SEBI bans Mishtann Foods from raising public funds, orders retrieval of ₹100 cr

The Securities and Exchange Board of India (SEBI) has ordered Mishtann Foods Ltd (MFL) to recover nearly ₹100 crore, misappropriated or diverted through group entities and its promoters.

In an interim order issued on December 5, SEBI directed the company to “bring back the Rights issue proceeds amounting to ₹49.82 crore misutilised/misappropriated/diverted through group entities and ₹47.10 crore misutilised/misappropriated/diverted to promoters/directors of MFL and their relatives through fictitious sales/purchases with group entities.”

The market regulator has also barred Mishtann Foods from raising public funds for seven years due to serious misrepresentation of its financial statements.

Additionally, the managing director and several other directors are prohibited from accessing the securities market until further notice.
In the order, SEBI’s Whole-time Member Ashwani Bhatia detailed how the company engaged in large-scale fraud by inflating financial statements.

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“The fact that more than 90% of the credit and debit entries in the bank accounts of these entities were either amongst themselves or with MFL shows the level of fraud… These entities, which had no business operations of their own, functioned as pass-through vehicles and conduits for fund transfer amongst [themselves],” Bhatia said.

He noted that the company’s operations and over 4.2 lakh shareholders’ interests were controlled by Managing Director Hiteshkumar Gaurishankar Patel (HGP), who is also the sole promoter, holding 43% of the company’s shares.

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“”He controls several of the fake buyers/sellers of MFL through his relatives. The fact that he recently garnered approx. ₹50 crore by offloading around 3 crore MFL shares and still holds another 47 crore shares of MFL illustrates the risk of imminent financial loss, especially to unsuspecting retail shareholders who are unaware of the machinations of HGP who seeks to unjustly enrich himself at the expense of common shareholders,” Bhatia added.