SEBI Clears Prime Focus Limited as Adjudication Officer Finds No Misstatement in Slump Sale Transactions

SEBI Clears Prime Focus Limited as Adjudication Officer Finds No Misstatement in Slump Sale Transactions​

SEBI Resolution on Prime Focus Limited's Financial Allegations​

Securities and Exchange Board of India (SEBI) has disposed of the adjudication proceedings against Prime Focus Limited (PFL), ruling that the allegations regarding its financial statements during FY 2019-20 and FY 2021-22 have not been established. The Adjudicating Officer concluded that PFL had followed correct accounting treatment related to the slump sales of business divisions to its indirect subsidiaries. This decision cleared the company, which was facing charges stemming from alleged non-compliance with Indian Accounting Standard (IndAS) 103 and other regulations during the investigation period.

The investigation focused on two transactions: the sale of PFL's VFX business division to DNEG Creative Services Limited (DCSL) in FY 2019-20, and the sale of all post-production related services (PPS) to DNEG India Media Services Limited (DIMSL) in FY 2021-22. Both transactions involved selling businesses under common control, which led SEBI to examine the resulting financial reporting practices.

Scrutiny of Alleged Financial Misstatements​

The core allegation against PFL was that it manipulated its standalone and consolidated financials by improperly recording gains from these intra-group sales. Specifically, in FY 2019-20, the sale resulted in a gain of ₹200.27 crore (net of tax). Similarly, the FY 2021-22 sale yielded an alleged exceptional item gain of ₹250.20 crore.

Investigators examined whether PFL adhered to IndAS 103 concerning business combinations between entities under common control. It was noted that the transaction involved a business combination between the listed company and its indirect subsidiary, with a controlling stake of 90.29%. This structure meant the selling entity needed to derecognize its assets.

Findings on Accounting Compliance for PFL (Noticee 1)​

The Adjudicating Officer reviewed the accounting treatment used by PFL in both its Standalone Financial Statements (SFS) and Consolidated Financial Statements (CFS). Regarding SFS, the company accounted for the sale as a derecognition of PPE and intangible assets. The findings confirmed that PFL followed correct accounting standards for these sales, recording the difference between disposal proceeds and carrying amount as gains under exceptional items.

For the CFS, it was alleged that PFL failed to properly eliminate intra-group transaction gains, which could mislead investors. However, the Adjudicating Officer found no evidence of such a failure. The report noted that Ind AS 110 mandates the elimination of all such transactions between a parent and its subsidiary, resulting in zero net impact on the group's consolidated financials.

Outcome for Directors and Management (Noticees 2-9)​

The Adjudication Officer stated that charges against Noticees 2 through 9, including the Promoter and CFO, were "derivative." These charges stemmed entirely from the primary allegation that PFL failed to comply with Ind AS 103 or published false statements.

Given that the central allegation of financial misrepresentation by PFL was not established, the findings concluded that the derivative charges against the directors, CFO, and Audit Committee members also do not stand independently. The conclusion affirms that in absence of proof concerning the company's alleged misconduct, the corresponding liability of individual management personnel cannot be sustained.

Conclusion on Violation Allegations​

The Adjudicating Officer explicitly stated that the allegation of violation regarding the preparation of financial statements under LODR Regulations does not stand established. Consequently, and based on this finding, it was ruled that PFL did not violate provisions of Section 12A(b) and (c) of the SEBI Act or Regulation 4 of PFUTP Regulations concerning manipulative trading practices.

The Adjudication proceedings initiated against Prime Focus Limited and associated Noticees have therefore been disposed of by the Adjudicating Officer, Amit Kapoor on June 16, 2026.