More trouble brews for Cafe Coffee Day (CCD) as the National Company Law Tribunal (NCLT) on Friday initiated insolvency proceedings against its parent company Coffee Day Enterprises Ltd (CDEL) over an alleged default of Rs 228.45 crores.
On August 8, the NCLT bench in Bengaluru admitted an insolvency plea moved by IDBI Trusteeship Services Ltd (IDBITSL) one of CDEL’s financial creditors, over the alleged default.
The NCLT bench has appointed Ashish Chhawchharia as the interim resolution professional (IRP) to take control of the operation of debt ridden Coffee Day Enterprises.
The NCLT further directed the IDBITSL to deposit 2 Lakhs to meet the expenses that the IRP will have to bear towards the proceedings like issuing public notices, inviting claims and so on.
In 2023, IDBITSL had filed the insolvency petition against Cafe Coffee Day's parent company claiming a default of Rs 228 crore.
IDBITSL moved the tribunal claiming that it entered into a Debenture Trust Deed with CDEL in 2019, in which it agreed to subscribe to non-convertible debentures worth Rs 200 crore and CDEL agreed to pay it in lieu of the subscription money raised.
CDEL defaulted and could not pay the said amount on four occasions between 2019 and 2020 on scheduled dates.
CDEL defended itself in the NCLT saying that since IDBITSL was a debenture holder, it had no power to file any application seeking initiation of Corporate Insolvency Resolution Process against the Coffee Day Enterprises.
However, the NCLT did not agree with the CDEL and held that as per the definition under the Insolvency and Bankruptcy Code (IBC) the debt which exists pursuant to the debenture was also a ‘financial debt.’
“Debenture Holders are considered Financial Creditors and therefore, Debenture Holders holding a Financial Debt are covered within the meaning of Section 5(8) of the IBC. Hence the allegation of the Corporate Debtor regarding the Debenture Holder not being Financial Creditor is not tenable,” the NCLT held.
NCLT further noted that there was a clear-cut acknowledgement of the debt in the name of debenture holder.
“In view of the above discussion, we are of the considered opinion that there is a 'debt' and 'default' existing in this case; and the petition is filed within the limitation period. The threshold requirement is also fulfilled. Hence the present petition is admitted,” the order read.
CCD's Parent Company Is No New To Trouble
Coffee Day Enterprises, which manages cafe chain outlets under the CCD brand, has been in news over its financial difficulties in the past few years, especially after its founder committed suicide in 2019.
Since the death of VG Siddhartha, the founder of Coffee Day Enterprises, the company's financial trouble has only increased. Siddhartha committed suicide in 2019 while the company was drowning in debt.
In January 2023, the capital markets regulator Securities and Exchange Board of India (Sebi) imposed a penalty of Rs 26 crore on CDEL as it was found that the proceeds from subsidiaries were diverted to a business connected to the promoters.
Sebi held that funds worth 3,535 crore were diverted from seven subsidiaries of Coffee Day Enterprises to Mysore Amalgamated Coffee Estates Ltd, a company connected to Coffee Day Enterprises proprietors.
Earlier on July 20, 2023, the NCLT had admitted an insolvency plea against the Cafe Coffee Day's parent company over a plea filed by IndusInd Bank. However, In August 2023, NCLAT stayed the NCLT order. After the stay, both the parties reached a settlement.