The Securities and Exchange Board of India (SEBI) in an order delivered on January 24 cracked down on Coffee Day Enterprises Limited (CDEL), the parent company of the immensely popular coffee shop franchise, Cafe Coffee Day. The regulator imposed a penalty of Rs 26 crore on the company and has directed the company to appoint a reputed law firm, in consultation with NSE, to assist with the recovery of outstanding dues of Rs 3,424.25 crore.
The fraudulent diversion and mismanagement of funds within the company amounting to a whopping Rs 3,535 crore first came to light when VG Siddhartha, the chairman of the Coffee Day group, committed suicide in July 2019. He left behind a note addressing the Board of Directors that his team, auditors and senior management were “totally unaware” of all his transactions and that the law should hold only him accountable, as he had withheld the information from everybody, “including his family”.
At the heart of the corporate governance fiasco is the diversion of Rs 3,535 crore from seven subsidiaries of CDEL to Mysore Amalgamated Coffee Estates Limited (MACEL), a company that is connected to CDEL.
Whole Time Member Ashwani Bhatia imposed a penalty of Rs 25 crore under section 15HA and Rs 1 crore under section 15HB of the SEBI Act, 1992. The first section deals with fraudulent and unfair trade practices relating to securities, whereas the second section chalks out provisions for the imposition of penalties.