Mysore Amalgamated Coffee Estates Limited vs SEBI on 5 November 2026

ORDER

Per: Justice P. S. Dinesh Kumar, Presiding Officer This appeal is directed against order dated 27.03.2023 passed by the AO1, SEBI2 imposing a penalty of ₹1 Crore for violation of Securities laws3.

2. Heard Mr. Pesi Modi, learned Senior Advocate for the appellant and Mr. Pradeep Sacheti, learned Senior Advocate for the SEBI.

3. Brief facts of the case are, Coffee Day Enterprises Limited (‘CDEL/Company for short) is a listed company. The Chairman of the company, V. G. Siddhartha (‘Siddhartha’ for short) reportedly committed suicide on 29.07.2019. In his suicide note dated 27.07.2019 written to the Board of Directors and Coffee Day family, he had written that he was in deep debt. After his 1 Adjudicating Officer 2 Securities Exchange Board of India 3 Violations of provisions of section 12A(a),(b) and (c) of SEBI Act and Regulations 3(b),(c) and (d) and Regulation 4(1) of PFUTP Regulations.

demise, Mr. Ashok Kumar Malhotra, a retired DIG4 of CBI5 and Agastya Legal LLP, a law firm were engaged to investigate the books of accounts of the Company and its subsidiaries. SEBI also initiated its own investigation to ascertain whether the funds were diverted to related entities.

4. Malhotra report and SEBI’s investigation revealed diversion of ₹3,535 Crore from 7 subsidiaries of CDEL to the appellant (Mysore Amalgamated Coffee Estates Limited – ‘MACEL’ for short). The funds were allegedly further diverted from MACEL to entities controlled by Siddhartha and his relatives.

5. SEBI issued an SCN6 calling upon the appellant Company to show cause as to why an inquiry should not be held and penalty be not imposed for the alleged violations of Securities laws.

6. The main allegations in the SCN is that the appellant had aided and abetted Siddhartha in diverting ₹3,535 Crore from CDEL’s subsidiaries to the appellant and further diverted money to entities controlled by Siddhartha and his relatives, which was manipulative, fraudulent and unfair trade practice in the securities market. Three other allegations were alleged against noticee Nos.2 to 4 respectively and they have been exonerated.

4 Deputy Inspector General 5 Central Bureau of Investigation 6 Show cause notice dated 06.10.2021 (SCN)

Allegation against the appellant is the subject matter of this appeal.

7. The appellant submitted its reply stating inter alia that:  Its shares were not listed on any stock exchange in India, therefore, it was not a person associated with the securities market and therefore, it was not subject to SEBI’s jurisdiction;  It had continuous business relation with the subsidiaries of CDEL. SEBI’s investigation had revealed that the all transactions were disclosed as per the relevant accounting standards;  CDGL’s bankers and banker’s other subsidiaries have not raised any objection to the funds movement from accounts of those companies into appellant’s account nor reported those transactions as suspicious nor the auditors have reported anything adverse;  As per the investigation report prepared by Mr. Malhotra and Agastya Legal LLP, the transactions were legitimate, commercially acceptable and legally tenable from banker's perspective;  In his suicide note Siddhartha had taken responsibility of all the financial transactions and admitted that no one else was aware of those transactions;  It is an admitted fact that 91.75% shareholding in MACEL was held by Siddhartha’s father late S V Gangiah Hegde, and the remaining shareholding was held by 71 shareholders;

 The seven subsidiaries of CDEL have initiated Commercial suits before the Commercial Courts, Bengaluru for recovery of amounts from MACEL;  MACEL is not concerned about the authority to transfer the funds;  The transfer of funds by the seven subsidiaries of CDEL were in the normal course of business;  The price of CDEL scrip was impacted by the news relating to the Siddhartha’s death and not by the news of diversion of funds as alleged in the SCN. The information about transfer of funds came to public knowledge only after Malhotra’s Report

8. Assailing the impugned order, Mr. Modi submitted that the appellant owns more than 600 acres of coffee estate and Siddhartha’s father S V Gangiah Hegde held around 91.75% of the shares in the appellant company. The payments made by CDEL’s subsidiaries to appellant were in normal course of business and comprised primarily of advances for running and maintenance of appellant’s coffee estates.

9. He submitted that pursuant SEBI’s order against CDEL, directions were issued by the SEBI directing CDEL to recover entire dues from the appellant and others. In accordance with SEBI’s directions, proceedings have been initiated and the same are pending and monitored by the NSE. The impugned order is misconceived and premature as the legitimacy of the impugned transactions and liability of the appellant is sub judice.

