SEBI Bars Eros' Sunil Lulla, Pradeep Dwivedi Over Alleged Fund Diversion

The Securities and Exchange Board of India has found alleged misstatements in the books of accounts of Eros International Media Ltd.

In an interim order, the markets regulator has barred the company's Managing Director Sunil Arjan Lulla and Chief Executive Officer Pradeep Dwivedi from holding any key managerial positions in any listed company, until further orders.

"The Board of Directors and the Audit Committee should have been vigilant enough to sound the alarm when they saw flags so red, they are downright crimson," the SEBI order said.

It has also directed BSE to appoint a forensic auditor to look into the diversion of funds by Eros through other BSE-listed companies including Thinkink Picturez Ltd., Mediaone Global Entertainment Ltd., and Spicy Entertainment and Media Ltd. The auditor shall submit his report within three months of the order.

In response to SEBI's order, Eros has informed the exchanges that it's seeking legal advice on the matter.

According to SEBI, Eros made misstatements in its book of accounts to divert funds to related parties in violation of SEBI's unfair practices regulations. In its financial statements, it wrote off trade receivables and content advances to the tune of Rs 520 crore and Rs 1,553 crore, respectively. This is usually done when market value of an asset is less than the value given by the company.

Eros had entered into several agreements with film distributors for the exploration of theatrical rights with 17 entities, the markets regulator said. These entities were later found to be fictitious, it alleged. An investigation revealed that the company received Rs 1,100 crore from these companies, during the financial years 2012–13 to 2018–19, whose source was traced back to Eros itself.

Similarly, Eros had content advance agreements with several companies to make movies and content for the company, of which receivables from 18 entities, amounting to 88% of the company's receivables, were written off. This amounted to Rs 1,172 crore. It was later found 11 out of these 18 entities were connected to Eros through common directors, SEBI said.

The investigation revealed that Eros failed to take any legal action against these companies, besides a demand notice. The funds transferred to these entities were never used for their intended purposes, and some were found diverted to the overseas entities of Eros, including Velocity Films Ltd., U.K. (formerly known as Silverscreen Films Ltd., U.K.) and Globus Ent FZE, UAE.

Some of these funds were also diverted to relatives of promoters as well as related entities of Eros, the order read.

In light of the findings, SEBI has restrained Lulla and Dwivedi from undertaking any further trading in the shares. They have 21 days to respond.