Family Deeds and Market Needs: The Pitfalls of SEBI’s Sweeping Disclosure Mandates

[Malvika Chandra and Mansi Awasthi are both third-year law students at Hidayatullah National Law University, Raipur.]

Introduction

In a recent affidavit filed in response to writ petitions by five Kirloskar group companies, the Securities and Exchange Board of India (SEBI), on the 3^rd of September 2025, contended that shareholders’ right to information takes precedence over the principles of privity and promoters’ claims of privacy in the context of disclosing private family agreements.

The provisions under scrutiny include Regulation 30A and Clause 5A of Para A of Part A of Schedule III of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, along with SEBI circulars dated 13 July 2023 and 11 November 2024, which operationalised these rules.

This confrontation between the Kirloskar companies and SEBI’s Listing Obligations and Disclosure Requirements (LODR) framework raises a critical corporate governance question: Can listing obligations, designed to enhance transparency and safeguard shareholder interests, legitimately override the privacy of family agreements and challenge the long-established legal principle of privity of contract?

This piece examines the arguments advanced by both parties and evaluates whether the application of LODR requirements in this context can be considered as arbitrary in nature. The piece shall also highlight the regulatory clarity found in the US SEC’s approach in a similar situation.

Understanding the Kirloskar Family Dispute

At the heart of this dispute is the 2009 Deed of Family Settlement (DFS) entered into by three Kirloskar brothers, Atul, Sanjay, and Rahul Kirloskar. Apart from dividing leadership and shareholding responsibilities, the DFS included a non-compete clause, which triggered this dispute.

In 2017, Sanjay accused Atul of breaching the DFS. He filed a civil suit claiming that Kirloskar Oil Engines Ltd (KOEL), the company led by Atul, had breached the non-compete clause by acquiring a pump manufacturing company. He further demanded that KOEL disclose the DFS under Regulation 30A of LODR. SEBI also issued an order in December 2024 advising KOEL to disclose this DFS, stating that it impacted the ‘management and control’ of the company and ‘indirectly imposed restrictions’ on the company.

KOEL refused to acknowledge the binding nature of the DFS, stating that it was never a party to the agreement. The agreement was a private family arrangement signed by the brothers in their personal capacity. Therefore, KOEL claimed that it had no obligation to disclose the agreement, and the enforcement of the same would be a breach of settled principles of contract and company law.

KOEL’s Pushback on SEBI’s Disclosure Mandate

Regulation 30A, read with Clause 5A, is unusual in that it requires listed companies to disclose not only agreements they are party to, but also those entered into by promoters, directors, or even employees, provided these agreements affect the company’s control, governance, or management.

KOEL’s contention was simple. As per the Doctrine of Privity in contracts, individuals not party to a contract shall not be bound by the rights and obligations arising from such contracts. The doctrine, first established in the case of Tweedle v Atkinson, has subsequently been followed in both English and Indian contract law cases.

There are, of course, exceptions to this rule applicable in certain specific cases. The most notable of these exceptions is that of third-party beneficiaries. Established in the case of Beswick v Beswick, these include third-party individuals who have a legitimate interest in the contract, and for the benefit of whom the contract has been made.

SEBI’s shareholder protection argument may attempt to invoke this exception; however, such reliance would be misplaced and is readily negated on two grounds. The third-party beneficiary in such contracts must be an ‘intended’ beneficiary, meaning that the contract must have been executed with the benefit of that third party in mind. In the present case, this requirement is not satisfied: the DFS was a private agreement entered into solely with the interests of the brothers in view. Moreover, as affirmed in Darlington Borough Council v Wiltshire Northern Ltd and M.C. Chacko v State Bank of Travancore, the principles of privity make it clear that no burden may be imposed on a third party without their consent. That is precisely what is occurring here, as KOEL is being compelled to disclose information arising from a contract to which it is not even a party.

KOEL claims that such regulations are arbitrary, as under 30A, any disgruntled employee may enter into any contract that may affect the control and management of the company, and the disclosure obligations for the same would fall on the unwitting company.

Shareholder Protection and SEBI’s Defence

LODR regulations are designed to ensure transparency and protect shareholder rights. SEBI has consistently argued that such disclosures are essential to understand the company’s management and strategic direction. Such agreements can significantly affect the course of business operations. Both shareholders and potential investors must be aware of such changes to make informed decisions.

This rationale is reflected in recent cases such as the Adani–NDTV takeover and the Future Group dispute. In both instances, the listed companies were not signatories to the underlying agreements, yet those agreements had a decisive impact on their control and governance. Considering the larger public interest, of course, SEBI’s stance has a stronger hold.

