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Synopsis

The Securities and Exchange Board of India (SEBI) has refused to lift the interim stay restraining Eros International Media Ltd and four others from accessing the capital markets in a case related to alleged fund siphoning.

The interim order by SEBI followed Eros International's appeal to the Securities Appellate Tribunal (SAT).

In response to the appeal filed by the media company, the Securities Appellate Tribunal (SAT) directed Eros International to approach the Securities and Exchange Board of India (SEBI) to seek the vacation of the interim order passed by SEBI.

As a result, Eros International subsequently approached SEBI seeking to lift the interim order.

In June 2023, SEBI issued an interim order against Eros International Media Ltd and four other entities, alleging their involvement in transactions that resulted in financial misreporting, fund diversion, and siphoning of funds.

The accusation against Eros International was related to its revenue of Rs. 1623 crores received from 19 entities during the financial years 2012 to 2020. Out of this amount, Rs. 1099.59 Crore was received by Eros, while the remaining Rs. 519.98 Crore was written off as bad debts.

SEBI's investigation uncovered that out of the Rs. 1099.59 Crore received by Eros, approximately 60% of the amount i.e.,Rs. 664.05 Crore, was essentially funded by Eros itself.

Eros engaged in round-tripping of funds, where it used multiple entities to provide funding to the aforementioned 19 entities.

These entities, in turn, repaid the funds to Eros. SEBI found that some of the repayments were made on the same day, while in other instances, there was a gap of several weeks or months between the payment and receipt of funds.

SEBI has now confirmed its interim order, which restricted Eros International Media Ltd., Eros Worldwide FZ LLC, Eros Digital Pvt. Ltd, Executive Vice Chairman Sunil Arjan Lalla, and CEO Pradeep Kumar Diwedi from accessing the market.

Additionally, in its interim order, SEBI barred Sunil Arjan Lalla and Pradeep Kumar Diwedi from holding positions as directors or key managerial personnel in the company or any of its subsidiaries until further orders.

SEBI's Whole Time Member noted that the five individuals did not provide reasons in response to the regulator's prima facie findings.

“At this stage of the proceedings, I find that no cogent reasoning has been furnished by the Noticees with regard to the prima facie findings in the Interim Order including the allegation of siphoning of funds to related or Promoter controlled entities, overstatement of books of accounts of Eros, etc. The findings detailed in this Order have brought out the aforementioned deficiency on the Noticees’ part,” the order reads.