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.

此外，SEBI 认定合并财务报表是准确的，因为根据 Ind AS 110 的规定，集团内部交易的收益在合并过程中已予以抵消。监管机构还指出，公司的法定审计师并未对这些会计处理提出任何保留意见。

董事与发起人获免责认定

该裁决的影响范围不仅限于公司实体，还涵盖了相关个人。SEBI 已对九名被通知人予以免责，其中包括发起人董事 Naresh Malhotra 和 Namit Malhotra、首席财务官 Nishant Fadia 以及审计委员会的独立董事。

由于针对 Prime Focus 违反会计准则的主要指控未能成立，因此针对董事的衍生指控（完全基于公司所谓的违规行为）也无法成立。此外，尽管 SEBI 对销售收益的时间点提出了质疑，但裁决官员并未发现资金循环的证据，也没有任何迹象表明这些交易并非真实交易。

核心要点