SEBI issues Show Cause Notice (SCN) to
BRIGHTCOM GROUP on alleged fraud

Background:

SEBI found several deficiencies in the books of accounts and other information pertaining to the company’s foreign subsidiaries. Based on the investigations, SEBI found that the accounting policy followed by Brightcom Group Limited (BGL) led to overcapitalization of the intangible assets, which resulted in inflation of profits. They attempted to camouflage accounting entries in excess of Rs. 1,280 crores during FY19 and FY20 to give a distorted picture of the company’s financial position. Both the earning numbers and the stock price were inflated.
Shares of the company have given a whopping 657% return in the last 3 years. The company saw its share
price zoom up from barely Rs 4 in April 2021 to a high of Rs 118 in December 2021. The promoters’
shareholding in BGL has progressively decreased from 40.45 percent on March 31, 2014 to 13.96 percent
on March 31, 2020 and further to 3.51 percent as on June 30, 2022.

SEBI ORDER:

The Securities and Exchange Board of India (SEBI) has issued a show cause notice-cum-interim order
against BGL and its directors.

• The company and its directors have been ordered to undertake the examination of its consolidated financial statements for the period 2014-15 to 2021-22 to ensure that they are in compliance with all the applicable accounting standards.
• The committee has also been mandated to review the adequacy of the internal audit function and take suitable corrective action.
• It has also been ordered to ensure that at least eighty percent of each of the consolidated revenue, assets and profits is subjected to audit or in case of unaudited results, subjected to limited review starting from the quarter ending March 31, 2023.
• Directors have also been ordered not to sell, dispose of or dilute their shareholding in the company.
• The company has also been ordered to submit the statement of the impact of all the non-compliances noted for each of the financial years within three months from the date of the order.

SW Point of View:

After looking into the above case, it is expected that the interim order / SCN made by SEBI will address the various issues relating to fraud. Such directions by SEBI will create awareness among companies to adhere to the relevant provisions according to the applicable law.