Jhandewalas Foods Limited has recently declared its unaudited financial results for the year ended 31st March 2025, showing a profit of ₹351.98 lakh. However, despite the profit declaration, the company is facing several serious financial, legal, and compliance issues, which were highlighted by the auditor in their review report.

The company is listed on the BSE SME platform, and it has reported its financial results as per the requirements of Regulation 33 of SEBI (LODR) Regulations, 2015. The board of directors approved the results in a meeting held on 15th May 2025.

Financial Performance Overview

The company’s unaudited financial results show that it earned a profit of ₹351.98 lakh in the financial year ending March 2025. The performance appears to be stable, with revenues from operations and other income generating sufficient returns. The company also declared that the figures were reviewed by the Audit Committee before approval by the Board of Directors.

However, a deeper analysis reveals several red flags raised by the auditor in their Limited Review Report, which could significantly impact the actual financial health and regulatory standing of the company.

Key Issues Highlighted by the Auditor

1. Non-Performing Asset Classification by Axis Bank

One of the most critical observations in the auditor’s report is that Axis Bank has classified the company’s account as a Non-Performing Asset (NPA) due to non-repayment of loan obligations. This is a major concern as it indicates loan default and financial stress.

Moreover, Axis Bank has initiated recovery proceedings under the Debt Recovery Tribunal (DRT), and the matter is currently sub judice. This adds a legal dimension to the financial troubles of the company, and the outcome could affect its future operations and liquidity.

Despite this, the company has not disclosed the implications of the DRT case on its financial results, which has been noted by the auditor as a significant omission.

2. Questionable Related Party Transactions

In FY 2022-23, the company allotted:

• ₹2,130 lakh through preferential equity shares, and

• ₹2,524 lakh through convertible warrants on a preferential basis.

These allotments were made to various parties including directors and entities related to them. Out of the above, ₹393.19 lakh was later given as loans or advances to parties related to the company’s directors.

This raises serious concerns regarding conflict of interest, governance issues, and potential misuse of shareholder funds. Preferential allotment should ideally be used for business expansion or operational funding, not for internal financial routing.

The auditor has explicitly stated that this transaction may be considered prejudicial to the interest of the company.

3. Lack of Ownership Documents for Fixed Assets

Another major issue raised in the auditor’s report is the lack of proper documentation for fixed assets valued at ₹5.76 crore. The company failed to provide ownership documents or lease agreements for these assets, which include:

• Land and Building,

• Plant and Machinery,

• Furniture and Fixtures,

• Vehicles, and

• Office Equipment.

This non-availability of ownership proofs creates doubt about the existence, ownership, and valuation of these fixed assets, which are a critical part of the balance sheet. If the assets are not actually owned or usable by the company, it could lead to overstatement of assets and potential regulatory penalties.

4. Audit Qualification and Disclaimer

Due to the above issues, the auditor has issued a qualified opinion with disclaimers on the unaudited financial results. This means that the financial results presented by the company may not present a true and fair view of its financial position.

This kind of audit qualification typically results in regulatory scrutiny, a loss of investor confidence, and difficulty in raising future capital.

5. Regulatory Risk and Lack of Disclosure

The company has not provided adequate disclosure regarding the DRT proceedings and the implications of the NPA classification on its business. Additionally, the related party loans and missing asset ownership documents were not highlighted in the notes to accounts, which is a breach of corporate disclosure norms.

This lack of transparency increases the risk of regulatory action by SEBI or BSE, and investors may face informational asymmetry, leading to misinformed decisions.

Broader Implications

While Jhandewalas Foods has posted a profit, the underlying risks and audit observations indicate a fragile financial and compliance structure. The audit qualifications and issues with related party transactions and asset ownership are not mere technicalities — they reflect potential governance lapses that could affect stakeholders significantly.

Investors and shareholders should carefully consider these red flags before making any investment or financial decisions regarding the company. Moreover, the company must take urgent steps to address these issues, including:

• Settling the NPA dispute with Axis Bank and resolving DRT matters,

• Providing full disclosure about related party transactions and their business justification,

• Submitting ownership proof of all fixed assets to the auditors and stock exchange,

• Ensuring better transparency in future financial disclosures.

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