SEBI Punishes Mishtann Foods, Debock Industries And Others For Diverting Funds For Personal Use
The capital markets watchdog investigated the companies after receiving complaints from whistleblowers;
SEBI Punishes Mishtann Foods, Debock Industries And Others For Diverting Funds For Personal Use
The capital markets watchdog investigated the companies after receiving complaints from whistleblowers
The Securities and Exchange Board of India (SEBI) is disciplining several companies for misappropriating funds raised through rights issues in the stock markets.
While investigating a few entities, SEBI discerned a pattern in the misuse of funds.
The investigations revealed the alleged illegal diversion of funds by promoters to their relatives or front companies for personal use rather than the purpose for which they raised the amount.
Most cases pertain to small and dormant companies that float a rights issue, wherein shares are offered to existing shareholders at a discount. This is to raise funds for further investment to expand the business. However, the funds are diverted for personal use, including investments in real estate.
Since fund diversion from rights issues does not instantly impact the stock market, it is difficult to detect misuse. In such cases, the source of information are whistleblowers’ complaints.
In an interim order passed on 5 December 2024, SEBI observed that Mishtann Foods Ltd misused proceeds from its rights issue. It transferred funds to promoters and group entities instead of the stated purpose.
The company withdrew an initial Rs.150 crore rights issue and later issued smaller rights issues under Rs.50 crore to avoid scrutiny.
SEBI barred Mishtann Foods from raising public funds and prohibiting it from trading or accessing the markets. It has been ordered to return Rs.49.82 crore misappropriated from its rights issue and Rs.47.10 crore diverted through fictitious transactions.
To ensure strict compliance with regulations, SEBI has mandated to form a new audit committee. It directed the Bombay Stock Exchange (BSE) to approve any further rights issues by the company. The directives will remain in force until further orders.
In another order passed on 11 December 2024, SEBI accused Debock Industries Ltd of financial misconduct, including manipulating its financial statements, submitting false bank statements, and siphoning off rights issue proceeds.
The company allegedly used fictitious preferential issues to migrate to the main board of the stock exchange.
Thus, SEBI has prevented Debock from dealing with securities or accessing capital markets.
