The National Company Law Appellate Tribunal (NCLAT) has set aside an earlier order of the National Company Law Tribunal (NCLT) that had admitted Coffee Day Enterprises Ltd (CDEL), the parent company of Café Coffee Day, into the corporate insolvency resolution process (CIRP).
A bench comprising Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain quashed the NCLT’s order on Thursday. A copy of the judgment is awaited, Bar & Bench reported.
The case originated from a petition filed by IDBI Trusteeship Limited (ITSL), which alleged that CDEL had defaulted on payments amounting to over ₹228 crore.
In August 2024, NCLAT stayed the NCLT’s decision after Malavika Hegde, a director in CDEL, challenged the order. She argued that ITSL did not qualify as a financial creditor under Section 7 of the Insolvency and Bankruptcy Code (IBC) and, therefore, could not initiate insolvency proceedings.
According to ITSL’s petition, filed in September 2023, CDEL had entered into a Debenture Trust Deed in 2019, under which it issued non-convertible debentures worth ₹200 crore. ITSL contended that CDEL had defaulted on payments on four occasions between 2019 and 2020.
Citing CDEL’s arguments before the NCLT, Bar & Bench reported that the company maintained ITSL, as a debenture holder, lacked the authority to seek CIRP. However, the tribunal disagreed, ruling that under Section 5(8)(c) of the IBC, debt arising from debentures qualifies as ‘financial debt.’
Quoting the tribunal, the report stated, “Debenture Holders are considered Financial Creditors and therefore, Debenture Holders holding a Financial Debt is covered within the meaning of Section 5(8) of the IBC. Hence, the allegation of the Corporate Debtor regarding the Debenture Holder not being a Financial Creditor is not tenable.”
The NCLT further observed that there was a “clear-cut acknowledgement of the debt in the name of the debenture holder.”
NCLAT had previously stayed the NCLT’s order in August 2024 while hearing Hegde’s appeal.
This is not the first time insolvency proceedings have been initiated against a Coffee Day Group company. In 2023, the NCLT admitted an insolvency plea filed by IndusInd Bank against Coffee Day Global, another entity within the group. However, that order was later set aside after the parties reached a settlement, Bar & Bench noted.
