Brewing concerns! NCLT orders insolvency proceedings against popular coffee chain Coffee Day Enterprises

The parent company of the Coffee Day Group, which runs the Cafe Coffee Day network of coffee shops, Coffee Day Enterprises(CDEL), has been ordered to begin insolvency proceedings by the Corporate Dispute Tribunal NCLT. On August 8, the IDBI Trusteeship Services (IDBITSL) case, which claimed a default of Rs. 228.45 crore, was accepted by the Bengaluru bench of the National firm Law Tribunal (NCLT). An interim resolution specialist was designated to oversee the management of the indebted firm.

In addition to owning and running a resort, CDEL also sells and buys coffee beans. However, CDEL has fallen behind on coupon payments for redeemable non-convertible debentures (NCDs).

In March 2019, the financial creditor paid Rs 100 crore for the subscription of 1,000 NCDs in a private placement. In exchange, CDEL agreed to designate IDBITSL as the debenture trustee on behalf of the debenture holders in an agreement that it executed and signed.

Nevertheless, CDEL neglected to make the cumulative coupon payments that were expected on different dates from September 2019 to June 2020. As a result, on July 28, 2020, the debenture trustee contacted NCLT and sent a notice of default to CDEL on behalf of all debenture holders.

CDEL objected to the action, arguing that the Debenture Trustee Agreement and Debenture Trust Deed did not provide IDBITSL the authority to start the Corporate Insolvency Resolution Process (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 per cent 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 authorization 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 Rs 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 Ltd (CDGL), which owns and operates Cafe Coffee Day chain, over a plea filed by IndusInd Bank, claiming dues of Rs 94 crore. However, it was stayed by the appellate tribunal NCLAT on August 11, 2023, and later both the parties reached a settlement. 

(with inputs from PTI)