AI Drafter 
TaxTMI 
TaxTMI 
2025 (6) TMI 1673
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....9-20 under OCI in contravention of applicable accounting standards 41 (c) BGL failed to disclose events and circumstances that led to impairment loss 45 (ii) Impairment loss of investment in subsidiary amounting to INR 411.76 crores in FY 2018-19 46 (a) BGL failed to recognize impairment loss in its standalone financial statement 49 (b) BGL recognized impairment of assets of INR 411.76 crores in FY 2018-19 under OCI in contravention of applicable accounting standards 51 (c) BGL failed to disclose events and circumstances that led to impairment loss 52 PART II: Other accounting standards violations 55 (i) Wrong capitalization of R&D costs as assets 55 (ii) Incorrect recognition of intangible assets 61 (2) Whether BGL has violated various other provisions of the Listing agreement/ LODR Regulations? 65 A. NOT DISCLOSING THE INITIATION OF FORENSIC AUDIT TO STOCK EXCHANGES 65 B. INCONSISTENT DISCLOSURE OF SHAREHOLDING PATTERN 67 C. ISSUING A FALSE AND MISLEADING PRESS RELEASE ON APRIL 10, 2018, WITH RESPECT TO APPOINTMENT OF INTERNAL AUDITOR 70 D. DID NOT CARRY OUT LIMITED REVIEW OR AUDIT OF ....
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....Period"), with a special focus on impairment of assets, so as to ascertain possible violations, if any, of the provisions of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") and regulations thereunder and the Securities Contracts (Regulations) Act, 1956 ("SCRA"). 3. Brightcom claims to be a leading global provider of comprehensive online or digital marketing services to direct marketers, brand advertisers, and marketing agencies. The Company is divided into three major divisions: (i) media (ad-tech and digital marketing), (ii) software services, and (iii) future technologies, and has subsidiaries and operations in various geographies including in the US, Israel, Latin America, Western Europe and Asia Pacific regions (25 office locations and 1700 employees and consultants). The Company is headquartered in Hyderabad, India. As per the Company's Annual Report for the FY 2019-20, it has 2 Indian subsidiaries and 14 overseas subsidiaries. The present promoters of the Company had taken over the erstwhile listed company, Lanco Global Systems Ltd., and amalgamated it with an unlisted company, Ybrant Digital Ltd., through a scheme of amalgamation approved by the Hon'ble ....
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....15-16 to FY 2019- 20. 2. Not recognizing impairment loss in a timely manner with respect to its investment in subsidiary. - INR 411.76 crores recognized in FY 2018-19. - Rs. 868.3 crores recognized in FY 2019-20. Ind AS 36 (FYs 2018-19 & 2019-20) Regulation 4(1)(a), (b), (c), (d) (e), (g), (h), 3. Recognizing impairment of assets under "Other Comprehensive Income" instead of recognizing it in profit and loss. Ind AS 36 (FY 2018-19, FY 2019-20) 4. Transferring "Intangible Assets under development" and "Capital Work-in- Progress" to "Intangible Assets" once a year instead of as and when the asset recognition criteria is met. AS 26 (FY 2014-15 & 2015-16) and Ind AS 38 (FY 2016-17 to FY 2019-20) Clauses 49 (I)(C)(1)(a) and 50 of the erstwhile Listing Agreement for the FY 2014- 15 and regulation 4(1)(a), (b), (c), (d) (e), (g), (h), (i), (j), 4(2)(e)(i), 33(1)(c) & 48 of LODR Regulations for the FYs 2015-16 to FY 2019- 20. 7. Violations of LODR Regulations by BGL: Table no. 2 # Alleged violation Provisions violated 1. Not disclosing the fact of the initiation of forensic audit to stock exchanges. Regulation 30 (1),....
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.... Regulation 3(5) of SEBI (PIT) Regulations 2015 (for failure to maintain structured digital database under PIT Regulations). Clauses 49 (I)(C)(1)(a), 49(I)(D)(1)(b), (2)(b)(h) and 50 of the erstwhile listing agreement (For the FY 2014-15) and Regulations 4(2)(f)(i)(2), 4(2)(f)(ii)(2)(7)(8), 4(2)(f)(iii)(1),(2),(3),(6),(7),(12) of LODR Regulations (For the FYs 2015-16 to FY 2019-20) (for failure to perform obligations as directors). Additional provision attracted by Mr. M. Suresh Kumar Reddy: Clause 49(IX) of the erstwhile Listing Agreement (For the FY 2014-15) & Regulation 17(8) of SEBI (LODR) Regulations, 2015 (For the FYs 2015-16 to FY 2019-20) (for being the signatory to CEO/CFO certification). Additional provision attracted by Mr. Vijay Kancharla: Regulation 18(3) read with Part C of Schedule II of the LODR Regulations (for failure to perform duties as member of audit committee). 2. Mr. Vijay Kancharla Whole-Time Director (Promoter) 26/06/2012 Continuing* 3. Mr. Yerradoddi Ramesh Reddy Independent Director 26/06/2012 09/05/2016 Regulations 4(2)(f)(i)(2), 4(2)(f)(ii)(2)(7)(8), 4(2)(f)(iii)(1)(2)(3)(6)(7)(12) of SEBI (LODR) Regulations....
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....2A (b) & (c) of SEBI Act, it has only violated certain provisions of LODR Regulations. (ii) Interim Order cum SCN has failed to bring out findings regarding any "inducement" which is required to constitute "fraud" under PFUTP Regulations. (iii) Fraudulent trades should have firmer ground to stand upon, and a higher degree of probability must exist. (c) R&D costs were not wrongly capitalized (i) All the accounting policies were being followed since inception. The consistency was maintained in the accounting policies since BGL has subsidiaries across the globe and a minor change in any policy could have cascading effect. The accounting policy followed by BGL is also followed by its peers due to peculiarity of the business. The same is also disclosed in the annual report on the regular basis. (ii) Further, the board of BGL carefully reviews financial statements to ensure that they are prepared in accordance with the applicable accounting standards and regulations. They also ensure that the financial statements are audited by independent auditors in a timely and accurate manner. (iii) BGL invested heavily in R&D to enhance their pro....
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....ts made in the subsidiaries. (ii) The primary reason for impairment in subsidiaries, especially on the OCA (Other Current Assets), Short-Term Loans & Advances and long-term loans and advances were due to the introduction of new cyber law in 2018 across the EU and various parts of the world called the GDPR, which required products to be compliant with their specifications relating to collection, storage and analysis of consumer data and forced the company to discontinue certain legacy products that cannot be upgraded to meet GDPR regulations or in certain cases it was financially unviable as the cost of upgrade was substantial. Hence, it was a one-time extraordinary item (due to change in law). The BGL audit committee recommended that all products be tested for impairment at their respective locations. This exercise was conducted in FY 19- 20, and all subsidiary financials made provision for impairment in that year. (iii) Write-off of loans and advances is the recognition of a loss when the possibility of recovering the principal and interest on the loan or advance is remote. Write-offs are usually specific to a particular loan or advance, and result in the recogni....
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.... profit and loss account or OCI. If an entity chooses to recognize the impairment loss in OCI, it means that the loss is not immediately recognized in the profit and loss account but is instead recorded as a component of equity. The impairment losses of the subsidiaries are recognized in their respective financial statements, as per the local laws in their respective jurisdictions. The impairment of assets, particularly Other Current Assets (OCA) and current assets, was due to the introduction of the GDPR in 2018, which required the company's products to comply with its specifications, leading to the discontinuation of certain product features. (iii) As per Ind AS 36, "Impairment of Assets," an entity can recognize impairment losses in OCI or in the profit and loss account, depending on the nature of the asset and the expected impact of the impairment on the entity's financial performance. (iv) When it comes to impairment losses of subsidiaries, Ind AS 36 does not explicitly state whether such losses should be recognized in the parent company's profit and loss account or in OCI. This is because the determination of whether such losses should be recogni....
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....t as per other accounting standard during the course of four to five years would be same. Therefore, treatment of impairment of assets would have same impact on the overall financial position of the company and no fraud can be alleged in this regard. (f) Accounting treatment given to impairment of assets was audited by the statutory auditor (i) The statutory auditor carried out the audit and certified that the financial results show true and fair view of the financial position of the Company. (ii) As per the Annual Report of FY 2019-20 at page no. 149, the Independent Auditor on the Audit of the Consolidated Financial Statements has stated that "In our opinion and to the best of our information and according to the explanations given to us, the aforesaid consolidated financial statements give the information required by the Companies Act, 2013( the "Act") in the manner so required and give a true and fair view in conformity with Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules,2015, as amended ("IndAS") and other accounting principles generally accepted in India, of the consoli....
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....ock Exchanges. (j) BGL had made appropriate disclosures to the Stock Exchange regarding the shareholding pattern (i) BGL had made appropriate disclosures to the stock exchange regarding the shares pledged (i.e., encumbrances). As per the terms of pledge agreement, the shares would be transferred to the account of the pledger. However, the beneficial ownership and voting rights of the shares would be with the promoters of the Company. (ii) Accordingly, the legal and economic ownership lies with the promoter of the Company, and therefore, the same has been correctly reported as encumbrance in the shareholding pattern to the Stock Exchanges. (k) BGL has not issued false and misleading press release BGL had appointed internal auditor which was confirmed vide board resolution dated May 10, 2018. (l) The quarterly consolidated financial results were reviewed and recommended by audit committee and approved by the board of BGL (i) The subsidiary financials for the full year, which includes the quarters ended June 30th, 2019, September 30th, 2019, December 31st, 2019, and March 31st, 2020, were fully audited annually by the audi....
