SEBI Clears Prime Focus of Misleading Financial Statements Charges

In a significant development for D-Street, the Securities and Exchange Board of India (SEBI) has disposed of adjudication proceedings against Prime Focus Limited and its top management. The regulator concluded that the media services major followed appropriate accounting standards during its business restructuring, effectively dismissing allegations of financial irregularities.

The Core of the Investigation: Alleged Profit Inflation

The investigation by SEBI focused on transactions undertaken by Prime Focus during the financial years 2020 and 2022. The regulator had raised concerns regarding the transfer of business divisions to indirect subsidiaries under common control.

Specifically, the company transferred its visual effects (VFX) business to DNEG Creative Services and subsequently sold its post-production services to DNEG India Media Services. SEBI alleged that these maneuvers resulted in reported gains of ₹200.27 crore in FY20 and ₹250.20 crore in FY22. The regulator's primary concern was that these gains artificially boosted the company’s reported profits and net worth; for instance, without the VFX transfer, Prime Focus would have reported a consolidated loss of ₹267.83 crore in FY20.

The crux of the legal battle rested on the interpretation of Ind AS 103, which governs business combinations under common control. SEBI’s investigation team suggested that these provisions should have been applied differently. However, SEBI's adjudicating officer, Amit Kapoor, overturned this view.

The order clarified that Appendix C of Ind AS 103 applies to the acquirer or transferee in a common-control transaction, not to the transferor selling the business. Since Prime Focus acted as the transferor, the regulator found the cited accounting provisions inapplicable. Instead, the company correctly applied Ind AS 16 and Ind AS 38, treating the transactions as the sale of property, plant, equipment, and intangible assets. Crucially, these gains were disclosed as "exceptional items" rather than regular revenue, ensuring transparency in the standalone financial statements.

Exoneration of Directors and Consolidation Accuracy

该裁决还涉及了公司合并财务报表的完整性。SEBI 发现，根据 Ind AS 110 的要求，集团内部交易产生的收益在合并过程中已进行了适当的抵消。此外，监管机构指出，公司的法定审计师并未针对这些流程出具任何保留意见。

该命令为九名个人被通知人提供了救济，其中包括发起人董事 Naresh Malhotra 和 Namit Malhotra、首席财务官 (CFO) Nishant Fadia 以及审计委员会的独立董事。由于针对公司会计违规行为的主要指控未能成立，针对董事的派生指控也随之被驳回。SEBI 还未发现有关资金违规循环或销售收益时间真实性不足的证据。

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