Coffee Day Enterprises: ₹3,535 crore moved to a promoter company

Before July 2019

• The promoter group held 53.93% of Coffee Day Enterprises (CDEL). As of 30 June 2019, about 76% of that holding was pledged.
• Group debt stood at about ₹6,547 crore in March 2019. The company used about ₹2,100 crore from the sale of its stake in Mindtree to repay part of it.
• The share price had fallen about 46% in the three months before July 2019.

The founder's death. Chairman V.G. Siddhartha died in July 2019. A letter attributed to him and addressed to the board spoke of heavy debt. The shares fell 20% to an all-time low.

The investigation. In September 2019, the board appointed Ashok Kumar Malhotra, a retired CBI officer, along with a law firm, to examine the books. The work found that, as of 31 July 2019, Mysore Amalgamated Coffee Estates Ltd (MACEL), a company about 91.75% owned by the Siddhartha family, owed ₹3,535 crore to seven CDEL subsidiaries. By 30 September 2022, only ₹110.75 crore had been recovered.

SEBI's order. On 24 January 2023, SEBI fined CDEL ₹26 crore: ₹25 crore for fraudulent and unfair trade practices and ₹1 crore for breaking listing rules. SEBI said the money had moved from the subsidiaries to MACEL and then to accounts of the founder, his family and related entities. It directed CDEL to pursue full recovery with interest, through an independent law firm appointed with NSE's help.

Since then. In August 2024, the NCLT admitted an insolvency petition against CDEL over a default of about ₹228 crore on debentures. The company challenged the order on appeal.

• Very high pledging. About three-quarters of the promoter holding was pledged.
• Heavy debt despite asset sales. Large asset sales reduced debt only in part.
• Money flowing through subsidiaries. The funds moved from subsidiaries, not the listed parent, to a promoter company, a route that is harder for shareholders to see.
• An unlisted promoter company with large dealings with the group. MACEL's size of dues relative to the group should have stood out.
• A falling share price. The market had marked down the stock sharply in the months before the crisis.

• Read subsidiary-level related-party data. Diversion often happens below the listed parent. SEBI's 2025 rules tightened audit committee oversight of subsidiaries' related-party deals partly for this reason.
• Pledges and debt together are dangerous. High pledging plus high group debt leaves little room when anything goes wrong.
• Key-person risk is real. When one founder controls the strategy, the finances and the relationships, the company is exposed if that person can no longer lead.
• Recovery is slow. Years after the diversion was found, only a small share had been recovered.