SEBI sends notice to CDEL on investigation of unfair advantage

Following a probe initiated by founder VG Siddhartha by allegations regarding the financial position of the company in a letter prior to his alleged suicide, the Securities and Exchange Board of India (SEBI) on Wednesday issued a show-cause notice to CDEL under sections 11 and 11B. be released. The SEBI Act, which essentially deals with the scope of possible penalties that the regulator can impose on any listed company if it is found to have made undue profit.

“The company is receiving show cause notices as per the investigation report submitted by the company to SEBI regarding fund flow on issues arising out of the letter left by the late VG Siddhartha, the former managing director of the company. Subsidiary of the company companies,” CDEL said in an exchange filing late in the evening. Soon after Siddhartha’s death, the CDEL launched an independent investigation into the issues arising from Siddhartha’s letter.

On receipt of the report in July 2020, CDEL requested retired High Court of Karnataka Judge KL Manjunath to suggest and monitor action for recovery of dues to the seven subsidiaries of CDEL from Mysore Amalgamated Coffee Estates Limited.

The details of the show cause notice could not be ascertained, but CDEL said in an exchange filing that it would deal with the show cause notice appropriately.

on 4 October, Mint Earlier reported that SEBI gave show cause to Coffee Day on accounting issues and loss to investors after Siddhartha’s death.

The notice then pertained to misappropriation of funds by the promoters of CDEL, accounting issues and causing damage to the public shareholders of the firm.

SEBI in its show-cause notice last year had questioned the appropriation of funds raised by the Coffee Day group under Siddhartha’s order on Coffee Day and the promoter-level deal, which ultimately resulted in loss to the shareholders.

In July 2020, an investigation report alleged that a large sum of money may have been diverted across multiple promoter group entities, and Siddhartha failed to create the right business model to benefit CDEL’s shareholders.

SEBI then asked the company to show cause under sections 11, 11B and related to prevention of fraud and unfair trade practice.

As per the investigation, as per Mint reports, CDEL’s financial records suggested a severe liquidity crisis prior to Siddhartha’s death.

The Mint report said that a significant portion of the money borrowed by Mysore Amalgamated Coffee Estates Ltd, one of CDEL’s promoter entities, was solely from private equity investors to buy back shares, repay loans, pay interest and some “private equity”. investment” was spent. As per regulatory records, Siddhartha’s personal assets/shares were pledged for business loans of the company and its subsidiaries.

He also provided personal guarantees for the company and its subsidiaries and personal guarantees of his family members, which ultimately led to a loss to CDEL. The probe report stated that MACEL had outstanding dues of Rs 3,535 crore as on July 31, 2019.

It mentioned that as on March 31, 2019, Rs 842 crore were due to subsidiaries and the balance amount of Rs 2,693 crore is incremental dues “which need to be addressed”.