The Securities and Exchange Board on India through an interim ex-parte order passed on Thursday has restrained Eros International Media's managing Director Sunil Arjan Lulla and CEO Pradeep Kumar Dwivedi from holding any board positions or key managerial positions, the company announced through an exchange filing.
Additionally the two senior executives, the company, Eros Worldwide FZ and Eros Digital Private limited have been banned from accessing the securities market until further orders.
Sebi appoints forensic auditor to investigate fund siphoning
Sebi has appointed a forensic auditor to investigate where the funds were moved from the company and the investigations have still not been completed.
The order states that BSE is to appoint a forensic auditor to examine the books of Thinkink Pictures, Mediaone Global Entertainment and Spicy Entertainment and Media as they acted as conduits in the alleged misrepresentation or diversion of funds by Eros. The forensic auditor will verify if there was any manipulation of books of accounts, misrepresentation of financials or business operations, wrongful siphoning or company funds and other related matters.
Auditors to submit report in 3 months
The auditors have been asked to submit a report in three months while BSE is to submit a forensic audit report along with its recommendations within 15 days from the date of receipt of the forensic audit report.
SEBI in the order said, "pending completion of the detailed investigation initiated by SEBI, there is a need to pass an ad-interim ex-parte order to protect the interests of public shareholders as well as the interest of the general investors and to prevent any further deterioration of funds/assets of Eros.”
Eros International in the regulatory filing said, "We are in the process of seeking legal advice in the matter and taking appropriate actions, as may be advised."
The order has also asked investigators to look into the failure of the board and the audit committee has been asked to take precautionary steps to protect the interest of the shareholders.
Sebi began investigation in 2020
The enquiry on the company started after financial statements for the financial year 2020 showed impairment from content advances and film rights in addition to other advances bringing the total to Rs 1,553.52 crore.
After the National Stock Exchange investigated further it sent a preliminary report to Sebi stating that the revenue from trade receivables, operation and loans were largely related-party transactions and indicated that the company was engaging in siphoning of funds. After this Sebi launched an inquiry into the company.
Taking into consideration the interest of the public shareholders Sebi's whole-time member said "I observe that there is sufficient material on record to arrive at a prima-facie finding that the books of accounts of the Company have been overstated and do not present a true and fair picture of the financial health of the Company. The transactions between the ‘content advance entities’ and the ‘trade receivable entities’, raises the possibility that Eros was circulating funds whereby amounts transferred as content advances were subsequently recognized as revenue by routing it through trade receivables entities. The fidelity of the financial statements of the Company have been rendered a chimera by virtue of these transactions.”
The order further adds, "This coupled with the fact the Company is still advancing funds to entities which have been potentially involved in siphoning off funds to entities related to the promoters, makes it imperative for SEBI as the market regulator to take action in the interest of the public shareholders of the Company. I also note that most of the TREs (trade receivable entities) and CAEs (content advances entities) and their directors failed to cooperate with the SEBI investigation. This recalcitrant and refractory action by entities suspected of siphoning off public funds needs to be dealt with firmly."
