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This article has been written by Tejas Geetey, pursuing the Diploma in Business Laws for In-House Counsels from LawSikho.


Every corporation involves itself in numerous activities ranging from production to sales. These activities are undertaken with the aim to generate profits for the corporation. Many a time, in the process of achieving these goals, conflict arises which can be related to a course of action or ignorance of minority shareholders’ rights. To reduce these conflicts, an effective corporate governance policy is implemented.

Corporate Governance implies a set of guiding principles, rules, and compliances that should be followed for the regulation of business operations of a corporation. A corporation has to follow multiple legal compliances from the Companies Act, 2013 to SEBI Regulations which are made for the protection of investors and stakeholders of a company.

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A corporation to maintain its market standing has to protect the interest of all the stakeholders of the company. The promoters and key managerial persons of a corporation often put their self-interest before the interest of the corporation which leads to frauds and conflicts among stakeholders. This article aims to analyze the corporate governance structure of the Café Coffee Day, one of the many governance failures that occurred in the past years so that the reader has a basic idea as to what led to the current position of the Coffee Chain which did not even spare the former owner’s own life.

Overview of the company

Café Coffee Day (Popularly known as CCD) was established by the Parent company Coffee Day Group in the form of a partnership firm. V.G. Siddhartha started the Coffee Chain in 1996 by opening the first outlet in Karnataka. In a matter of few years, Café Coffee Day became one of the most dominant players in the Coffee business market.

The success is attributed to the early mover advantage which helped the coffee chain to set up its market in India & the innovative policies incorporated thereafter which helped it to maintain its steady growth.  The company then converted into a public company and then changed its name to Coffee Day Enterprises Ltd (CDEL). But in 2017, the Income Tax Department raided the offices of the coffee chain which pointed out that the company was in huge financial debt.  Subsequently, the founder died in 2019 with a note disclosing his conflict of interests with the investors.  

What went wrong with the financial position of the company?

Café Coffee Day’s governance failure was evident when the promoters were alleged to be involved in the diversion of the company’s funds to other entities leading to a conflict of interests between the promoters and investors.  The following points are provided for a clear understanding of the issue and the subsequent governance failure:

  1. Shareholding Pattern: As per the Annual Report of 2018-19 of Café Coffee Day[3], the promoter and promoters’ group held approximately 53.93% of shares. Shareholding Pattern of top ten shareholders, other than directors and promoters, indicates that NLC Mauritius LLC. and KKR Mauritius PE Investments Ltd. held the highest no. of. shares which are 10.61% and 6.07% shares respectively. The annual report suggested that the coffee chain followed the pattern of concentrated ownership out of which the founder promoter V.G. Siddhartha held around 32.75 of the shares. The main concern about the structure is that out of all the shares held by the promoter group, 39.01% were either pledged/ encumbered to total shares. Out of this V.G. Siddhartha pledged around 32.75 of these shares in his capacity thereby compromising the financial independence of the coffee chain.  
  2. Diversion in Financial statements & Audit reports: The company’s financial statements and audit reports did not record most of the business services exchanged with around 40+ subsidiaries. It was alleged that the money transferred to these entities was diverted for other investments and ventures. The same diversion was not identified as only the holding company, Coffee Day Enterprises Ltd (CDEL), was listed. 
  3. Unfettered Powers given to few individuals: The Income tax department thereafter conducted raids at over 25 locations which showed that a lot of amounts were concealed and hidden. It was also provided that the company was in huge financial debt.  Also, the transactions were not recorded and diverted to other entities. This diversion, therefore, acted as a bridge to move funds between other entities without any detection by other members of the company. The same was indicated by the letter issued by the founder promoter, V.G. Siddhartha, that he was responsible for each transaction. It said: My team, auditors, and senior management personnel are totally unaware of all transactions. The law should hold only me accountable, as I withheld information from everybody”.  It is important to note here that the authenticity of this letter is disputed as the signature of the founder as provided in the letter is different from that provided in the annual statements.
  4. Conflict with Private Equity investors: The founding promoter had also indicated conflict with some private equity investors. In respect of some loan taken from a private lender, whereby which V.G. Siddhartha to buy back the shares. This shows that the financial position of the company was in shambles, which led to losing the confidence of investors in the decision-making of the company. 

