That Coffee Didn’t Brew Well – SEBI Slaps Coffee Day With Rs 26 Cr Penalty For Alleged Fund Diversion

After Mr Siddhartha's death, in September 2019, the Board of CDEL hired 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.

Published: January 25, 2023 10:08 AM IST

By India.com Business Desk | Edited by Sankunni K

That Coffee Didn't Brew Well - SEBI Slaps Coffee Day With Rs 26 Cr Penalty For Alleged Fund Diversion
That Coffee Didn't Brew Well - SEBI Slaps Coffee Day With Rs 26 Cr Penalty For Alleged Fund Diversion

New Delhi: Coffee Day Enterprises Ltd (CDEL), the parent company of the popular coffeehouse chain Café Coffee Day (CCD) was penalized Rs 26 crore by the Securities and Exchange Board of India (Sebi) on Tuesday for alleged fund diversion.

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“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,” said the order passed by Sebi whole time member Ashwani Bhatia.

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

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

“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,” Siddhartha’s suicide note.

After Mr Siddhartha’s death, in September 2019, the Board of CDEL hired 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. A detailed report was submitted to Sebi following the investigation.

Sebi also initiated a probe 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).

Seven out of fourty nine of CDEL’s subsidiaries were found out  to have allegedly diverted funds. They are:

  1. Coffee Day Global Ltd
  2. Tanglin Retail Reality Developments
  3. Tangling Developments Ltd
  4. Giri Vidhyuth (India)
  5. Coffee Day Hotels and Restorts
  6. Coffee Day Trading
  7. Coffee Day Econ Pvt. Ltd

All these subsidiaries had outstanding dues from MACEL.

CCD Outstanding dues from MACL   (Courtesy: Sebi website

CCD Outstanding dues from MACEL
(Courtesy: Sebi website)

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.

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Published Date: January 25, 2023 10:08 AM IST