Winning Bizness Desk

Mumbai. The National Company Law Tribunal (NCLT) has initiated insolvency proceedings against Coffee Day Enterprises Limited (CDEL), marking a significant development for the parent company of the well-known Café Coffee Day chain. The Bengaluru bench of the NCLT accepted a petition filed by IDBI Trusteeship Services Limited (IDBITSL) on August 8, accusing the company of defaulting on payments amounting to ₹228.45 crore. The tribunal has appointed an interim resolution professional to oversee the operations of the financially troubled company.

CDEL, which also operates a resort, provides consultancy services, and deals in the sale and purchase of coffee beans, has been grappling with financial difficulties since the tragic suicide of its founder-chairman VG Siddhartha in July 2019. The company had defaulted on payments related to redeemable non-convertible debentures (NCDs), further compounding its financial woes.

The Financial Default

The financial troubles of CDEL can be traced back to March 2019 when financial creditors subscribed to 1,000 NCDs through a private placement, paying ₹100 crore for the subscription. An agreement was made between CDEL and IDBITSL, which was appointed as the debenture trustee for the debenture holders. However, CDEL defaulted on several coupon payments due between September 2019 and June 2020, prompting the debenture trustee to issue a notice of default on July 28, 2020, and subsequently approach the NCLT.

CDEL opposed the move, arguing that IDBITSL lacked the authority to initiate the Corporate Insolvency Resolution Process (CIRP) under the terms of the Debenture Trustee Agreement and Debenture Trust Deed. The company also claimed that the application was filed nearly a year after the deadline, citing a default date of September 30, 2019, with the application filed on September 7, 2023.

Legal Arguments and NCLT's Ruling

IDBITSL's counsel countered by stating that the debenture trust deed did not require specific authorization from debenture holders for the trustee to exercise its rights. The petition highlighted a government notification from February 2019, which allowed debenture trustees to file applications under Section 7 of the Insolvency and Bankruptcy Code (IBC). The NCLT, in its ruling, dismissed CDEL's arguments, noting that the company had admitted in its annual reports for FY 2020 to FY 2023 that it had defaulted on interest payments totaling ₹14.24 crore. This admission, the tribunal held, adequately addressed the issue of limitation.

Ongoing Financial Crisis

The initiation of insolvency proceedings against CDEL is the latest chapter in the company’s ongoing financial crisis, which began after the sudden death of VG Siddhartha in 2019. The company has been attempting to reduce its debt through asset resolution and has made significant progress in this regard. However, the financial strain remains evident.

Just a few weeks earlier, on July 20, 2023, the same Bengaluru bench of NCLT admitted a bankruptcy petition against Coffee Day Global Limited (CDGL), another entity under the Coffee Day Group, based on a claim by IndusInd Bank for ₹94 crore. Although the appellate tribunal NCLAT stayed this petition on August 11, 2023, after a settlement was reached, the financial difficulties of the Coffee Day Group continue to cast a shadow over its future.

As the insolvency proceedings against CDEL move forward, the company faces significant challenges in resolving its debts and stabilizing its operations. The outcome of these proceedings will be closely watched, not only by creditors and stakeholders but also by the broader business community.