Markets regulator SEBI on Thursday slapped penalties totalling `34 Crore on Brightcom Group Ltd, its promoters, and others, for misrepresenting the financial statements of the company.
The regulator imposed a fine of `15 Crore each on M Suresh Kumar Reddy and Vijay Kancharla – promoters of Brightcom Group Ltd (BGL).
Apart from the penalty, Sebi also barred both promoters from the securities markets for five years and restrained them from acting as a director or key managerial personnel (KMP) in a listed company or a SEBI-registered intermediary for five years.
The markets watchdog levied a fine of `2 Crore on Y Srinivasa Rao and `1 Crore each on BGL and Yerradoddi Ramesh Reddy. The regulator also barred them from the securities markets for one year.
Further, Sebi prohibited Ramesh Reddy and Srinivasa Rao to act as director or a KMP in a listed company or an Sebi-registered intermediary for one year.
Brightcom claims to be a leading global provider of comprehensive online or digital marketing services to direct marketers, brand advertisers, and marketing agencies, Sebi said.
"I note that non-compliance with accounting standards by BGL has resulted in egregious misrepresentation of its financial statements for the FYs 2014-15 to 2019-20. There was a significant delay in the recognition of material adverse impairment of assets," Sebi’s whole time member Ananth Narayan G said in the final order.
Further, Sebi observed that accounting irregularities led to artificial inflation of headline profits to the extent of `1,280.06 Crore during FY19 and FY20.
Accordingly, Sebi directed BGL to disseminate the standalone financial statements of each of its subsidiaries on its website, for the period between 2014-15 and 2021-22, as required under disclosure norms within 15 days from the date of this order.
The regulator noted that the noticees – M Suresh Kumar Reddy, Vijay Kancharla, Yerradoddi Ramesh Reddy and Y Srinivasa Rao – were executive directors, audit committee members and KMP during different periods.
Therefore, they were, at the relevant points in time, responsible for the day-to-day affairs and management of BGL and were involved in the approval of the misrepresented financial statements, Sebi said.
Sebi observed that the various violations related to accounting standards and disclosures, including incorrect shareholding pattern, which took place between 2014-15 and 2019-20, enabled the promoters of BGL to offload their shareholding from 40.45 per cent in March 2014 to 3.51 per cent in June 2022.
Suresh Kumar Reddy and Vijay Kancharla were also part of the promoter group, which offloaded their shareholding during this period, the order said.
By being a part of this fraudulent scheme of manipulation of financial statements and disclosure violations, Sebi found that BGL, Suresh Reddy, Kancharla, Ramesh Reddy and Srinivasa Rao have prima facie enabled the promoter group to make illegal gains.
Accordingly, these entities have violated provisions of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms as well, it added.
Pursuant to receipt of complaints during October 2020 to March 2021, Sebi passed an interim order-cum-show cause notice on April 13, 2023 against BGL and its promoters/directors alleging misstatements and accounting irregularities in the company’s financial statements for financial years (FYs) from 2014-15 to 2019-20.
Further, it was alleged that accounting irregularities and other disclosure violations were part of a scheme to defraud investors which enabled promoters to offload their shares at elevated prices. The Minimum Guarantee Quota (MGQ) for country liquor has been increased by 10 per cent, consistent with the previous year’s policy, he said.
The license fee per bulk liter has been increased from Rs 254 to Rs 260, the minister said.
The Excise policy aims to promote farmers engaged in fruit-based liquor production, ensuring a dedicated liquor shop at every district headquarters for their products. Licensing fees for such shops have been set at Rs 50,000 for divisional and district headquarters and Rs 30,000 for other district locations, he said.
