SEBI asks Mishtann Foods to retrieve nearly Rs 100 cr misappropriated, diverted to group entities, promoters, directors

The order said that findings indicated "misrepresentation of large proportions in financial statements by MFL, primarily by inflating sale and purchase figures by booking fictitious transactions with fake/non-existent entities"

The market regulator has asked Mishtann Foods Ltd (MFL) to retrieve nearly Rs 100 crore that it misappropriated or diverted through group entities and diverted to the company's promoters and directors.

In an interim order issued on December 5, the Securities and Exchange Board of India (SEBI) asked the company "to bring back the Rights issue proceeds amounting to Rs. 49.82 crore misutilised/ misappropriated/ diverted through group entities and the amount of Rs. 47.10 crore which was misutilised/ misappropriated/ diverted
to promoters/directors of MFL and their relatives through fictitious sales/purchases with group entities".

It also restrained the company from raising money from the public, its promoters and senior management from accessing the securities market and other 12 entities from associating with any registered intermediary until further orders.

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In the order, SEBI's Whole-time Member Ashwani Bhatia said prima facing findings show that there was "misrepresentation of large proportions in financial statements by MFL, primarily by inflating sale and purchase figures by booking fictitious transactions with fake/non-existent entities created in the names of the MFL’s promoters/directors and their relatives. 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 with which MFL perpetrated money transfer scheme with the help of multiple shell entities. These entities, which had no business operations of their own, functioned as pass-through vehicles and conduits for fund transfer amongst".

He said that these acts impaired the rights of investors and caused harm to the securities market.

He also noted how the "destiny" of the company and over 4.2 lakh shareholders lay in the hands of one person, the managing director Hiteshkumar Gaurishankar Patel (HGP)and also the sole promoter holding approximately 43 percent of the company's shares.

Bhatia added, "He controls several of the fake buyers/sellers of MFL through his relatives. The fact that he recently garnered approx. Rs. 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."