Sebi imposes Rs 1-crore fine in Coffee Day Enterprises fund diversion case

Capital markets regulator Sebi on Monday imposed a Rs 1 crore penalty on Mysore Amalgamated Coffee Estates for 'aiding and abetting' Coffee Day Enterprises in the diversion of funds to the tune of Rs 3,535 crore.

The company was directed to pay the fine within 45 days, according to an order passed by the Securities and Exchange Board of India (Sebi).

Mysore Amalgamated Coffee Estates Ltd (MACEL) and Coffee Day Enterprises Ltd (CDEL) are controlled by the same set of persons -- Late VG Siddhartha (VGS) and his family members.

"Noticee 1 (MACEL) was nothing but a pass-through entity which has effectively aided and abetted VGS in the act of diverting funds to the tune of Rs 3,535 crore from subsidiaries of CDEL to Noticee 1 and from Noticee 1 to entities controlled by VGS & his relatives and has thus violated the provisions of SEBI Act and PFUTP) Prohibition of Fraudulent and Unfair Trade Practices) Regulations," Sebi said in its order.

Such diversion of funds was never disclosed to the investors till the time of the death of VGS, it added.

Accordingly, the regulator has imposed "a penalty of Rs 1 crore on Noticee 1 i.e, Mysore Amalgamated Coffee Estates Limited".

VG Siddhartha, who was the Chairman of the Coffee Day Group, reportedly committed suicide in July 2019. It was reported that he had left behind a suicide note addressed to the board of directors and Coffee Day family wherein he revealed that he was in deep debt.

After Siddhartha's passing away, the CDEL board engaged the services of Ashok Kumar Malhotra, retired DIG of the Central Bureau of Investigation, and Agastya Legal LLP in September 2019 to investigate the company's books of accounts and its subsidiaries.

Sebi had also initiated an investigation into the matter on its own to ascertain whether funds were diverted to related entities, which resulted in a possible violation of regulatory norms and the period of investigation was from April 2018 to March 2020.

In January, Sebi had slapped imposed a penalty of Rs 26 crore on Coffee Day Enterprises, which runs Cafe Coffee Day, for the diversion of funds from subsidiaries to a company related to promoters.