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.... sampling risk, management fraud, limitations of internal control, and time constraints. (q) Appointment of statutory auditors was not in violation of rotation rules (i) The fact that CA Naveen Madivada and CA Lakshmi Prasanthi, partners at PCN & Associates, did their CA articleship in M/s. P Murali & Co, does not necessarily imply that the two firms were part of the same network of audit firms. Article ship does not constitute an employer-employee relationship between the firm and the trainee. Further, being a consultant in previous years, does not imply that the 2 organizations PCN & Associates are associated with P Murali & Co. (r) There was no business relationship or independence issue with the auditors (i) At the time of appointment of M/s P. Murali & Co., Chartered Accountants as Statutory Auditors of BGL, there was no business relationship or independence issue. (ii) Sri. P Murali Mohana Rao and Smt. P Naganandini resigned as designated partners in M/s Palace Heights Avenues LLP on June 27, 2022, and August 10, 2022, respectively. M/s P. Murali & Co., Chartered Accountants, were appointed as statutory auditors of the Company in t....
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....airman & Managing Director of BGL till August 25, 2023. His work mostly includes directing and supervising the group's strategy and its implementation globally. M. Suresh's role involved leading innovations and he was responsible for BGL's worldwide technology enhancements and innovations. Liability depends on the role one plays in the affairs of the company and not on any designation or status. (ii) M. Suresh has only violated LODR Regulations and not PFUTP Regulations read with section 12A of SEBI Act as he has neither gained any unfair advantage nor caused any loss to investors. (iii) The Interim Order cum SCN has not brought out any concrete figure of the loss incurred by the Indian investors due to the violations, if any, alleged to be committed by BGL and its directors. (iv) Hon'ble SAT in Reliance Industries Ltd. vs. SEBI, decision dated December 04, 2023, held that merely holding the designation of Managing Director does not suffice for imputing vicarious liability to such person. (c) BGL has submitted all data and comments timely (i) Brightcom group has 16 subsidiaries and 25 offices spread across the globe. These subsidiari....
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....ractice of selling products to specific people by use of targeting capabilities is often seen as intrusive and a violation of privacy. As a result, GDPR was implemented in May 2018 in response to this consumer issue. The UK and EU were the first to introduce clear regulations on data privacy and marketing processes that online marketing firms must follow. Consequently, internet based companies worldwide were compelled to retire certain features in their products to comply with GDPR. Subsidiaries of Noticee 1 also had to rework and retire many features of their existing platforms. (ii) Following the compliance with GDPR, there was an observation period of about one year to evaluate the effectiveness of the changes made, which is the standard protocol for global software system changes. Subsequently, the audit committee of Noticee 1 recommended that all products be tested for impairment at their respective locations. This exercise was conducted in FY 2019-20, and all subsidiary financials made provision for impairment in that year. Therefore, the argument that the impairment should have been taken in the preceding years is without any merits. Further, due to this impairment,....
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....o the announcement of the impairment of assets the price again started rising since the market accepted the impairment as a positive news. The major sale by the promoter took place from July 2017 to June 2020 as the shareholding of the promoter came down from around 27% to around 12%. (iv) The impairment of loss has been carried out in FY 19-20 and the same came in public domain on June 25, 2020. It is observed from price volume chart that pursuant to impairment of assets, the price of the scrip has steadily gone up. This establishes that the argument of SEBI that promoters got enriched or earned unlawful gains by selling the shares prior to impairment is illogical since after impairment the price went up and did not go down. 13. Reply of Mr. Vijay Kancharla (Noticee 3) submitted vide email dated October 14, 2023 is summarized below as follows: (a) Violation of principles of natural justice (i) By passing the Interim Order cum SCN without going into the merits of the case, SEBI has violated the principles of natural justice, Article 19(1)(g) and Article 21 of the Indian Constitution. (ii) The investigation period is up to March, 2020, however,....
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....the client offerings. However, all the components were being reviewed and tweaked to ensure that the GDPR regulations are met. Going by the prudent and well-established practices of IT industry, BGL decided to work upon those features / components, test them and then either offer those features / components to customers or to retire them. Hence, as of October 16, 2018, there were no material changes on the financial position of BGL because of GDPR regulations and there was no reason for management to disclose it in directors' report. (iii) BGL's management had already communicated about introduction of GDPR regulations to its shareholders via press release dated June 19, 2018 in The Hindu newspaper and the same has been reported in the stock exchanges. (f) BGL has not failed in implementation of SDD (i) BGL was in process of installing the SDD software but due to unavoidable circumstance BGL delayed installing the said software. There was no ill intention in this regard. SDD was installed in BGL in the month of December, 2022. The virtual inspection was conducted by Mr. Harshad Naik (Officer of BSE) on March 09, 2023. (g) Other submissions of Not....
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....Noticee 4 joined BGL as an independent director on June 26, 2012. During this period, he was a member of the audit committee. Thereafter, he was appointed as whole time director in professional capacity on May 09, 2016 and also appointed as group CFO from May 09, 2016 to April 20, 2017 whose duties includes the following: Corporate finance, meet and manage relationships with institutional investors to update on BGL's performance and seek support for further investments, evaluate new target acquisition companies through strategic partnerships and investments / take over, assess and advise the board on the possible risks involved while evaluating acquisition targets, guide the investor relationship and public relationship team in BGL. (iii) This role did not involve any of the following: (a) Day-to-day management and maintenance of finance and accounts of BGL or its subsidiaries; (b) Management or monitoring of operations of any division or subsidiary of the BGL; (c) Any financial control or management as this role had no financial authority in terms of managing any bank accounts, funds flow and or authority to make any financial commitments for or....
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....ports in every quarter and end of the year were prepared by the accounts and finance team directly reporting the CFO. The fulltime CFO and CMD together gave the certifications of assurance to the board for each financial reporting period, quarterly, semi-annually and annually. (d) Camouflage accounting entries in excess of INR 1280 crores during FYs 2018- 2019 and 2019-20 (i) Noticee 4's resignation was accepted by the board of BGL on April 20, 2017, this establishes that he was not in the BGL during FY 2018-19 to 2019-20 when impairment of assets was reported in the books of accounts of the Company. Therefore, any allegation upon him is misplaced and it is on the basis of surmises and conjectures. However, based on the information shared by the Company with respect to capitalization of the R&D expenses, a brief note has been attached. The note is based on the Company's assertions and confirmations that in compliance with the extant IAS 38 standards and applicable rules, the management of the Company is authorized and responsible to recognize and justify the value of the assets being developed and their ongoing value. The board and audit committee replied on these....
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....by Noticee 2. (iv) Noticee 4 was not associated with BGL after April 20, 2017, and therefore, he was not responsible for implementation and maintenance of SDD containing names of persons with whom UPSI was shared as required with effect from April 01, 2019. (v) SEBI has taken actions against Noticee 4 for being the Group CFO and also against Mr. Y. Srinivasa Rao for being the CFO. Two people are being punished for the same role without making any effort to bifurcate the roles being played by them. (vi) As regards the contravention of section 27(2) of SEBI Act and section 24 of SCRA, the provisions reproduced in the Interim Order are the latest provisions without mentioning any amendments carried out during the period of April 2014 to March 2020. Noticee 4 had resigned from BGL on April 15, 2017 pursuant to which he was not connected to BGL in any manner. (vii) Noticee 4 has not violated any provisions of PFUTP Regulations. It is submitted that Noticee 4 has violated only LODR Regulations. (viii) Throughout Noticee 4's association with BGL to till date, he has neither owned, traded, bought or sold any shares of the Company, either directl....
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....tionship with the other directors of the Company, or with the promoters, or any senior management of BGL. (iii) Being the CFO of BGL, he had to supervise the accounting team to ensure the following functions: Raising invoices on the customers for the sales, processing the purchase and expenses bills received from the vendors, maintain the general ledgers and reconciliation of all accounts with the customers and vendors, filing the monthly / quarterly/ yearly returns to the income tax, GST and other statutory bodies, attending the auditors to provide with the required information during the audit process, preparation of trial balance, profit and loss account and balance sheet for the standalone financials. (iv) As to how the accounts are finalized, the Indian accounting team of BGL prepares the stand alone financials for every quarter and every year end based on the accounting records and on quarterly and yearly basis accounts are finalized and reported. For standalone, trial balance is taken from the accounting records i.e., tally and financial statements are prepared for reporting purpose. For consolidation, the financial reports are received from each subsidiary....
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....Kumar Reddy (Noticee 2) had also requested for an additional hearing opportunity. Therefore, he was granted a hearing on April 08, 2024. On the said date, Noticee 3 neither requested for an adjournment nor appeared at the scheduled date and time for availing the hearing. Hence, a final hearing opportunity was granted to Noticee 2 on April 26, 2024. On April 26, 2024, Noticee 2 requested for an adjournment citing unavailability of their legal counsel. The hearing was scheduled on May 07, 2024. On May 07, 2024, the ARs of Noticees 2 and 4 appeared in person and informed that they have no oral submissions to make on account of unavailability of their legal counsel. The ARs also informed that they have no written submissions to file. In view of the above, given the number of opportunities granted to Noticees 2 and 4 and given that they neither had any oral submissions to make nor written submissions to file in addition to the replies already submitted, the hearing was concluded qua Noticees 2 and 4. 19. Vide email dated January 16, 2025, the Noticees were provided another opportunity to make any additional submissions and vide letter dated January 27, 2025, the authorised representa....
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....il dated October 12, 2022, furnished its detailed response along with supporting documents. Further, Board of Directors of BGL, through its representative Mr. S.L. Narayana Raju, appeared before the Investigating Authority on October 13, 2022, and his statement was recorded. Subsequently, Mr. Raju furnished further information and documents vide emails dated October 17, 2022 and October 19, 2022, as undertaken by him during the statement recording. 7. The final findings of investigation, after considering the replies of BGL and its CFO in response to interim findings, are discussed in the subsequent paragraphs under appropriate headings. 180. In this context, the concerned Noticees may, within 21 days from the date of receipt of this Order, file their reply/ objections, if any, to this Order and may also indicate whether they desire to avail an opportunity of personal hearing on a date and time to be fixed in that regard." (emphasis supplied) From the above, I note that the prima facie observations were shared with BGL during investigation and its responses were given consideration before the Interim Order cum SCN was passed. The Interim Order has also been ....