10. He further submitted that SEBI lacks jurisdiction as there was no transfer of equity shares or other securities to the appellant by CDEL nor was the appellant a shareholder in CDEL. He argued that SEBI’s allegation that diversion of funds is erroneous and untenable because appellant has legitimate business relations with CDEL and its subsidiaries.

11. He further submitted that SEBI failed to understand that the appellant was not a shell company and had several employees and labourers to maintain the coffee estates.

12. He submitted that SEBI has alleged that the variation in the share price of CDEL scrip was due to information regarding diversion of funds, but it was due to the news of Siddhartha’s death. The information regarding the diversion of funds was made public only in July 2020 when Malhotra report was submitted. With these submissions, Mr. Modi prayed to set aside the impugned order.

13. In reply, Mr. Sancheti submitted that MACEL’s own statutory auditors have qualified that financials for the period FY 2014-15 to FY 2019-20 did not reflect positively on company’s financial statements and expressed doubt regarding company’s ability to carry on as a going concern. Auditors also noted that there were circular movements of funds as temporary arrangement in order to hide the balance outstanding from MACEL to CDEL’s subsidiaries around the dates of reporting.

14. He submitted that out of CDEL’s 49 subsidiaries, 7 had outstanding dues recoverable from MACEL. MACEL had transactions with CDEL’s subsidiaries for over a decade and the supply of coffee beans was in the ordinary course of business. Therefore, the advances outstanding were in ordinary course of business. Revenues of MACEL during 2018-19 and 2019-20 were merely ₹1.71 Crore and ₹3.27 Crore respectively and it had incurred losses in both years and its net worth was eroded.

15. Mr. Sancheti further submitted that Malhotra report states that the transactions with MACEL were structured in compliance with legal and disclosure requirements, however, they did not meet the simple test of commercial expediency. It questions as to why a company with paid-up capital of less than ₹10 Lakhs would be advanced several crores and thus, the transactions did not make any commercial sense.

16. He submitted that it is an admitted fact that MACEL is an entity controlled by Siddhartha family and it is also admitted that the funds have been diverted to Siddhartha, his wife and to other entities controlled by him and they have not repaid the debt to MACEL and in turn, MACEL has not paid to CDEL’s subsidiaries. Supporting the impugned order, he prayed for dismissal of this appeal.

17. I have carefully considered rival submissions and perused the records.

18. Undisputed facts are, CDEL’s seven subsidiaries7 have transferred funds to MACEL. It is alleged that those transfers were made by Siddhartha. SEBI has passed a separate order directing CDEL to recover the allegedly diverted ₹3,535 Crore from MACEL. The said order is also under challenge in a separate appeal8 and have considered both the appeals simultaneously.

19. The solitary allegation contained against the appellant in the SCN is as follows: “33. …

a) Noticee 1, i.e. Mysore Amalgamated Coffee Estates Limited (PAN -AABCM7175L), has aided and abetted Late V. G. Siddhartha in the act diverting funds of INR 3,535 crore from subsidiaries of CDEL to Noticee 1 and from Noticee 1 to entities controlled by Late V. G. Siddhartha & his relatives, which is manipulative, fraudulent and unfair trade practice in securities market. Noticee 1 has, therefore, violated the provisions of Sections 12A (a), (b) and (c) of SEBI Act and Regulations 3 (b),

(c) and (d) and 4 (1) of PFUTP Regulations. The aforesaid alleged violations, if established, make Noticee 1 liable for monetary penalty under section 15HA of the SEBI Act.”

20. Appellant’s principal defense is, it is not subject to SEBI’s jurisdiction; and all transactions are legitimate and during the course of normal business.

7 1. Coffee Day Global Limited (GDGL), 2. Tanglin Retail Reality Developments Private Limited (TRRDPL), 3.Tanglin Developments Limited (TDL), 4.Giri Vidhyuth (India) Limited (GVIL), 5. Coffee Day Hotels and Resorts private Limited (CDHRPL), 6. Coffee Day Trading Limited (CDTL) and 7. Coffee Day Econ Private Limited (CDEPL). 8 Appeal No.229 of 2023

