Bharat Shah is known as the 'King of Bollywood'

A special court in the western city of Bombay (Mumbai) also convicted film producer Nasim Rizvi and his assistant Abdul Rahim Allah Baksh.

However Shah was acquitted under a stringent anti-terror law of being directly linked with the underworld.

The men will be sentenced on Wednesday.

Mafia-style syndicates

Judge AP Bhangale ruled that Shah had been aware that organised crime syndicates had financed his film but failed to set "the law in motion by informing the... police of this activity".

The law does not make a distinction, even if one is acting under fear Defence lawyer Vibhav Krishna

Shah's lawyer argued that fear of reprisals had prevented his client from talking to the police.

Shah was arrested in 2001 following a crackdown on personalities in the Indian film industry.

His arrest sent shockwaves through Bombay's business community and brought down share values in the city's main stock exchange.

Shah is one of India's biggest film financiers and is said to have bankrolled several of the industry's big budget movies.

His arrest followed an investigation into his film, Chori Chori Chupke Chupke (On the quiet, Hush Hush) to examine whether it was funded by slush money funnelled in from mafia-style criminal syndicates.

He denied the allegation and says he financed the film with his own funds.

'Taped evidence'

The police used as evidence two audio tapes recording conversations between Shah and underworld don, Chotta Shakeel.

In the tape, Shah and Shakeel allegedly discussed an extortion racket involving a businessman.

The tapes are also said to implicate Shah in illegal foreign currency transactions.

Chori Chori Chupke Chupke was financed by Bharat Shah on a 1.2 billion-rupee ($26.4m) budget.

During his questioning he denied any underworld involvement and said that every rupee invested in the film was accounted for.

The movie's lead actor, Salman Khan, was among those who were questioned by the police in this connection.

Bharat Shah's arrest shocked the Indian film industry.

With a majority of movies failing to recover their investments at the box office, film making is regarded as a highly risky business in India and institutional financing is difficult to come by.