SEBI has dropped adjudication proceedings against Prime Focus (PFL), its promoters, directors and chief financial officer after concluding that allegations of misleading financial statements and accounting irregularities were not established.

SEBI Adjudicating Officer Amit Kapoor, on Tuesday, held that the accounting treatment adopted by the company for the sale of business divisions to its indirect subsidiaries complied with applicable accounting standards and did not violate securities laws.

The case stemmed from SEBI's investigation into two intra-group slump-sale transactions undertaken during FY20 and FY22. In October 2019, Prime Focus transferred its visual effects (VFX) business to its indirect subsidiary DNEG Creative Services for ₹273.43 crore, recording a gain of ₹200.27 crore. In FY22, it sold its post-production services business to another indirect subsidiary, DNEG India Media Services (DIMSL), for ₹365 crore, resulting in a gain of ₹250.20 crore.

Show-cause notice

SEBI's investigation had alleged that because these transactions were between entities under common control, the company should have applied Ind AS 103 differently.

According to the show-cause notice, the accounting treatment inflated profits and net worth, presenting a misleading picture of the company's financial health. It had also alleged that the transactions helped support the company's share price at a time when promoters had pledged 100 per cent of their shareholding, potentially helping them avoid additional collateral requirements.

The adjudicating officer, however, rejected the core allegation. “Appendix C of Ind AS 103 is applicable to the Acquirer / Transferee,” the order said, adding that Prime Focus was the transferor in these transactions and therefore the accounting provision relied upon in the show-cause notice did not apply.

The order further observed that the company had “followed correct accounting treatment” in its standalone financial statements and found no evidence that gains from intra-group transactions had remained in the consolidated financial statements after mandatory eliminations.

Since the primary charge against the company failed, the allegations against promoters, directors, audit committee members and the CFO also did not stand.

Published on June 16, 2026