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Capital markets regulator SEBI on Tuesday issued an order in the matter of Coffee Day Enterprises, imposing a fine of 25 crore.

The order comes into force with immediate effect, the market regulator said, adding, “The noticee shall remit/pay the said amount of penalty within 45 days of receipt of this order."

SEBI has also directed Coffee Day Enterprises to take all necessary steps for recovery of entire dues from Mysore Amalgamated Coffee Estates Ltd (MACEL) and its related entities along with due interest that are outstanding to the subsidiaries.

The company in consultation with the NSE, is required to appoint an independent law firm to take effective steps for recovery of the outstanding dues, the order read.

SEBI found diversion of funds amounting to 3,535 crore from 7 subsidiaries of Coffee Day Enterprises Ltd (CDEL) to Mysore Amalgamated Coffee Estates Ltd, an entity related to promoters of CDEL, according to its 43-page order.

The seven subsidiaries are – Coffee Day Global, Tanglin Retail Reality Developments, Tanglin Developments, Giri Vidhyuth (India) Ltd, Coffee Day Hotels and Resorts, Coffee Day Trading and Coffee Day Econ.

"The money that was transferred from the seven subsidiaries to MACEL has gone to the personal accounts of VGS (VG Siddhartha), his family and related entities and thus remains in the system," SEBI stated.

VG Siddhartha, who was the Chairman of the Coffee Day Group, had reportedly committed suicide in July 2019. It was reported that he had left behind a suicide note addressed to the board of directors and Coffee Day family wherein he revealed that he was in deep debt.

According to the order, MACEL is almost entirely owned by VGS' family with a 91.75 per cent stake. Also, VGS' family is a promoter of CDEL.

The regulator noted that out of the total dues of 3,535 crore as on July 31, 2019, the subsidiaries have managed to recover a paltry sum of 110.75 crore till September 30, 2022.

Considering the diversion, SEBI has imposed a fine of 25 crore for the violations pertaining to fraudulent and unfair trade practices and 1 crore for the flouting of rules pertaining to LODR (Listing Obligations and Disclosure Requirements) rules.

While the directors and key management personnel (past and present) of CDEL and its subsidiaries have not been made a party to the current proceedings, SEBI said it is imperative to carry out a detailed examination of acts and omissions of such persons.

After Siddhartha's passing away, the board of CDEL engaged the services of Ashok Kumar Malhotra, retired DIG of Central Bureau of Investigation, and Agastya Legal LLP in September 2019 to investigate the company's books of accounts and its subsidiaries.

SEBI had also initiated an investigation in the matter on its own to ascertain whether funds were diverted to related entities which resulted in possible violation of regulatory norms.

Meanwhile, Coffee Day Enterprises has reported a total default of 465.66 crore on payments of interest and repayment of principal amount on loans from banks, financial institutions and Unlisted Debt Securities as NCDs and NCRPS, for the quarter ended 30 September, 2022.

CDEL, which is paring its debts through asset resolution, has a total debt of 490.66 crore, including short-term and long-term debt.

"The delay in debt servicing is due to liquidity crisis," said Coffee Day Enterprises Ltd in a regulatory update last year in October.

Coffee Day Enterprises Ltd is the parent company of Coffee Day Group. 

The company, primarily through its subsidiaries, associates and joint venture companies, does business in multiple sectors such as coffee retail and exports, leasing of commercial office space, financial services, Integrated Multimodal Logistics, Hospitality and Information Technology (IT)/Information Technology Enabled Services (ITeS).

With agency inputs

ABOUT THE AUTHOR

Meghna Sen

Meghna Sen is a deputy chief content producer at Livemint where she tracks companies, markets, news. She has 5+ years of experience with online and print publications. Email: meghna.sen@htdigital.in
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