Regulator Sebi has barred Pyramid Saimira Theatre Ltd (PSTL) director Nirmal Kotecha from the capital markets for one year and the firm's chief financial officer Shivgurunathan for three years for indulging in unfair trade practices.
Sebi had issued show cause notices in January 2010 to these two persons among others alleging that PSTL inflated its revenues and profits by fictitious entries in its accounts, disclosed the same in quarterly and annual accounts for the financial year 2007-08 and thereby misled the public in their investment decisions.
According to Sebi, Kotecha, who was a major shareholder of the firm and had sufficient stake to direct the management, failed in his duty as a director.
The firm's net sales quadrupled in FY08, net profit rose by 600 per cent during March 2007 to December 2008 and other income surged over 1500 per cent during June-September 2007 and all these figures were sufficient to draw the attention of a prudent person and raise suspicions, Sebi noted.
Similarly, though the number of screens in theatres increased by 168 in during September-December 2007, security deposits with theatres in the same period increased disproportionately from Rs 36.05 crore to Rs 170.38 crore.
"Such aberrations in financial figures would alert any person of ordinary prudence. I find that the noticee (Kotecha) was too negligent to notice the aberrations in performance of the company," Sebi Whole Time Director G Mahalingam said.
"Considering the peculiarity of the case, shareholding and dominant position held by Nirmal Kotecha, ... the noticee is guilty of violating ... Sebi (Prohibition of Fraudulent and Unfair Trade Practices) PFTUP Regulations," he added.
In respect of Shivgurunathan, the regulator said that he as a CFO had actively allowed the management to fabricate accounts and make false disclosures and thereby violated PFTUP norms.
PSTL did not provide theatre wise daily collection reports, as well as break up and other documents in support of these consolidated entries.
"This leads to a conclusion that these revenues were never earned by PSTL; these are fictitious incomes booked to inflate the revenues and profits. PSTL disclosed these inflated figures in its annual report for 2007-08 and thereby misled investors," it added.
Besides, PSTL disclosed to exchanges in January, 2009 that it had entered into agreement with 802 theatres as on June 2008. Out of 802 agreements, PSTL could show only 257 original agreements to Sebi officials leading to the inevitable conclusion that the balance 545 agreements never existed, the regulator noted.
"Probably the revenues accounted against these 545 agreements have been entered as consolidated entries in the accounts. The fictitious revenues have been converted to theatre collection receivables' which, in turn, have been converted to 'security deposits'," it added.
Accordingly, the regulator has barred Kotecha for one year from buying, selling or dealing in securities or accessing the securities market as well as from being a director of any listed firm. Besides, it has restrained Shivgurunathan from the capital markets for three years.
Earlier in March, Sebi imposed a 14-year ban from the securities market on Kotecha as well as penalty worth over Rs 32 lakh with respect to fraudulent trades in Pyramid Saimira shares that happened nearly ten years ago.
Kotecha has to serve only little over 5 years of ban since he has been barred from the securities market since April 23, 2009, as per the order.
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