Mumbai (Maharashtra) [India], January 25 (ANI): Markets regulator SEBI on Wednesday imposed a penalty of Rs 25 crore on Coffee Day Enterprises (CDEL), which owns Cafe Coffee Day, for allegedly violating of securities laws.

In a detailed investigation carried out by SEBI, the diversion of funds amounting to Rs 3,535 crore from seven subsidiaries of CDEL to Mysore Amalgamated Coffee Estates (MACEL), an entity related to promoters of CDEL, was revealed.

CDEL has a total of 49 subsidiaries. The investigation by SEBI revealed that funds had been diverted from the seven subsidiaries of CDEL to MACEL.

The regulator also directed the company to initiate steps to recover dues of Rs 3,535 crore -- the amount diverted from seven subsidiaries of CDEL to Mysore Amalgamated Coffee Estates (MACEL).

With nearly 92 per cent stake, MACEL is almost entirely owned by the family of VG Siddhartha, former chairman of Coffee Day Group.

It was observed from CDEL's email dated December 1, 2020, that no approval was obtained from the Board of Directors, Audit Committee or the shareholders of CDEL while transferring funds from the subsidiaries of CDEL to MACEL.

Further, from SEBI's Investigation Report and various replies of CDEL and MACEL submitted to SEBI, it was observed that late VG Siddhartha was in control of most of the finance function of CDEL and its subsidiaries.

SEBI said "Based on the fund trail established above, it was observed that out of the funds diverted from subsidiaries of CDEL to MACEL, majority of funds were further diverted from MACEL to entities where VGS and his relatives were interested parties, of which Rs 3,088 Crore went to VGS himself and Rs 145 crore went to (Cafe Coffee Day CEO) Malavika Hegde."From the total transfers of Rs 3,535 crore from subsidiaries, only Rs 110.75 crore had been returned by MACEL since July 2019, according to the statement from SEBI.

The notice to CDEL from SEBI also said CDEL, in consultation with the NSE, shall appoint an independent law firm, of standing and repute, to take effective steps for recovery of the outstanding dues.

In the notice available, SEBI has ordered the appointment of an independent law firm under the oversight of National Stock Exchange (NSE) within 60 days.

According to the notice, the regulator also said that the law firm would have to give a detailed update every quarter on the steps taken by the company.

Notification from SEBI said, "The beneficial ownerships of the family in these two companies, i.e. 7.23 per cent in CDEL and 91.75 per cent in MACEL, point to conflict of interest that is so deep that the process of recovery has not even started in right earnest. The reluctance on part of CDEL to recover dues from MACEL is apparent from the fact that CDEL has so far not taken any coercive action against MACEL."As CDEL is also controlled by Siddhartha's family members, there is a conflict of interest between the debtor and claimant.

Siddhartha committed suicide in July 2019. He had left a note to the board of directors and family members that he was in deep debt. (ANI)