NCLAT stays insolvency proceedings against Coffee Day Enterprises

Mumbai: The Chennai bench of the National Company Law Appellate Tribunal on Wednesday stayed the corporate insolvency resolution proceedings against Coffee Day Enterprises. 

The interim order was granted following an appeal filed by Malvika Hegde, a shareholder and director of Coffee Day Enterprises, challenging the 8 August order by the National Company Law Tribunal (NCLT), which had permitted the initiation of the insolvency proceeding against the company by IDBI Trusteeship.

In September 2023, IDBI Trusteeship had moved the Bengaluru bench of the National Company Law Tribunal (NCLT) to initiate insolvency proceedings against Coffee Day Enterprises Ltd for an alleged default of ₹228 crore.

On 9 August, the company informed the exchanges in a filing that it was deliberating legal action in the matter.

Private lender IndusInd Bank too, in September 2023, had filed an insolvency application against Coffee Day Global.

However, the bank later told the NCLT it had reached an amicable settlement with the firm and withdrew the insolvency application against the company. It submitted that the debt in question was sold to ASREC (India) Ltd, an asset reconstruction company. A joint settlement application was also filed by the two in the matter.

Following this, the Chennai bench of the appellate tribunal set aside a National Company Law Tribunal (NCLT) order from 20 July, which had allowed the initiation of an insolvency resolution against Coffee Day Global Ltd. At that time, Shailendra Ajmera had been appointed as the company's interim resolution professional to oversee its day-to-day affairs.

IBC is a lifeline for distressed companies, focused on restoring their vitality and maximizing value, not just a path to recover debts, said Akshat Khetan, founder of AU Corporate Advisory and Legal Services.

Hegde, in her petition, stated that under the debenture trustee deed, IDBI ought to have taken consent of other debenture holders before filing section 7 application under IBC.

As per the plea filed before NCLAT, there cannot be a ‘resolution’ of Coffee Day as a going concern. Section 7 application has been used as a tool for recovering its alleged outstanding dues. 

Coffee Day Enterprises is the parent company of the Coffee Day group that operates Cafe Coffee Day chain. It is an investing and holding company whose business operations are conducted through its subsidiaries, associates, and joint venture companies. Thus, CDEL does not have a concept of ‘going concern’ since it merely holds shares. Its subsidiaries, associates, and joint venture companies conduct the business as a going concern. 

Shares of Coffee Day Enterprises ended at ₹36.75 on the National Stock Exchange on Wednesday, up 5% from the previous close.

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