Tax dept bars V G Siddhartha from selling Mindtree stake, attaches shares

The Income Tax department has imposed restrictions on the transfer of shares by V G Siddhartha and his holding company Coffee Day Enterprises in Mindtree for a period of six months, citing possible future tax demand on him.

The order has come at a time when Siddhartha is in talks with several suitors, including private equity firms and technology companies, to offload his 21 per cent stake in Mindtree.

"Provisional attachment (of shares) has been imposed on the following shareholders of the company- Coffee Day Enterprises and V G Siddhartha- for likely tax demand by the Income Tax department," Mindtree said in an exchange filing.

According to the regulatory filing, a total of 7.49 million shares held by Siddhartha and Coffee Day Enterprises will face this prohibitory order for next six months starting from January 25, 2019. While the number of shares on which restriction has been imposed constitutes 4.56 per cent of Mindtree's total share base, it is valued at Rs 665 crore at the closing price on Friday last week.

Siddhartha-owned Cafe Coffee Day retail chain had previously faced income tax raids on its premises in September 2017 and reports suggested that documents showing Rs 650 crore of concealed income were seized during the search operations. 

While the nature of future tax demand could not be immediately ascertained, analysts said that such restrictions could delay or even potentially derail Siddhartha’s stake sale plans. Investors might sense contingent risk from future litigations, analysts added.

However, Siddhartha and his holding company could challenge the order of Income Tax department in appellate tribunal, pleading against such prohibition.

Currently, Siddhartha is in talks with various PE investors and technology firms to sell his 21 per cent stake in Mindtree, triggering concerns of management change or a hostile takeover as founders are not willing to shed their stakes. 

An acquisition of the founders’ stakes- currently at 13.32 per cent- assumes significance as the acquirer needs to hold more than 25 per cent to have board representation and to reach the trigger point for an open offer.

Analysts said the stake sale plans of Siddhartha is likely to receive a setback now as he will only have around 16.5 per cent stake to offload post this prohibitory order.