Coffee Day Enterprises Recovers from Day’s Low

Coffee Day Enterprises Faces Sharp Decline Amid Insolvency Proceedings

Coffee Day Enterprises Ltd (CDEL) experienced a significant drop in its share price during Monday’s trade, marking its third consecutive session of losses. The stock plummeted by 19.47%, reaching a day low of Rs 37.55 before showing signs of recovery and closing above Rs 40. 

NCLT’s Insolvency Proceedings Trigger Market Reaction

The drastic fall in CDEL’s share price came on the heels of the National Company Law Tribunal (NCLT), Bengaluru bench, initiating insolvency proceedings against the company. As the parent company of the Coffee Day Group, which operates the popular Cafe Coffee Day chain, CDEL’s financial woes have sparked concerns among investors.

Legal Proceedings and Corporate Insolvency Resolution Process (CIRP)

In a filing with the Bombay Stock Exchange (BSE), CDEL acknowledged the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016. The application, filed by IDBI Trusteeship Services Limited (IDBITSL), claims a default amounting to Rs 2,28,45,74,180. CDEL has announced its intention to pursue legal action in response to this development.

Appointment of Interim Resolution Professional

The NCLT, in its ruling, appointed Ashish Chhawchharia as the Interim Resolution Professional (IRP) to oversee the operations of the financially distressed CDEL. The Tribunal also directed IDBITSL to deposit Rs 2 lakh to cover the expenses associated with the IRP’s duties, including issuing public notices and inviting claims.

Background of the Insolvency Petition

The insolvency petition against CDEL was filed by IDBITSL in September 2023, alleging that the company had defaulted on a payment exceeding Rs 228 crore. According to the petition, IDBITSL, as the financial creditor, had entered into a Debenture Trust Deed with CDEL in 2019. Under this agreement, IDBITSL subscribed to non-convertible debentures worth Rs 200 crore, with CDEL agreeing to make payments on scheduled dates. However, CDEL reportedly defaulted on four occasions between 2019 and 2020.

NCLT’s Ruling on Financial Debt

CDEL contested the petition, arguing that IDBITSL, being a debenture holder, lacked the authority to initiate CIRP against the company. However, the NCLT ruled against CDEL, stating that the debt arising from the debenture subscription qualifies as “financial debt” under the Insolvency and Bankruptcy Code, thus validating IDBITSL’s petition.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.