SEBI Orders Mishtann Foods to Recover Nearly ₹100 Crore Misappropriated by Promoters and Directors

SEBI orders Mishtann Foods to recover ₹100 crore misappropriated through fake transactions linked to its promoters. The company and its management face market restrictions as the regulator investigates large-scale financial fraud.

Dec 6, 2024 - 00:12
Dec 6, 2024 - 00:13
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SEBI Orders Mishtann Foods to Recover Nearly ₹100 Crore Misappropriated by Promoters and Directors

New Delhi: The Securities and Exchange Board of India (SEBI) has directed Mishtann Foods Ltd (MFL) to recover nearly ₹100 crore that was allegedly misappropriated or diverted through shell entities connected to the company's promoters and directors. The regulatory authority has also barred the company from raising funds from the public, while restraining its promoters and senior management from accessing the securities market.

SEBI's Interim Order Highlights Misappropriation

In its interim order dated December 5, SEBI's Whole-Time Member Ashwani Bhatia stated that the funds, misappropriated through a network of shell entities, were part of an elaborate scheme designed to inflate the company’s financial statements. The market regulator uncovered widespread fraudulent transactions involving fictitious sales and purchases booked with fake or non-existent entities.

SEBI has instructed Mishtann Foods to:

  • Recover ₹49.82 crore, which was diverted through group entities from the Rights issue proceeds.
  • Retrieve ₹47.10 crore misappropriated or diverted to promoters, directors, and their relatives through fake transactions.

Fraudulent Financial Practices

The investigation revealed that over 90% of the credit and debit entries in the bank accounts of these entities were either between themselves or directly linked to MFL. These shell entities functioned as pass-through vehicles with no legitimate business operations, facilitating fund transfers among themselves and Mishtann Foods.

In his findings, Bhatia noted, “The company has engaged in large-scale misrepresentation in its financial statements by inflating sales and purchases, significantly misleading investors. These fraudulent activities have caused harm to the integrity of the securities market and impaired investor rights.”

Market Restrictions

To safeguard investor interests and prevent further damage:

  • SEBI has barred MFL's promoters, directors, and senior management from accessing the securities market until further notice.
  • Twelve entities associated with the fraudulent transactions have also been prohibited from associating with any registered intermediary.
  • The company is restrained from raising funds from the public through any securities issuance.

Promoter's Role Under Scrutiny

SEBI’s investigation highlighted the critical role of Managing Director and sole promoter, Hiteshkumar Gaurishankar Patel (HGP), who holds approximately 43% of the company’s shares. Patel has been accused of orchestrating the fraudulent activities using shell entities controlled by his relatives.

The order also flagged Patel’s recent actions, including selling approximately three crore shares of Mishtann Foods to garner ₹50 crore, while still retaining 47 crore shares. SEBI expressed concern over the potential financial risks to retail investors, with Bhatia stating, “Unsuspecting retail shareholders are vulnerable to imminent financial loss due to the machinations of HGP, who appears to unjustly enrich himself at their expense.”

Impact on Shareholders

The findings reveal the precarious position of the company’s over 4.2 lakh shareholders, whose interests remain jeopardized by the alleged fraudulent activities. SEBI emphasized the urgent need for corrective actions to ensure investor protection and the restoration of market integrity.

This interim order serves as a stern reminder of the regulatory authority’s commitment to cracking down on financial fraud and protecting shareholder interests.

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