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....ional challenge to the directions in the Interim Order cum SCN is not a matter that can be adjudicated upon by a quasi-judicial authority. The determination of violation of constitutional rights is required to be raised before the competent authority. Without prejudice to the above, I note that Article 19(1)(g) guarantees to all citizens, the right to practice any profession or to carry on any occupation, trade or business. However, at the same time, it is pertinent to mention that this freedom is not unbridled, as Clause (6) of Article 19 authorizes legislation that imposes reasonable restrictions on this right in the interest of general public. The SEBI Act is a special Act enacted by the Parliament that confers on SEBI the duty to protect the interests of investors in the securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. Such reasonable restrictions have been imposed through delegated legislation such as the PFUTP Regulations and the LODR Regulations. In the present case, the Interim Order cum SCN has been passed by SEBI in exercise of the powers conferred upon it by law and towards fulfilment of the duties ca....
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....delays in this matter, I find it now appropriate to proceed with passing of order for these 5 Noticees. CONTENTIONS ON MERITS 28. The Interim Order cum SCN alleges that BGL failed to strictly adhere to the provisions of accounting standards. This non-adherence to provisions of accounting standards has led to an overstatement of BGL's profits on account of 2 main infractions - (1) non-recognition of impairment loss due to introduction of new data privacy law in Europe that severely impinged upon the extant business model of BGL and (2) non-recognition of loss due to failed acquisition by BGL's subsidiary. BGL's rebuttal to both these allegations is that the recognition of impairment loss was to be carried out only after the impairment is 'permanent' or a foregone conclusion (a state which the noticees claim had not been reached in the facts of the instant case). It is SEBI's case that the accounting standards mandate immediate recognition of impairment loss which can be reversed later on if found appropriate. Similarly, the SCN alleges that with respect to R&D expenditure by BGL, the strict letter of the accounting standards has not been complied with. The Noticees have relied....
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....o comply with various other provisions of Listing agreement/ LODR Regulations? Issue (3): If the answer to Issue I to II is in affirmative, whether the Directors and CFO are responsible for the acts of BGL? Issue (4): Whether there was a violation of PFUTP Regulations? Issue (5): Whether issuance of directions and/ or penalty under sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of the SEBI Act are warranted? 31. All of the aforesaid issues involve alleged violations of Listing agreement/ LODR Regulations and PFUTP Regulations. Most of these alleged violations of Listing agreement/ LODR Regulations are of clauses 49(I)(C) and 50 of Listing agreement/ regulations 4, 33 and 48 of LODR. Clauses 49(I)(C) of Listing agreement and Regulation 4 of LODR Regulations mandate a listed entity to refrain from misrepresentation and abide by all applicable laws, make disclosures and follow its obligation in letter and spirit, and file reports that contain relevant information. Further, Clause 50 of Listing agreement and Regulation 33 and 48 of LODR mandate a listed entity to prepare its financial results as per Generally Accepted Accounting Principles in India and c....
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....rsonal data, which means marketers need to work harder for their access to and use of it. Once GDPR regulations came into effect, BCG has started reviewing all the products components for compliance and to understand the changes that need to be made to each of them to ensure that the consumer data is collected in a way that meets the GDPR requirements. During the course of review there were several products / components which were identified as non-compliant and some of the products / components needed tweaks to make them meet the requirements. Please find attached the entire Product List in Exhibit 5." 36. The breakup of the assets impaired by subsidiaries of BGL during FY 2019-20 is given below. Table no. 7 # Particulars Amount (INR crs) A Loans and Advances: 363.80 Long-term loans given to service providers 26.89 Short-term loans given to publishers / agencies 336.91 B Other Current assets: 504.28 Tools 218.06 Software 148.71 Hardware 98.71 Salaries 38.80 Total 868.30 37. With respect to the impairment loss of INR 8....
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..... (d) the carrying amount of the net assets of the entity is more than its market capitalisation. Internal sources of information. (e) evidence is available of obsolescence or physical damage of an asset. (f) significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite (g) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected." 39. As noted earlier, the GDPR was formally enacted on April 27, 2016, and would come into force from May 25, 2018. Given the nature of BGL's business and as is evident from their replies to SEBI (reproduced earlier), BGL was clearly aware of the risks that GDPR would pose to its business. In compliance with the aforementioned Accounting Standard, BGL was duty bound....
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....rment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the entity shall estimate the recoverable amount of that asset. 111. In assessing whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased, an entity shall consider, as a minimum, the following indications: External sources of information (a) there are observable indications that the asset's value has increased significantly during the period. (b) significant changes with a favourable effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which the asset is dedicated. (c) market interest rates or other market rates of return on Investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset's value in use and increase the asset's recoverable amount materially. ....
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.... (III-IV) 6,171,425,776 6,085,510,649 VI. Tax expense Current tax 1,775,577,108 1,640,262,179 Deferred tax (5,198,637) 5,487,422 VII. Profit/(loss) for the period (V-VI) 4,401,047,305 4,439,761,048 VIII. Other comprehensive income Items that will not be reclassified to profit or loss Remeasurement of the defined benefit plan (net of tax) (11,384,193) (10,722,656) Items that will be reclassified to profit or loss Exchange differences on translation of foreign operations 2,520,439,691 1,474,153,637 Asset impaired during the year (8,683,054,265) 4,117,661,490 IX. Total comprehensive income for the period (VII+VIII) (1,772,951,462) 1,785,530,539 41. I note that impairment loss is recorded for an asset when the carrying amount exceeds the recoverable amount. Para 60 and 61 of Accounting Standard 36 mandates that impairment loss must be immediately recognized in profit or loss and not in "other comprehensive income" (Note: Other comprehensive income is not considered for computing profit or loss).....
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....impaired its assets in FY 2016-17 itself, and if the company wished to reverse the impairment loss it could have done so later, in accordance with the provisions of Ind AS. At any rate, even after the pre-announced GDPR formally came into effect in May 2018, the company failed to recognize any impairment even in FY 2018-19. The material and severe impairment that was apparent and should have been recognized as of March 2017, or in the least March 2019, was eventually recognized belatedly and only below the line (and not in the profit and loss) as of March 2020, keeping stakeholders including public shareholders in the dark for years together, to their detriment. 42. BGL has also argued that the impairment loss of INR 868.30 crore which was due to enactment of GDPR was a one-time extraordinary item (i.e. due to change in law) and not a recurring one/ not related to the operating efficiencies of the firm. This argument, in my view, is of no consequence since the relevant accounting standard i.e. Ind AS 36 does not make a distinction between 'one time' and 'recurring impairments'. 43. Another submission that BGL has made is that the impairment of assets of INR 868.30 crore is re....
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....es' were extended by BGL's subsidiaries to vendors for colocation centres and to service providers such as algorithm developers, publishers, brand development in geographies and new market development. Such 'trade advances' for which the future economic benefit is the receipt of goods or services are not 'financial assets' therefore, Ind AS 109 has no application herein. The applicable accounting standard for impairment of" trade advances" (which are current assets) would be Ind AS 36. 45. I note that had the impairment losses of these assets been recognized in profit or loss, the profit before tax for FY 2019-20 would have been a loss of INR 251.16 crores as against profit of INR 617.14 crores. In this regard, Noticees have submitted that the financial statement was prepared by the Company and was submitted to the statutory auditor. The Noticees have contended that the statutory auditor carried out the audit and certified that the financial results show true and fair view of the financial position of the Company. Further, they have stated that there are no findings of collusion between the company, directors / promoters and the auditors to warrant allegation of violation of pro....
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....ting unit, for which an impairment loss has been recognised or reversed during the period: (a) the events and circumstances that led to the recognition or reversal of the impairment loss." 50. In this regard, the Noticees have submitted that assets impaired during FY 2019-20 amounting to INR 868.30 crores were disclosed on page 159 of annual report of FY 2019- 2020. Further, they have stated that the recognition of impairment of assets was disclosed in the auditor's report in para (5) in page 153 of annual report of FY 2019-2020. I note that page 159 of the annual report for FY 2019-20 is the consolidated P&L statement of BGL which merely lists INR 868.30 crores as "Assets impaired during the year" under OCI. The disclosure in the auditor's report also merely states that current assets of subsidiaries amounting to INR 868.30 crores were written off. These disclosures do not explain events or circumstances which led to recognition of Rs 868.30 crores. Further, I note that such disclosure on events and circumstances needs to be made in the financial statements by the "entity" i.e, BGL in this case and not the auditor's report, as per Ind AS 36. Thus, I find that by not ma....
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....A from BGL's Annual Report 2019-20 Ybrant Media Acquisition Inc USA S. No Description Amount In Amount In INR USD a) Share Capital 1,219,040,000 27,000,000 b) Reserves and Surplus (2,260,078,992) (40,808,715) c) Total Assets 614,590,308 8,152,146 d) Total Liabilities 614,590,308 8,152,146 e) Details of Investments f) Turnover g) Profit before tax h Provision for tax i) Profit After Tax Other comprehensive income for the period (85,890,205) . Total comprehensive income for the period (85,890,205) j) Proposed Dividend NIL NIL 53. The details regarding the same as provided in the auditor's report section of BGL's Annual Report for FY 2018-19 is given below. Image 7: Extract from Independent Auditor's report in BGL's Annual Report for FY 2018-19 f) The Subsidiary company M/s. Ybrant Media Acquisition Inc has acquired M/s. Lycos Inc. M/s. Ybrant Media Acquisition Inc has failed to pay part co....
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....tinued to maintain in the financial statements for the FY 2019-20 also, since the net worth of YMA continued to be negative in FY 2019- 20. The allegation is based on the mandate of para 12 of Ind AS 36 dealing with impairment of assets. Paragraph 12 of Ind AS 36 (Impairment of Assets) inter alia reads as follows: "In assessing whether there is any indication that an asset may be impaired, an entity shall consider, as a minimum, the following indications: ... Dividend from a subsidiary, joint venture or associate (h) for an investment in a subsidiary, joint venture or associate, the investor recognizes a dividend from the investment and evidence is available that: (i) the carrying amount of the investment in the separate financial statements exceeds the carrying amounts in the consolidated financial statements of the investee's net assets, including associated goodwill; or (ii)...." 57. BGL in its letter to SEBI dated March 03, 2022 stated that it is in the process of negotiating final settlement which will bring the asset "Lycos Inc" back to the Brightcom group. I also note that the statement of M. Suresh Kumar Reddy (....
