The Securities and Exchange Board of India (SEBI) has exposed a significant financial fraud involving Mishtann Foods, a company that transitioned from cement to food processing in 1994. Known for its basmati rice, the company’s impressive sales growth, from ₹5 crores in FY14 to over ₹1,200 crores in FY24, was revealed to be a facade.
The Fraudulent Scheme
SEBI’s investigation uncovered fictitious buyers, sham suppliers, and shell entities linked to the management, all used to inflate revenues and fabricate financial statements. A key player, Arihant Corporation, conducted ₹175 crores in transactions that were mere circular entries, with no real funds exchanged. Further findings included GST fraud worth ₹78 crores involving Managing Director Hiteshkumar Patel and ₹50 crores from a rights issue misappropriated by insiders.
Regulatory Action
SEBI has banned Mishtann Foods and its management from securities markets for seven years and demanded the recovery of ₹96.92 crores. SEBI has barred key executives, including the MD, from associating with listed entities. The company’s failure to provide financial records, citing a 2022 fire, added to the suspicion.
Investor Lessons
The case underscores the need for investors to examine financials closely, especially when sales growth does not align with profits and cash flows. Declining promoter holdings and dubious claims are red flags. One expert observed, “If the offer appears excessively favorable, it is likely not genuine.”
SEBI’s firm action highlights the importance of transparency in markets and aims to restore confidence among retail investors.
