14.5 crore has been levied on them.

Kirloskar Brothers Limited (KBL) was incorporated on January 15, 1920 and registered with Registrar of Companies, Pune. KBL is listed on Bombay Stock Exchange Limited (BSE) and National Stock Exchange Limited (NSE). Securities and Exchange Board of India had received various complaints alleging insider trading and bad corporate governance practices in KBL.

Pursuant to the receipt of complaints, SEBI conducted an investigation during the period from March 1, 2010 to April 30, 2011 (investigation period) into the matter relating to dealings in the scrip of KBL to ascertain possible violation of the provisions of SEBI Act, 1992, SEBI (Prohibition Insider Trading) Regulations, 1992 (PIT Regulations, 1992) and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations).

Investigation revealed that during the investigation period, promoters and directors of KBL had traded in scrip of KBL while in possession of unpublished price sensitive information (UPSI) and made wrongful gains by avoiding losses; and promoters and directors of KBL had submitted incorrect undertaking / declaration to KBL.

SEBI observed that few directors of KIL had persuaded KIL to buy shares from the promoter group and in this manner selling the shares of KBL to KIL at a time unfavorable to KIL and its minority shareholders.

Thus, directors and promoters had caused unfair treatment to the minority shareholders of KIL in a fraudulent manner and violated the provisions, noted SEBI.

The board further observed, "the provisions of Section 15HB of SEBI Act, 1992, it is in the view that Sanjay Kirloskar & Pratima Sanjay Kirloskar are liable for monetary penalty for their violations as established herein.

In this regard, it is noted that Sanjay Kirloskar and Pratima Sanjay Kirloskar had submitted incorrect declarations / undertakings dated October 12, 2010 by stating that they are not in possession of UPSI-1 to KBL while obtaining pre-clearances for transaction executed on October 14, 2010 and thereby, violated Part A, of clause 3.3 of Schedule 1 i.e. Model Code of Conduct for Prevention of Insider Trading, specified in Regulation 12(1) of PIT Regulations 1992.

The violation of the said provisions of PIT Regulations, 1992 by Sanjay Kirloskar and Pratima Sanjay Kirloskar attracts imposition of monetary penalty under section 15HB of SEBI Act on them."