SEBI Drops Proceedings Against Prime Focus in 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. After a thorough investigation, the market regulator concluded that the company’s accounting treatments for business transfers were accurate and compliant with Indian Accounting Standards.

The Core of the Investigation: Business Transfers and Profits

The case originated from SEBI’s scrutiny of transactions conducted by Prime Focus during the financial years 2020 and 2022. The investigation focused on two major business transfers: the visual effects (VFX) division was transferred to DNEG Creative Services, and the post-production services business was later sold to DNEG India Media Services—both of which are indirect subsidiaries under common control.

The regulator had raised concerns that these transactions artificially inflated the company's financial health. Specifically, the VFX transfer resulted in gains of ₹200.27 crore in FY20, and the post-production transfer contributed ₹250.20 crore in FY22. SEBI's investigation suggested that without these gains, Prime Focus would have reported a consolidated loss of ₹267.83 crore in FY20.

Clarification on Ind AS Compliance and Accounting Norms

The central dispute revolved around whether Prime Focus should have applied the provisions of Ind AS 103, which governs business combinations under common control. However, SEBI’s adjudicating officer, Amit Kapoor, ruled that these specific provisions were inapplicable to the company's situation.

The order clarified that Appendix C of Ind AS 103 applies to the acquirer (the entity taking over the business), whereas Prime Focus acted as the transferor (the entity selling the business). Instead, the company correctly applied Ind AS 16 (Property, Plant, and Equipment) and Ind AS 38 (Intangible Assets). The gains were recognized as the difference between the disposal proceeds and the carrying value of the assets, and crucially, they were disclosed as "exceptional items" rather than regular revenue.

Relief for Directors and Consolidation Accuracy

별도 재무제표 외에도, SEBI는 연결 재무제표를 검토했습니다. 규제 당국은 그룹 내 거래에서 발생한 이익이 Ind AS 110 요건을 엄격히 준수하여 연결 과정에서 적절히 제거되었음을 확인했습니다. 또한, 회사의 법정 감사인이 이러한 회계 방식에 대해 어떠한 한정 의견도 제기하지 않았다는 점이 언급되었습니다.

이번 결정은 대주주 이사인 Naresh Malhotra와 Namit Malhotra, 그리고 CFO Nishant Fadia를 포함한 9명의 개인 피통지인들에게 상당한 구제책이 되었습니다. 회사에 대한 회계 위반이라는 주요 혐의가 기각됨에 따라, 이사들에 대한 파생적 혐의 또한 성립될 수 없었습니다. SEBI는 매각 대금의 시점에 대한 의문에도 불구하고, 부적절한 자금 순환이나 허위 거래에 대한 증거를 발견하지 못했습니다.

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