The Securities and Exchange Board of India (Sebi), in an important move, responded to a challenge by five Kirloskar Group companies at the Bombay High Court, holding that shareholders’ right to information outweighs promoters’ privacy in disclosures of private agreements, and that they must be informed of any pact that could affect a listed company’s management.
“From Sebi’s perspective, it gets decided that the family settlement will change the promoter group structure,” said Leelavathi Naidu, Senior Partner at IC RegFin Legal Partners.
Kirloskar Group challenges Sebi norm
The challenge by the Kirloskar Group companies was on the constitutional validity of a regulation that mandates disclosure of private agreements by promoters, directors, and other stakeholders. Sebi’s Listing Obligations and Disclosure Requirements (LODR) regulations require listed companies to disclose binding family agreements that directly or indirectly impact management, control, or impose significant liabilities or restrictions on the listed company.
“This is quite a significant development because it goes to the heart of how Indian securities regulation views the balance between shareholder rights and promoter privacy,” said Prateek Bansal, Partner, White & Brief – Advocates and Solicitors.
For years, private family settlements or promoter agreements that affected control were kept outside the public domain, even though they could materially influence the direction of a listed company. Sebi is now trying to close a long-standing gap that left minority shareholders in the dark.
“The relevance lies in its unequivocal assertion that promoter or family settlements, once they bear upon the governance or control of a listed entity, cannot be insulated from disclosure. It reinforces the principle that transparency is a statutory obligation, not a negotiable courtesy,” said Ketan Mukhija, Senior Partner at Burgeon Law.
Court outcome will redefine rules for every family-run or promoter-driven business in India
The outcome of this case will matter not just for the Kirloskar Group but for every family-run or promoter-driven business in India, because it will determine how much sunlight is ultimately allowed into boardrooms and family arrangements that have a direct bearing on listed companies, said the lawyers.
Kirloskar Oil Engines Ltd (KOEL), Kirloskar Ferrous Industries Ltd, Kirloskar Pneumatic Company Ltd, Kirloskar Industries Ltd, and GG Dandekar Properties Ltd had individually filed writ petitions challenging Sebi’s regulations.
According to these five companies, the regulator had overstepped its mandate by effectively compelling listed companies to treat third-party agreements as binding and material. The petitioners contested Regulation 30A and Clause 5A of Para A of Part A of Schedule III of the Sebi LODR Regulations, 2015, as well as Sebi circulars dated July 13, 2023, and November 11, 2024, which operationalised these rules.
Sebi’s disclosure rules were “manifestly arbitrary,” “disproportionate,” and “impermissibly retrospective,” they argued. The disclosure requirements aim to prevent hidden arrangements among key shareholders and families that could affect investor interests or governance.
These rules were brought in to enhance transparency in listed companies, particularly regarding private arrangements among promoters or key individuals. To simply put, if promoters, directors, or related parties enter into any agreement, formal or informal, even without the company’s direct involvement, they must notify the company. If such agreements have any impact on control or management, the company must disclose them to the stock exchanges and also publish them on its website.
The objective of these rules is to safeguard investor awareness and confidence. Disputes among promoters or private arrangements have the potential to materially influence a company’s future, including its control, governance structure, and management. SEBI seeks to ensure that such developments are transparently disclosed and not withheld from stakeholders, said Khushbu Chhajed, Partner at MDP Legal, Advocates & Solicitors.