Eros International Media shares made an 18% gap down opening on June 23. The stock traded sideways after the market regulator, the Securities and Exchange Board of India (SEBI), announced that it has banned the company's CEO, Pradeep Kumar Dwivedi, and Vice Chairman and Managing Director, Sunil Arjan Lulla, until further notice over an alleged breach of trade practices.
Sebi's investigation found that Eros' books were overstated and didn't present a true picture of its financial health. It was observed that Eros transferred funds in the name of content advances and subsequently recognised them as revenue by routing them through trade receivable entities.
As per the draft by BSE, in a letter dated February 11, 2022, SEBI advised Eros to provide copies of agreements with Content advance and Trade receivable entities, details of efforts to recover due amounts, and legal action against defaulting entities. Eros, in reply, said that the company entered into contracts with 17 Trade Receivable Entities (TREs) to exploit theatrical and satellite/video-on-demand rights. Summons were issued to TREs and their Directors to examine whether they commercially exploited the rights acquired from Eros. Out of 17 TAEs, only 13 responded to SEBI Summons, and only three Directors of these entities provided essential information. Three Directors who turned up were dummy Directors and were controlled by others. Most TREs were paper companies with no business operations.
Eros International Media Limited's financial statements were questioned, with allegations of using 19 entities to inflate its financial statements. SEBI summoned 12 CAEs and Directors, but most have yet to respond. Eros advanced Rs. 332 crore to eight entities, but no film rights were recorded. In FY2020–21 and FY2021-22, a significant portion of these advances were impaired. The investigation revealed 11 out of 18 CAEs are connected to Eros through common Directors, accounting for 65% of impairment provisions/write-offs. Eros' ledgers showed untraceable funds of Rs. 1247.49 crore, with 94% written off. The investigation identified a potential Rs. 687.37 crore out of the untraceable amount. Eros transferred Rs. 66.11 crore to overseas promoter EWW, Dubai, and Rs. 69.10 crore to CAEs for movie production. Still, neither the company nor its directors could produce material for SEBI to show utilisation.
In fiscal 2019-20, Eros International Media made a provision towards impairment on content advances, film rights, and certain goodwill amounting to Rs 1,553.52 crore. The same year, the company also wrote off trade receivables amounting to Rs 520 crore.
Sebi has also directed the BSE to appoint a forensic auditor to examine the books of three exclusively BSE-listed companies - Thinking Picturez, Mediaone Global Entertainment, and Spicy Entertainment & Media, who have acted as conduits in the alleged misrepresentation and diversion of funds by Eros.
During mid-day, Eros quoted Rs 21.70, down 17% on the National Stock Exchange (NSE).