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..... Be that as it may, as discussed earlier, Ind AS 36 requires impairment loss to be given effect immediately in profit or loss if the asset is not revalued. Since no revaluation had been done, the contentions of the Noticee with respect to ongoing settlement and 'bringing back of the asset' to Brightcom group, are simply not tenable or substantiated. In any case, hopes and prayers for a favourable resolution tomorrow cannot be the basis to avoid adherence to basic accounting standards today. Therefore, I find that BGL violated Regulation 48 of the LODR Regulations read with para 12 of Ind AS 36. (b) BGL recognized impairment of assets of INR 411.76 crores in FY 2018-19 under OCI in contravention of applicable accounting standards 60. The Interim Order cum SCN alleges that BGL recognized impairment loss of Rs 411.76 crores under "Other Comprehensive Income" instead of recognizing the same in profit or loss which resulted in non-compliance with Ind AS 36 (Paras 60 & 61) in the consolidated financial statements for the FY 2018-2019. The Interim Order cum SCN further alleges that by not recognizing the impairment loss, BGL overstated its Profit Before Tax (PBT) and Profit After T....
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....to make disclosures mandated by Para 130 of Ind AS 36. The said para reads as follows: "130. An entity shall disclose the following for an individual asset (including goodwill) or cash- generating unit, for which an impairment loss has been recognised or reversed during the period: (a) the events and circumstances that led to the recognition or reversal of the impairment loss. " 65. Ind AS 36 requires an entity to disclose the events and circumstances that led to recognition of impairment loss when the impairment loss is recognized. In this regard, Noticees have submitted that the loss on investment, which was written off, has been explicitly disclosed on page 85 of the Annual Report for the FY 2018-2019. They have also argued that the mandate was complied with since the events and circumstances leading to the recognition of impairment losses were disclosed in the auditor's report seen in in paragraph (f) on page 81 of the Annual Report for the FY 2018-2019. I note that page 85 of the annual report for FY 2018-19 contains the consolidated P&L statement of BGL which merely lists Rs 411.76 crores as "Loss on investment written off" under OCI. The said disclos....
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....stock exchange(s) and investors is not misleading. (d) The listed entity shall provide adequate and timely information to recognised stock exchange(s) and investors. (e) The listed entity shall ensure that disseminations made under provisions of these regulations and circulars made thereunder, are adequate, accurate, explicit, timely and presented in a simple language. (g) The listed entity shall abide by all the provisions of the applicable laws including the securities laws and also such other guidelines as may be issued from time to time by the Board and the recognised stock exchange(s) in this regard and as may be applicable. (h) The listed entity shall make the specified disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders. (i) Filings, reports, statements, documents and information which are event based or are filed periodically shall contain relevant information. (j) Periodic filings, reports, statements, documents and information reports shall contain information that shall enable investors to track the performance of a listed entity over regular intervals....
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....g and soft launch stage which would fall into development phase. However, in addition to the expenses related to this development phase, portion of "Other Current Assets" (i.e. expenses incurred during research phase which should have been treated as expenses) relevant to each product / component for which testing and soft launch was completed, also got recognized as "Intangible Assets under Development and Capital Work in Progress". The same was not in accordance with AS 26 and IND AS 38. 68. In this regard, I note that standards relating to internally generated assets are dealt in paragraphs 39 to 54 of AS 26 (Intangible Assets) and paragraphs 51 to 67 of Ind AS 38 (Intangible Assets). Some important definitions and standards from AS 26 are reproduced below: "6.5 Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. 6.6 Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services prior to the commencement of commercial production ....
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....probability of expected future economic benefits using reasonable and supportable assumptions that represent management's best estimate of the set of economic conditions that will exist over the useful life of the asset. 52. To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into: (a) a research phase, and (b) a development phase. Although the terms 'research' and 'development' are defined, the terms 'research phase' and 'development phase' have a broader meaning for the purpose of this Standard. 53. If an entity cannot distinguish the research phase from the development phase of an internal project to create an intangible asset, the entity treats the expenditure on that project as if it were incurred in the research phase only. Research phase 54. No intangible asset arising from research (or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred. ....
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....he development phase. In case an entity cannot distinguish the research phase from the development phase, the entity is required to treat the expenditure on that project as if it were incurred in research phase and accordingly account for it in its P&L statement (paragraphs 40 and 41 of AS 26 and paragraphs 53 and 54 of Ind AS 38). An intangible asset arising from development phase of an internal project should be recognized only if the enterprise can demonstrate certain criteria such as technical feasibility, intention to complete the asset, ability to use or sell asset, probable future economic benefits, availability of resources to complete the project and ability to measure expenditure attributable to the intangible asset (see paragraph 44 of AS 26 and paragraph 57 of Ind AS 38). 71. I note from the audited consolidated financial statements of BGL for the year ending March 31, 2020 that heads such as "Other Current Assets", "Other Intangible Assets" and "Intangible Assets under Development" were recorded in its balance sheet. The policy of BGL as submitted to SEBI during investigation is reproduced below: "Other Current Assets: All the expenses incurred towards Sala....
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....treated as incurred in the research phase and accordingly accounted for in the P&L statement. Therefore, I do not find any merit in this contention. 74. The Noticees have stated that BGL has subsidiaries in various countries and the capitalization of expenses was done as per applicable local law. They have argued that BGL only presents the consolidated financial statements of its subsidiaries without changing the accounting standards as applicable in each local subsidiary. In this regard, I note that Para B87 of Accounting Standard 'Ind AS110 -Consolidated Financial Statements' and Para 20 & 21 of 'Accounting Standard (AS) 21 Consolidated Financial Statements' require an Indian parent company having overseas subsidiaries to ensure that the books of accounts of such subsidiaries are maintained in such manner that would assist the management in the preparation of consolidated financial statements as per Indian GAAP/ Ind AS. This mandate is to be complied with irrespective of the statutory requirement with respect to the maintenance of books of account and audit of the standalone financial statements in the jurisdiction of their incorporation. Therefore, I find the aforementioned s....
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....GL improperly moved these expenditures from P&L statement to its balance sheet, thereby reducing its current- period expenses and artificially inflating its profit. Accordingly, I find that the accounting policy followed by BGL that led to wrong capitalization of R&D costs as assets is in violation of AS 26 (for FYs 2014-15 and 2015-16) and Ind AS 38 (for FYs 2016-17 to 2019-20). Therefore, I find that BGL has violated Clause 50/ Regulation 48 read with AS 26 and Ind AS 38. (ii) Incorrect recognition of intangible assets 79. The Interim Order cum SCN alleges that asset recognition practice at BGL was not in accordance with AS 26 (Intangible Assets) and Ind AS 38 (Intangible Assets) as each year, the additions to the "Intangible Assets under Development" and "Capital Work-in Progress" were entirely transferred to "Intangible Assets" in the subsequent year. Further it alleges that the aforesaid was not the correct practice as it was unlikely that entire expenditure on concept stage was incurred on the very last day of the financial year which required BGL to transfer entire opening balance in "Capital Work-in Progress" or "Intangible Assets under Development" to "Intangible Ass....
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....). 21. An intangible asset shall be recognised if, and only if: (a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and (b) the cost of the asset can be measured reliably" 82. I note from the above tables that: (i) The additions during each year became the closing balance each year. For example, in FY 2016-17, the additions in "Intangibles under Development" was INR 71 crore, the same amount was the closing balance in the said year. (ii) The opening balance each year became the sale/deletion each year. For example, in FY 2016-17, the opening balance of "Intangible Assets under Development" was INR 102 crore, the same amount was the amount of sale/deletion in the said year. (iii) The addition each year under "Intangibles under Development" and "Capital Work- in-Progress" was transferred to "Intangible Assets" in the subsequent year. For example, in FY 2015-16, the additions to "Intangibles under Development" and "Capital Work in Progress" were INR 102 crore and INR 70 crore respectively and this was reflected in FY 2016-2017 "Intangible Assets" as addition o....
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.... 90 to 180 days to meet GDPR Regulations and some other cases might take more than a year or two. 85. Considering all of the above, I find that the asset recognition criteria as stated in AS 26 and Ind AS 38 was not being met for BGL to transfer the additions to Intangibles under Development and Capital Work-in-Progress each year to Intangible Assets in the subsequent year. 86. In view of all of the conclusions arrived at above, I find that BGL - (a) Wrongly capitalized R&D expenditure as assets in contravention of AS 26 (for FY 2014-15 and 2015-16) and Ind AS 38 (for FYs 2016-17 to 2019-20); and, (b) Incorrectly recognized intangible assets in contravention of AS 26 (for FY 2014-15 and 2015-16) and Ind AS 38 (for FYs 2016-17 to 2019-20), in violation of clauses 49 (I)(C)(1)(a) and 50 of the erstwhile Listing Agreement (reproduced below) for FY 2014-15 and regulation 4(1)(a), (b), (c), (d) (e), (g), (h), (i), (j), 4(2)(e)(i), 33(1)(c) and 48 of LODR Regulations (reproduced earlier) for FYs 2015-16 to 2019 Listing Agreement "49. CORPORATE GOVERNANCE I. The company agrees to comply with the provisions of Clause 49 which shal....
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.... of forensic audit, (by whatever name called), the following disclosures shall be made to the stock exchanges by listed entities: a) The fact of initiation of forensic audit along-with name of entity initiating the audit and reasons for the same, if available; b) Final forensic audit report (other than for forensic audit initiated by regulatory / enforcement agencies) on receipt by the listed entity along with comments of the management, if any.] #Inserted by SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2020, w.e.f. 08.10.2020." 88. The Interim Order cum SCN alleges that SEBI vide its letter dated September 16, 2021, had appointed a forensic auditor in the matter of BGL, which was a material development in terms of regulation 30(1),(2),(6) read with clause 17 of A of Part A of Schedule III of the LODR Regulations. The fact of initiation of forensic audit ought to have been disseminated to the stock exchanges within 24 hours, however, BGL did not make the said disclosure within the specified time. 89. In this regard, BGL has submitted that after it received the forensic audit initiation letter from SEBI on September 16, 2021, i....
