The Bombay High Court has sought the response of the Securities and Exchange Board of India (Sebi) to the plea filed by five Kirloskar group companies challenging the constitutional validity of recent amendments to Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The amendments mandate disclosure of certain private agreements even when the listed company is not a party to them.
Move Bombay High Court against amendments to disclosure requirements
The petitioners contended that the new disclosure regime introduced through the 2023 Second Amendment and clarified by Sebi in 2024, is unlawful, arbitrary, wholly unreasonable and runs counter to Constitution and basic principles of Indian contract law.
A Bench of Justice MS Sonak and Justice Jitendra Jain on June 11 directed Sebi to file its reply by July 31. The petitioners were asked to file their rejoinder affidavits by August 14.
The matter has been scheduled for final hearing on August 20.
The petitions were filed by Kirloskar Oil Engines Ltd., Kirloskar Pneumatic Co. Ltd., Kirloskar Ferrous Industries Ltd., Kirloskar Industries Ltd. and G.G. Dandekar Properties Ltd.
The pleas challenge the validity of Regulation 30A, Clause 5A of Para A of Part A of Schedule III, and Regulation 30(13) of the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015.
These provisions, which were inserted in 2023, require listed entities to disclose agreements entered into by their promoters, shareholders, key managerial personnel, employees and related parties, if such agreements have the effect of or the potential to impact management, control or impose any restriction or liability on the listed entity.
Notably, the obligation to disclose applies even where the listed company is not a signatory or party to the agreement.
The petitions contend that the provisions are manifestly arbitrary, unreasonable and ultra vires the Constitution, particularly Articles 14 and 19. They also argue that the provisions also violate several principles of the contract law.
According to the petitions, by forcing companies to disclose even such agreements that are executed behind its back, the disclosure regime “runs contrary to the basic principle of “consent” or “consensus ad idem”, a condition basis to the formation of a “contract” under Indian laws.
Further, the petitions allege that Sebi has assumed adjudicatory powers reserved for civil courts by determining whether such agreements affect a company’s obligations without affording the company an opportunity to contest the applicability or enforceability of the agreement
The immediate trigger for the present challenge was Sebi’s directions, issued through communications dated October 7 and December 30, 2024, which required Kirloskar companies to disclose a 2009 Deed of Family Settlement entered into among members of the Kirloskar family, some of whom are promoters of the company.
Though the company was not a party to the agreement, Sebi held that the agreement imposed indirect restrictions on it and must be disclosed under Regulation 30A read with Clause 5A.
The petitioners have also challenged Regulation 30(13), which obligates listed entities to disclose events that are the subject of communications from any regulatory or enforcement authority regardless of the board’s own assessment of materiality.
According to the petitioners, this deprives the board of directors of their discretion and violates principles of corporate autonomy.
Senior Advocate Darius Khambata along with advocates Tushar Hathiramani, Tushar Ajinkya, Sukanya Sehgal and Vedant Lathi instructed by ThinkLaw appeared for Kirloskar group of companies.
Advocate General Birendra Saraf along with advocates Vishal Kanade, Nidhi Singh, Nistin Shrikhande and Nidhi Faganiya instructed by Vidhii Partners represented Sebi.
Senior Advocate Janak Dwarkadas, along with advocates Chirag Kamdar, Rustam J Gagrat, Ipshita Sen, Suresh Khannan and Priscilla Daolagupu appeared for Kirloskar Brothers.