21. MACEL is not a listed company, so are CDEL’s seven subsidiaries. In CDEL’s appeal9, I have held thus:

“50. Direction 73(g) is imposition of penalty of ₹25 Crore under Section 15HA and ₹1 Crore under 15HB of the SEBI Act. The penalty under Section 15HA is for violation of PFUTP Regulations. The WTM has recorded his reasons in following two paragraphs to hold that CDEL has violated the PFUTP Regulations. “62. I note that CDEL has stated in its RHP that it conducted its business through its subsidiaries. Thus, CDEL derived its value from its subsidiaries and therefore, all subsidiaries are material to the Noticee. Given the same, all the earnings and cash flows of the subsidiaries should have flowed up (up-streamed) to the parent. Instead, the monies flowed down (down-streamed) to related entities, starting from MACEL. For instance, the transfer of Rs. 789 Crore from TRRDPL to MACEL in FY 2018-19, which according to the Company, pertained to sale of shares of Mindtree Ltd. to L&T, should have been up-streamed to CDEL, as the sale of CDEL's shareholding in Mindtree should have benefitted CDEL's shareholders only. Instead, the sale proceeds were diverted to MACEL, The Board of the Noticee and its management appear to have completely failed in their responsibility to secure the interests of shareholders while approving the transfer of the sale proceeds to MACEL. To put it differently, investors who purchased shares of CDEL to own a part of the Coffee Day Group would have considered themselves to own part of Mindtree Ltd, too through CDEL's indirect ownership in Mindtree Ltd., through TRRDPL, as mentioned in point (k) of the previous paragraph.

63. CDEL in its submissions has contended that all the fund transfers from subsidiary companies to MACEL after April 01, 2019 were single handedly done by VGS and the board of directors of CDEL was not aware of the same. In this regard, I note that VGS was holding the position of Chairman and MD of CDEL and had acted and taken all decisions in respect of the said transfers in his official capacity. Considering the same, the role of the MD and Chairman cannot be separated from that of the Company and they 9 Appeal No.229 of 2023

ought to be treated as one and same as far as the issue of accountability and liability is concerned. I thus find that CDEL as a company is accountable for the abovementioned fraudulent transfer of funds from subsidiary companies to MACEL and consequently has violated the provisions of Section 12A(a), (b) &

(c) of the SEBI Act, 1992 read with Regulations 3(b), (c) & (d) and 4(1) of the PFUTP Regulations.”

51. The penalty is imposed under Section 15HA of the SEBI Act on the premise that CDEL has committed fraudulent act and unfair trade practice. The WTM while dealing with violation of Regulation 5 of LODR Regulations has held10 that „…..the Noticee has itself admitted that VGS, the Promoter and CEO, was running the entire show within CDEL and its subsidiaries‟. It has further admitted that VGS used to collect the signed blank cheques and all the fund transfers were done by him. I find that this amounts to an admission by the Noticee that the listed company was being run like a personal fiefdom with no checks and balances in place…..‟. Thus, it is an admitted position that Siddhartha was collecting blank cheques to transfer money from seven subsidiaries11 to MACEL. SEBI, in its reply affidavit, has pleaded thus: “48……….

(a) At the foremost, it is submitted that the Appellant has not been held guilty for non-compliance of the related party norms under the LODR Regulations. It is submitted that Regulation 2(zc) which defines a 'related party transaction' and Regulation 23 which prescribe the need for approval of Audit Committee and shareholders of a listed company, prior to their amendment which became applicable prospectively with effect from April 01, 2022 onwards, did not cover transactions involving subsidiaries of a listed company. It is only after the aforementioned amendment that the said provisions include transactions involving subsidiaries of a 10 In para 55 of the impugned order 11 1. Coffee Day Global Limited (GDGL), 2. Tanglin Retail Reality Developments Private Limited (TRRDPL), 3.Tanglin Developments Limited (TDL), 4.Giri Vidhyuth (India) Limited (GVIL), 5. Coffee Day Hotels and Resorts private Limited (CDHRPL), 6. Coffee Day Trading Limited (CDTL) and

7. Coffee Day Econ Private Limited (CDEPL).

listed company. It is submitted that the Ld. WTM has opined that the Appellant derived all its value from its subsidiaries and had no inherent value of its own as declared in its RHP, the Appellant ought to have considered its subsidiaries as equivalent to a listed company (itself) on its own for determination of related party transactions and followed the norms applicable in respect of the aforementioned transactions with MACEL wherein the 7 Subsidiaries lent advances to the tune of Rs. 3535 Crores to MACEL (hereinafter referred to as the "Impugned transactions"). However, in view of the provision in effect at the time of the said transactions between the 7 Subsidiaries and MACEL, the Ld. WTM has let off the Appellant in respect of the related party norms purely on technicalities.” (Emphasis supplied)

52. SEBI‟s main case is that money has flown out of seven subsidiaries to MACEL between April and July, 2019. The WTM has recorded CDEL‟s contention that CDEL had 48 subsidiaries. All of them including the seven subsidiaries in question were incorporated separately and had their distinct and independent Board of Directors and Key Managerial persons, who were in-charge of day-to-day functioning of the respective subsidiaries. The relevant portion of CDEL‟s reply to the SCN reads thus: “49. The subsidiaries of the Noticee were incorporated separately and had their distinct and independent board of directors and the key managerial persons who were in charge of the day-to-day functioning of the respective subsidiary. Similarly, the 7 subsidiaries of the Noticee are distinct legal entities having separate CFO/ Head of Finance, finance professionals and statutory auditors, marketing professionals who were reporting to their respective Board of Directors or officials nominated by the respective Boards.”