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....On a quarterly basis, within 21 days from the end of each quarter. c. Within 10 days of any capital restructuring of the company resulting in a change exceeding +/-2% of the total paid-up share capital" LODR Regulations CHAPTER II PRINCIPLES GOVERNING DISCLOSURES AND OBLIGATIONS OF LISTED ENTITY Principles governing disclosures and obligations. 4. (1) The listed entity which has listed securities shall make disclosures and abide by its obligations under these regulations, in accordance with the following principles: (c) The listed entity shall refrain from misrepresentation and ensure that the information provided to recognised stock exchange(s) and investors is not misleading. (h) The listed entity shall make the specified disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders. CHAPTER IV OBLIGATIONS OF LISTED ENTITY WHICH HAS LISTED ITS SPECIFIED SECURITIES Holding of specified securities and shareholding pattern. 31. (1) The listed entity shall submit to the stock exchange(s) a statement showing holding of securities and shareholding pa....
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....; 31-Dec-18 18,64,27,685 39.14 8,81,50,397 18.50 9,82,77,288 20.64 31-Mar-19 18,64,27,685 39.14 8,72,39,703 18.31 9,91,87,982 20.83 30-Jun-19 18,64,27,685 39.14 8,55,79,139 17.96 10,08,48,546 21.18 30-Sep-19 18,64,27,685 39.14 8,32,71,522 17.48 10,31,56,163 21.66 31-Dec-19 18,64,27,685 39.14 7,21,00,911 15.13 11,43,26,774 24.01 31-Mar-20 18,64,27,685 39.14 6,65,32,378 13.96 11,98,95,307 25.18 30-Jun-20 18,64,27,685 36.72 6,05,14,136 11.90 12,59,13,549 24.82 30-Sep-20 18,66,27,685 36.76 5,63,03,372 11.07 13,03,24,313 25.69 31-Dec-20 18,66,27,685 36.76 5,23,70,400 10.30 13,42,57,285 26.46 31-Mar-21 18,66,27,685 36.76 3,67,97,633 7.24 14,98,30,052 29.52 30-Jun-21 18,66,27,685 36.76 3,57,88,133 7.04 15,08,39,552 29.72 30-Sep-21 23,32,84,604 22.40 4,36,85,916 4.19 18,95,98,688 18.21 31-Dec-21 23,32,84,604 22.40 ....
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....n 10(1)(3) of the Depositories Act, 1996, a beneficial owner is entitled to all the rights and benefits and be subjected to all the liabilities in respect of his securities held by a depository. The above indicates that promoters of BGL had done off-market transfer of shares which is being referred to as pledge of shares. Thus, from the above, I note that there was no valid pledge created in respect of promoter shares of BGL. Hence, BGL's submission is without merit. 96. Thus, from the above, I note that BGL filed incorrect shareholding pattern claiming that the shares of promoters were pledged when it was actually transferred. In view of the above, I find that BGL violated clause 35 of the erstwhile Listing Agreement (up to November 30, 2015) and Regulation 4(1) (c), (h), 31(1)(b) of LODR Regulations read with SEBI circular no. CIR/CFD/CMD/13/2015 dated November 30, 2015 (w.e.f December 01, 2015). C. ISSUING A FALSE AND MISLEADING PRESS RELEASE ON APRIL 10, 2018, WITH RESPECT TO APPOINTMENT OF INTERNAL AUDITOR 97. The Interim Order cum SCN alleges that BGL published a press release dated April 10, 2018 on exchanges' platform announcing the appointment of Ernst & You....
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....e board resolution was passed after the press release was issued. Therefore, it is evident that at the time of the press release, no internal auditor had been appointed. 102. I find that by making incorrect disclosure about appointing EY as internal auditor, BGL had misrepresented to stock exchanges and investors and violated regulation 4(1)(c) and (h) of LODR Regulations (reproduced above). D. DID NOT CARRY OUT LIMITED REVIEW OR AUDIT OF QUARTERLY RESULTS FOR THE FY 2019- 2020 103. Regulation 33(3)(h) of LODR Regulations states that "The listed entity shall ensure that, for the purposes of quarterly consolidated financial results, at least eighty percent of each of the consolidated revenue, assets and profits, respectively, shall have been subject to audit or in case of unaudited results, subjected to limited review". Further, Regulation 33(8) states that: "The statutory auditor of a listed entity shall undertake a limited review of the audit of all the entities/ companies whose accounts are to be consolidated with the listed entity as per AS 21 in accordance with guidelines issued by the Board on this matter." In accordance with the said regulations, the listed company h....
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....irectors of the BGL which has been reported in the stock exchange. 106. I note that the limited review reports uploaded by BGL itself states that the financial information of the subsidiaries has not been reviewed by the auditor. The limited review report dated August 14, 2019 provided by PCN & Associates in respect of BGL available on the BSE Ltd. website titled "532368 | Outcome Of Board Meeting - Unaudited Financial Results For The Quarter Ended June 30, 2019", inter alia states that: "6) The Statement includes the interim financial information of 14 subsidiaries which have are (sic) not been reviewed, whose interim financial information reflect total revenue of INR 459.92 crores, total net profit after tax of INR 107.82 crores for the quarter ended 30 June 2019, respectively, as considered in the Statement. According to the information and explanations given to us by the Management, these interim financial information in respect of Frontier Data Management Inc., USA & International Expressions Inc., USA and Online Media Solutions Limited, Israel are material to the Group. Our conclusion on the Statement is not modified in respect of the above matter." (e....
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....L was not reviewed/ audited for September, 2019. 108. The limited review report dated February 14, 2020 provided by PCN & Associates in respect of BGL available on the BSE Ltd. website titled "532368 | Results-Unaudited Financial Results For Quarter And Nine Months Ended December 31, 2019", inter alia states that: "5. The accompanying Statement includes interim financial results and other financial information of 16 subsidiaries which reflect Total Revenues of INR 747,54,13,807/-, Total Profit after Tax Rs 1,26,33,25,296/-, Total Comprehensive Income of INR 1,57,19,03,305/- for the quarter ended December 2019 and these interim financial results and other information has been reviewed by parent company Management and submitted to us. According to the information and explanations given to us by the Management, the interim financial in respect of Frontier Data Management Inc. USA & International Expressions Inc., USA and Online Media Solutions Limited, Israel are material to the Group. Our conclusion on the Statement is not modified in respect of the above matter. " (emphasis supplied) From the above, I note that the financial information of 16 subsidiaries of BGL we....
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....112. The Interim Order cum SCN summarizes the tenure of Mr. Raghunath Allamsetty, a director of the Company, as follows: Table no. 12 # From To Category Appointed by 1 26-June-2012 26-Dec-2012 Independent Board of Directors as additional director under section 260 of the Companies Act,1956. 2 26-Dec-2012 29- Sep-2015 Independent Shareholders by way of ordinary resolution in annual genera meeting ("AGM") dated December 26, 2012. 3 27-Dec-2016 27- Sep-2017 Independent Board of Directors as additional director under section 165(1) of the Companies Act, 2013. 4 27- Sep-2017 26- Dec-2021 Independent Shareholders at by way of special resolution in AGM dated September 27, 2017. 113. The notice to annual general meeting of BGL held on September 27, 2017, includes the following as special business: 4. To Appoint Mr. Raghunath Allamsetty as an Independent Director. To consider and if thought fit, to pass with or without modification(s), the following resolution as a Special Resolution: "RESOLVED THAT, pursuant to the provisions of sections 149, 150, 152, and other applicable provisions....
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.... Provided that an independent director shall not, during the said period of three years, be appointed in or be associated with the company in any other capacity, either directly or indirectly." 116. In this regard, the Guidance Note on Independent Directors (Revised Edition) issued by the Institute of Company Secretaries of India, dated January, 2022 https://www.icsi.edu/media/webmodules/Guidance_Note_on_IDs.pdf states the following: "Issue: Can an independent director be appointed as an additional director by the Board of Directors of a company for a second term once his first term is over? View: In order to reply to the aforesaid, it is imperative to look into the provisions of section 149(1) of the Act which provides as under: "an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for re-appointment on passing of a special resolution by the company." (emphasis supplied) Further section 149(11) of the Act provides as under: "Notwithstanding anything contained in sub-section (10), no independent director shall hold office for more than two consecutive ....
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....ion Years Ybrant Digital Ltd. Intern April, 2013 to May, 2013 Lycos Internet Limited Business Analyst September, 2014 to May, 2016 *From September, 2018, she has shown in her LinkedIn profile that she is working as Lead-Corporate Communication in BGL for resume purposes, however, she was not working during that time. 119. I note that the above is corroborated from the LinkedIn profile of Ms. Aishwarya Allamsetty, screenshots of which are reproduced below: I 120. Further, Ms. Aishwarya Allamsetty vide email dated April 27, 2022 shared with SEBI her employment certificate dated May 24, 2019 issued by LIL Projects Private Ltd., as per which she was employed as Lead-Corporate Communications with that company from September 11, 2018 to May 24, 2019. LIL Projects Private Ltd. was a subsidiary of BGL. 121. In this regard, I note that the Listing Agreement applicable with effect from October 01, 2014, in clause 49IIB(1)(e) states the following: "B. Independent Directors 1. For the purpose of the clause A, the expression 'independent director' shall mean a non-executive director, other than a nominee director of the company: e. ....
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....ided that the term "Brother" includes the step-brother; (8) Sister: Provided that the term "Sister" includes the step-sister." 124. Since Ms. Aishwarya Allamsetty, daughter (relative) of Mr. Raghunath Allamsetty (an independent director) was employed as a business analyst in Lycos Internet Limited (now BGL) from September, 2014 to May, 2016, Mr. Raghunath Allamsetty could not have been considered an 'independent' director in terms of Listing Agreement and LODR Regulations from October 01, 2014. 125. In view of the above irregularities in appointment of Mr. Raghunath Allamsetty (i.e. - (i) by not obtaining prior approval of shareholders and (ii) his relative's (daughter's) employment with the Company and its subsidiary), he did not qualify to be an independent director of the BGL from October 01, 2014 till September 26, 2017. Consequently, SCN alleges that two separate regulations have been violated - (i) Regulation 17(1) of LODR Regulations which requires a listed company to have not less than 50% directors as independent directors; and. (ii) Regulation 18(1)(b) of LODR Regulations which requires a listed company to have atleast 2/3rd membe....
