NEW DELHI: An investigation into Coffee Day Enterprises (CDEL) has revealed details of suspicious transactions between Mysore Amalgamated Coffee Estates (MACEL) — a private firm of the CCD founder VG Siddhartha — and multiple group companies. The probe concluded that MACEL owes a sum of ₹3,535 crore to the subsidiaries of CDEL as on July 31, 2019. Out of this, ₹2,693 crore is missing from the books of the listed company while the remaining ₹842 crore was recorded as of March, 2019 as per the Consolidated Audited Financial Statement.
"A significant portion of the money may have been probably spent to buy-back equity from PE investors, repay loans and to pay interest apart from funding certain other private investments... these amounts are not precisely ascertainable," according to a synopsis of the investigation report that was submitted to the CDEL Board on Friday.
The investigation was ordered by the board of CDEL after Siddhartha’s suicide last July and Ashok Kumar Malhotra, retired DIG of Central Bureau of Investigation was appointed for the same.
He is supported by legal firm Agastya Legal, consisting of legal professionals lead by senior partner M R Venkatesh, a practicing advocate at High Court and Supreme Court of India.
The investigators, in the report, have also given a clean chit to the Income Tax Department and the company's PE investors in reference to the founder’s statements of harassment and pressure he had faced.
"We are broadly agreeable to the statement made by VGS that he failed to create the right profitable business model. He may have felt aversive behavioral stimulus due to persistent reminders from the PE investors and other lenders, it added.
However, such reminders and follow-ups are not something which is beyond normal industry practices and that "the PE Investors were acting as per the legal and business norms," it wrote, adding there was "no documentary evidence" of harassment from the tax department.
A perusal of the financial records of the company suggests a serious liquidity crunch which may have been arisen due to the attachment of the Mindtree shares by the I-T department. Total debt which were about ₹7,200 crore as on March, 2019 has been brought down significantly.
The present debt of the group is about ₹3,200 crore, CDEL said. As part of its efforts to pare debt, the group has sold its technology park -- Global Village -- in Bengaluru for ₹2,700 crore.
The company, whose revenue has taken a hit due to the Covid-19 pandemic, is in the process of selling more assets to raise cash.
The family has also put most of their personal assets for sale to repay lenders. "Many group companies continue to be a going concern. Divestment process in these firms continues, we are confident to have effective solutions for shareholders," CDEL said in a statement.
Incidentally, CDEL’s auditor, BSR & Associates, resigned last week saying the numbers provided by subsidiaries were not enough to base its opinion on the accounts presented by the management.
Since the investigation into the letter signed by Siddhartha was yet to conclude, BSR was unable to verify if there are any adjustments or disclosures required to be made to the statement, the firm added.
The group also informed the stock exchange that steps are being taken by subsidiaries for recovery of dues from MACEL. CDEL consists of 49 subsidiaries.
Hours after the report was put in the public domain, the coffee entrepreneur’s wife and director of the group company Malavika Hegde wrote an emotional letter to the employees stating that the Coffee Day story was “worth preserving”.
Praising Siddhartha for his "bold ambitions", Hegde stated: Without Siddhartha’s visionary thinking, great brands and companies like Cafe Coffee Day, Mindtree, Global Village Tech Park, Way2Wealth, Globval Edge and the Serai Resorts may not have existed. The 12,000-acre coffee plantation division he put together, the second largest holding in Asia, may not be around."
She also assured her cooperation to the board and the concerned authorities for a corrective course of action, hoping to settle every lender and grow the business. "I am fully aware of the requirements and responsibilities in this regard... We think that we can bring that (debt levels) to a more manageable level with our plans to sell a few more of our investments shortly," Hegde added.