Eros International moves SAT against Sebi’s order in fund diversion matter

Mumbai: Media company Eros International, along with its key executive officials, on Friday moved the Securities Appellate Tribunal against the Securities and Exchange Board of India’s (Sebi) October 2023 restraint order in an alleged fund diversion matter.

The company's promoters have also sought clarification from the bench on whether they can raise funds by pledging their shares to ensure the normal functioning of the company. 

The market regulator in its order had restrained vice chairman Sunil Lulla from holding the position of a director or a key managerial personnel in any listed company, including Eros, or its subsidiaries, or any Sebi-registered intermediary until further orders.

Chief executive Pradeep Dwivedi was also restrained from holding the position of a director or a key managerial personnel in any listed company or Sebi-registered intermediaries, other than Eros until further orders.

Sebi probe

On 22 June 2023, Sebi, in its interim order, stated that it's probe found that the company's financial statements were allegedly indicative of misrepresentation and siphoning of funds.

Eros moved SAT against the order but the tribunal refused to interfere with the order and rejected the company's appeal. 

In October, the tribunal passed the confirmatory order and asked Sebi to complete the investigation within six months.

The senior counsel representing the media company pleaded that the timeline of the investigation be reduced, and that the company will file its reply within two weeks. 

While the six-month time expired on 13 April, the key executives were barred from dealing in securities market through the interim order. This is a standard order generally passed by the regulator in such cases.

"We want to raise funds since we want our business to continue… it's been two months from the expiry of the investigation period, and no show-cause notice has been issued," Eros' counsel said. 

“It cannot be that an order which was passed an interim measure becomes a permanent noose around our neck... We cannot even raise funds... We are not seeking to deal in securities. If we go to the bankers they will ask the shares to be pledged.”

The Sebi counsel said the transactions made by the company were sham and bogus. 

"By misstating the financial statements, they have enhanced the value of their own securities. Effectively they are taking advantage of misstating their own financial statements,” the counsel said

Regarding allegations of investigation delay, the senior counsel said there was a comprehensive investigation even before the interim order was passed in June last year by the regulator.

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In fiscal year 2019-20, Eros International Media made a provision towards impairment on content advances, film rights, and certain goodwill amounting to ₹1,553.52 crore. The company also wrote off trade receivables amounting to ₹519.98 crore that year.

The National Stock Exchange examined the statements and forwarded a preliminary investigation report to Sebi. 

Sebi officials said the revenue from operations, trade receivables and loans given by the company were largely related-party transactions. These had increased substantially in FY20.

The company approached the SAT on 7 July 2023 against Sebi order, but the tribunal refused to grant any interim relief to the company.

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