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....ors in audit committee No. of independent directors in audit committee No. of non- executive directors Complia nce with regulati on 18(1)(b) FY 2014- 15 1 5 2 Yes - 2 1 Yes FY 2015- 16 2 3 2 No 1 3 1 No FY 2016- 17 3 3 2 No 1 2 1 No FY 2017- 18 2 3 1 Yes 1 2 1 No FY 2018- 19 2 2 1 No 1 1 1 No FY 2019-20 2 2 1 No 1 1 1 No 127. As can be seen from the Table above, BGL's Board composition and audit....
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....8 FY19 FY20 1 Online Media Solutions Online Media Solutions Online Media Solutions Online Media Solutions Online Media Solutions Online Media Solutions 2 Frontier Data Management Frontier Data Management Frontier Data Management Frontier Data Management Frontier Data Management Frontier Data Management 3 International Expressions Inc. International Expressions Inc. International Expressions Inc. International Expressions Inc. International Expressions Inc. International Expressions Inc. 130. I note from page 3 of annual report of BGL for FY 2019-2020, that Online Media Solutions Limited is based out of Israel and Frontier Data Management Inc. (MediosOne) and International Expressions Inc. (VoloMP) are based out of the US. Thus, during the entire Investigation Period, BGL had only overseas subsidiaries as material subsidiaries. The Company had provided the following list of directors of its material overseas subsidiaries: Table no. 16 Subsidiary Directors & Key Management Frontier Data Management Inc., USA Brad Cohen, Vijay Kancharla International Expressions Inc., USA Ori Elraviv, Vijay Kan....
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....Director of BGL, on March 17, 2022, he was asked : "Why the company has not disseminated the separate financial statements of the subsidiaries of the company for any of the financial years as required under regulation 46 of SEBI LODR Regulations 2015?", to which, he has replied "There was a legal matter in the Lycos acquisition case, where in the detailed breakup of the financials was causing difficulty in negotiation with the other party. That was the reasons we did not put forth detailed subsidiary financials". He was further asked, "Did the company seek exemption from SEBI from the applicability of regulation 46 of SEBI LODR 2015?", he answered "We did not seek exemption." From the above, I note that Mr. Suresh Kumar Reddy (Noticee 2), Chairman and Managing Director of BGL has admitted that BGL has violated the above provision. 135. In its replies, Noticee company have contended that the standalone financial statements of its subsidiaries are available and they have been regularly published in the annual report, which is available on the website of the Company. I note that the requirement is to publish the standalone financial statements under a separate section post 01.04.20....
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....ured and the server could not be installed at our Registered Office. We were also not able to identify third party providers to create and maintain the Structured Digital Database at Hyderabad. We have now arranged to procure the necessary software and to input data and to set up and maintain servers at our registered office. It may be noted that Brightcom Group is a Multinational Company with business and operations in 25 countries and a market leader in ad tech space with clients who include Fortune 50 companies such as Sony, Viacom, Samsung, British Airways; since various jurisdictions have different compliance requirements and need separate software, the delay in setting up the Structured Digital Database is only on account of the complexity in our overall compliance requirements. " 141. The excel sheet furnished by Mr. M. Suresh Kumar Reddy cannot be considered as SDD as it does not contain the details of Unpublished Price Sensitive Information (UPSI) and the persons with whom UPSI was shared as required under regulation 3(5) of the PIT Regulations. Mr. M. Suresh Kumar Reddy's responses during the course of investigation admit to the absence of SDD as mand....
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....s, as specified in Part A of Schedule III, or information as soon as reasonably possible and not later than twenty four hours from the occurrence of event or information: Provided that in case the disclosure is made after twenty four hours of occurrence of the event or information, the listed entity shall, along with such disclosures provide explanation for delay: Provided further that disclosure with respect to events specified in sub-para 4 of Para A of Part A of Schedule III shall be made within [the timelines specified therein SCHEDULE III PART A: DISCLOSURES OF EVENTS OR INFORMATION: SPECIFIED SECURITIES The following shall be events/information, upon occurrence of which listed entity shall make disclosure to stock exchange(s): Para B. Events which shall be disclosed upon application of the guidelines for materiality referred sub- regulation (4) of regulation (30): 7. Effect(s) arising out of change in the regulatory framework applicable to the listed entity Regulation 34 (2) The annual report shall contain the following: (e) management discussion and analysis report - either as a part of....
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....ions. Thus, the conditions necessitating disclosure as laid out in regulation 30(4) read with schedule III of LODR Regulations and regulation 34 read with schedule V of LODR Regulations were satisfied, and a timely disclosure was required but not made. Further, as per regulation 34(2) read with Schedule V of the LODR Regulations, BGL was required to disclose the introduction of GDPR as Threats, Outlooks, Risks or concerns in the Management Discussion and Analysis Report ("MDAR"). 145. In relation to the above, SEBI had issued summons dated February 23, 2022 and July 21, 2022 to the Company asking it to furnish copies of all the disclosures made by BGL in respect of introduction of GDPR. In response to the same, Mr. Suresh Kumar Reddy vide email dated August 02, 2022 submitted a copy of press release titled "Brightcom Group - Ready for GDPR" dated May 25, 2018 which was submitted to the stock exchanges on May 25, 2018. The relevant extracts that talk about GDPR is reproduced below: "The Brightcom Group, a global technology company that specializes in Internet-related services and products, which include Ad-tech, New Media and lot based businesses across the globe, primar....
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....ompliant clients to suit the new requirements," Mr. Reddy said. Saying that stricter privacy laws were expected to hit the market, he added, "The US, Australia and Singapore are watching the GDPR implementation. It is expected to be a template for them to develop their own versions." 147. I note that the above article also does not delve into the impact of GDPR on the functioning of BGL. As held in paragraph 66 above, BGL had in fact failed to carry out annual impairment-testing of assets on account of introduction of GDPR which would have necessitated such a disclosure. 148. I note that the director's report for the FYs ended on March 31, 2016 and March 31, 2018 also does not contain any statement about impact of GDPR on financials of BGL, rather it states: "There are no Material Changes and Commitments affecting the financial position of the Company which occurred between the end of the financial year to which the financial statements relate and the date of this Report." Similarly, from the MDAR for the FYs ending March 31, 2017 to March 31, 2020, I note that BGL has merely made the following disclosure: "Business can be affected by privacy legislations and other regulation....
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....ter 26/06/2012 27/08/2023# 3 Mr. Vijay Kancharla Whole-Time Director (Promoter) 26/06/2012 02/01/2024 4 Mr. Yerradoddi Ramesh Reddy* Independent Director 26/06/2012 09/05/2016 Executive Director 09/05/2016 20/04/2017 Group CFO 09/05/2016 08/05/2021 5 Mr. Y. Srinivasa Rao Chief Financial Officer 01/01/2015 25/03/2022 * Mr. Y. Ramesh Reddy, Executive Director (Finance) has stepped down from the board of director of the Company with effect from close of business hours of 20th April 2017. Further, he continued to be Group CFO of the Company till the completion of five years from 09.05.2016. # In compliance with interim order (another case in respect of same Company) dated August 22, 2023, Mr. Suresh Kumar Reddy resigned as Chairman and Managing Director on August 27, 2023. 153. The details of meetings of board of directors of BGL that took place during FY 2014-15 to FY 2019-20 and attendees thereof are as follows: Table no. 18 Name of the Director 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 E A E A E A E A E A E A Mr. M. Suresh Kum....
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....Applicable 2 1 5 1 2 0 Not Applicable Not Applicable 5 Mr. Vijay Kancharla* Not Applicable 2 2 5 2 4 1 4 1 4 0 6 Dr. K. Jayalakshmi Kumari*** Dr. K. Jayalakshmi Kumari*** Not Applicable Not Applicable 5 5 4 4 4 4 4 4 E^ = Eligible to Attend A^^ = Attended * Appointed as members w.e.f. September 29, 2015. **ceased to be the members w.e.f. September 29, 2015 ***Appointed as member w.e.f. May 17, 2016 #Appointed as member w.e.f. December 27, 2016 & as Chairman w.e.f. February 14, 2017 $ Mr. Subrato Saha ceased to be a member w.e.f. October 25, 2017. $$Y Ramesh Reddy was the chairman of the Audit Committee till May 09, 2016. 155. The board of directors of BGL who are the signatories to the financial statements and signatories to CEO / CFO certification as required under clause 49 of the Listing Agreement (for FY 2014-15) and regulation 17(8) of LODR Regulations (For FY 2016-17 to FY 2019- 20) are given below: Table no. 20 Signatory Details 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Name Designation FS CCC F....
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....)(8), 4(2)(f)(iii)(1),(2),(3),(6),(7),(12) of LODR Regulations (For the FYs 2015-16 to FY 2019-20). and vicariously liable for the violation of clauses 49 (I)(C)(1)(a) and 50 of the erstwhile Listing Agreement (for the FY 2014-15). Further, by being a signatory to the CEO / CFO certification, he has violated Clause 49(IX) of the erstwhile Listing Agreement (For the FY 2014-15) & regulation 17(8) of LODR Regulations (for the FYs 2015-16 to FY 2019-20). The said provisions are reproduced below: Listing Agreement 49. CORPORATE GOVERNANCE I. The company agrees to comply with the provisions of Clause 49 which shall be implemented in a manner so as to achieve the objectives of the principles as mentioned below. In case of any ambiguity, the said provisions shall be interpreted and applied in alignment with the principles. D. Responsibilities of the Board 1. Disclosure of Information b. The Board and top management should conduct themselves so as to meet the expectations of operational transparency to stakeholders while at the same time maintaining confidentiality of information in order to foster a culture for good decision-making. ....
