Shares of Eros International Media plunged 20% in early trade on Friday after the capital market regulator SEBI passed an adverse order against the company. The Securities and Exchange Board of India (SEBI) on June 22 passed an interim order, barring Eros International Media and four other entities - Eros Worldwide FZ LLC, Eros Digital Private Ltd, managing director Sunil Arjan Lulla and CEO Pradeep Kumar Dwivedi - from the securities market until further notice on alleged breach of trade practice regulations. Besides, Lulla and Dwivedi have also been restrained from holding any board positions or key managerial positions by the market regulator.
“Lulla is restrained from holding the position of a director or a key managerial personnel in any listed company, including Eros, or its subsidiaries or any SEBI registered intermediary until further orders,” the regulator said in its 53-page order.
Meanwhile, Dwivedi has been restrained from holding the position of a director or a key managerial personnel in any listed company other than Eros or any SEBI registered intermediary until further orders.
Lulla has been associated with the company since its inception and Dwivedi has been acting as the group CEO since January 2020. The SEBI observed that Lulla was part of the management of the company throughout the period when these alleged transgressions were observed, while Dwivedi was acting as the CEO during the period when the impairment was recognised and substantial questionable related party transactions were observed.
The regulator in its report alleged that the books of accounts of the company have been overstated and do not present a true and fair picture of its financial health. The SEBI has directed Bombay Stock Exchange (BSE) to appoint a forensic auditor to investigate whether funds have been siphoned off from the company, and the report needs to be submitted to the exchange within three months.
The auditor will examine the books of accounts of the three exclusively BSE-listed companies -- Thinkink Picturez Ltd, Mediaone Global Entertainment Ltd, and Spicy Entertainment and Media Ltd, who prima facie acted as conduits in the alleged diversion of funds by Eros.
"The transactions between the 'content advance entities' and the 'trade receivable entities', raise the possibility that Eros International was circulating funds whereby amounts transferred as content advances were subsequently recognized as revenue by routing it through trade receivables entities," SEBI said.
It further stated that the company is still advancing funds to entities which have been potentially involved in siphoning off funds to entities related to the promoters.
"Pending completion of the detailed investigation initiated by SEBI, there is a need to pass an ad-interim ex-parte order to protect the interests of public shareholders as well as the interest of the general investors and to prevent any further deterioration of funds/assets of Eros," it said.
Reacting to the news, Eros International Media shares opened 20% lower at ₹21.08 against the previous closing price of ₹26.34 on the BSE. There was a surge in selling activities with 16.35 lakh shares changing hands over the counter in the first hour of trade so far compared with two-week average volume of 0.42 lakh. The market capitalisation dipped to ₹214 crore.
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