SEBI Clears Prime Focus of Misleading Financials and Accounting Charges

Shares of Prime Focus are poised for significant movement following a major regulatory victory as SEBI officially halted adjudication proceedings against the company. The market regulator has concluded that the media services firm did not engage in accounting irregularities or violate anti-fraud regulations during key business transfers.

The Core of the Investigation: Business Transfers and Gains

The legal scrutiny centered on transactions conducted by Prime Focus during the 2020 and 2022 financial years. During this period, the company transferred its visual effects (VFX) business division to DNEG Creative Services and subsequently sold its post-production services business to DNEG India Media Services. Both entities were indirect subsidiaries operating under common control.

SEBI’s initial investigation alleged that these moves artificially inflated the company's books. Specifically, the regulator pointed out that the transactions generated gains of ₹200.27 crore in FY20 and ₹250.20 crore in FY22. The regulator argued that without these gains, Prime Focus would have reported a consolidated loss of ₹267.83 crore in FY20, suggesting that the company had bypassed Ind AS 103 provisions regarding business combinations under common control.

SEBI Validates Accounting and Consolidation Practices

In a decisive order issued on June 16, Adjudicating Officer Amit Kapoor ruled that the allegations of misleading financial statements could not be substantiated. The officer noted that Prime Focus had followed the correct accounting treatment in its standalone financial statements.

Furthermore, SEBI dismissed concerns regarding the company’s consolidated financial statements. The investigation found that gains from intra-group transactions were properly eliminated during the consolidation process, strictly adhering to Ind AS 110 requirements. Crucially, the regulator highlighted that the company’s statutory auditors had raised no qualifications or concerns regarding the accounting treatment or the consolidation methods used.

取締役および経営陣への救済

この決定は、2023年12月に発行された当初の理由提示通知（show-cause notice）に記載された9名の個人に対し、多大な救済を与えるものです。これには、プロモーター取締役のNaresh Malhotra氏とNamit Malhotra氏、最高財務責任者（CFO）のNishant Fadia氏、および監査委員会のさまざまな独立取締役が含まれます。

Prime Focusが会計基準に違反し、誤解を招く財務諸表を公表したという主たる容疑が立証されなかったため、経営陣に対する二次的な容疑も成立しませんでした。SEBIは売却代金の入金時期についても調査し、その大部分が調査開始後に受け取られていたことを指摘しましたが、規制当局は、これらの取引において不適切な資金回転や商業的実態の欠如を示す証拠は見つけませんでした。

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