By an interim ex parte order passed by the Securities and Exchange Board of India (SEBI) today (June 22), it restrained Eros International Media’s managing director, Sunil Lulla, and CEO, Pradeep Kumar Dwivedi, from holding any board positions or key managerial positions. The two senior executives, the company itself as well as Eros Worldwide FZ and Eros Digital Pvt. Ltd. have also been banned from accessing the securities markets until further orders. The order was passed under sections 11(1), 11(4) and 11B(1) of the Securities and Exchange Board of India Act,1992.
In the financial results disclosed by Eros International Media Ltd. for FY 2019-20, impairment (write-off) provided by the company on “Content Advances” and “Film Rights”, which 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. Pursuant to the said disclosure, the National Stock Exchange of India Ltd. (“NSE”) examined the financial statements of the company and forwarded a preliminary examination report (“PER”) to SEBI. It was noted in the PER that revenue from operations, trade receivables and loans given by Eros mainly consisted of related party transactions, and the same had increased substantially in FY 2019-20. The PER observed that prima facie these transactions indicated that the company was engaging in financial mis-reporting/siphoning/diversion of funds.
To understand the nature of the transactions that were impaired/written-off, SEBI examined the books of accounts of the company. It was noted that the impairment of content advance amounting to Rs. 1,320.40 crore related to 87 entities. Entity-wise details were examined, and it was noted that Rs. 1,172.41 crore, representing 88.80% of the total impairment, related to 18 entities (“Content Advances Entities/CAEs”). Similarly, details of Trade Receivables were examined. It was noted that the write-offs pertained to another 17 entities (“Trade Receivable Entities/TREs”).
On examination of agreements and other information provided by the company, it was identified that agreements with the TREs were entered in FY 2016-17 and FY 2017-18 and they (TREs) were provided a period of three years for making the payments. The company, it was however noted, had written off the entire outstanding amount in FY 2019-20 itself, i.e. before the expiry of three years, and also without taking any remedial measures for recovery. Further, in response to SEBI’s query regarding legal action taken by the company to recover the advances, Eros provided copies of demand letters dated August 10, 2021, sent to 10 TREs. On examining the same, it was identified that the demand letters were sent almost one year after the write-off of the trade receivables (Rs.519.98 crore). No other legal action was taken by the company against these entities. In respect of the agreements entered into with the CAEs, it was noted that the agreements related to the production of titled/untitled feature films by the CAE, which were to be financed by Eros. It was, however, noted that even though substantial amounts of money had been transferred to the CAEs by Eros, as per the terms of the respective agreements, most of the movies had not yet been made/released.
Summons issued to 10 TREs were returned undelivered with remarks such as “no such addressee” or “no such consignee”. Further, even the TREs and the directors to whom summons were delivered either failed to reply to SEBI’s summons or responded seeking an extension of time and did not furnish the information sought by SEBI. Much later, even the entities which responded, only provided basic information and did not provide any information/documents which could substantiate that they had taken steps to exploit the commercial rights acquired from Eros.
A pictorial representation of some of the fund transfers was made by SEBI as follows:
The SEBI has alleged that there was also siphoning off of funds to the Overseas promoter of Eros Worldwide, siphoning off of funds to Overseas connected entities of Eros, diversion of funds to relatives of promoters of Eros, diversion of funds to connected entities for making loan repayments, diversion of funds to other group companies of Eros, diversion of funds to potentially connected parties of Eros, diversion of funds through multiple layers to connected/unconnected entities by not producing any movie, etc.
The SEBI has appointed a forensic auditor to investigate whether funds have been siphoned off from the company.