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The corporate dispute tribunal agency National Company Law Tribunal (NCLT) has ordered initiating insolvency proceedings against Coffee Day Enterprises Limited (CDEL), the parent company of Coffee Day Group which operates Cafe Coffee Day chain of coffee houses.
The Bengaluru Bench of the NCLT on August 8 admitted the plea filed by IDBI Trusteeship Services Limited (IDBITSL) claiming a default of ₹228.45 crore and appointed an interim resolution professional to take care of the operation of the debt-ridden company.
V.G. Siddhartha’s and Café Coffee Day’s rise through the years
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 ₹100 crore towards the subscription in March 2019. For that CDEL executed and entered into an agreement with IDBITSL agreeing to appoint as the debenture trustee for the debenture holders.
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.
CDEL opposed the move claiming that IDBITSL is not authorised 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% of the value of the nominal amount of the debentures) is 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 authorisation from the debenture holders to exercise its rights.
“The government through a notification issued in February 2019 has permitted debenture trustees to file applications under Section 7 of the Insolvency & Bankruptcy Code (IBC),” the petition said.
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 ₹14.24 crore, which is a clear acknowledgement of debt and hence the issue of limitation is duly taken care of.
“Thus, this is a clear-cut acknowledgement of the debt in the name of debenture holder and satisfies the requirement of the acknowledgement of the debt for the purposes of determining the fulfilment of limitation,” said NCLT.
It further said: “In view of the above discussion, we are of the considered opinion that there is a ‘debt’ and ‘default’ existing in this case; and the petition is filed within the limitation period. The threshold requirement is also fulfilled. Hence the present petition… is admitted and the moratorium is declared in terms of Section 14 of the Code.”
Coffee Day Enterprises is in trouble after the death of founder Chairman V. G. Siddhartha in July 2019. It is paring its debts through asset resolutions and has significantly scaled down from the time the trouble started.
On July 20, 2023, the same Bengaluru Bench of NCLT had admitted an insolvency plea against Coffee Day Global Limited (CDGL), which owns and operates Cafe Coffee Day chain, over a plea filed by IndusInd Bank, claiming dues of ₹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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NCLT orders insolvency proceedings against Coffee Day Enterprises
