The Securities Appellate Tribunal (SAT) has stayed the ₹26-crore penalty levied on Coffee Day Enterprises Ltd (CDEL), the parent of Cafe Coffee Day, by the Securities and Exchange Board of India (SEBI). Coffee Day, in a stock exchange filing, has said the SAT has granted a stay on the imposition of the said penalty under sections 15HA and 15HB of the SEBI Act, 1992. The Coffee Day Enterprises stock is trading 1.23% down at ₹35.38 on the Bombay Stock Exchange (BSE) today.

After hearing the arguments of the senior counsels of the appellant (Coffee Day Enterprises) and the respondent (SEBI), SAT said "let a reply be filed by the respondent within three weeks from today. Rejoinder may be filed within three weeks thereafter."

The matter has been listed for admission and for final disposal on May 2, 2023.

Capital markets regulator SEBI in January 2023 imposed the said penalty on Coffee Day Enterprises Ltd (CDEL) for the alleged diversion of funds worth ₹3,535 crore by its subsidiaries to Mysore Amalgamated Coffee Estates Ltd (MACEL), an entity related to CDEL promoters.

SEBI in its 43-page order asked Coffee Day Enterprises to recover the amount from MACEL and other connected entities and pay the penalty within 45 days of receipt of the order.

"We find that the company was under the control of the then Chairman and Managing Director Mr. V. G. Siddhartha who committed suicide and left a suicide note. In this note, it was stated that he was solely responsible for the financial transactions of his company and that the auditors, senior management and members of his family were totally unaware of the transactions," says the SAT order.

SEBI in its probe also found that Siddhartha was the "sole person" responsible for the transfer of funds from the 7 subsidiaries of the company to MACEL and that the board of directors of the company were unaware as such transfers were made without the board approval.

Since the company is now being headed by the widow of Siddhartha and the board of directors also consists of four independent directors. "We are not inclined to stay the directions issued by the WTM (whole-time member)," said SAT order.

In view of the SEBI probe and Siddhartha's note, SAT stayed "the imposition of penalty passed by the WTM during the pendency of the appeal", subject to the condition the appellant will furnish an undertaking to SEBI in four weeks that "they would deposit the amount as per the impugned order in four weeks from the date of the decision of this tribunal if it goes against them".

SEBI's January order said from CDEL’s email dated July 28, 2020, it was noted that out of its 49 subsidiaries, 7 had outstanding dues from MACEL, of which Coffee Day Global had the highest outstanding dues worth ₹1,112 crore; followed by Tanglin Retail Reality Developments at ₹1,050 crore; Tanglin Developments ₹620 crore; Giri Vidhyuth (India) ₹370 crore; Coffee Day Hotels and Resorts ₹155 crore; Coffee Day Trading ₹125 crore; and Coffee Day Econ ₹103 crore.

Of all the subsidiaries of CDEL, Coffee Day Global is a major subsidiary -- CDEL owns 82.09% of Coffee Day Global -- and the largest contributor of revenue and profits of the parent company.

Notably, VG Siddhartha, the chairman of the Coffee Day Group, committed suicide in July 2019. He left behind a suicide note on July 27, 2019, addressed to the company board and Coffee day family, wherein he revealed he was in deep debt. After Siddhartha’s passing away, the CDEL board roped in Ashok Kumar Malhotra, retired DIG of the Central Bureau of Investigation, and Agastya Legal LLP, to investigate the books of accounts of CDEL and its subsidiaries.

SEBI had also started the probe into the matter on its own to ascertain whether funds were diverted to related entities, which resulted in a possible violation of provisions of SEBI rules. Based on the findings of Ashok Kumar Malhotra, which was submitted by CDEL to SEBI in July 2020, and the SEBI probe, it was found that funds worth ₹3,535 crore were diverted from seven subsidiaries of CDEL to Mysore Amalgamated Coffee Estates Ltd (MACEL).

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