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MUMBAI : India’s markets regulator sent another show-cause notice to Cafe Coffee Day’s parent Coffee Day Enterprises Ltd (CDEL)on Wednesday.

Following an investigation triggered by allegations with regard to the company’s financials made by founder V.G. Siddhartha in a letter before his purported suicide, the Securities and Exchange Board of India (Sebi) on Wednesday issued a show-cause to CDEL under sections 11 and 11B of the Sebi Act, which essentially relates to the scope of potential penalties that the regulator can impose on any listed company if it is found to have made unfair gains.

“The company is in receipt of a show-cause notice pursuant to the investigation report submitted by the company to Sebi on issues arising out of the letter left by the late V.G. Siddhartha, former managing director of the company in connection with fund flows from the subsidiaries of the company," CDEL said in a late evening exchange filing. Soon after the death of Siddhartha, CDEL commissioned an independent investigation into the issues arising from Siddhartha’s letter.

Upon receipt of the report in July 2020, CDEL requested justice K.L. Manjunath, retired judge of the high court of Karnataka, to suggest and oversee actions for recovery of the dues from Mysore Amalgamated Coffee Estates Ltd to seven subsidiaries of the CDEL.

The details of the show-cause notice could not be ascertained, but CDEL, in the exchange filing, said it would deal with the show-cause notice appropriately.

On 4 October, Mint first reported that Sebi sent a show-cause to Coffee Day over accounting issues and investor losses following Siddhartha’s death.

The notice then was related to misappropriation of funds by promoters of CDEL, accounting issues and causing losses to the firm’s public shareholders.

In its show-cause notice last year, Sebi questioned Coffee Day about the appropriation of funds raised by the Coffee Day group under Siddhartha’s command and promoter-level dealings that ultimately resulted in a loss for shareholders.

In July 2020, an investigation report alleged that a large sum of money may have been diverted into several promoter group entities, and Siddhartha failed to create the right business model to benefit the shareholders of CDEL.

Sebi’s show-cause to the company then was also under sections 11, 11B and that pertaining to Prevention of Fraudulent and Unfair Trade Practices.

According to the investigation, CDEL’s financial records had suggested a serious liquidity crunch before Siddhartha’s death, according to the Mint report.

A significant portion of the money borrowed by one of the CDEL’s promoter entities, Mysore Amalgamated Coffee Estates Ltd, was spent only to buy back shares from private equity investors, repay loans, pay interest and fund certain “private investments", said the Mint report. The personal assets/shares of Siddhartha were hypothecated/pledged for business loans of the company and its subsidiaries, as per regulatory records.

He also gave personal guarantees for the company and its subsidiaries and also provided the personal guarantee of his family members, which eventually led to losses for CDEL. The investigation report said Rs3,535 crore was due from MACEL as of 31 July 2019.

It mentioned that Rs842 crore was due to the subsidiaries as of 31 March 2019 and the balance of Rs2,693 crore is incremental outstanding “which needs to be addressed".

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