Sebi bans 5 companies from stock markets for alleged financial mismanagement

New Delhi:

Sebi on Thursday barred five entities, including Mishtann Foods and its promoter and CMD Hiteshkumar Gaurishankar Patel, from accessing securities markets until further orders for alleged financial mismanagement, fraudulent transactions and corporate governance lapses .

The regulator also banned Mishtann Foods Ltd (MFL) from raising funds from the public and barred 12 entities, including Hiteshkumar, Navinchandra Patel (CFO), Ravikumar Patel (former CFO) and Jatinbhai Patel (former whole-time director ) to associate. with any entity registered with Sebi or any listed company or any company intending to raise funds from the public, until further orders.

Sebi found that MFL had negligible fixed assets in its books, negative cash flow from its operational activity and very low inventory compared to its significant sales figures during the investigation period and that it was held prima facie to be a fictitious flow of funds involving a circular flow of funds.

Sebi, in its interim order, also observed that the number of public shareholders of MFL has increased significantly from just 516 at the end of the 2018 financial year to 4.23 lakh at the end of the September 2024 quarter.

Hiteshkumar, the sole promoter of MFL, divested shares of MFL during the July-August period, raising around Rs 50 crore and the promoter’s stake has been declining since the March 2024 quarter.

He therefore seems to be waiting for the opportune moment to get rid of his shares to the detriment of individual investors.

The regulator noted that Mishtann Foods was found prima facie registering fictitious sale/purchase transactions with the group entities and misappropriated its funds amounting to Rs 47.10 crore.

Ashwani Bhatia, whole-time member of Sebi, said that Hiteshkumar, Navinchandra, Ravikumar and Jatinbhai failed to fulfill their duties and obligations, which resulted in the issuance of false and misleading financial statements of MFL for seven consecutive financial years of exercise 18 to exercise 24.

Therefore, it was prima facie concluded that these four directors violated the provisions of the Listing Obligations and Disclosure Requirements (LODR) rules.

These directors are also found prima facie responsible for the violations committed by MFL.

Mishtann Foods had filed a draft offer letter for a rights issue of around Rs 150 crore in May 2023, with Sebi, but it was later withdrawn.

Later, the company proposed a rights issue worth Rs 49.9 crore in April 2024, and the proceeds of the issue were found to have been misappropriated by transferring the issue proceeds to the associates/ directors of the entities in its group.

In August this year, MFL filed a fresh draft offer letter with the stock exchange for another rights issue worth less than Rs 50 crore. As per the norms, there is no need to file a draft offer letter with Sebi for a rights issue of less than Rs 50 crore.

Therefore, it appears from the modus operandi that MFL intended to circumvent the regulator’s oversight and compliance with ICDR rules, by withdrawing the initial rights issue of Rs 150 crore and then proceeding to raise funds in installments. smaller tranches through rights issues of less than Rs. 50 million.

Given Mishtann Foods’ track record, it is highly likely that if the company is allowed to proceed with the proposed rights issue, it could divert profits again.

Accordingly, Sebi directed MFL to bring back the rights issue proceeds amounting to Rs 49.82 crore misused/diverted through the group entities and the amount of Rs 47.10 crore which been diverted to the promoters/directors of MFL and their relatives through fictitious sales/purchases with group entities. .

The regulator also directed BSE not to approve any rights issue application filed by MFL until further orders.

Further, Sebi has also called for explaining to 24 entities, including MFL, its principal officials and others, why an inquiry should not be conducted against them and also asked them to file their response/objections in a 21 day deadline.

The interim order follows a detailed investigation covering the period from April 2017 to March 2024, following complaints of GST evasion and other financial irregularities on the part of Mishtann Foods.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)