Shares of Man Industries (India) Ltd. (MIIL) initially fell 16% on Tuesday after the Securities and Exchange Board of India (SEBI) barred the company and three of its senior executives from accessing the securities markets for two years. The order comes after the regulator uncovered multiple financial irregularities, misstatements and violations of disclosure norms spanning FY15-16 to FY20-21. In addition to the market access ban, SEBI has imposed a penalty of Rs25 lakh each on the company, chairman Ramesh Mansukhani, managing director Nikhil Mansukhani and former chief finance officer (CFO) Ashok Gupta. The regulator’s findings followed a forensic audit initiated in November 2021, which confirmed allegations of diversion of funds, round-tripping, and non-consolidation of subsidiary accounts.
Key Findings of the SEBI Order
Non-Consolidation of Subsidiary Financials
SEBI observed that Man Industries had consolidated the accounts of its subsidiary, Merino Shelters Pvt. Ltd. (MSPL), in FY14–15, but subsequently discontinued consolidation without making adequate disclosures to shareholders or the exchanges. This omission resulted in group-level losses not being reflected in MIIL’s consolidated accounts. Over the review period (FY15–21), this practice led to an overstatement of profits by approximately Rs5.15 crore. SEBI determined that this action violated both the SEBI (Prohibition of Fraudulent and Unfair Trade Practices – PFUTP) Regulations, 2003 and SEBI (Listing Obligations and Disclosure Requirements – LODR) Regulations, 2015, as it materially misrepresented the company’s true financial performance.
Round-Tripping of Funds
The regulator identified instances of circular fund movements designed to temporarily improve financial reporting at year-end. Specifically, a loan of Rs99.90 crore extended to Man Reality Ltd. (MRL) through MSPL was repaid on March 31, 2016, only to be re-advanced as Rs110.19 crore in April 2016. Similarly, receivables of Rs52.78 crore were shown as reduced on March 31, 2017, but reappeared shortly thereafter. These transactions created a misleading picture of reduced liabilities or improved cash flows at the reporting date. SEBI concluded that such round-tripping practices distorted MIIL’s financial statements and misrepresented its liquidity and solvency positions.
Mis-representation via Un-Cleared Cheque
On 31 March 2020, MIIL recorded an un-cleared cheque of Rs11.50 crore from MSPL under 'cheques on hand' against interest receivable. However, the cheque was never realised and was reversed in the books only on 30 June 2020. By treating an un-cleared and ultimately dishonored cheque as a realisable asset, MIIL overstated its receivables and misled stakeholders regarding the quality of its earnings. SEBI held this practice as a misrepresentation of financial statements.
Loan Converted to Capital Advance without Audit Committee Approval
In FY17–18, MIIL reclassified a loan of Rs56.4 crore extended to MSPL into a capital advance for the purchase of office space. The underlying project had stalled at the plinth stage, and despite a contractual clause allowing refund, MIIL did not seek repayment. This reclassification resulted in a notional loss of interest income of approximately Rs20.32 crore. Furthermore, the decision was made without prior approval from the audit committee, in contravention of SEBI (LODR) provisions, highlighting governance lapses in related-party dealings.
Loans to Related Parties without Approval
SEBI also flagged loans amounting to Rs48.25 crore advanced in FY18–19 to Limitless Contracting Pvt Ltd (LCPL), a company in which MIIL’s Managing Director, Mr. Nikhil Mansukhani, was also a director. Though the principal and interest were eventually repaid in September 2019, the loan was extended without obtaining prior approval from the audit committee or a shareholder special resolution. This contravened Section 185 of the Companies Act, 2013, which governs loans to directors and related parties.
Non-disclosure of Encumbrances on Assets
MIIL failed to disclose material encumbrances placed on its assets during the review period. In February 2016, fixed deposits worth Rs85 crore were placed under lien for MRL’s overdraft facility, and in April 2019, equity shares of MSPL were pledged as collateral for MIIL’s credit facilities. These encumbrances, which had the potential to materially impact the company’s financial flexibility, were omitted from the FY19–20 and FY20–21 financial statements, constituting violations of disclosure norms.
Inter-corporate Deposits and Write-offs
Between 20 and 22 January 2018, MIIL advanced Rs40 crore as inter-corporate deposits and short-term advances to six external entities. These amounts were subsequently written off during FY19–20 and FY20–21. SEBI held that MIIL failed to adequately disclose the particulars of these transactions or provide clarity on the utilisation of the funds, raising concerns about transparency and prudent financial management.
Net vs Gross Disclosure of Related Party Transactions
Across multiple years, MIIL disclosed only net outstanding balances in its related-party transactions, instead of reporting gross flows as required. For instance, in FY18–19, MIIL advanced Rs48.25 crore and received repayments of Rs37.44 crore from LCPL, but disclosed only the net figure of Rs10.80 crore. By doing so, the company understated the true scale of related-party dealings and failed to provide stakeholders with full visibility into the extent of such transactions.
MIIL’s View
In response to SEBI’s order, Man Industries (India) Ltd. (MIIL) emphasised that the matter pertains to legacy issues between FY15–FY21 and does not reflect the company’s current operational or governance standards. The company clarified that the primary concern was the non-consolidation of its subsidiary, Merino Shelters Pvt Ltd (MSPL), along with certain procedural lapses, which have since been rectified. From FY23-24 onward, MIIL has resumed consolidating MSPL’s financials and has maintained compliance without lapses for the last four years.
MIIL further stated that the monetary penalty of Rs25 lakh is insignificant given the size and scale of its operations, while the restriction on accessing the securities market has no bearing on business, as trading in securities of other companies is not part of its core activities. Importantly, there is no restriction on trading of MIIL’s own shares by investors.
On the business front, the company highlighted a record order-book of Rs4,700 crore with improved margins across projects. It also reported progress on asset monetisation, noting that MSPL’s property has been sold with partial inflows of Rs70 crore already received and further receivables of Rs650 crore–Rs700 crore expected over the next five to six years. The management also underscored that its capex pipeline remains on track, with all projects scheduled for completion by Q4FY25-26.
