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August 9, 2019

Coffee Day Enterprises hires EY to investigate

On 8 August 2019, the board of Indian firm Coffee Day Enterprises confirmed that it had appointed Ernst & Young LLP to investigate the circumstances leading up to statements made in a letter that purports to be from the company’s former chairman VG Siddhartha alleging harassment by the tax authorities and to scrutinise the accounts of the company and its subsidiaries.

Siddhartha had gone missing on 29 July 2019 and his body was found washed up near the mouth of the Netravati River in Karnataka. Following a previous board meeting on 2 August, the board informed the National Stock Exchange of India that it would be postponing its quarterly financial results for the quarter ended 30 June 2019.

On 31 July the board said the firm’s executive committee would explore opportunities to deleverage the Coffee Day Group. It also published the contents of the letter allegedly written by Siddhartha but said: “While the authenticity of the letter is unverified and it is unclear whether these statements pertain to the company or the personal holdings of Mr VG Siddhartha, the board took serious note of the same and resolved to thoroughly investigate this matter.”

The company has appointed independent director S V Ranganath as the interim chairman and has also appointed Siddhartha’s widow Malavika Hegde to the executive committee.

The authenticity of the letter and of the signature on it has been questioned by the tax authorities and the charges of harassment have been denied.

The letter states:

“After 37 years, with strong commitment to hard work, having directly created 30,000 jobs in our companies and their subsidiaries, as well as another 20,000 jobs in technology company where I have been a large shareholder since its founding, I have failed to create the right profitable business model despite my best efforts.

“I would like to say I gave it my all. I am very sorry to let down all the people that put their trust in me. I fought for a long time but today I gave up as I could not take any more pressure from one of the private equity partners forcing me to buy back shares, a transaction I had partially completed six months ago by borrowing a large sum of money from a friend. Tremendous pressure from other lenders lead to me succumbing to the situation. 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 Mindtree deal and then taking 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.

“I sincerely request each of you to be strong and to continue running these businesses with a new management. I am solely responsible for all mistakes. Every financial transaction is my responsibility. My team, auditors and senior management are totally 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.

“My intention was never to cheat or mislead anybody, I have failed as an entrepreneur. This is my sincere submission, I hope someday you will understand, forgive and pardon me.

“I have enclosed a list of our assets and tentative value of each asset. As seen below our assets outweigh our liabilities and can help repay everybody.”

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