Why did NCLT admit Coffee Day Global limited to insolvency resolution process?

NCLT held that while Coffee Day had raised many arguments on the nature of petition filed by IndusInd, it has nowhere disputed the default amount.

On July 20, the Bengaluru bench of National Company Law Tribunal (NCLT) admitted Coffee Day Global to insolvency after IndusInd Bank moved a petition alleging that the former committed a default of Rs. 94 crore.

Coffee Day Global Limited owns 495 cafes in 158 cities and 285 CCD Value Express kiosks. There are 38,810 vending machines that dispense coffee in corporate workplaces and hotels under the brand.

The order passed by a bench of NCLT comprising Justice (retd) Krishnavalli and technical member Manoj Kumar Dubey came nearly a year after IndusInd bank filed the petition in August 2022. The order, which Moneycontrol has reviewed, notes that Coffee Day obtained various credit facilities from IndusInd bank from 2018. The facilities included secured overdraft EPC/PSFC/PCFC/FBD/FBP, Bank Guarantee, Performance Guarantee, short term loan as export advance and also derivative limits/ forward cover.

IndusInd bank argued that Coffee Day hypothecated all its current asset to obtain all the credit facilities sanctioned to it by the bank and executed the Deed of Hypothecation in April 2018. According the bank, in February 2019, Coffee Day obtained a Rs.115 core loan with the facilities amounting to Rs. 186.25 crore. Subsequently in November 2019, enhanced Coffee Day’s credit limit to Rs. 130.59 crore, to obtain this facility, the company had mortgaged an asset belonging to a company called Classic Coffee Curing Works.

According to  IndusInd “Coffee Day and its Guarantor failed to satisfy its liability, in spite of having more than sufficient resources.” Thus, ultimately, the company’s account was classified a Non-Performing Asset (NPA) in June 2020.

IndusInd argued Coffee Day has been irregular in repayment of loans since the year 2018, which was one of the causes for change in management subsequent to the untimely demise of the promoter V.G Siddhartha in July 2019. Hence, the default committed by the company was not owning to pandemic. IndusInd also argued that Coffee Day has been attempting to restructure its liabilities and made a payment of Rs. 20 Crore in December 2022, towards its offer to make restructuring of the loan liabilities

Coffee Day argued that it had not committed any default prior to March 2020 during which the loan facility was serviced, the company further argued that the default was committed during the period of suspension of Insolvency and Bankruptcy Code IBC), 2016 during the pandemic. According to Coffee Day, IndusInd does not allege anything about the company’s financial ill health. Coffee Day alleged that the IndusInd was trying to use NCLT and IBC to recover its dues, contrary to the intention of the law.

NCLT held that while Coffee Day had raised many arguments on the nature of petition filed by IndusInd, it has nowhere disputed the default amount, nor contended the bank’s submissions regarding the dates on which it defaulted.

The tribunal on being satisfied that there has indeed been a default of payment by Coffee Day Global, admitted the plea of insolvency and ordered moratorium to kick in.

The tribunal appointed Shailendra Ajmera as the interim resolution professional of the company. It is to be noted that Ajmera is also the resolution professional of the grounded airline Go First.