NCLT initiates insolvency proceedings against Coffee Day Enterprises
What's the story
The National Company Law Tribunal (NCLT) has initiated insolvency proceedings against Coffee Day Enterprises Ltd (CDEL), the parent company of the Coffee Day Group. This decision was made following a plea by IDBI Trusteeship Services Ltd (IDBITSL), alleging a default of ₹228.45 crore by CDEL. The Bengaluru bench of the NCLT has appointed an interim resolution professional to manage the operations of CDEL during this period.
Financial misstep
Default on debenture payments leads to insolvency plea
CDEL, a diversified business entity with interests in the hospitality sector and coffee trade, defaulted on coupon payments of redeemable non-convertible debentures (NCDs). The financial creditor had invested ₹100 crore in 1,000 NCDs through private placement in March 2019. Following this default, IDBITSL was appointed as the debenture trustee for these debenture holders. However, CDEL failed to meet its financial obligations between September 2019 and June 2020.
Legal dispute
IDBITSL's insolvency plea challenged by CDEL
In response to the missed payments, IDBITSL issued a default notice to CDEL on July 28, 2020, and approached the NCLT. CDEL contested this action, arguing that IDBITSL lacked the authority to initiate a Corporate Insolvency Resolution Process (CIRP) as per their agreement. The company also claimed that IDBITSL's application was submitted almost a year after the deadline of September 29, 2022.
Tribunal ruling
NCLT rejects CDEL's objections, acknowledges debt and default
Despite CDEL's objections, the NCLT acknowledged the company's debt and default. The tribunal noted that CDEL had admitted to a repayment default of ₹14.24 crore in its annual reports for FY20, FY21, FY22, and FY23. "Thus, this is a clear-cut acknowledgement of the debt in the name of debenture holder," stated the NCLT bench while dismissing CDEL's arguments against IDBITSL initiating insolvency proceedings.
Past troubles
Financial struggles and previous insolvency plea
CDEL has been grappling with financial difficulties since the demise of its founder Chairman VG Siddhartha in July 2019. The company has been working to reduce its debts through asset resolutions. In a related development, an insolvency plea was admitted against Coffee Day Global Ltd (CDGL), which operates the Cafe Coffee Day chain, over a claim by IndusInd Bank for dues of ₹94 crore on July 20, 2023.