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 charges regarding misleading financial statements. The regulator concluded that the company’s accounting treatment for business transfers to its subsidiaries was consistent with established Indian Accounting Standards.

The Core of the Investigation

The investigation by SEBI centered on transactions conducted by Prime Focus during the 2020 and 2022 financial years. The company had transferred its visual effects (VFX) business division to DNEG Creative Services and later sold its post-production services business to DNEG India Media Services. Both entities were indirect subsidiaries under common control.

SEBI’s investigation team alleged that these transfers artificially boosted the company's profitability. Specifically, the VFX business transfer resulted in a gain of ₹200.27 crore in FY20, while the post-production services transfer contributed ₹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, raising concerns about the accuracy of the reported net worth and profits.

Accounting Standards and Regulatory Findings

A major point of contention was 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 case.

The order clarified that Appendix C of Ind AS 103 applies to the acquirer or transferee in a common-control transaction, not the transferor selling the business. As the transferor, Prime Focus correctly accounted for these transactions under Ind AS 16 (Property, Plant, and Equipment) and Ind AS 38 (Intangible Assets). The gains were recorded as the difference between disposal proceeds and the carrying value of the assets, and were transparently disclosed as "exceptional items" rather than standard revenue.

또한, SEBI는 Ind AS 110에 따라 연결 과정에서 그룹 내 거래 수익이 제거되었으므로 연결재무제표가 정확하다고 판단했습니다. 규제 당국은 또한 회사의 법정 감사인이 이러한 회계 처리에 대해 어떠한 한정 사항도 제기하지 않았다는 점에 주목했습니다.

이사 및 대주주에 대한 면책

이번 결정은 법인을 넘어 관련 개인에게도 적용됩니다. SEBI는 대주주 겸 이사인 Naresh Malhotra와 Namit Malhotra, CFO Nishant Fadia, 그리고 감사 위원회의 사외 이사를 포함한 9명의 피통지인에 대해 혐의가 없음을 확인했습니다.

Prime Focus의 회계 위반에 대한 주요 혐의가 입증되지 않음에 따라, 회사의 부정행위 주장에 전적으로 근거했던 이사들에 대한 부수적 혐의 또한 유지될 수 없었습니다. 또한, SEBI는 매각 대금의 시점에 의문을 제기했으나, 심판관은 자금 순환의 증거를 발견하지 못했으며 해당 거래가 허위라는 어떠한 징후도 찾지 못했습니다.

주요 요점