Mishtann Foods shares fall 20% after seven-year ban from raising public funds – CNBC TV18

Shares of Mishtann Foods Ltd. fell 20% on Friday, December 6, after the company was barred by market regulator Securities and Exchange board of India from raising public funds for seven years due to serious misrepresentation of its financial statements.

SEBI has also ordered Mishtann Foods to recover nearly ₹100 crore, misappropriated or diverted through group entities and its promoters.

The company issued a clarification on Friday, where it said that the said interim order is a Show Cause Notice, wherein an explaination has been sought from the company over certain allegations.

“MFL does not agree with the contents and the prima facie observations of the said interim order and totally denies all purported allegations mentioned in the interim order cum show cause notice,” the company said, adding that its legal and compliance team is making efforts to address the queries and take appropriate action.

Mishtann Foods will prefer the remedies available in law against the order and follow due process, the exchange filing said.

In an interim order issued on December 5, SEBI directed the company to “bring back the Rights issue proceeds amounting to ₹49.82 crore misutilised/misappropriated/diverted through group entities and ₹47.10 crore misutilised/misappropriated/diverted to promoters/directors of MFL and their relatives through fictitious sales/purchases with group entities.”

Additionally, the managing director and several other directors are prohibited from accessing the securities market until further notice.

In the order, SEBI’s Whole-time Member Ashwani Bhatia detailed how the company engaged in large-scale fraud by inflating financial statements.

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“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… These entities, which had no business operations of their own, functioned as pass-through vehicles and conduits for fund transfer amongst [themselves],” Bhatia said.

He noted that the company’s operations and over 4.2 lakh shareholders’ interests were controlled by Managing Director Hiteshkumar Gaurishankar Patel (HGP), who is also the sole promoter, holding 43% of the company’s shares.

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