Eros International was recently accused of diversion and misrepresentation of funds. On Tuesday, the Securities Appellate Tribunal (SAT) refused to interfere with SEBI against Eros International.
SEBI in its investigation, found that Eros International Media had inflated its financial records and moved funds under the guise of content advances, subsequently recognizing them as revenue by channeling them through different entities. Last month, SEBI also prohibited Eros International Media, its promoter Sunil Lulla and CEO Pradeep Kumar Dwivedi from accessing the securities market, until further orders. Furthermore, SEBI has denied Lulla and Dwivedi from holding board positions in any of the listed companies.
“The books of accounts have been overstated and do not represent true and correct picture of the financial health of the company and transactions between the content advance entities and trade receivable entities, raises the possibility that Eros was circulating funds where amounts transferred as content advances was recognized as revenue, but subsequently was routed to overseas entities of Eros and, thus, there was large-scale diversion of funds,” said SEBI reportdely.
Justice Tarun Agarwala has directed Eros International Media to fill its reply to SEBI’22 June ex-parte order within the next three weeks.
As per media reports, Justice Agarwala said they do not find any reason to interfere with the impugned order at this stage. If a reply along with a stay vacation application is filed, WTM (whole-time member) will fix a date within a week from date of filing the reply by appellants.
The WTM has been directed by SAT to provide an opportunity to Eros to plead its case. The bench, after three weeks will pass an order, post consideration of all material evidence presented by the appellants. It has also been made clear that all observations made by SAT in the order issues will be prima-facie and should not be used by either party.
The National Stock Exchange (NSE) too has released an examination report that stated that revenue from operations, trade receivables and loans given by Eros primarily comprised related party transactions that substantially increased in FY20.
As per the NSE, prima-facie, all of these transactions indicated that Eros had been engaging in financial misreporting, diversion and siphoning off of funds. It was after the NSE’s report that SEBI opened its investigation.