SEBI on Tuesday imposed a fine of ₹26 crore on Coffee Day Enterprises Ltd (CDEL) for failing to recover dues from a sister concern.

In a 43-page order, SEBI’s whole-time director, Ashwani Bhatia, has directed Coffee Day to recover ₹3,535 crore from Mysore Amalgamated Coffee Estates Ltd and its related entities along with due interest that are outstanding to the subsidiaries.. These funds were diverted from the company and its seven subsidiaries causing losses to the shareholders, the order added.

The noticee (Coffee Day) should pay the amount of penalty within 45 days of receipt of this order, he said.

According to regulator findings, VG Siddhartha, Chairman of the Coffee Day Group, had reportedly committed suicide in July 2019. “It was reported that he had left behind a suicide note dated July 27, 2019, addressed to the Board of Directors and Coffee Day family wherein he revealed that he was in deep debt.

After Siddhartha’s passing away, its board had engaged the services of Ashok Kumar Malhotra, retired DIG of Central Bureau of Investigation, and Agastya Legal LLP, in September 2019, to inter-alia investigate the books of accounts of CDEL and its subsidiaries. SEBI had also initiated an investigation in the matter on its own to ascertain whether funds were diverted to related entities.

Based on the findings contained in the investigation report of Ashok Kumar Malhotra, submitted by CDEL to SEBI in July 2020, and the detailed investigation carried out by SEBI, diversion of funds amounting to ₹3,535 crore from seven subsidiaries of CDEL to Mysore Amalgamated Coffee Estates Ltd, an entity related to promoters of CDEL, was revealed.

Based on the findings, SEBI had sent a show-cause notice to CDEL and directing it to recover ₹3,494 crore.

According to Ashwani Bhatia, out of the total dues of ₹3,535 crore as on July 31, 2019, the subsidiaries have managed to recover a paltry sum of ₹110.75 crore till September 30, 2022 (within a period of more than three years). “At this pace of recovery, there is no real possibility of the subsidiaries recovering money even in perpetuity. This also shows lack of interest on part of the Noticee and its subsidiaries to recover the outstanding dues,” he said in the order.

CDEL, in consultation with the NSE, should appoint an independent law firm, of standing and repute, to take effective steps for recovery of the outstanding dues, he further ordered.

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