SAT rejects Eros’ appeal against SEBI’s interim order

The Securities Appellate Tribunal (SAT) on August 22 refused to entertain an appeal filed by Eros International Media, its Managing Director Sunil Arjan Lulla, and CEO Pradeep Kumar Dwivedi. This appeal was in response to an interim order issued by the Securities Exchange Board of India (SEBI) that prohibited them from holding any board or key managerial positions.

The company and its executives have now been asked to pursue the case before SEBI.

In June 2023, SEBI barred the MD and CEO of Eros International from holding key managerial positions after noting that an interim order needs to be passed 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 also appointed a forensic auditor to investigate whether funds have been siphoned off from the company. This investigation is yet to be completed.

According to the regulator, this urgency was because even though the investigation commenced after doubtful financials were reported for FY20, the officials believe that the company’s financials are still being misrepresented and that money is being forwarded to entities related to the promoters.

The enquiry was started after financial statements for FY20 showed impairment from content advances and film rights, along with other advances and goodwill, amounting to Rs 1,553.52 crore. Also, in the same year, the company wrote off trade receivables to the extent of Rs 519.98 crore.

The National Stock Exchange (NSE) examined these statements and forwarded a preliminary investigation report (PER) to Sebi, and in the report, the officials noted that the revenue from operations, trade receivables and loans given by the company were largely related-party transactions. These had increased substantially in the fiscal year under consideration or FY20.

The report observed that “prima-facie these transactions indicated that the Company was engaging in financial mis-reporting/siphoning/diversion of funds.”

Therefore, Sebi launched a full-scale enquiry into the company. Moneycontrol