The Securities Appellate Tribunal (SAT) has directed the Securities and Exchange Board of India (SEBI) to conduct a fresh investigation into the alleged diversion of ₹3,535 crore from seven subsidiaries of Coffee Day Enterprises Ltd (CDEL) to Mysore Amalgamated Coffee Estates Ltd (MACEL), an entity linked to the company’s promoters. The tribunal criticised the regulator’s earlier investigation, describing it as late, lacklustre and incomplete, and ordered a comprehensive inquiry to be completed within six months.
The November 5, 2026 ruling comes more than seven years after the transactions took place and raises fresh questions about corporate governance, regulatory oversight and the protection of public shareholders. The tribunal’s majority said SEBI had not adequately traced the money, identified all ultimate beneficiaries or examined possible insider-trading violations. Only ₹110.75 crore had reportedly been recovered against the alleged ₹3,535 crore diversion.
SAT Orders Fresh SEBI Investigation Into Coffee Day
The SAT delivered its judgment in an appeal filed by Coffee Day Enterprises against SEBI’s earlier regulatory orders.
By a 2:1 majority, Technical Members Dr Dheeraj Bhatnagar and Meera Swarup directed SEBI to undertake a fresh, independent and comprehensive investigation. The tribunal set aside the regulator’s January 24, 2023 order and the adjudicating officer’s March 27, 2023 order, directing SEBI to complete the further investigation within six months and take appropriate action in accordance with the law.
The majority criticised the regulator for relying heavily on the findings and scope of an investigation conducted by a committee appointed by CDEL rather than independently examining the complete flow of funds and the responsibilities of those involved.
The tribunal also questioned why the investigation had not adequately examined the ultimate beneficiaries or considered recovery proceedings against them.
The order does not establish new findings of guilt against every individual or entity involved. Instead, it requires SEBI to investigate the transactions again, examine the available evidence and determine whether further regulatory action is justified.
How the Alleged ₹3,535 Crore Diversion Took Place
The transactions at the centre of the case occurred between April 2018 and July 2019.
According to SEBI’s January 2023 investigation, seven subsidiaries of Coffee Day Enterprises transferred a total of ₹3,535 crore to Mysore Amalgamated Coffee Estates Ltd.
MACEL was an unlisted company linked to the promoters of Coffee Day. Moneycontrol reported that 91.75% of MACEL was owned by the father of late Coffee Day founder V.G. Siddhartha.
Subsequent investigations traced substantial portions of the transferred funds to Siddhartha, his family members and related entities.
The tribunal’s observations recorded the following distribution:
| Recipient | Amount reportedly transferred |
|---|---|
| V.G. Siddhartha | ₹3,088 crore |
| Malavika Hegde | ₹145 crore |
| Other related entities and recipients | Remaining amount |
| Total alleged diversion | ₹3,535 crore |
Malavika Hegde is currently the chief executive officer and managing director of Coffee Day Enterprises.
The figures represent amounts traced in the investigation and discussed in the tribunal proceedings. The fresh investigation is expected to examine the complete movement of funds, the role of intermediaries and the ultimate beneficiaries.
Why SAT Criticised SEBI’s Earlier Investigation
The majority identified several gaps in SEBI’s earlier investigation.
One major concern was the regulator’s reliance on the internal committee’s findings. The tribunal questioned whether SEBI had independently verified the explanations provided by the people involved in the transactions.
The majority also criticised the decision to accept Malavika Hegde’s response through email rather than recording her statement on oath. It questioned why the regulator had not adequately examined the legal representatives of Siddhartha or investigated the ultimate destination of the funds transferred to his accounts.
Another concern involved the banking system. The tribunal asked how transfers involving thousands of crores of rupees across multiple subsidiaries did not trigger sufficient alerts or attract closer scrutiny from banks and company officials.
It also questioned whether the company’s compliance officer, board and audit committee had been adequately examined to establish how the transactions were authorised and processed.
The majority said the regulator needed to go beyond documenting transfers and establish who benefited from them and whether securities-market regulations had been violated.
Only ₹110.75 Crore Recovered So Far
One of the most significant concerns highlighted by SAT was the limited recovery of funds.
Against the alleged diversion of ₹3,535 crore, only ₹110.75 crore had reportedly been recovered at the time of the tribunal’s proceedings.
