Capital markets regulator SEBI on Tuesday imposed a penalty of Rs 26 crore on Coffee Day Enterprises, which runs Cafe Coffee Day, for diversion of funds from subsidiaries to a company related to promoters.
The company has been directed to pay the fine within 45 days, the Securities and Exchange Board of India (SEBI) said in an order.
Also, SEBI has directed Coffee Day Enterprises Ltd to take all necessary steps for recovery of entire dues from Mysore Amalgamated Coffee Estates Ltd (MACEL) and its related entities along with due interest that are outstanding to the subsidiaries.
Further, the company in consultation with the NSE, is required to appoint an independent law firm to take effective steps for recovery of the outstanding dues.
SEBI found diversion of funds amounting to Rs 3,535 crore from 7 subsidiaries of Coffee Day Enterprises Ltd (CDEL) to Mysore Amalgamated Coffee Estates Ltd, an entity related to promoters of CDEL, according to its 43-page order.
The seven subsidiaries are—Coffee Day Global, Tanglin Retail Reality Developments, Tanglin Developments, Giri Vidhyuth (India) Ltd, Coffee Day Hotels and Resorts, Coffee Day Trading and Coffee Day Econ.
"The money that was 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," SEBI said.
VG Siddhartha, who was the Chairman of the Coffee Day Group, had reportedly committed suicide in July 2019. It was reported that he had left behind a suicide note addressed to the board of directors and Coffee Day family wherein he revealed that he was in deep debt.
As per the order, MACEL is almost entirely owned by VGS' family with a 91.75 per cent stake. Also, VGS' 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 have managed to recover a paltry sum of Rs 110.75 crore till September 30, 2022.
Considering the diversion, SEBI has imposed a fine of Rs 25 crore for the violations pertaining to fraudulent and unfair trade practices and Rs 1 crore for the flouting of rules pertaining to LODR (Listing Obligations and Disclosure Requirements) rules.
While the directors and key management personnel (past and present) of CDEL and its subsidiaries have not been made a party to the current proceedings, SEBI said it is imperative to carry out a detailed examination of acts and omissions of such persons.
After Siddhartha's passing away, the board of CDEL engaged the services of Ashok Kumar Malhotra, retired DIG of Central Bureau of Investigation, and Agastya Legal LLP in September 2019 to investigate the company's books of accounts and its subsidiaries.
SEBI had also initiated an investigation in the matter on its own to ascertain whether funds were diverted to related entities which resulted in possible violation of regulatory norms.