SEBI bans Eros International, promoters, MD and CEO from capital market over fund diversion issue

The Securities and Exchange Board of India (SEBI) has barred media and entertainment firm Eros International Media Ltd, its promoters, MD Sunil Arjan Lulla and CEO Pradeep Kumar Dwivedi from the securities markets in a case pertaining to the possible diversion of funds.

In addition, Lulla and Dwivedi have been prohibited from holding the position of a director or key managerial personnel in any listed company, including Eros International or its subsidiaries, until further orders, according to an interim order, NewsDrum reported.

Apart from Eros International and its two senior executives, the two promoter entities Eros Worldwide FZ LLC and Eros Digital have also been restrained by the market regulator.

Further, the regulator has directed BSE to appoint a forensic auditor to examine the books of accounts of the three exclusively BSE-listed companies -- Thinkink Picturez, Mediaone Global Entertainment, and Spicy Entertainment and Media, who prima facie acted as conduits in the alleged diversion of funds by Eros.

The forensic auditor will submit the report to the exchange within three months.

In its 53-page order, SEBI, prima facie, found that the books of accounts of the company have been overstated and do not present a true and fair picture of its financial health.

"The transactions between the 'content advance entities' and the 'trade receivable entities', raise the possibility that Eros International was circulating funds whereby amounts transferred as content advances were subsequently recognised as revenue by routing it through trade receivables entities," SEBI said.

It further noted that the company is still advancing funds to entities which have been potentially involved in siphoning off funds to entities related to the promoters.

"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," SEBI said.

Accordingly, Sebi has restrained these five entities "from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders". The order followed an investigation conducted by the SEBI into the affairs of the company after receiving a preliminary examination report (PER) from the National Stock Exchange (NSE).

The investigation was broadly focused on identifying potential misstatements in the books of accounts of the company, diversion of funds, and significantly related party transactions, to ascertain the possible violations of the regulatory norms.

The exchange examined the financial statements of Eros International and forwarded a preliminary examination report to SEBI after it observed that in the financial results disclosed by Eros for FY 2019-20, impairment provided by the firm on Content Advances and Film Rights, along with impairment provided for other advances and goodwill, amounted to Rs 1,553.52 crore.

In the same year, Eros also wrote off trade receivables amounting to Rs 519.98 crore.

It was noted in the PER that revenue from operations, trade receivables, and loans given by Eros International mainly comprised related party transactions, and the same had increased substantially in FY 2019-20.

Apart from the securities market ban, SEBI has asked Eros International to provide a detailed report to it including details of end-to-end utilisation of content advances paid by it to 18 “content advances entities” within 30 days.

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