Problems with the governance structure of the company

On the basis of the above analysis, it is clear the controlling authority of the coffee chain rests in the hands of the promoter group. V.G. Siddhartha & other promoters were the key decision-makers of the company. This seriously affected the governance of the company, giving the promoters of the company a free hand in the trading and selling of shares thereby disregarding the interests of the other stakeholders of the company.   

In the given case, the promoters had a lot of power to take the financial decisions of the company. The promoter compromised this position by investing its funds into various unrelated entities and ventures. For the same, the promoter borrowed huge amounts of loans which thereafter became impossible to repay. Even if one disregards the intent behind taking the said decisions, giving so much power to few individuals is not a viable decision and leads to poor governance.    

Corporate governance & compliances to be followed 

Every corporation is responsible to protect the interest of its stakeholders involved in the process of business operations. For the same, the organization shall follow the guidelines provided in the Companies Act, 2013 and in SEBI LODR Regulation, 2015 which provides the obligations to be followed by a listing company. In the case of Café Coffee Day, the promoter disregarded the interest of its other shareholders by pledging more than 30% of his shares affecting the rights of shareholders given in Regulation 4(2) of the SEBI Listing Obligations & Disclosure Requirements Regulations. The audit committee also failed to identify the transactions leading to mismanagement. 

SEBI in order to regulate the raising of debts by pledging shares had after this case issued a circular in 2019. As per the circular, every listed company should provide detailed reasons for pledging of shares by promoters if the encumbrance is equal to or more than  50% of his shares or 20% of the total share capital of the company. This shall act as the additional requirement under Regulation 31(1) & Regulation 28(3) of the SEBI takeover regulation.  


Café Coffee Day is considered to be one of the most popular coffee chains in India. The Company has properly used its early mover advantage to set up its business in India but the situation has turned around this time. The case of Café Coffee Day is a clear example of the mismanagement of a company by giving powers in the hands of a few individuals. It is important to understand that Corporate Governance is more than just following the legal compliances provided in the Companies Act, 2013 and SEBI Regulations. Corporate Governance regulates the operative structure of the Company. From deciding on the shareholding structure to managing day-to-day business operations, corporate governance policy holds an important part in every aspect of the corporate process.   

Drafting a one-sided governance policy that only favors the majority shareholders of a company shall severely affect the governance of a company. In most cases, it is seen that the governance of a company is controlled by few individuals. Because of this, other members of the company are left in abeyance on the major decisions taken by the Company. It is therefore necessary that the drafters of the corporate governance policies do not provide majority powers to few individuals. Even if the same is done, then an effective mechanism should be incorporated so that no arbitrary decisions can be taken by the decision-makers of the company.  

The aftermath of COVID and subsequent lockdowns have only worsened the position of owners & the creditors of Café Coffee Day. In order to save itself from bankruptcy, the company had sold stakes of several promoter-owned entities and other entities which include the sales of around 20.32% stake in Mindtree Connect to Larsen & Toubro (L&T) for approximately Rs. 3,2000 crores rupees. This has severely reduced the financial debt taken by the company.  The Company has improved its position from the last 2 years but is still not debt-free. As of March 2021 quarter, the company has defaulted on payment of debts and has reported having an outstanding debt of around Rs. 280 Crores. With no viable solution left, the creditors are considering approaching the National Company Law Tribunal (NCLT) so as to fulfill the remaining debt obligations.  


[1] ‘How Siddhartha turned Cafe Coffee Day into a multi-billion-dollar success story, (The Print, 30th  July 2019)

[2] Coffee Day: Overview of the Company,

[3] Coffee Day’s Annual Report 2018-19, 

[4] CCD Case bears striking parallels with India Inc’s earlier corporate governance scams, (The Hindu: Business line, 27th July 2020),

[5] Coffee Day loan default: Company headed for bankruptcy as creditors mull NCLT Way, (Times Now, 8th April 2021),

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