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

स्वतंत्र आर्थिक विवरणांच्या पलीकडे, SEBI ने एकत्रित खात्यांची (consolidated accounts) देखील तपासणी केली. नियामकाला असे आढळले की, Ind AS 110 च्या आवश्यकतांचे काटेकोरपणे पालन करून, एकत्रीकरण प्रक्रियेदरम्यान अंतर्गत-गट व्यवहारांतून (intra-group transactions) झालेला नफा योग्यरित्या काढून टाकला गेला होता. शिवाय, असेही नमूद करण्यात आले की कंपनीच्या वैधानिक लेखापरीक्षकांनी या लेखा पद्धतींबाबत कोणतीही त्रुटी (qualifications) उपस्थित केली नव्हती.

या निर्णयामुळे प्रवर्तक-संचालक नरेश मल्होत्रा आणि नमित मल्होत्रा, आणि CFO निशांत फाडिया यांच्यासह नऊ वैयक्तिक नोटीसधारकांना मोठा दिलासा मिळाला आहे. कंपनीविरुद्धच्या लेखा उल्लंघनाचे प्राथमिक आरोप फेटाळले गेल्यामुळे, संचालकांवरील संबंधित आरोप टिकू शकले नाहीत. विक्रीतून मिळालेल्या रकमेच्या वेळेबाबत प्रश्न उपस्थित झाले असले तरी, SEBI ला निधीचा चुकीचा वापर किंवा बनावट व्यवहारांचे कोणतेही पुरावे आढळले नाहीत.

मुख्य निष्कर्ष