Decoding the years-long Kirloskar family dispute and where it’s headed

Kirloskar Group

Indian Market
by 5paisa Research Team Last Updated: 2022-10-18T12:20:49+05:30

“Wealth does not last beyond three generations,” goes a famous Chinese saying. The histories of most wealthy business families across the world bear testament to this. And India is no exception.

The Bajajs, the Ambanis, the Singhanias, the Bangurs, the Hindujas, the Kanwars, the Nandas, the Wadias, and the Singhs of Ranbaxy-Fortis-Religare fame, have all seen family members spar in public and their businesses being divided among various arms of the family. This has often led to a significant wealth erosion and a huge gap in the net worth of the various siblings over time.

Yet another feud that has been in the news for the last couple of years is the one playing out in the Kirloskar family. The dispute essentially involves Sanjay Kirloskar against his brothers Rahul and Atul.

And this is one very, very messed up legal case. But before dive into the extremely complicated dispute, let’s first take a quick look at the group.

The Kirloskar group—Who runs what

The industrial group’s origins date back to 1888 when Laxmanrao Kirloskar, the great grandfather of Sanjay, Rahul and Atul, started a bicycle business along with his brother Ramuanna Kirloskar. The two brothers set up a bicycle shop in 1896 and incorporated Kirloskar Brothers Ltd in 1920.

By the time India achieved independence in 1947, the second generation of the family had entered business. Sanjay, Rahul and Atul are from the fourth generation of the family, which has had a history of feuds over the decades.

The group has eight listed companies and dozens of unlisted ones. The listed companies are Kirloskar Brothers (KBL), Kirloskar Industries Ltd (KIL), Kirloskar Ferrous Industries Ltd (KFIL), Kirloskar Oil Engines Ltd (KOEL), Kirloskar Pneumatic Co Ltd (KPCL), Kirloskar Electric Co Ltd (KECL), Envair Electrodyne Ltd and GG Dandekar Machine Works Ltd.

Among these, while Sanjay Kirloskar controls KBL, Atul runs KOEL and KFIL while Rahul manages KPCL. Their cousin Vikram Kirloskar manages Toyota Kirloskar Motors Ltd, a joint venture with Japanese automaker Toyota Motor Corp.

Allegations, counter-allegations

On Sunday, KBL refuted allegations that it had spent Rs 274 crore towards payment of professional legal expenses and consultancy charges in the personal dispute of its Chairman and Managing Director Sanjay Kirloskar against his brothers Rahul and Atul.

According to a Press Trust of India report, KPCL Executive Chairman Rahul Kirloskar and KOEL Executive Chairman Atul Kirloskar on Saturday accused KBL of misusing shareholder resources and misusing regulatory machinery after being cleared of insider trading charges by the Securities Appellate Tribunal (SAT).

Rahul and Atul had said that, being a listed entity, KBL should justify the rationale and basis on which the company spent Rs 274 crore towards payment of professional and legal expenses ever since their dispute arose in 2016.

KBL denied the allegations. “We wish to clarify that the legal fees over the last seven years is a total of approximately Rs 70 crore,” KBL said in a statement, cited by Business Standard.

These expenses, the company said, were towards tax matters, labour matters, arbitration pertaining to projects, cases related to domestic and international projects, patents, property documents and for overseas business.

The statement said, “They have wrongly assumed that all these expenses are legal expenses. Major portion of the said Rs 274 crore is professional fees paid to various Indian and overseas reputed consultants to improve the company’s business.”

For a company with a consolidated turnover of over Rs 2,500 crore per annum, KBL said, its “legal expenses of Rs 70 crore over last seven years is logical and does not support any allegation made.”

KBL also said that its biggest shareholder, Kirloskar Industries Ltd (KIL), has not written to it over the last several years on their concerns for payment of professional and legal expenses ever since the disputes arose.

“In fact, they have voted in favour of accounts and dividends every year. And now in 2022, Atul Kirloskar, Chairman of KIL, has issued a statement with these baseless allegations,” KBL said.

On Saturday, Rahul Kirloskar said as per the SAT order there was no insider trading by him and his brother Atul when they sold shares of KBL to Kirloskar Industries in 2010. “Consequently, the SAT order exonerates us from the charges of insider trading and fraudulent trade practices leveled against us by SEBI.”

He also said SAT stated that the SEBI order was passed on the basis of complaints filed by KBL, which had also filed an appeal before SAT for “enhancement of penalties and disgorgement of amounts” against them.

How Kirloskar stocks performed

The feud among the family members seems to have left most of the sizable listed group companies unscathed at least as far as their share price goes. Except KBL, that is, which has lost about 15% over the last one year but is flat year to date in 2022.

In comparison, KIL and Kirloskar Ferrous are up around 15%. Kirloskar Oil has done even better, earning its shareholders nearly 30% over the last 12 months. Kirloskar Pneumatic has gained almost 50% in the same period.

The best performer of the lot has been Kirloskar Electric, a small Rs 300-crore company that has delivered 86% returns for its shareholders over the last one year.

Origins of the dispute

The new allegations are only the latest twist in the saga that began six years ago over the deed of family settlement for the assets of the 134-year-old Kirloskar group.

On September 11, 2009, a deed of family settlement was entered into between Kirloskar Brothers chairman and managing director Sanjay Kirloskar and Kirloskar Oil Engines promoters Vikram, Atul, Rahul and late Gautam Kulkarni, former executive vice-chairman of Kirloskar Oil. The deed gave the ownership, management and control of each branch of the Kirloskar family business to the parties specified in the settlement. The deed was amended in October 2009 after some share sale between the signatories.

In fact, this is the second such dispute that the family has been going through after a settlement in 2009.

The dispute between the siblings ignited after Rahul and Atul-led Kirloskar Oil acquired La Gajjar Machineries in June 2017, which competes with pumps made by Kirloskar Brothers.

Sanjay said in a petition in 2017 that the companies run by his siblings cannot compete with KBL, in line with a family settlement signed in 2009. Sanjay also said the other family members ventured into a competing business and hence acted in breach of the non-compete agreement signed among the family members.

Sanjay argued that since the family members had agreed not to enter competing businesses, the other family members engaged in mala fide transactions to undermine the family settlement.

In its submissions, the Rahul and Atul faction argued that the original agreement was in possession of late Gautam Kulkarni and his family which was produced in the court and, therefore, the matter may be referred to arbitration.

Knocking the SC doors

The legal tangle has only gotten knottier and knottier over the last six years, and has now reached the apex court.

In an order pronounced on June 21, 2021, the Bombay High Court observed that the Supreme Court has already held that the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. The High Court further said the finding of the Civil Judge, Pune, that the arbitration clause had expired along with the family settlement, was erroneous.

The court said as long as signatory entities to the agreement were operational, the family settlement would continue to govern the relationship between parties.

“In our view, in the facts at hand, the appellants (Rahul and Atul) have clearly established that a valid arbitration agreement exists. On the other hand, it is not possible to hold at this stage that the arbitration clause in the family settlement is invalid," the Bombay High Court said and referred the dispute to arbitration.  

In July 2021, the matter reached the Supreme Court when Sanjay appealed against the arbitration order.

The Kirloskar family imbroglio is not very different from the other business family feuds in how legally messy it has been. And like all such fights, this one too has been out in the open and has been playing out in full media glare.

It is unlikely if the sparring family can settle its affairs amicably. What now remains to be seen is if there will be more twists and turns in what promises to be a high-decibel courtroom drama.

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