Capital markets regulator Sebi imposed a Rs 26 crore fine on Tuesday on Coffee Day Enterprises, which runs Cafe Coffee Day, for diverting funds from subsidiaries to a promoter-related company.
The company has been ordered to pay the fine within 45 days, the Securities and Exchange Board of India (Sebi) said in an order.
In addition, Sebi has ordered Coffee Day Enterprises Ltd to take all necessary steps to recover the full shares of Mysore Amalgamated Coffee Estates Ltd (MACEL) and its related entities, together with any interest due that is outstanding for the subsidiaries.
In addition, the company, in consultation with the NSE, must appoint an independent law firm to take effective action for the recovery of outstanding fees.
Read | Coffee Day Enterprises total default at Rs 465.66 crore in Q2 FY23
Sebi found a diversion of funds worth Rs 3,535 crore from 7 subsidiaries of Coffee Day Enterprises Ltd (CDEL) to Mysore Amalgamated Coffee Estates Ltd, an entity related to CDEL promoters, according to his 43-page warrant.
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 Coffee Day Group, reportedly committed suicide in July 2019. It was reported that he had left a suicide note addressed to the Coffee Day board of directors and family in which he revealed that he was deeply in debt.
Under the order, MACEL is almost wholly owned by the VGS family with a 91.75 percent stake. In addition, the VGS family is a CDEL promoter.
The regulator noted that out of the total dues of Rs 3,535 crore as of July 31, 2019, the subsidiaries managed to recover a paltry sum of Rs 110.75 crore until September 30, 2022.
Considering the diversion, Sebi imposed a fine of Rs 25 crore for the violations related to fraudulent and unfair business practices and Rs 1 crore for breach of the rules related to LODR rules (List of Obligations and Requirements of divulgation).
While the directors and key management personnel (past and present) of CDEL and its subsidiaries have not been part of the current proceedings, Sebi said that a detailed examination of the acts and omissions of such persons is imperative.
After Siddhartha’s passing, the CDEL board retained the services of Ashok Kumar Malhotra, retired DIG from Central Bureau of Investigations and Agastya Legal LLP in September 2019 to investigate the books of accounts of the company and its subsidiaries.
Sebi had also launched an investigation into the matter on its own to determine whether the funds were diverted to related entities, resulting in a potential violation of regulatory rules.