India’s Ministry of Corporate Affairs has ordered an investigation into the accounts of Eros International Media, per a Reuters report quoting government officials.

The ministry investigation follows an examination into the company’s accounts by financial market regulator Securities and Exchange Board of India (SEBI). That resulted in an interim order in late June and the banning of two Eros executives.

The June order, which probes Eros’ financial practices in forensic detail for the period 2012-13 to 2019-20, found that the company, which was in the business of producing and distributing films, had advanced funds to 19 entities said to be for film production. Some $153 million of the amounts transferred to these companies was “untraceable.” Film rights were neither created nor the funds returned to Eros. Approximately 94% of this figure was subsequently written off by Eros. The order concludes that of the untraceable amount, approximately half was “siphoned off/diverted by Eros.”

The SEBI investigation also looked at the accounts of the companies that Eros had advanced funds to. Here it found that “in some instances, the amounts were paid back by these entities to Eros on the very day the funds were transferred by Eros to their accounts. In other instances, it was transferred back after a gap of a few weeks/months.”

“It prima facie appears that [Eros]overstated its books of accounts by recording revenue receivable from potentially bogus entities and subsequently round tripping its own funds to these entities to enable them to make payments against the revenue that has already been recognized. It was also noted, that over the years, the revenue from these 19 entities came to represent a significant portion of the total earnings of Eros,” the order states. It used 2019 as an example and said that 65% of Eros’ earnings that year came from these companies.

“These figures call into question the integrity of the financial statements of the company and give an indication that Eros was using the cover of these entities to inflate its financial statements. Subsequently, in FY 2019-20, it appears that the company, under the guise of Covid-19, attempted to clean up its balance sheet by writing-off the outstanding balance shown as receivable from these 19 entities in its books,” the order states.

The order specifies four companies to which Eros continued making payments as recently as 2022-23 and says: “Out of the funds transferred by Eros to these entities, substantial amounts had been potentially diverted by these entities to related parties of the promoters of Eros and not utilized for the stated purpose for which these funds were transferred.”

The order observes that “there is sufficient material on record to arrive at a prima facie finding that the books of accounts of the company have been overstated and do not present a true and fair picture of the financial health of the company. The transactions between the ‘content advance entities’ and the ‘trade receivable entities’ raises the possibility that Eros was circulating funds whereby amounts transferred as content advances were subsequently recognized as revenue by routing it through trade receivables entities. The fidelity of the financial statements of the Company have been rendered a chimera by virtue of these transactions. This coupled with the fact the company is still advancing funds to entities which have been potentially involved in siphoning off funds to entities related to the promoters, makes it imperative for SEBI as the market regulator to take action in the interest of the public shareholders of the company.”

SEBI has banned Eros vice chair and managing director Sunil Lulla and CEO Pradeep Dwivedi from holding management positions in any listed company, or trading, and had directed Lulla to provide a detailed report on the funding advances made by the company. SEBI has also directed the Bombay Stock Exchange to appoint a forensic auditor to examine the books of accounts of three listed companies which “acted as conduits in the alleged misrepresentation/diversion of funds by Eros.”

This was SEBI’s second high profile banning of senior management at an Indian media company in recent months, following action against Zee Entertainment Enterprises in June.