India's markets regulator SEBI imposed a fine over a fund diversion made by the Coffee Day Enterprises Ltd (CDEL) to Mysore Amalgamated Coffee Estates Ltd, a subsidiary linked with former chairman Late VG Siddhartha.

The Securities and Exchange Board of India has asked CDEL to pay the ₹26 crore fine within 45 days and has ordered the company to appoint an independent law firm in consultation with the NSE to recover the dues from MACEL.

The investigation revealed that around ₹3,535 crore from seven CDEL subsidiaries were diverted to MACEL, which as of December 2022 was largely owned by the VGS family. CDEL has managed to recover ₹ 110.75 crore of the outstanding dues, as of September 2022.

The regulator observed that the reluctance of CDEL to recover the funds is apparent due to "beneficial ownerships of the VGS family in these two companies."

The seven subsidiaries include Coffee Day Global Limited, which runs the flagship Cafe Coffee Day and is CDEL's largest contributor to its revenue and profits.

As per the SEBI report, most of the funds were further transferred from MACEL "to entities where Siddhartha and his relatives were interested parties, of which ₹3088 crore went to Siddhartha himself and ₹145 crore went to Malavika Hegde."

The report also found that no approval was taken for these transfers from the subsidiaries of CDEL to MACEL from the Board of Directors, Audit Committee, or the shareholders of CDEL.

SEBI also observed that Siddhartha had control over most of the company's finances.

In its 43- page order, SEBI revealed that after Siddhartha’s death by suicide in 2019, CDEL launched an investigation into the company’s finances.

SEBI had also initiated its own investigation suspecting violations of Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market Regulations, 2003 and SEBI Listing Obligations and Disclosure Requirements, Regulations, 2015.

The fine of ₹25 crore has been imposed under PFUTP Regulations, while the ₹1 crore fine is imposed under LODR Regulations.

Price Action: CDEL shares crashed around 3.15% to ₹44.05 as the markets opened on Wednesday.