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....ecified securities shall comply with the corporate governance provisions as specified in chapter IV which shall be implemented in a manner so as to achieve the objectives of the principles as mentioned below (f) Responsibilities of the board of directors: The board of directors of the listed entity shall have the following responsibilities: (i) Disclosure of information: (2) The board of directors and senior management shall conduct themselves so as to meet the expectations of operational transparency to stakeholders while at the same time maintaining confidentiality of information in order to foster a culture of good decision-making. (ii) Key functions of the board of directors- (2) Monitoring the effectiveness of the listed entity's governance practices and making changes as needed. (7) Ensuring the integrity of the listed entity's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards. (8) Overseeing the process of....
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....rom the facts of the present case. Further, the Action Financial Services Ltd. (supra) case is distinguishable from the present case on another ground. In the Action Financial Services Ltd., the benefit of doubt was given to noticees who were additional directors /independent directors of the company. Noticee 2 has relied upon the decision of Reliance Industries Ltd. (supra) to submit that merely holding the designation of Managing Director does not suffice for imputing vicarious liability to such person. The said finding of Hon'ble SAT has to be read in terms of the overall context of the case. The said finding was made in light of the fact that two senior executives of the company were vested with relevant powers and functions in relation to the subject transaction. Further, Hon'ble SAT had noted "....Thus, we are of the opinion, that in view of the stark evidence in the form of minutes of the two Board meetings of RIL which conclusively proves that the impugned trades were carried out by two senior officials without the knowledge of the appellant no liability can be fastened upon noticee no. 2 in the facts of the given case....". The direct involvement of Noticee 2 in the facts ....
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....ting minutes, AGM minutes etc. The said cases are clearly distinguishable from the facts of the present case because in the present case, Mr. Vijay Kancharla had attended 16 out of 45 board meetings of BGL, attended 5 out of 19 audit committee meetings of BGL and signed the financial statements of BGL for 4 out of the 6 years during the Investigation Period. Further, the Action Financial Services Ltd. (supra) case is distinguishable from the present case on another ground. In the Action Financial Services Ltd., the benefit of doubt was given to noticees who were additional director and independent directors of the company. However, in the present case Mr. Vijay Kancharla is a Promoter and he was a Whole Time Director of BGL. (d) I find it appropriate to place reliance on the case of N. Narayanan vs. The Adjudicating Officer, SEBI, Civil Appeal Nos. 4112-4113 of 2013 (D. No. 201 of 2013), decision dated April 26, 2013, wherein a Whole Time Director had made a similar contention that he was dealing with a particular department and he had relied on the auditor's statements in financial matters, therefore, he should not be held personally liable. The Hon'ble SC held: ....
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.... the listed entity's financial reporting process to ensure that the financial statement is correct, sufficient and credible. It further reads as follows: "(4) reviewing, with the management, the annual financial statements and auditor's report thereon before submission to the board for approval, with particular reference to: (a).. (b).. (c) major accounting entries involving estimates based on the exercise of judgment by management;...." Considering the role of Mr. Vijay Kancharla, I find that he has violated regulation 18(3) read with Part C of Schedule II of the LODR Regulations. (g) Therefore, I find that Vijay Kancharla (Noticee 3) failed to discharge his duties as a director during FYs 2014-15 to 2019-20. Accordingly, he is directly liable for the violation of clauses 49(I)(D)(1)(b) and (2)(b)(h) of the erstwhile Listing Agreement (for the FY 2014-15) and regulations 4(2)(f)(i)(2), 4(2)(f)(ii)(2)(7)(8), 4(2)(f)(iii)(1),(2),(3),(6),(7),(12) of LODR Regulations (For the FYs 2015-16 to FY 2019-20) and vicariously liable for the violation of clauses 49 (I)(C)(1)(a) and 50 of the erstwhile Listing Agreement (for the FY 2014-....
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....he role of Group CFO of BGL. The said disclosure is reproduced below: (e) The Interim Order cum SCN inter alia alleges that Mr. Y. Ramesh Reddy was the Group CFO of the Company from May 09, 2016 to May 08, 2021. In this regard, Mr. Y. Ramesh Reddy has submitted that on March 15, 2017, he resigned as Executive Director and pursuant to his resignation he was not associated with BGL in any manner. Further, he has stated that due to his pre-occupation and complexity of the job involved, he resigned from the post of Executive Director along with the post of CFO which was accepted by Board on April 20, 2017. Mr. Y Ramesh Reddy has also submitted documents in support of his claim that he was employed with "Edvenswa Tech Pvt. Ltd." during FY 2019-20 and with "Aetas Infra Solutions Private Limited" during FY 2017-18. Although the evidence on record shows that Mr. Y Ramesh Reddy has resigned from the post of Executive Director, there is no proof to show that he had resigned from the post of Group CFO as well. The Annual Reports of BGL for FYs 2018-19 and 2019-20 do not carry the name of Mr. Y Ramesh Reddy in the list of KMPs/ any other capacity. I also note that the BSE website, und....
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....anies Act, 2013 b. Changes, if any, in accounting policies and practices and reasons for the same c. Major accounting entries involving estimates based on the exercise of judgment by management d. Significant adjustments made in the financial statements arising out of audit findings e. Compliance with listing and other legal requirements relating to financial statements f. Disclosure of any related party transactions g. Qualifications in the draft audit report 5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval; 12. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems; 13. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit; 14. Discussion with internal auditors of any significant findings and follow up there on; 15. Reviewing the findings of any internal investigations b....
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....signation and that hence he cannot be made responsible is untenable as it has been held that during his tenure of directorship, BGL failed to carry out annual impairment testing, and followed incorrect accounting policy. (j) Noticee 4 has relied on the case of Samsher Ranjit Garud (supra). In the aforesaid case, the appellant Independent Director's tenure was between March 29, 2010 to October 10, 2016 and the misrepresentations were made by the company therein before March 29, 2010. Therefore, Hon'ble SAT held that the appellant cannot be held responsible for any violation which had occurred prior to his tenure. However, in the present case, as stated above, he has been held to be responsible only for the violations of BGL during his period of directorship. (k) Noticee 4 has argued that none of his roles involved day to day management and maintenance of finance and accounts of BGL or its subsidiaries or management and monitoring of operations of any division or subsidiary of BGL or any financial control or management. In this regard, I note that as an Independent Director and Audit Committee Member and later as Executive Director and Group CFO, it was his responsi....
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.... accounting entries and significant adjustments made in the accounts before putting up the statements for the approval of the Board. The board of directors of the company has entrusted the audit committee with an onerous duty to see that the financial statements are correct and complete in every respect. In this background, the members of the audit committee cannot take shelter under the verifications made by the internal auditor and other professionals. The details extracted in the show cause notice and the impugned order illustrate that there were several prominent irregularities which should have alerted the directors. The appellant's learned counsel submitted that abnormal profits, mismatch in receivables, insufficient security deposit in the bank did not act as an alert when the accounts have been certified by qualified professionals. We cannot accept the stand of the learned counsel for the appellants. The whole time director attending to the affairs of the company on a full time basis and the directors being members of the audit committee could not have ignored the "red flag" while considering the accounts of the company." (m) As already discussed earlier, the cases....
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....t of assets, R&D expenses etc as discussed in detail in this Order, Noticee 5 has not acted in a way that can be considered as transparent to its stakeholders. (c) Further, by signing the CEO/ CFO certificate for FYs 2014-15 to FY 2019-20 of BGL, Noticee 5 gave a false assurance to stakeholders regarding the financial health of BGL. Thus, I find that Noticee 5 has violated regulations 4(2)(f)(i)(2) of LODR Regulations and Clause 49(IX) of the erstwhile Listing Agreement (For the FY 2014- 15) & regulation 17(8) of LODR Regulations (For the FYs 2015-16 to FY 2019-20). Precedents relied upon by Noticees 2 to 5 161. Noticees 2 to 5 have also argued that the Interim Order cum SCN has not brought out any concrete figure of the loss incurred by the Indian investors due to the violations, if any, alleged to be committed by BGL and its directors. This shows that the Interim Order cum SCN is based on surmises and conjectures. I do not find merit in this argument. Financial frauds and inadequate material disclosures may create huge investor losses by keeping them in the dark around the true state of affairs of the company. Further, computation of loss caused is not a nece....
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....atements. Noticee 5 had signed financial statements and CEO/ CFO certificates of BGL. 164. Similarly, in the case of Sham Sunder & Ors. (supra), the Hon'ble SC held that: "But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not." Therefore, the principles laid down in the above decisions are not applicable to the facts and circumstances of this case. 165. Further, the case of Ram Kishan Rohtagi (supra) does not apply to the facts of the present case for the following reasons. The aforesaid case did not include any evidence against the directors who were made parties to the case, whereas this Order brings out the role of Noticees 2 to 5 in terms of their attendance in board meetings, signature on financial statements etc, to demonstrate their knowledge or complicity in the violations discussed in this Order. The aforesaid case wa....
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....P Regulations 3. Prohibition of certain dealings in securities (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. 4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a [manipulative,]* fraudulent or an unfair trade practice in securities *[markets]. **[Explanation.- For the removal of doubts, it is clarified that any act of diversion, misutilisation or siphoning off of assets or earnings of a company whose securities are listed or any concealment of such act or any device, scheme or artifice to manipulate the books of accounts or financial statement of such a com....
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.... was previously substituted vide Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) (Amendment) Regulations, 2018 w.e.f. February 01, 2019 and before the said substitution the provision read as follows: "an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors" 167. Noticees have contended that there are multiple options for accounting treatment of any income and / or expense and so the allegation that the accounting treatment has been carried out in a head different from the one envisaged in Interim Order cum SCN cannot lead to any violation of SEBI Act and PFUTP Regulations. LODR Regulations mandate compliance with Accounting Standards. Financial statements of a listed company are required to be prepared in accordance with accounting standards. Such financial statements facilitate an investor to analyse and identify changes in financial results of a company over time and to take informed investment decisions. Adherence to accounting standards ensures that the listed company ensures consistency, transparency and enhance acc....
