On Thursday, the Securities and Exchange Board of India (Sebi) took action against five entities, including Mishtann Foods Ltd (MFL) and its promoter and Chairman Hiteshkumar Gaurishankar Patel, for alleged financial mismanagement, fraudulent transactions, and lapses in corporate governance. The regulator has barred these entities from accessing the securities markets until further notice.

Key Actions Taken by Sebi

• Market Restrictions: Mishtann Foods Ltd is prohibited from raising funds from the public, while 12 individuals, including key executives like Hiteshkumar Patel (CMD), Navinchandra Patel (CFO), Ravikumar Patel (former CFO), and Jatinbhai Patel (former whole-time director), are banned from associating with any Sebi-registered entity, listed company, or firm seeking public investments.
• Fictitious Transactions: Sebi found MFL involved in alleged fictitious sales and purchases, with circular fund flows and misappropriated funds amounting to ₹47.10 crore. The company reported negligible fixed assets, negative operating cash flow, and unusually low inventory compared to its high sales figures.
• Promoter’s Share Sale: During July-August 2024, Hiteshkumar offloaded shares worth ₹50 crore, with a steady decline in promoter holding since March 2024, allegedly harming retail investors.

Questionable Practices

Sebi noted a drastic increase in MFL’s public shareholders, from 516 in FY18 to 4.23 lakh by September 2024. Additionally, the company’s financial statements for FY18-FY24 were found to be untrue and misleading. Sebi’s investigation revealed violations of Listing Obligations and Disclosure Requirements (LODR) regulations by key directors.

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Misuse of Funds

Mishtann Foods filed for a rights issue worth ₹150 crore in May 2023 but later withdrew the offer. Sebi found ₹49.82 crore of rights issue proceeds misappropriated through group entities and ₹47.10 crore diverted to promoters and their relatives. The company has been directed to return these funds.

Future Actions

• Sebi instructed BSE to reject any rights issue applications by MFL until further notice.
• The regulator issued show-cause notices to 24 entities, including MFL and its officials, demanding explanations within 21 days.

This decisive action underscores Sebi’s commitment to maintaining transparency and accountability in financial markets.