Kirloskar Industries seeks EGM of Kirloskar Brothers; demands forensic audit

On October 15, after being cleared of insider trading charges by the Securities Appellate Tribunal (SAT), Rahul and Atul had raised questions over corporate governance of KBL. They were accused of insider trading when they sold shares of KBL to KIL back in 2010.

They had demanded that being a listed entity, KBL should justify the rationale and basis on which it has been spending huge amounts, aggregating to approximately Rs 274 crore, towards payment of professional legal expenses and consultancy charges ever since their dispute arose in 2016. In its rebuttal, KBL had said the legal fees over the last seven years were approximately Rs 70 crore, while a "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".

KIL, in its filing, said KBL's "admissions along with certain recent orders passed against" it raise certain serious and important questions in relation to the conduct of affairs of the KBL board especially of the independence of the independent directors, decision-making process pertaining to initiation of legal proceedings by KBL and expending huge legal expenses towards initiating such legal proceedings. At the EGM, KIL demanded that "an independent and reputed external entity be appointed as a forensic auditor to conduct a forensic audit in the affairs of KBL for investigation and verification of all records, books of accounts, minutes books, other documents of KBL and conduct of the board of directors of KBL including independent director…"

The company further said the audit must look into the conduct of the KBL board, especially the independent directors, on whether it has "verified the claims made by Sanjay Kirloskar in relation to the Deed of Family Settlement (DFS), in order to ensure that they have not been misled by the claims made" by the latter. The audit must also find out whether the KBL board, including independent directors, have sought any independent legal advice pertaining to the same, especially in view of the pending personal disputes amongst the promoter family.

KIL also demanded that the audit must find out "what steps have been taken by KBL to actually bind KBL with the DFS in accordance with the provisions of applicable law" as Sanjay has been "repeatedly claiming that KBL has taken the DFS on record". The company further sought to know if "the independent directors acted and approved filing of cases by KBL solely on the basis of claims made by Sanjay Kirloskar without actually verifying the locus or the benefit to KBL for initiating these cases?" and if they were aware of KBL funding cases/litigations by third parties.

In the regulatory filing, KIL said the EGM should take up the resolution for "the forensic auditor to submit its report in writing directly to the shareholders of KBL while ensuring that the same is not tampered with, within a period of 60 days from the date of the EGM."