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....ation of GDPR) and its deleterious impact on BGL's business, kept stakeholders in the dark for this extended period of time. Even when it was belatedly recognised in FY 2019-20, the impairment losses of INR 868 crores were recognised as OCI, and not into profit and loss. The profit before tax for the FY 2019-20 would have been a loss of INR 251.16 crores as against a profit of INR 617.14 crores. The absence of timely recognition of impairment over several years, and inflated profits even when it was belatedly recognised, are a direct consequence of the failure to comply with accounting standards. From the facts and circumstances of this case, on a preponderance of probability, I am convinced that the egregious disclosure violations and misstatements were not merely instances attributable to negligence or occasioned by lack of due care and caution; rather, the financial misstatements and disclosure violations were knowingly done. This misled public investors to believe that the company's performance was better than it actually was, thereby inducing persons to invest in BGL or exiting investors to remain invested. 170. Noticees have also contended that Interim Order cum SCN has fa....
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....im Order cum SCN inter alia alleges that the accounting irregularities and other disclosure violations resulted in violation of regulations 4(2)(f), (k) and (r) of PFUTP Regulations. In the foregoing paragraphs of this Order, I have concluded that the financial statements were in fact egregiously misstated due to accounting irregularities. As stated above, once the actions/ omissions listed in these clauses are factually established, the law does not require separate finding of 'fraud'. Accordingly, I find that in addition to Regulation 3(c), 3(d) and 4(1) of PFUTP Regulations, during FY 2019-20, BGL violated Regulation 4(2)(f), (k) & (r) of PFUTP Regulations. 173. The Hon'ble Supreme Court in the matter of N. Narayanan vs. Adjudicating Officer, SEBI AIR 2013 SC 3191 had inter alia emphasised the adverse impact of incorrect information, including inflation of profits, on the markets. The Hon'ble SAT, in the matter of V. Natarajan vs. SEBI (appeal no. 104 of 2011) decided on June 29, 2011, held that the publication of false and misleading information which may induce the public to sell or purchase securities would also come within the ambit of unfair trade practice in securities.....
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....d below: Date Close price (INR) Promoter shareholding (%) 31-Mar-14 15.19 40.45 31-Mar-15 28.65 39.20 31-Mar-16 18.85 34.38 31-Mar-17 7.71 27.63 28-Mar-18 4.64 20.01 29-Mar-19 3.14 18.32 31-Mar-20 3.1 13.97 31-Mar-21 8.26 7.25 177. In relation to the above, Mr. M. Suresh Kumar Reddy (Noticee 2) has argued that pursuant to the announcement of the impairment of assets the price again started rising since the market accepted the impairment as a positive news. He says that the major sale by the promoter took place from July 2017 to June 2020 and the shareholding of the promoter came down from around 27% to around 12%. The impairment of loss has been carried out in FY 19-20 and the same came in public domain on June 25, 2020. It is observed from price volume chart that pursuant to impairment of assets the price of the scrip has steadily gone up. This, according to the Noticee, rebuts the argument of SEBI that promoters were enriched or earned unlawful gains by selling the shares prior to impairment, since after the eventual impairment the price went up and not down. In this regard, I note that even prior....
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.... the company even though no specific act of dishonesty is provide against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially." Further, in SEBI vs. Gaurav Varshney (2016)14 SCC 430, it has been held that "officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence." 179. Therefore, Noticees 2, 3, 4 and 5 are vicariously liable for the accounting irregularities and disclosure violations of BGL. Thus, I find that Noticees 2, 3, 4 & 5 have violated Section 12A(b)&(c) of the SEBI Act, Regulations 3(c), 3(d), 4(1), 4(2)(f), 4(2)(k) and 4(2)(r) of PFUTP Regulations. (5) Whether issuance of directions and/ or penalty under sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of the SEBI Act are warranted? 180. I note that the SCN had inter alia called upon the ....
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....dia for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees. 181. On the basis of the discussion in the foregoing paragraphs, 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. Further, accounting irregularities led to artificial inflation of headline profits to the extent of INR 1,280.06 crore (INR 860.30 crore in FY 2019-20 and INR 411.76 Crore in FY 2018-19) during FYs 2018-19 and 2019-20. Noticees 2 to 5 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. As has been concluded earlier in this Order, these noticees were both directly liable for violations of securities laws and vicariously liable for the violations of BGL. 182. The various accoun....
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.... cause why they should not be disgorged, before any order of disgorgement is passed. 184. I note that section 15J of the SEBI Act provide for factors which are required to be considered for adjudging quantum of penalty. Section 15J of the SEBI Act reads as follows:- "Factors to be taken into account while adjudging quantum of penalty. 15J. While adjudging quantum of penalty under 15-I or section 11 or section 11B, the Board or the adjudicating officer shall have due regard to the following factors, namely: - (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default. Explanation. -For the removal of doubts, it is clarified that the power to adjudge the quantum of penalty under sections 15A to 15E, clauses (b) and (c) of section 15F, 15G, 15H and 15HA shall be and shall always be deemed to have been exercised under the provisions of this section." 185. As mentioned earlier, due to non-cooperation of the Company, no computation of act....
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....oticees. In this regard, I note that BGL has not complied with any of the directions except for directions at para 177(c), (d) and (g). Also, while BGL has claimed that it had complied with the following direction, I find that BGL has failed to do so for the reasons recorded in the Table below. Table no. 24 Paragraph in Interim Order cum SCN Direction in the Interim Order cum SCN Compliance status 177(e) Noticee 1 (i.e. BGL) shall disseminate the standalone financial statements of each of its subsidiaries on its website, for the period between FY 2014-15 and FY 2021-22, as required under Regulation 46 of SEBI (LODR) Regulations, 2015, within fifteen days from the date of this order. BGL vide its reply dated October 14, 2023 has submitted that they have complied with this. In this regard, it is noted that the website https://www.brightcomgroup.com/financials- subsidiaries/, reads as follows: "The audit reports for the top four subsidiaries, which make up a majority of the consolidated business, have been made available. However, the reports for the smaller subsidiaries, which together contribute approximately 25% of the consolidated revenues, are still being ....
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....audit qualification" for this purpose). BGL shall further ensure that the said statement of impact of non-compliances is certified by a peer-reviewed Chartered Accountant, who has audited at least one company forming part of NIFTY 100 or BSE 100 indices during the past three years. (d) Noticee 1 (i.e. BGL) shall disseminate the standalone financial statements of each of its subsidiaries on its website, for the period between FY 2014-15 and FY 2021- 22, as required under Regulation 46 of SEBI (LODR) Regulations, 2015, within fifteen days from the date of this Order. (e) Noticees 1 to 5 are hereby imposed with the penalties as specified hereunder: Noticee No. Noticee name Penalty amount (in INR.) 1. Brightcom Group Ltd. 1 crore 2. Mr. M. Suresh Kumar Reddy 15 crore 3. Mr. Vijay Kancharla 15 crore 4. Mr. Yerradoddi Ramesh Reddy 1 crore 5. Mr. Y. Srinivasa Rao 2 crore (f) Noticees 1 to 5 shall pay the respective penalty imposed on them within a period of forty-five (45) days from the date of receipt of this Order. In case of failure to do so, simple interest at the rate of 12% per annum shall be applicable....
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....,84,77,349 International Expressions Inc. USA 104.53.63,208 1,04.53,63.208 Online Media Solutions Limited , Israel 51.78.81.121 51,78.81,121 Ybrant Media Acquisition Inc. USA 126.52,40,000 126.52,40.000 Dream Ad Group 54,32,40,000 54.32,40.000 Max interactive Pty Ltd, Australia 41,74,90,000 41,74,90,000 Dyomo Corporation.USA 4,67,300 4,67,300 Ybrant Digital Services De Publicidade Ltda.Brasil 2,65.932 2.65.932 Ybrant Digital (Brasil) Ltd., Singapore 45 45 LGS Global FZE, UAE 2,43,650 2,43,650 LIL Projects Private Limited 99.960 99,980 Yreach Media Pvt.Ltd 99,000 99,000 (i) Joint venture (Unquoted) Apollo Lycos Netcommerce Ltd 14,70.000 Total Investments Non- Current 5,08,88,67,585 5,09,03,37,585 Document 3 Statement of Consolidated Profit and Loss for the year ended 31st March, 2019 Particulars Note Year Ending Year Ending 31/03/2019 31/03/2018 Rupees Rupees REVENUE I Revenue from operations 27 25.80,24.09,484 24.20.74.30.562 Il Other income 28 (2.51,35,722) (45,87,905) III. Total revenue (I+II) 25,77,72,73,762 24,20,28,42,657 IV. EXPENSES Purchase / Cost of Revenue 29 14,54,30.37,135 13,66,32.51,799 Empl....
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....LYCOG Internet Lid) - Symbiosis Centre for Management Stacies- Pune Hyderabad, Telangana, India Business Analyst LYCOS Sep 2014 - May 2016 - 1 yr 9 mes 323 connections & Message - Intern Ybrant Digital Ltd Apr 2013 - May 2013 -2 mos Hyderabad Area, india Activity 327 followers + Follow Aishwarya hasn't posted lately Intern Naandi Foundation Apr 2012 - May 2012 - 2 moo Hyderabad Area, india Aishwarya's recent posts and comments will be displayed here Show all activity -> Education Experience Symbiosis Centre for Management Studies- Pune Bachelor of Business Administration (E.B.A.). Corporate Management and Entrepreneurship 2011-2014 Lead - Corporate Communications Brightcom Group (formerly LYCOS Internet Lid) Sep 2018 - Present . 3 yrs 8 mos Hyderabad Area, India Business Analyst SVKM's Narsee Monjee Institute of Document 6 Image 10 LYCOS. COPY OF EXTRACT OF MINUTES OF THE 17TH ANNUAL GENERAL MEETING OF MEMBERS OF LYCOS INTERNET LIMITED HELD ON TUESDAY THE 27TH DECEMBER, 2016, AT 10:00 A. M. AT ELLAA HOTELS, HILL RIDGE SPRINGS, GACHIBOWLI, HYDERABAD - 500032. TO APPOINT MR. Y. RAMESH REDDY AS EXECUTIVE DIRECTOR (FINANCE....