SEBI Imposes ₹99 Lakh Penalty On Mediaone Global For Fund Diversion And Financial Manipulation

The Securities and Exchange Board of India (SEBI) on 27 February imposed a penalty of Rs. 99 lakh on Mediaone Global Entertainment Ltd. and its key directors for diversion of funds, round-tripping, and large-scale manipulation of financial statements.

The order was passed by SEBI's Chief General Manager N. Murugan, who held that the company had engaged in falsification of accounts and dissemination of misleading financial information to investors, warranting monetary penalties. He wrote:

“The integrity of financial statements forms the foundation of investor confidence, price discovery and informed decision-making in the capital market. By failing to question the company and directors, Audit Committee members facilitated dissemination of misleading financial information to shareholders and prospective investors, thereby compromising market transparency and eroding investor protection.”

SEBI was initially investigating Eros International Media Ltd. for financial irregularities. During the course of that probe, it was found that Eros had written off Rs. 63.61 crore advanced to Mediaone Global Entertainment Ltd. towards film co-production arrangements. The write-off exceeded MGEL's assets and was significant given the company's minimal revenues and ongoing losses.

MGEL's shares remained suspended by the Bombay Stock Exchange from 2016 to 2022 for non-compliance with various listing obligations. The company was also under liquidation during part of this period, and the liquidation proceedings were lifted in 2023.

Following the revocation of the trading suspension, the company reported a sudden surge in revenue and profits in FY 2022–23 and FY 2023–24, despite having incurred losses for eight consecutive years. Its share price also rose sharply during this period.

SEBI appointed a forensic auditor, which reported alleged round-tripping of funds, fictitious revenue and purchases, artificial journal adjustments, and misrepresentation of the company's financial position. Based on these findings, SEBI issued a show cause notice to the company and its directors.

MGEL contended that the transactions in question pertained to FY 2013–14 to FY 2015–16 and were over a decade old, and that there had since been a substantial change in management. It further submitted that Mediaone and Eros maintained a running account and that certain loss adjustments were made based on mutual understanding, even in the absence of formal written agreements.

SEBI observed that even if parties maintain a running account in the course of commercial dealings, such an arrangement does not absolve a listed company from maintaining proper documentation, particularly where transactions involve several crores of rupees. It held:

“…A running account is merely a mode of accounting and it does not dilute statutory obligations relating to transparency, record- keeping and verifiability of transactions.”

SEBI rejected the company's claim that losses were adjusted based on “informal understandings”, observing that a listed entity governed under the Companies Act and the SEBI Act cannot rely on informal arrangements in place of proper documentation. It held:

“An informal or unwritten understanding cannot substitute for documentary evidence, particularly when such adjustments materially impact the financial statements disseminated to investors.”

The regulatory body further held that MGEL not only diverted Rs. 99.48 crore but also manipulated its books of accounts by reflecting a fictitious non-current liability for eleven consecutive years and passing artificial journal entries to adjust balances. It also found that the company had entered into sham agreements with entities owned by its former director.

On the issue of unpaid dividends, SEBI found that the company failed to pay dividends it had declared, in violation of the applicable provisions of the Companies Act and SEBI regulations. It concluded:

“The cumulative effect of these acts was the artificial inflation of revenue, suppression of liabilities and misrepresentation of the financial position of the Company.” it concluded

Accordingly, SEBI imposed a total penalty of Rs. 99 lakh on MGEL and its directors, along with market access restrictions. It restrained the company and the concerned individuals from accessing or dealing in the securities market, and barred certain directors from holding positions in listed companies.