NCLAT sets aside insolvency process against Cafe Coffee Day's parent company

The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) on Thursday quashed an order of the National Company Law Tribunal (NCLT) that had earlier admitted Coffee Day Enterprises Ltd (CDEL), which runs the Cafe Coffee Day chain, to the corporate insolvency resolution process (CIRP)..A coram of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain quashed the NCLT order.A copy of the judgment is awaited. .In August 2024, the NCLAT stayed the order of NCLT initiating CIRP against the company on an appeal filed by Malavika Hegde, a director in the company. She had challenged the NCLT order contending that IDBI Trusteeship Limited (ITSL) had no power to ask for CIRP under Section 7 of the Insolvency and Bankruptcy Code (IBC), since it was not a financial creditor..ITSL had filed the insolvency petition against CDEL in September 2023 claiming that the latter had defaulted on a payment of over ₹228 crore.As per the petition, IDBITSL the financial creditor (FC) in the case, and CDEL, the corporate debtor, entered into a Debenture Trust Deed in 2019. The FC agreed to subscribe to non-convertible debentures worth ₹200 crore and CDEL agreed to pay the FC in lieu of the subscription money raised. However, CDEL defaulted in payment of such money on four occasions between 2019 and 2020.CDEL had argued before the NCLT that IDBITSL was a debenture holder and thus had no power to file any application seeking CIRP against the Corporate Debtor.The NCLT, however, disagreed. It held that as per the definition under Section 5(8)(c) of the IBC, the debt which exists pursuant to the debenture was also a ‘financial debt.’“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 Financial Creditor is not tenable,” the NCLT said.The Tribunal further said that there existed a “clear-cut acknowledgement of the debt in the name of debenture holder.”.In August last year, the NCLAT had stayed the NCLT order..Earlier in 2023, NCLT admitted the insolvency plea filed by IndusInd bank against Coffee Day Global, the parent company of Cafe Coffee Day (CCD). Subsequently, the order was set aside after the parties reached a settlement.