SEBI Drops Proceedings Against Prime Focus Over Misleading Financials Case

The Securities and Exchange Board of India (SEBI) has officially disposed of adjudication proceedings against Prime Focus Limited and its directors, clearing them of allegations regarding misleading financial statements. The regulator concluded that the media services major had correctly applied accounting standards during significant business division transfers.

The Core of the Investigation: Accounting Irregularities

The investigation by SEBI focused on transactions undertaken by Prime Focus during the financial years 2020 (FY20) and 2022 (FY22). The regulator had raised concerns that the company's transfers of business divisions to indirect subsidiaries—specifically the visual effects division to DNEG Creative Services and the post-production services to DNEG India Media Services—were used to artificially inflate profits.

According to the investigation, these transactions resulted in reported gains of ₹200.27 crore in FY20 and ₹250.20 crore in FY22. SEBI suggested that without the VFX business transfer, Prime Focus would have reported a consolidated loss of ₹267.83 crore in FY20. The regulator questioned whether the company should have followed Ind AS 103, which governs business combinations under common control.

SEBI’s Findings on Accounting Standards

In a decisive order dated June 16, adjudicating officer Amit Kapoor ruled that the allegations of violating listing and anti-fraud regulations were not established. The crux of the decision rested on the technical application of Indian Accounting Standards (Ind AS).

The officer noted that the provisions of Ind AS 103 cited by the investigation team applied to the acquirer or transferee in a common-control transaction, rather than the transferor selling the business. Since Prime Focus was the transferor, the specific provisions SEBI questioned were deemed inapplicable. Instead, the company correctly accounted for the transactions under Ind AS 16 (Property, Plant, and Equipment) and Ind AS 38 (Intangible Assets). The gains were appropriately disclosed as "exceptional items" rather than regular revenue.

Selain itu, regulator menemukan bahwa laporan keuangan konsolidasian tersebut akurat, karena keuntungan dari transaksi intra-grup telah dieliminasi selama konsolidasi sesuai dengan Ind AS 110. Putusan tersebut juga menyoroti bahwa auditor statutori perusahaan tidak memberikan kualifikasi apa pun terkait proses-proses ini.

Pembebasan Direktur dan Promotor

Putusan tersebut meluas melampaui entitas korporasi hingga mencakup sembilan individu termohon. Ini termasuk direktur-promotor Naresh Malhotra dan Namit Malhotra, CFO Nishant Fadia, serta para direktur independen dari komite audit.

SEBI menetapkan bahwa tuduhan terhadap para direktur individu merupakan turunan dari tuduhan utama terhadap perusahaan. Karena tuduhan pokok—bahwa Prime Focus telah melanggar standar akuntansi dan menerbitkan pernyataan yang menyesatkan—ditemukan tidak berdasar, maka tuduhan terhadap manajemen tidak dapat berdiri sendiri. Investigasi juga tidak menemukan bukti adanya rotasi dana yang mencurigakan di antara entitas grup, meskipun terdapat pertanyaan mengenai waktu penerimaan hasil penjualan.

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