Sebi advises CDEL as he investigates unfair gains

MUMBAI : The Indian markets regulator sent another show cause notice to Cafe Coffee Day’s parent company, Coffee Day Enterprises Ltd (CDEL) on Wednesday.

Following an investigation sparked by allegations about the company’s finances made by founder VG Siddhartha in a letter before his alleged suicide, the Securities and Exchange Board of India (Sebi) issued a justification to the CDEL on Wednesday under Articles 11 and 11B of the Sebi Law, which focuses on the extent of potential sanctions that the regulator can impose on any listed company if it is found to have made unfair gains.

“The company has received a show cause notice in accordance with the investigation report submitted by the company to Sebi on matters arising from the letter left by the late VG Siddhartha, former managing director of the company in relation to the cash flow of the subsidiary. of society, ”the CDEL said in a late-night exchange document. Shortly after Siddhartha’s death, the CDEL commissioned an independent investigation into the issues raised by Siddhartha’s letter.

Upon receipt of the report in July 2020, the CDEL asked Judge KL Manjunath, retired High Court Judge of Karnataka, to suggest and oversee actions for the collection of Mysore Amalgamated Coffee Estates Ltd dues to seven subsidiaries. of the CDEL.

The details of the show cause notice could not be determined, but CDEL, in the swap dossier, said it would process the show cause notice appropriately.

October 4, mint first reported that Sebi sent Coffee Day a rationale regarding accounting issues and investor losses after Siddhartha’s death.

The opinion was then linked to an embezzlement of funds by the promoters of the CDEL, accounting problems and causing losses to the public shareholders of the company.

In his show cause notice last year, Sebi asked Coffee Day about the appropriation of funds raised by the Coffee Day group under Siddhartha’s command and the developer-level transactions that ultimately resulted in a loss for shareholders.

In July 2020, an investigation report alleged that a significant amount of money could have been diverted to several entities of the promoter group, and Siddhartha failed to create the right business model for the benefit of CDEL shareholders. .

Sebi’s case against the company also fell under Articles 11, 11B and that relating to the prevention of fraudulent and unfair business practices.

According to the investigation, CDEL’s financial records had suggested a severe cash shortage prior to Siddhartha’s death, according to the Mint report.

A significant portion of the money borrowed by one of CDEL’s promoter entities, Mysore Amalgamated Coffee Estates Ltd, was spent only to buy back shares from private investors, repay loans, pay interest and fund certain “private investments”, according to the Mint report. Siddhartha’s personal assets / shares have been mortgaged / pledged for business loans from the company and its subsidiaries, in accordance with regulatory documents.

He also gave personal guarantees for the company and its subsidiaries and also provided personal guarantees for his family members, which ultimately resulted in losses for CDEL. The investigation report states that Rs3,535 crore was due by MACEL as of July 31, 2019.

He mentioned that Rs842 crore was owed to subsidiaries as of March 31, 2019 and that the balance of Rs2,693 crore was an additional “to be dealt with” overdue.

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