Mishtann Foods shares plunge 20% for 2nd day amid SEBI fraud allegations

Packaged foods company Mishtann Foods Ltd shares were locked in a 20% lower circuit for the 2nd session in a row on December 9, 2024, following a show-cause notice against the company over the alleged misappropriation of funds worth around ₹100 crore. In a communication on Friday i.e. December 6, 2024, Mishtann Foods said the interim order from SEBI is a show-cause notice wherein an explanation has been sought on certain allegations and that it is not the final order. "The show-cause notice (SCN) is not a final order and is inter alia asking for an explanation from the company," the company told the exchanges.

The company said it doesn’t agree with the contents and the prima facie observations of the said interim order. "The management of MFL denies all the purported allegations mentioned in the interim order-cum-show cause notice," said the company, adding that its legal team is making efforts to address the queries and take appropriate actions.

Shares of Mishtann, meanwhile, are down 20% for the second consecutive day. At the current share price of ₹9.94, the company's m-cap stands at ₹1,071.15 crore. The share price has dropped 35.95% in just two trading sessions, while its m-cap fell by 41%. The share price has fallen 30% in the past week alone and its one-month decline stands at 31.96%.

SEBI order against Mishtann Foods

Markets regulator SEBI, in its show-cause notice after it investigated the matter, said the company allegedly "misappropriated or diverted" ₹100 crore via its group entities. The regulator said the company inflated sales and purchases using "fictitious transactions" using fake entities. They have also been asked to show cause as to why suitable directions should not be issued against them, and as to why an inquiry should not be held against them.

The interim order, signed by Ashwini Bhatia, a whole-time member of SEBI, said the company, along with 23 other individuals and entities, are restrained from raising money from the public, until further orders. They are also restrained from buying, selling or dealing in securities, or accessing capital markets either directly or indirectly.

Some individuals and entities have also been restrained from associating with any intermediaries registered with SEBI, any listed public company or any company that intends to raise public money. Mishtann is also directed to "bring back" the rights issue proceeds worth ₹49.82 crore misutilised or misappropriated and ₹47.10 crore diverted to its promoters or directors through fictitious sales or purchases.

The company is directed to form a new audit committee and place a copy of the SEBI order before it. The new audit committee will enhance oversight of related party transactions, including approvals as applicable, the financial reporting process and the disclosure of financial information to ensure the financial statements are correct, sufficient and credible.