SEBI slaps a fine on Coffee Day Enterprises

SEBI slaps a fine on Coffee Day Enterprises

Directs the beverage company to pay Rs.26 crore penalty

The Securities and Exchange Board of India (SEBI) has imposed a penalty on Coffee Day Enterprises Limited (CDEL), which runs Cafe Coffee Day. The fine, to be paid within 45 days, is for the diversion of funds from subsidiaries to a company related to the promoters.

The capital markets regulator also directed CDEL to take necessary steps to recover the dues from Mysore Amalgamated Coffee Estates Ltd (MACEL) and its related entities, along with due interest outstanding to the subsidiaries.

Furthermore, in consultation with the National Stock Exchange (NSE), the company was told to appoint an independent law firm to take effective steps for the recovery of outstanding dues.

Earlier, SEBI had found the diversion of funds amounting to Rs.3,535 crore from seven subsidiaries of CDEL to MACEL.

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

In its order, SEBI stated, "The money 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."

VG Siddhartha, the chairman of the Coffee Day Group, committed suicide in July 2019. He allegedly left a suicide note addressed to the board of directors and Coffee Day family, mentioning that he was in deep debt.

MACEL is almost entirely owned by Siddhartha's family with a 91.75 percent stake. His family is a promoter of CDEL.

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

Thus, a fine of Rs.25 crore was imposed for the diversion of funds and violations pertaining to fraudulent and unfair trade practices. Also, the Rs.1 crore fine was for flouting the Listing Obligations and Disclosure Requirements (LODR) Rules.

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

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

SEBI also investigated to ascertain whether the funds were diverted to the related entities, resulting in a possible violation of regulatory norms.