Cafe Coffee Day Chain Owner Slips Into Insolvency

India’s bankruptcy court admitted the Cafe Coffee Day chain owner Coffee Day Global Ltd. for insolvency resolution following a petition by the company’s financial creditor IndusInd Bank Ltd.

IndusInd Bank had filed a petition in April 2022 before the National Company Law Tribunal (NCLT) under Section 7 of the Insolvency and Bankruptcy Code (IBC). The lender sought initiation of a corporate insolvency resolution process (CIRP) against Coffee Day Global, claiming a default of over 94 crore rupees ($11.48 million) as on 30 April 2020.

The NCLT’s Bengaluru bench passed the order on 20 July 2023, admitting Coffee Day Global, a subsidiary of Coffee Day Enterprises Ltd., into insolvency resolution. The bench comprised Judicial Member T. Krishnavalli and Technical Member Manoj Kumar Dubey.

The first Cafe Coffee Day outlet, popularly known as CCD, was opened in 1996 in the southern Indian city of Bengaluru. The outlet has now presence across more than 200 cities in the country.

BACKGROUND

The NCLT order showed Coffee Day Global (corporate debtor) had availed various credit facilities from IndusInd Bank from 24 April 2018 onwards, but the company and its guarantor failed to satisfy the liability despite several reminders from the bank.

As a result, IndusInd Bank classified the account of Coffee Day Global as non-performing asset on 30 June 2020 under the Reserve Bank of India’s guidelines. Subsequently, the lender issued a demand-cum-loan recall notice on 7 December 2020 asking the company and its guarantor to clear their liabilities within 15 days.

However, they failed to make the payment, resulting in default on the credit facilities. This prompted the bank to file the CIRP petition against the company.

CONTENTION

Coffee Day Global contended that the instant petition is hit under Section 10A of the IBC in terms of ordinance passed on 5 June 2020.

The company has not committed any default of debt for the period before 25 March 2020 during which period the loan facility was serviced or for the period commencing from 25 February 2019 to 25 March 2021 as mandated under Section 10A of the IBC, it said.

Coffee Day Global also said that in the absence of any default as required under Section 10A of the IBC, the instant petition is not maintainable either on law or on facts and entire petition is contrary to the IBC’s framework and hence, is liable to be dismissed.

The Section 10A of the IBC bars absolutely and forever, the filing of any application under Sections 7, 9 and 10 of the code, for defaults committed on or after 25 March 2020 up to 25 March 2021.

OBSERVATIONS

The NCLT remarked that IndusInd Bank mentioned the date of default as 30 April 2020 in Form-1, but the Form-D of NeSL report showed different dates of default for the different tranches of loans.

The record showed the default of about 50.79 crore rupees occurred on 28 February 2020, which is prior to the beginning of the period specified under Section 10A of the IBC, it said.

“Therefore, this bench is of the view that, since the default in payment by the corporate debtor for this particular loan is well above the threshold limit of one crore rupees, the threshold requirement is met, and this particular loan is not hit by the provision of Section 10A of the code,” the tribunal observed.

IMPLICATION

The NCLT said Coffee Day Global in its reply contended only that the present petition is not maintainable under Section 10A of the IBC as the default occurred during the period or suspension of the IBC petition.

However, the company nowhere disputed the default amount, nor contended in its submissions regarding the date of default mentioned in the Nesl report, the tribunal said, adding that therefore, there is a ‘debt’ and a ‘default’.

The NCLT said the present petition being complete and having established the default in payment of the financial debt and for the default amount being above one crore rupees, the petition is admitted against Coffee Day Global.

The tribunal appointed Shailendra Ajmera as an interim insolvency resolution professional of Coffee Day Global and directed him to take necessary steps mandated in the bankruptcy law for the insolvency resolution.

(Note: $1 = 81.8826 Indian rupees)

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