ZEE set to take legal action against Padmalaya Telefilms

By , agencyfaqs! | In
Last updated : December 22, 2004
Accuses Padmalaya's promoters of committing frauds and misappropriating shares

ZEE Telefilms has accused the promoters of Hyderabad-based Padamalaya Telefilms of committing a fraud and is set to file criminal and civil suits against Padamalaya's promoters to recover its losses.

According to a ZEE release, the ZEE board on Tuesday was briefed about the alleged fraudulent acts carried out by G.A. Seshagiri Rao, the chairman and managing director of Padamalaya Telefilms and Padamalaya Enterprises Private Limited, along with his brother G.S.R. Krishna Murthy and their relatives.

ZEE had bought into Padmalaya Enterprises (PEL) in August 2002, thus making PEL a ZEE subsidiary. PEL has a majority stake in Padmalaya Telefilms (PTL).

ZEE alleges according to the shareholders agreement between ZEE and PTL, Padamalaya Enterprises (PEL) shall not deal in the shares of PTL, unless it is approved by ZEE and approved by the PEPL board. Therefore, no person, including the PEPL board had the authority to deal with its investments in PTL. According to the release, PEPL had a single share-dematerialised account at the time of execution of the shareholders' agreement.

ZEE says, G.A. Seshagiri Rao, G.S.R. Krishna Murthy and their relatives kept the ZEE and PEPL boards in the dark, and "fraudulently with dishonest intentions” misappropriated 62,64,631 equity shares of PTL. These shares, which were originally held by PEPL, were used to provide security for raising loans in the name of Rao, Krishna and their related entities/companies, primarily Padmalaya Studios Private Limited and Padmalaya Vision Limited.

The loans raised on the misappropriated shares were not reflected in the books of accounts of PEPL and no explanations were furnished as to the end-use of these funds.

Accordingly, the PEPL board and also ZEE nominees in the PEPL board were kept in the dark as these transactions were suppressed and excluded from the company's records and board deliberations. The audited accounts and books of PEPL also did not record the movement of the shares as either transfers or as pledged but continued to reflect the full investment in PTL shares.

What's more, the audited accounts of PEPL recorded receipt of dividends from PTL from its investments even though the dividends had not been received. Similarly, the statutory filings made by PTL with stock exchanges till June 2004 regarding its shareholding pattern did not reveal any change in the same.

ZEE has also alleged that PTL accounts for the financial years 2002-03 and 2003-04 have been fabricated as substantial amounts of fictitious transactions were put through resulting in overstating of turnover and profits and consequent inflation in current assets.
G.A. Seshagiri Rao has been accused of falsifying the accounts with the intent to cheat ZEE's shareholders. According to ZEE, huge amounts of cash were withdrawn from PTL and funds were diverted to companies/entities related to Rao and his family.

Further, shares belonging to PEPL and those held in the name of 'Padmalaya Telefilms Employees Welfare Trust' pending formulation of an ESOP scheme were also transferred/routed through the depository accounts of PEPL, without any consideration accruing to PEPL.

All of these, according to the ZEE release, was in violation of the shareholders' agreement between ZEE and PTL in August 2002, which detailed the mode and manner of administration, and also exercise of control over day-to-day management of PEPL and PTL.

The alleged irrgularities came to light after ZEE appointed M/s. Guru and Ram, a Chennai-based chartered accountant firm. The agency submitted its final investigation report on December 9, 2004.

As a result of this inquiry into PTL books for 2003-04, PTL's audited accounts have been recast. As per the earlier audited accounts dated July 26, 2004, PTL's total revenue was stated at Rs 106 crore with a net profit of Rs 18 crore. As per the recast accounts approved by the PTL board on December 6, 2004, total revenue was restated to Rs 94 crore with a net loss of Rs 32 crore.

ZEE has said that since PTL's promoters have refused to co-operate and reverse the fraud, the ZEE board has directed ZEE to initiate civil and criminal proceedings against the PTL promoters.

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First Published : December 22, 2004
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© 2004 agencyfaqs!