Coffee Day share price nosedived 15.04 per cent on the National Stock Exchange and was trading at Rs 33.79 price level at 01:13 pm. The share price previously closed at Rs 39.77.
This comes after corporate dispute tribunal NCLT initiated insolvency proceedings against Coffee Day Enterprises Ltd. (CDEL), the parent company of Coffee Day Group, which operates the Cafe Coffee Day chain of coffee houses. The Bengaluru bench of the NCLT (National Company Law Tribunal) on August 8 admitted the plea filed by IDBI Trusteeship Services Ltd. (IDBITSL) claiming a default of Rs 228.45 crore and appointed an interim resolution professional to take care of the operation of the debt-ridden company.
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CDEL, which also owns and operates a resort, renders consultancy services, and is engaged in the sale and purchase of coffee beans, had defaulted in the payment of coupon payments of redeemable non-convertible debentures (NCDs). The financial creditor had subscribed 1,000 NCDs through private placement and paid Rs 100 crore towards the subscription in March 2019.
However, CDEL defaulted in paying the accrued aggregate coupon payments due on various dates between September 2019 and June 2020. Consequently, the debenture trustee, on behalf of all the debenture holders, issued a notice of default on July 28, 2020, to CDEL and approached NCLT.
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CDEL opposed the move, claiming that IDBITSL is not authorized to initiate CIRP (corporate insolvency resolution process) as the Debenture Trustee Agreement and Debenture Trust Deed do not grant powers to it to initiate CIRP.
It has not sought written instructions from debenture holders, and only upon receipt of relevant instructions from the majority debenture holders (of the aggregate amount representing not less than 51 percent of the value of the nominal amount of the debentures) is it entitled to exercise its rights, CDEL contended.
CDEL also contended that the application has been filed by IDBITSL on September 7, 2023, while the date of default is September 30, 2019. The application has been filed almost a year later than the deadline of September 29, 2022, as per rule.
IDBITSL's counsel said clause 10.1 of the Debenture Trust Deed says it does not require any specific authorization from the debenture holders to exercise its rights.
Rejecting the submissions of CDEL, a two-member NCLT bench said CDEL in its annual reports for the FY20, FY21, FY22, and FY23 has acknowledged it is in default of repayment of interest of Rs 14.24 crore, which is a clear acknowledgement of debt, and hence the issue of limitation is duly taken care of.
Change in Leadership After VG Siddhartha’s Death
The trouble for Coffee Day started after the death of the company’s founder, VG Siddhartha, in 2019 at the age of 58. Siddhartha died by suicide due to financial strains. In his suicide note, he mentioned that he was getting pressure from the tax authorities. He highlighted in his note that he failed to build the correct business model for his company.
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He wrote in his note, “My intention was never to cheat or mislead anybody, and I have failed as an entrepreneur.”
Following his death, his wife, Malavika Hegde, was appointed as the CEO of the company in 2020. Things seemed to become better for the company. Hedge was seen as the woman who saved the once-drowning CCD and gave it a new light. The company’s debt reportedly reduced to Rs 3,100 crore by March 31, 2020, down from Rs 7,200 crore in March 2019, with no reduction in the amount owed to lenders.
However, talks about bankruptcy started for the company again in 2023. On July 20, 2023, the same Bengaluru bench of NCLT admitted an insolvency plea against Coffee Day Global Ltd. (CDGL), which owns and operates the Cafe Coffee Day chain, over a plea filed by IndusInd Bank, claiming dues of Rs 94 crore. However, it was stayed by the appellate tribunal NCLAT on August 11, 2023, and later both the parties reached a settlement.
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(With inputs from PTI)
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