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MUMBAI : Coffee Day Enterprises Ltd (CDEL) was penalized 26 crore by the Securities and Exchange Board of India (Sebi) on Tuesday for alleged fund diversion. CDEL is the parent company of Café Coffee Day.

An order passed by Sebi whole time member Ashwani Bhatia directed that “The company in consultation with the National Stock Exchange, shall appoint an independent law firm, of standing and repute, to take effective steps for recovery of the outstanding dues, as directed in sub-para (a) above, within 60 days of this order. The appointed law firm, so appointed, shall act independent of the Board of CDEL for this matter, under the oversight of the NSE, on behalf of the Noticee (CDEL)and its subsidiaries".

Sebi in its investigation found out that funds amounting to 3,535 crore were diverted from 7 subsidiaries of CDEL to Mysore Amalgamated Coffee Estates Ltd(MACEL), an entity related to promoters of CDEL.  

In July 2019, VG Siddhartha, the chairman of Coffee Day Group reportedly committed suicide and left a suicide note. The note was addressed to the Board of Coffe Day family wherein it was revealed that Siddhartha was in deep debt.  

In his suicide note Siddhartha said that "My team, auditors and senior management are totally unaware of all my transactions. The Law should hold me and only me accountable, as I have withheld this information from everybody including my family."

In September 2019, consequently, the Board of CDEL hired Shri Ashok Kumar Malhotra, a retired DIG of the Central Bureau of Investigation, and Agastya Legal LLP to, among other things, look into the books of accounts of CDEL and its subsidiaries after Mr. V.G. Siddhartha passed away. A detailed report was submitted to Sebi following the investigation.  

The market regulator started a probe in the matter on its own, to ascertain whether funds were diverted to related entities which resulted in possible violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices).  

CDEL’s has 49 subsidiaries out of which 7 subsidiaries including Coffee Day Global Ltd, Tanglin Retail Reality Developments , Tanglin Developments Ltd , Giri Vidhyuth (India) , Coffee Day Hotels and Resorts , Coffee Day Trading , Coffee Day Econ Pvt. Ltd were found to have diverted funds to Mysore Amalgamated. In fact, these subsidiaries had outstanding dues from MACEL.

Based on the order, it was observed that within a short period of four months, between April 01, 2019 to July 31, 2019, Rs. 2,693 Crore (Rs. 3,535 Crore – Rs. 842 Crore) was transferred from 7 subsidiaries of CDEL to MACEL.  

Thereafter, CDEL also submitted to SEBI copies of letters dated July 24, 2020 to MACEL from its subsidiaries, seeking a repayment plan for the amounts payable by MACEL to these subsidiaries.

 “The reluctance on part of CDEL to recover dues from MACEL is apparent from the fact that CDEL has so far not taken any coercive action against MACEL. In fact, when the fraud was first discovered, rather than taking urgent steps for recovery, it opted to wait for the findings of the investigation of Ashok Kumar Malhotra, CBI who was appointed by CDEL to look into the books and accounts of CDEL and its subsidiaries", the regulator noted. 

ABOUT THE AUTHOR

Priyanka Gawande

Priyanka Gawande is a senior legal correspondent at Mint. She has worked as legal reporter for four years with both television and digital mediums. Based in Mumbai, she reports on disputes across sectors including banking, corporates and finance. This also includes insolvency and bankruptcy cases and intellectual property rights (IPR) litigation. Her focus also comprises tracking capital markets and disputes relating to securities law. Previously, Priyanka worked with Informist Media for 2.5 years covering major insolvency and bankruptcy cases and corporate developments. She started her career in journalism with Business Television India (BTVi) where she reported on primary markets, banking, finance and insurance companies.
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