53. CDEL has urged a specific ground in the memorandum of appeal12 that the SCN proceeds on a wrongful premise and the allegation that approvals of the Board of Directors or audit committee or 12 Para 6.2 of memorandum of appeal shareholders of the appellant were not taken in connection with the transactions referred to in the SCN and consequently, the provisions of LODR Regulations and PFUTP Regulations were violated. In reply to this contention, SEBI has admitted in its affidavit that the WTM has accepted CDEL‟s contention that at the time of the impugned transactions Regulation 2(zc) of LODR Regulations did not cover transactions involving subsidiaries of a listed company. Therefore, CDEL was not required to comply with norms of Regulation 23 of LODR Regulations in respect of impugned transactions between the seven subsidiaries and MACEL and has let- off the appellant on that ground. Thus, CDEL‟s stand that the subsidiaries were not required to take CDEL‟s prior approval to transfer funds to MACEL has been accepted by the WTM13 and CDEL has been exonerated.

54. The resultant position is, the impugned transactions required no approval by CDEL. Funds have been transferred from subsidiaries to MACEL using the cheques of authorized signatories of those respective subsidiaries. Out of those seven, four are public limited companies and three are private limited companies. Cheques signed by authorised signatories have been used to transfer the funds. Those transfers, as admitted by the SEBI, did not require any approval by CDEL. In the light of this unambiguous legal position, CDEL cannot be held liable for violation of PFUTP Regulations. Consequently, penalty under Section 15HA of the SEBI Act is unsustainable in law and liable to be set aside.”

22. The sum and substance of above findings recorded in CDEL’s appeal are:

13 Para 52 of the impugned order

 Out of CDEL’s seven subsidiaries, four are public limited and three private limited companies. They are managed by their own respective Boards.

 No prior approval was required for transfer of funds from CDEL’s subsidiaries to MACEL under LODR Regulations during the period when funds were transferred. Regulation 23 of LODR Regulations was amended and it came into effect prospectively from 01.04.2022.

23. Thus, the transactions between CDEL’s seven subsidiaries and the appellant were transaction between two business entities which did not require approval from CDEL. Therefore, PFUTP Regulations have no application. Therefore, the impugned order is not sustainable in law.

24. In the result, the following:

ORDER

i. Appeal is allowed. ii. Order dated 27.03.2023 passed by the AO, SEBI is set aside qua the appellant. iii. Pending interlocutory application(s) if any, stand disposed of. iv. No costs.

Justice P.S. Dinesh Kumar Presiding Officer

[Per: Dr. Dheeraj Bhatnagar, Technical Member]

25. I am benefited by the valuable observations of Hon’ble Presiding Officer in the above segment of the order. For deciding this appeal, I adopt paragraph Nos. 58 to 74 of the order dated November 5, 2026 passed by the Tribunal in Appeal No. 229 of 2023.

26. Accordingly, the appeal is disposed of in terms of directions contained in Paragraph Nos. 70, 72 and 73 of the order dated November 5, 2026 passed in Appeal No. 229 of 2023.

Dr. Dheeraj Bhatnagar Technical Member

I agree.

Ms. Meera Swarup

Technical Member

27. In view of differing opinions of the Hon’ble Members, based on the majority view, the following :- ORDER OF THE TRIBUNAL

i. Appeal is disposed of in terms of directions contained in Paragraph Nos.70 and 73 of the order dated November 5, 2026 passed in Appeal No.229 of 2023

and the order dated March, 27, 2023 passed by AO is set aside accordingly. ii. Pending interlocutory application(s), if any, stand disposed of.

iii. No costs.

Justice P. S. Dinesh Kumar Presiding Officer

Ms. Meera Swarup Technical Member

Dr. Dheeraj Bhatnagar Technical Member

05.11.2026 RHN/PTM

RAJALA KSHMI H NAIR Digitally signed by RAJALAKSHMI H NAIR Date: 2026.11.05 14:43:45 +05'30'