Mumbai: The capital market regulator on Thursday barred Mishtann Foods Ltd (MFL) and five of its directors from accessing the market, citing alleged financial misrepresentation and fraud.
The interim order of the Securities and Exchange Board of India came after its investigation from 1 April 2017 to 31 March 2024 revealed alleged serious financial irregularities in the company engaged in the processing and manufacturing of agricultural products.
MFL’s fake entities
MFL was found to have inflated its sales and purchase figures through the creation of fake entities—many of which were linked to the company’s managing director Hiteshkumar Gaurishankar Patel, and his relatives, according to the order. These shell companies were used to move funds between MFL and its associates, distorting the company’s financials, it said.
Sebi said its investigation revealed that over 90% of MFL’s sales and 84% of its purchases during the investigation period were found to be fictitious, involving circular money flows between related parties and non-existent companies. It also found that ₹96.92 crore was misappropriated through fraudulent transactions, including a rights issue misutilization where nearly ₹75 crore was transferred to non-operational entities linked to MFL’s promoters, the regulator said.
MFL’s failure to cooperate with the investigation, claiming that all records were destroyed in a fire in May 2022, further raised suspicions about the company’s intentions, the order said.
In response to these findings, Sebi restrained the company from raising any funds from the public until further notice. It also barred the directors of MFL from buying, selling, or dealing in MFL securities, or accessing capital markets in any form. Sebi also directed the company to return the misappropriated funds from the rights issue, amounting to ₹49.82 crore, and the ₹47.10 crore diverted to promoters and directors.
Sebi’s whole-time member Ashwani Bhatia observed in the order that the scale of the fraud, coupled with MFL’s rapid rise in the stock market—growing its market capitalization to ₹1,600 crore by December 2024—prompted serious concerns regarding the company’s operations and its impact on investor confidence.
The stock traded at ₹3.37 apiece in September 2018 and surged to an all-time high of close to ₹34.68 in 2019. It now trades around ₹15.52 per share. The number of shareholders rose from 516 at the end of FY18 to 4.23 lakh as of September 2024—a surge of 800 times in 6 years.
“The gross misrepresentation of financials by MFL continuously for seven years, viewed in the light of the disclosure-based regime of the securities market, has potential to impair the integrity of the securities market. This is of concern, given the fact that the destiny of MFL and over 4.2 lakh of its shareholders lies essentially in the hands of one person, i.e., Hiteshkumar Patel, who is the Managing Director and now also the sole promoter of MFL holding approx. 43% shares of MFL,” the order said.
Sebi also alleged that the managing director controlled several of the fake buyers and sellers of MFL through his relatives. “The fact that he recently garnered approx. ₹50 crores 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,” Sebi said.