On 21 September 2017, a tax raid was conducted across 20 locations, including Mumbai, Chennai, Bengaluru, and Chikmagaluru by senior officers of the Income Tax Department of Karnataka and Goa regions. The documents seized during raids revealed that Siddhartha had concealed income worth Rs 650 crore from the I-T department. This was the first time Siddhartha fell into controversy and witnessed with his demise on July 30, 2019. The last letter written by Siddhartha which was found later said "There was a lot of harassment from the previous DG income tax in the form of attaching our shares on two separate occasions to block our Mind tree deal and then taking the position of our Coffee Day shares, although the revised returns have been filed by us.
This was very unfair and has led to a serious liquidity crunch”. He also added, “I am very sorry to let down all the people who put their trust in me. I fought for a long time but today I gave up as I could not take any more pressure”. Distancing his family and team of his financial dealings, Siddhartha had written in the note, “I sincerely request each of you to be strong and to continue running these businesses with new management. I am solely responsible for all mistakes. Every financial transaction is my responsibility. My team, auditors and senior management are unaware of all my transactions.
The law should hold me and only me accountable, as I have withheld this information from everybody, including my family." The letter refers to the action of the Income Tax Department in January this year when it attached 74.90 lakh shares in Mind tree, of which 22.20 lakh shares belonged to Coffee Day Enterprises and 52.70 lakh belonged to VG Siddhartha. The pressure from the tax authorities continued the next month. On February 13, Siddhartha received an order under Section 281-B of the Income Tax Act, 1961, provisionally attaching 46, 01,869 shares of Coffee Day Enterprises held with Way 2 Wealth Brokers. The I-T Department also forwarded his case to the Enforcement Directorate to probe money laundering angle over transaction worth Rs 1 crore, but the agency found nothing. In total, the 58-year-old business owned 21 percent shares in tech major Mind tree. He sold his stake in the company to pare his debt.
The gross debt stood at Rs 6,547.38 crore as of March 2019, according to CMIE data. In May, Coffee Day Enterprises Limited and Coffee Day Trading Limited (a subsidiary of CDEL) sold their entire stake in Mind tree to L&T. The proceeds from the deal to the tune of Rs 2,100 crores was utilized for debt reduction, according to the company. According to corporate filings reviewed by Mint, Coffee Day Enterprises Ltd (CDEL) listed holding company of the group issued 1.36 million non-cumulative compulsorily convertible preference shares (CCPS) to Standard Chartered Private Equity (Mauritius) II Ltd. These CCPS carry a dividend rate of 0.001% per annum. Similarly, CDEL had sold 27.16 million zero-coupon compulsorily convertible debentures (CCDs) of ?100 each to KKR Mauritius PE Investments II Ltd in 2014. No interest was to be payable on CCDs.
As per the agreement, both PE investors can at any time after the seventh anniversary (extendable up to 10 years) of the issue of the CCDs convert the same into equity shares. Mint had reported on 30 July that Siddhartha was in talks to urgently refinance a large portion of his outstanding debt taken in his capacity. The debt in question is around ?2,000 crore and is over and above the consolidated borrowings of the Cafe Coffee Day (CCD) group, which stood at ?6,547.38 crore as of March, according to the people cited above. The board of CDEL announced that its board has initiated a probe into past transactions made by the company and Siddhartha.
“The board took cognizance of statements in the purported letter from V.G. Siddhartha relating to financial transactions outside the knowledge of the senior management, auditors and the board. While the authenticity of the letter is unverified and it is unclear whether these statements pertain to the company or the personal holdings of Siddhartha, the board took serious note of the same and resolved to thoroughly investigate this matter," the company said in the filing.
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