Fund diversion: Coffee Day Ent faces Rs 26cr fine

fund diversion: coffee day ent faces rs 26cr fine

Fund diversion: Coffee Day Ent faces Rs 26cr fine

Mumbai: Sebi has imposed a Rs 26-crore penalty on Coffee Day Enterprises for its failure to recover about Rs 3,500 crore from Mysore Amalgamated Coffee Estates (MACEL). The funds were diverted to the privately held group company MACEL by V G Siddhartha, the former chairman who in July 2019 died by suicide. Since Coffee Day Enterprises, a listed entity, has been able to recover just about Rs 110 crore from MACEL in last three years, the markets regulator also asked the NSE to appoint a law firm to initiate recovery proceedings from the group company.

Sebi also directed Coffee Day Enterprises and its board to extend all help to the law firm during the recovery process. In its 43-page order, Sebi said that since the promoters of the two companies were the same family, it was necessary to lift the corporate veil.

To put things in perspective, after Siddhartha committed suicide in July 2019, there were allegations of fund diversion from Coffee Day Enterprises, which runs the Cafe Coffee Day chain, to several group companies. Subsequently, the company had appointed a retired CBI officer and a law firm to investigate its books to see if funds were indeed diverted. Investigations found that Rs 3,535 crore was diverted from seven subsidiaries of Coffee Day Enterprises to MACEL, which in turn were used by Siddhartha and his family for personal use.

As a result of the news of fund diversion, the stock of Coffee Day Enterprises had crashed about 88% between July 2019, soon after Siddhartha’s passing, and October 2019. The Sebi report also noted that Coffee Day Enterprises had not disclosed the names of some group companies which were material subsidiaries, a violation under Sebi rules.

Sebi directed Coffee Day Enterprises to take all necessary steps to recover the entire dues from MACEL and its related entities, along with due interest. It also asked the company, in consultation with the NSE, to “appoint an independent law firm, of standing and repute, to take effective steps for recovery of the outstanding dues”. The law firm will operate under the oversight of the NSE, and it will file a quarterly report with the exchange and the company’s board, detailing the progress in the recovery process, Sebi said.

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