While disposing of the appeals filed by Eros, Lulla, and Dwivedi on Tuesday, the appellate tribunal directed them to file a reply or objection along with a stay vacation application against SEBI’s June 22 order within three weeks.
“We do not find any reason to interfere with the impugned order at this stage, and we dispose of the appeal, directing the appellants to file a reply or objection along with a stay vacation application to the ad-interim ex-parte order dated June 22, 2023, within three weeks from today,” the bench of Presiding Officer Justice Tarun Agarwala and Technical Member Meera Swarup said in an order.
“In its recent rulings concerning both Eros and Zee, SAT has unambiguously established that a post-decisional hearing is adequate in instances of ex-parte interim orders, provided that the nature of the case justifies such an order. These rulings also emphasize that the burden rests on the noticees to demonstrate that these orders are excessively severe and disproportionate to the alleged infractions,” said Sumit Agrawal, Partner, Regstreet Law Advisors.
“This is particularly crucial when the interests of investors are at stake. In previous instances, such as the Arshad Warsi case, SAT has delimited the scope of SEBI’s orders. However, this was only achievable when the noticees successfully proved the disproportionate nature of SEBI’s original order, leading SAT to issue its own directive,” adds Agrawal, who is also a former SEBI Officer.The SAT has also directed SEBI to appoint a whole-time member (WTM) within a week from the date of filing the reply along with the stay vacation application by Eros, Lulla, and Dwivedi.Thereafter, the WTM will also have to pass an appropriate order within three weeks after hearing the appellants and considering the material evidence they provide.The appellate tribunal also made it clear that any observation made by this tribunal is only prima facie and will not be utilized by either of the parties.
“It is a balanced decision as it provides Eros an opportunity to present their stand before SEBI. Directions have been given to decide the objections to the stay order in a time-bound manner. In my view, it is a favourable order for Eros, as they would get another chance to challenge the SEBI order if it is decided against them even after the submission of the objections, said Ashish K. Singh, managing partner of law firm Capstone Legal.
On June 22, SEBI WTM Ashwani Bhatia passed an ex-parte ad interim order restraining Lulla from holding the position of a director or key managerial personnel (KMP) in any listed company, including Eros, its subsidiaries, or any SEBI-registered intermediary until further orders.
Dwivedi was restrained from holding the position of a director or a KMP in any listed company other than Eros.
Lulla, Dwivedi, Eros International Media, Eros Worldwide FZ LLC, and Eros Digital were also restrained from buying, selling, or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders.
SEBI noted that Eros’ books of accounts have been overstated and do not present a true and fair picture of the financial health of the company.
The market watchdog had also stated that the transactions between the content advance entities and the trade receivable entities raise the possibility that Eros was circulating funds whereby amounts transferred as content advances were subsequently recognised as revenue by routing them through trade receivable entities.
“This, coupled with the fact the company is still advancing funds to entities that 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 said in its interim order.
