Sebi Rejects Eros International's Plea to Lift Securities Market Ban

New Delhi: The Securities and Exchange Board of India (Sebi) on Friday upheld the ban on Eros International Media Ltd and four others in an alleged fund diversion case. The ban on dealing in the securities market will continue on Eros International, its Managing Director Sunil Arjan Lulla, Chief Executive Officer Pradeep Kumar Dwivedi, and the two promoter entities -- Eros Worldwide FZ LLC and Eros Digital Private Ltd.

Background of the Case

In June, Sebi had prohibited these five entities from the securities markets in a case pertaining to the possible diversion of funds based on prima facie findings. The regulator had found that the books of accounts of the company have been overstated and do not present a true and fair picture of its financial health. The transactions between the content advance entities and the trade receivable entities raise the possibility that Eros International was circulating funds whereby amounts transferred as content advances were subsequently recognized as revenue by routing it through trade receivables entities.

Sebi's Order

In its confirmatory order passed on Friday, Sebi said that no cogent reasoning has been furnished by the noticees, the five entities, about the prima facie findings in the interim order, including the allegations of siphoning off funds to related or promoter-controlled entities, overstatement of books of accounts of Eros, etc. Accordingly, Sebi said the five entities will continue to be restrained from buying, selling, or dealing in the securities directly until further orders.

Further, Lulla will continue to be prohibited from holding the position of a director or key managerial personnel in any listed company, including Eros or its subsidiaries, until further orders. Dwivedi will continue to be prohibited from holding the position of a director or key managerial personnel in any listed company, other than Eros, until further orders.

SAT's Rejection of Appeals

In August, the Securities Appellate Tribunal (SAT) rejected appeals of Eros International Media Ltd and others in the matter. The SAT had observed that the material placed on record by Sebi discloses a strong prima facie case against the appellants and that the interim order passed by Sebi was justified.

Sebi's order upholding the ban on Eros International and others is a significant development in the case. The regulator's findings of possible fund diversion and overstatement of books of accounts raise serious concerns about the company's financial health and corporate governance practices. The ban on dealing in the securities market will continue until further orders, and the investigation by Sebi will be completed in six months.