SEBI INVESTIGATION EXPOSES “AGENT” ALAWANI FOR HELPING ATUL KIRLOSKAR IN 275 CR FRAUD AT KIRLOSKAR INDUSTRIES LIMITED

 

SEBI has slapped a penalty of Rs.15 lakhs to Kirloskar Industries (KIL) Director, AN Alawani for indulging in fraudulent and unfair trade practices and alleged that he helped the promoters who owned 15% of the company to walk away with Rs. 275 crores. The regular has also barred him from the capital markets for period of six months.

Even though  Mr. Alawani did not trade in shares in his own personal trading account, SEBI in their note said he  was an insider as he was in possession of the UPSI. He was trading as an authorised “agent” for and behalf of the Kirloskar Industries (KIL). The note added that he aided KIL promoters in selling their shares of Kirloskar Brothers Ltd (KBL) to Kirloskar Industries (KIL) thus together have allegedly committed fraud on KIL and public/ minority shareholders of the company.

In KBL’s board meeting held on 27th July 2010, the management disclosed the poor profitability of KBL. This was clearly confidential information, and also UPSI under SEBI regulations. KBL directors Gautam Kulkarni, Rahul Kirloskar and AN Alawani who attended the said board meeting, were privy to this UPSI. The very next day, on July 28, at the Kirloskar Industries board meeting, its Chairman Atul Kirloskar, Rahul Kirloskar's brother, added a new item, not on the agenda, shockingly suggesting that Kirloskar Industries invest its surplus funds by buying KBL shares on the false representation that KBL would do well.

After suggesting that Kirloskar Industries buys KBL shares, Atul Kirloskar and Nihal (Gautam Kulkarni’s son) being directly interested as sellers, “excused” themselves from discussions on this subject. It was left to two Group executives AN Alawani – the then Audit Committee Chairman, AR Sathe who chaired the board meeting in the absence of Atul Kirloskar, and another director, to vote to buy the KBL shares.

SEBI said, that Mr.Alawani who was on the audit committee chairman of Kirloskar Industries was also on the board of KBL and being a non-executive director, makes him a ’connected person’ with KBL, and thus it is reasonably expected that he had access to unpublished price sensitive information  of KBL. He had participated in Kirloskar Industries board meeting and thus had a direct role and access to UPSI leading to the inducement of KIL to buy shares of KBL.

Despite hearing about the poor profitability of KBL the previous day, Mr. Alawani did not tell the other directors that it would be wrong to invest Kirloskar Industries’ funds in KBL shares, but participated and voted to buy the shares of a company he knew was going to have very poor profitability for the long term. He helped the promoters who owned 15% of the company to walk away with Rs. 275 crores.

SEBI has also asked Gautam Kulkarni, Rahul Kirloskar, Atul Kirloskar, Alpana Kirloskar, Jyotsna Kulkarni and Arti Kirloskar to pay up Rs. 31.21 crore in 45 days and have been barred from the capital markets for six months, for indulging in insider trading and committing fraud on public shareholders.