The Board of Directors of the Zee Telefilms Limited (ZTL) in their meeting held yesterday, considered the investigation report and authorised the company to take action for redressal from the fraudulent acts perpetrated by GA Seshagiri Rao (GAS), the Chairman and Managing Director of Padamalaya Telefilms Limited and Padamalaya Enterprises Private Limited, in connivance with his brother GSR Krishna Murthy and their relatives, informed an official communiqué served by the media major. Padmalaya Enterprises Private Limited (PEPL) is subsidiary of ZTL and held a majority stake in Padmalaya Telefilms Limited (PTL).
In August 2004, Zee came to know from informal sources in the market that there had been certain irregularities in the functioning of PEPL as well as PTL. To verify the authenticity of the information, ZTL appointed Chennai-based chartered accountants Guru and Ram to conduct a detailed investigation. The final investigation report, dated December 9, revealed various unauthorised and fraudulent acts perpetrated by GAS and his relatives.
Keeping the Board of PEPL and ZTL in the dark, the promoter shareholders had misappropriated 62,64,631 equity shares of PTL held by PEPL to provide security for raising loans in the name of Rao, Krishna and their related entities or companies – primarily Padmalaya Studios Private Limited and Padmalaya Vision Limited.
As a part of the acquisition of ZTL’s stake in Padmalaya Enterprises and thereby in Padmalaya Telefilms (promoter shareholders), ZTL, GAS and his family members (Promoter Shareholders) executed a Shareholders’ Agreement in August 2002 detailing the mode and manner of administration, exercise of control over the day-to-day management of PEPL and PTL etc. ZTL nominated GAS as its nominee and Managing Director of PTL and PEPL, to look into the day-to-day affairs of these companies.
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 routed through the depository accounts of PEPL, without any consideration whatsoever accruing to PEPL
The loans raised on the misappropriated shares were not reflected in the books of accounts of PEPL and no explanation has been furnished as to the end use of the funds so raised. Accordingly, board of PEPL or nominees of ZTL did not have come to know of these transactions as they were suppressed and excluded from the company’s records and Board deliberations. The audited accounts and books of PEPL did not record the movement of the shares as either transfers or as pledged but continued to reflect the full investment in PTL shares. The audited accounts of PEPL recorded receipt of dividends from PTL from its investments even though they 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.
ZTL also revealed that in the Books of PTL for the financial years 2002-03 and 2003-04, substantial amounts of fictitious transactions were put through resulting in overstating of turnover and profits and consequent inflation in current assets. It was also revealed that GAS, being the person responsible to manage day-to-day affairs of PTL and PEPL, presumably in connivance with his relatives, falsified the accounts with the intent to cheat the shareholders. Huge amounts of cash were withdrawn from PTL and funds were diverted to related to the Promoter Shareholder.
As a result of ZTL inquiry into the books of PTL for the year 2003-04, its audited accounts were recast. As per the earlier audited accounts dated July 26, PTL’s total revenue was stated at Rs 106 crore with a Net Profit of Rs 18 crore. As per the re-cast accounts approved by the Board in its meeting held on December 6, total revenue was restated to be Rs 94 crore with a net loss of Rs 32 crore.
However, as per the statement, the ZTL Board of Directors has considered the final investigation report and has directed the company to take suitable criminal and civil action against the delinquent persons and to make efforts to recover the losses suffered by the shareholders because of the fraudulent acts and deeds as aforesaid.