A family at war: Kirloskar siblings await SC judgement on arbitration

The Kirloskars are fighting a legal war over group assets with Sanjay Kirloskar chairman of Kirloskar Brothers Ltd on one side, and his brothers, Atul, 66, and Rahul, 59, on the on the other side

The decades-long sibling war among the Kirloskar brothers will have to wait for the decision of the larger five-judge Bench of the Supreme Court which is currently hearing several petitions on arbitration. The Kirloskars are fighting a legal war over group assets with Sanjay Kirloskar, the 65-year old chairman of Kirloskar Brothers Ltd (KBL) on one side, and his brothers, Atul, 66, and Rahul, 59, on the other side.

The three are sons of Chandrakant Kirloskar and the grandsons of noted industrialist S L Kirloskar.

The Supreme Court had asked the brothers to settle their pending issues via mediation as they were sparring over the deed of family settlement relating to the division of assets. The matter reached the Supreme Court after Sanjay appealed against a previous Bombay High Court order that had also asked the brothers to seek arbitration.

Despite the Supreme Court’s nudge last year, the brothers could not settle their dispute and the top court in September this year asked the brothers to wait for the larger Bench decision on arbitration, which is pending.

“The issues are quite complicated and all the pending issues will have to be decided by the Supreme Court as several mediation efforts in the past by eminent people have failed,” said a lawyer close to the development.

"The disputes are pending before the constitution bench which is due to hear matters from December onwards. The issues are whether the validity of an arbitration clause be challenged, subsequently, under Section 11 of the Arbitration and Conciliation Act, 1996 if the Court prima facie observes that there exists a valid arbitration agreement?," said Abhinay Sharma, Managing Partner, ASL Partners. Besides, the court will have to clarify whether the parties to an arbitration agreement deny the effect and operation of the arbitration agreement, by way of an amendment, once an application is  filed?, Sharma said. 

The brothers are also fighting a separate legal battle with each other over the Securities and Exchange Board of India’s (Sebi’s) order, which had slapped insider trading charges against Atul and Rahul in 2010. Last week, the Securities and Appellate Tribunal (SAT) set aside the market regulator’s order – thus giving the Atul/Rahul camp a fillip.  

Soon after the SAT decision, both brothers blasted KBL, a listed entity, which had filed an appeal before appellate tribunal for an enhancement of penalties and disgorgement of amounts against them. “This appeal has been set aside by SAT on the ground that KBL is not an aggrieved person by the decision of Sebi,” the brothers said while asking KBL not to waste company’s funds to pay huge legal fees. KBL said the legal fees are not as high as the Atul camp had claimed.

With both sides taking strong positions, this matter is also expected to move to the Supreme Court.

As of now, Atul runs Kirloskar Oil and Kirloskar Ferrous Industries, and Rahul is managing Kirloskar Pneumatic Co. The group was founded by their great grandfather, Laxmanrao Kirloskar in 1910 and most of the listed companies are doing well financially (see chart).  

War over assets

The dispute between the siblings had ignited after Kirloskar Oil had acquired La Gajjar Machineries in June 2017 which competes with the pumps made by KBL. According to Sanjay, the companies run by his siblings cannot compete with KBL, in line with a family settlement of 2009. Sanjay wanted the dispute to be tried in a Pune civil court, but the Bombay High Court sent the entire dispute to arbitration on the basis of the family settlement agreement of 2009.

In his submissions to the Bombay High Court, Sanjay said while he had complied with all the obligations of the family settlement, he was shocked to learn that the other family members ventured into a business that was competing with KBL’s core business, which amounted to a 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 as a matter of policy and tradition, which has been formally recorded in the settlement, the other family members engaged in mala fide transactions to undermine the family settlement.

In their submissions, Rahul and Atul argued that the original agreement was in possession of late Gautam Kulkarni and his family (another family branch) which was produced in the court and therefore the matter may be referred to arbitration. The Kulkarni family moved out of the Kirloskar group in February this year by selling their shares in Kirloskar Pneumatics to a clutch of mutual funds.

In its order pronounced on June 21, the Bombay High Court had 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 is erroneous.

The court said as long as signatory entities to the agreement are operational, the family settlement would continue to govern the relationship between parties. Sanjay moved the Supreme Court and the matter is now pending.