SEBI Fines Coffee Day Enterprises Rs 26 Crore For Fund Diversion

Seven subsidiaries of Coffee Day Enterprises engaged in fund diversion of Rs 3,535 crore, according to SEBI.

<div class="paragraphs"><p>Coffee Day Enterprises is the parent&nbsp;company of coffee shop chain Cafe Coffee Day. (Source: Cafe Coffee Day website)</p></div>
Coffee Day Enterprises is the parent company of coffee shop chain Cafe Coffee Day. (Source: Cafe Coffee Day website)

SEBI has imposed a fine of Rs 26 crore against the parent company of Cafe Coffee Day on Tuesday for diversion of funds worth Rs 3,535 crore from seven subsidiaries to an entity related to the promoters.

The Securities and Exchange Board of India has directed Coffee Day Enterprises Ltd. to appoint an independent law firm to ensure the recovery of outstanding dues within 60 days.

The law firm will act independent of the enterprise's board and under the oversight of the NSE, the market regulator said in its order.

It imposed a fine of Rs 25 crore under Section 15HA of the SEBI Act that mandates penalty for fraudulent or unfair trade practices related to securities. An additional fine of Rs 1 crore was imposed under Section 15HB, which directs penalty for contravention where no separate penalty has been provided.

In July 2019, VG Siddhartha, the then chairperson of Coffee Day, committed suicide and reportedly cited huge debt in a note as the reason behind his action.

The board of the company had engaged the services of Ashok Kumar Malhotra, retired DIG of the Central Bureau of Investigation, and Agastya Legal LLP in September that year to investigate the books of accounts of Coffee Day and its subsidiaries.

SEBI had also initiated investigations of its own "to ascertain whether funds were diverted to the related entities", the regulator said in its 43-page order.

"Based on the findings contained in the investigation report of Ashok Kumar Malhotra, submitted by CDEL to SEBI in July 2020, and the detailed investigation carried out by SEBI, diversion of funds amounting to Rs 3,535 crore from seven subsidiaries of CDEL to Mysore Amalgamated Coffee Estates Ltd., an entity related to promoters of CDEL, was revealed," it said.

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

According to a mail by CDEL dated Dec. 9, 2022, the outstanding dues of the seven subsidiaries from MACEL as on Sept. 30, 2022 stands at Rs 3,424.3 crore.

"MACEL, an entity on the personal business side of Late VG Siddhartha, had a continuing business relationship with subsidiary companies of CDEL. MACEL was paid advances by subsidiary companies of CDEL," SEBI said.

The amounts were sent to MACEL through normal banking channels. The personal assets and shares of Siddhartha were hypothecated or pledged for business loans of the company and its subsidiaries. He also gave personal guarantees for the company and its subsidiaries and also provided personal guarantee of his family members, it said.

The debt level was reduced by Rs 4,000 crore since March 2019 to Rs 3,200 crore by then, according to the July 2020 investigation report.