SEBI’s insistence on such disclosures is also consistent with its broader approach to regulatory compliance. In Securekloud Technologies Ltd v. SEBI, the Securities Appellate Tribunal upheld penalties for related party transactions approved retrospectively, reiterating that regulations requiring prior approval demand strict compliance. The principle that subsequent ratification cannot cure non-compliance reflects SEBI’s view that transparency must be proactive, not reactive. Similarly, Regulation 30A obligates disclosure of promoter and shareholder agreements even when the company is not a direct party, because such agreements can materially reshape control and governance.

SEBI’s stance is further strengthened by the strict compliance of these rules by several listed companies, as has also been highlighted by Kirloskar Brothers Limited (KBL), the company led by Sanjay Kirloskar, in their intervention application.

Disclosure Does Not Mean Acceptance of Binding Obligations

The DFS in the Kirloskar case is currently sub judice. The question of its legal enforceability has been pending in a civil court since 2018, with Sanjay Kirloskar seeking to establish its binding force. It is also pertinent to note that Sanjay Kirloskar has already disclosed his part of the DFS and demanded that KOEL and other group firms disclose the DFS. The underlying concern behind the push for disclosure is that, under the literal interpretation of Regulation 30A’s headnote, “agreements binding listed entity,” once an agreement like the DFS is disclosed, it is deemed binding on the company. In other words, disclosure is equated with acceptance of its binding nature by the listed entity.

SEBI addressed these concerns in its Bombay High Court affidavit, affirming that disclosure does not equate to ratification or acceptance of contractual obligations. The regulatory requirement is solely to inform the market of such agreements, whether binding or not. SEBI explicitly stated that companies remain free to accompany such disclosure with remarks clarifying non-enforceability or lack of intention to be bound. There is no legal compulsion for listed entities to perform obligations under third-party agreements by virtue of disclosure alone. SEBI also clarified that disclosure by itself will not have an impact on its management or control or impose any restriction. Post SEBI’s affidavit, the petitioner companies sought to withdraw their petitions, and the same was permitted by the Bombay HC.

Despite this clarification, the Regulation’s broad sweep remains worrisome. Its scope extends even to agreements signed by employees, irrespective of actual authority or company involvement. Under Clause 5A, companies must disclose any agreements entered into by specified persons if such arrangements can potentially impact management, control, restrict company actions, or create liabilities. This raises fairness concerns: how reasonable is it to expect a company to track and disclose the personal agreements of employees, especially when not authorised or executed in company capacity? While SEBI’s affidavit in the Bombay High Court tempers the risk of automatic binding effect, the clarification is not widely published or formalised for market reference, creating persistent uncertainty for companies and investors alike. For genuine transparency, SEBI must issue a public, formal clarification of Regulation 30A or better, move an amendment, that disclosure does not equal contractual binding, and companies should be encouraged to clarify the status of contested, sub judice, or non-binding agreements when disclosing.

Limiting Disclosure to Binding Agreements: Lessons from the US SEC

Regulatory ambiguity relating to the disclosure of non-binding agreements isn’t unique to Indian securities law. Similar regulatory debates have shaped disclosure regimes worldwide. In particular, the United States Securities and Exchange Commission (U.S. SEC) experience with its Form 8-K proposal provides a telling precedent. Initially, the SEC sought to require listed companies to disclose “material agreements,” which include letters of intent and other non-binding arrangements under Item 1.01. Market feedback was unanimous in opposition: Requiring disclosure of non-binding agreements would represent “a dramatic and disruptive change,” undermining clarity and predictability in corporate disclosures. Ultimately, the SEC amended its rules to limit disclosure to “Material Definitive Agreements” - those which are both material and legally enforceable against the registrant. This revision refocused the regime on arrangements that truly impact a company’s obligations or rights, erasing ambiguity created by the original, broader headnote.

The situation with SEBI’s Regulation 30A is strikingly similar, with its headnote and text inviting confusion over the binding effect and scope of required disclosures. A more prudent approach, in line with global best practice, would be to amend the regulation to specifically require disclosure only of agreements that materially bind or obligate the listed entity, or are otherwise clearly enforceable, or at least amend the headnote of the regulation so that it no longer gives the impression of disclosure making agreements binding.

Conclusion

A bare reading of Regulation 30A, along with Clause 5A, shows that the disclosure mandate centers around two key features: the headnote suggesting that agreements binding listed entities must be disclosed, and Clause 5A which requires reporting of any arrangement that could directly, indirectly, or potentially affect the management or control of a listed entity, or expose it to restrictions or liabilities. SEBI, vide its affidavit in the Bombay High Court, has effectively negated both these requirements and has given leeway to the listed entity to include disclaimers clarifying the non-binding nature of such agreements along with the disclosure.

If disclosure does not bind the company, nor does it have any substantive effect on management or control, then one is left to wonder about the true utility of the disclosure requirement in its current form. The Regulation, as it stands, requires clarity in not only its content but also its intent. This is because it is only through a well-calibrated regulation, balancing transparency, enforceability, and commercial reality, can the securities market can function efficiently and fairly for all stakeholders.