The recovery figure represents approximately 3.1% of the total amount involved.
The majority questioned why SEBI had not pursued disgorgement and other recovery measures more comprehensively against the people and entities that allegedly benefited from the transactions.
It also asked the regulator to examine the applicability of Section 28-B of the SEBI Act. This provision concerns recovery of amounts from the legal representatives of a deceased person in specified circumstances.
The tribunal wants SEBI to investigate whether recovery proceedings can be initiated against the relevant beneficiaries and whether public shareholders can receive restitution for losses arising from the transactions.
However, the direction to examine recovery options does not mean that the entire amount will automatically be recovered. The outcome will depend on the fresh investigation, applicable legal provisions and evidence identifying the responsible parties and their assets.
Possible Insider Trading Violations Under Investigation
The fresh investigation will also examine whether the transactions involved violations of SEBI’s Prohibition of Insider Trading Regulations, 2015.
The majority raised questions about whether promoters and other insiders were aware of Coffee Day’s deteriorating financial position while dealing with their shareholdings.
It noted that Siddhartha had pledged shares of Coffee Day Enterprises to raise funds despite being aware of the company’s financial difficulties.
The tribunal said the circumstances warranted an examination of whether insiders may have used unpublished price-sensitive information to avoid losses when selling or dealing with promoter shareholdings.
SEBI has been directed to investigate this possibility rather than assume that an insider-trading violation occurred.
The distinction is important because the fresh probe must establish the relevant information available to the individuals, when they possessed it and whether their transactions breached securities-market regulations.
SAT Delivers a Split Verdict
The tribunal’s decision was not unanimous.
Presiding Officer Justice P.S. Dinesh Kumar issued a separate opinion that differed from the majority’s conclusions on certain aspects of SEBI’s original orders.
He held that CDEL could not be held liable for the alleged fraudulent and unfair trade practices merely because transfers had taken place between its subsidiaries and MACEL. He also observed that related-party approval requirements did not cover transactions between a holding company and its subsidiaries under the regulatory framework applicable at the time.
In his separate view, he set aside the ₹25 crore penalty imposed under Section 15HA of the SEBI Act and reduced the ₹1 crore penalty under Section 15HB to ₹50 lakh for disclosure-related violations.
The majority opinion, however, directed the fresh investigation and set aside the earlier regulatory orders. Its operative directions form the basis of the tribunal’s final decision.
The split verdict highlights the legal questions surrounding corporate responsibility, the regulatory framework applicable during 2018–19 and the evidence needed to establish liability.
What SEBI Must Investigate Within Six Months
The tribunal has outlined several areas that SEBI must examine during the fresh investigation.
- Record statements on oath from relevant individuals, including Siddhartha’s legal representatives.
- Trace the complete movement of the ₹3,535 crore through bank accounts and intermediary entities.
- Examine the role of Coffee Day subsidiaries, company officials and bank personnel.
- Identify the ultimate beneficiaries of the transferred funds.
- Investigate possible violations of insider-trading regulations.
- Consider whether Section 28-B of the SEBI Act can be invoked.
- Examine disgorgement and other measures to restore money to affected public shareholders.
The tribunal also clarified that its observations should not influence the outcome of SEBI’s fresh investigation. The regulator must independently assess the evidence and pass appropriate orders under the law.
The Bigger Picture
The Coffee Day case is an important test of India’s securities-market enforcement framework. It concerns not only the alleged movement of thousands of crores of rupees from listed-company subsidiaries but also the ability of regulators to identify ultimate beneficiaries, examine corporate governance failures and pursue recovery when investors may have suffered losses.
The SAT ruling also highlights the difference between identifying suspicious transactions and establishing individual or corporate liability. A complete investigation must examine authorisations, financial records, banking channels, disclosure obligations and the conduct of people who may have benefited.
Looking Ahead
SEBI now faces a six-month deadline to complete the fresh investigation and determine what further action is warranted. The regulator will need to examine the money trail, record relevant statements, assess possible insider-trading violations and consider whether recovery proceedings can be pursued against the ultimate beneficiaries.
For Coffee Day Enterprises and its public shareholders, the investigation could have important implications for accountability and potential financial recovery. However, the tribunal’s order is not a final determination of criminal or regulatory liability for every person involved. The next major development will be the findings of SEBI’s fresh probe and any subsequent enforcement or recovery orders.
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