Mumbai: The Securities and Exchange Board of India (Sebi) has told the Bombay High Court that shareholders’ right to information outweighs promoters’ claims of privacy when it comes to disclosure of private agreements.

In an affidavit filed in response to a challenge by five Kirloskar Group companies, the market regulator argued that investors must be informed of any pact that could affect a listed company’s management, control, or business, even if the firm is not a party to it.

Mint has reviewed a copy of the affidavit, which firmly rejects the petitioners’ claims that the rules are arbitrary and overreaching.

Sebi’s filing is the latest development in a high-stakes legal battle initiated by Kirloskar firms to challenge the validity of rules mandating the disclosure of private family settlements and other promoter-level agreements.

At the heart of Sebi’s argument is the principle of investor protection. The regulator stated that the disclosure of a 2009 Deed of Family Settlement (DFS) by the Kirloskar companies, which it had advised in December 2024, “cannot be said to be anything but in the interest of the shareholders of the Petitioners who have the right to be informed of such material event/ information.”

The affidavit directly confronts the core of the Kirloskar companies’ petition. While the firms argue that being forced to disclose a private agreement to which they are not a party is a legal overreach, Sebi contends that the impact of such agreements on a listed entity makes them material for public shareholders.

“Non-disclosure of material information creates information asymmetry and results in significant market reaction when it is known to the public at large at a later stage,” Sebi stated in its affidavit.

The regulator said the 2023 amendment to its Listing Obligations and Disclosure Requirements (LODR) regulations was specifically designed to plug this gap.

The regulator noted that there had been instances where promoters entered into agreements with third parties that placed certain restrictions on the listed entity; however, these facts were not disclosed to the listed entity and its shareholders.

What led to the dispute

This legal tussle was triggered after five listed entities: Kirloskar Oil Engines Ltd (KOEL), Kirloskar Ferrous Industries Ltd, Kirloskar Pneumatic Company Ltd, Kirloskar Industries Ltd, and GG Dandekar Properties Ltd challenged Regulation 30A and Clause 5A of the LODR Regulations.

They termed the rules disproportionate and impermissibly retrospective.

The companies have contested Sebi’s advisory to disclose the 2009 DFS, a private arrangement that outlined control and ownership across Kirloskar companies among different family branches.

Sebi, however, dismissed these arguments as a grievance against its directive. It also argued that the petitions in the high court are premature and not maintainable since the companies have already filed an appeal against the directive before the Securities Appellate Tribunal (SAT), which is pending. Sebi submitted that the petitioners ought to await the outcome of the decision of SAT in the said appeals.

“Agreements that impact the management or control of a listed entity or intend to restrict or create any liability on a listed entity are material information, which are required to be disclosed to the shareholders and the public,” Sebi’s affidavit said.

The dispute has drawn wider attention. Kirloskar Brothers Ltd, led by Sanjay Kirloskar, has filed an intervention application, while pointing out that other major companies, including Hikal, TVS Motor, and Adani Wilmar, have already complied with the disclosure rules.