Coffee Day Enterprises Ltd Directors Report.

Dear Members,

Your Directors have pleasure in presenting their 12th Annual Report on business and operations along with the Audited financial statements and the Auditors report of the Company for the financial year ended 31st March, 2020.

Financial Highlights:

Amount in Rs. Crores

Particulars Coffee Day Enterprises Limited Coffee Day Enterprises Limited Coffee Day Global Limited Coffee Day Global Limited
(Consolidated) (Consolidated) (Consolidated) (Consolidated)
FY 20 FY 19 FY 20 FY 19
Net Operational Revenue 2522 3569 1509 1,795
Finance charges 519 353 212 81
Depreciation 430 269 336 189
Profit Before Tax 701 186 (458) 72
Income Tax 45 66 (150) 24
Profit attributable to the Owners 1883 127 (5) 41

PERFORMANCE OVERVIEW

During the fiscal year ended 31st March 2020, consolidated gross revenue decline by 28% driven by impetus from Coffee & Multimodal Logistics. The revenue in coffee business contributed a decline of 15% and Multimodal Logistics contributed a decline of 14%. Consolidated Profit after tax attributable to owners is Rs 1884/- Crores for the year 2019 compared to Profit of Rs 128/- Crores for the previous year. The increase of profit is mainly due to one time profit on sale of Mindtree shares. A detailed performance analysis is provided in the Management Discussion and Analysis segment which is annexed to this report.

STATE OF THE COMPANYS AFFAIRS

The state of the Company affairs forms an integral part of Management Discussion & Analysis Report.

DIVIDEND

The Board of Directors of the Company has not recommended any dividend for the financial year 2019-20.

TRANSFER TO RESERVES:

In accordance to the provisions of Section 134(3)(j) of the Companies Act, 2013, (hereinafter “the Act”) the Company has not proposed any amount to transfer to the General reserves of the Company for the financial year 2019-20.

Deposits:

The Company has not accepted any Deposits under Section 73 and Chapter V of the Act and the rules made thereunder.

Particulars of Loans, Guarantees or Investments:

The details of the loans, guarantees and investments are provided in the notes to the audited financial statements annexed with the Annual report.

Subsidiaries, Joint Ventures and Associate Companies:

As on 31st March, 2020, the Company has 39 subsidiaries (including indirect subsidiaries), 1 Associate Companies and 5 Joint Ventures. The details of the Companies which are yet to commence operations and which have been liquidated or sold during the year are mentioned in “Form AOC-1”, which is attached as an “Annexure to the Consolidated Financial Statements.” A statement containing the salient features of the financial statements of Subsidiaries, Associate Companies or Joint Ventures are mentioned specifically in the same annexure as mentioned above. In accordance with Section 136(1) of the Act, the financial statements of the subsidiaries companies are available on the Companys official website post approval of the members.

In line with Regulation 24 and Regulation 46(2)(h) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (hereinafter “the Listing Regulations”) the Company has formulated a detailed policy for determining ‘material subsidiaries and the said policy is available at the Companys official website and may be accessed at the link: http://www.coffeeday.com/PDF/MATERIAL-SUBSIDIARIES.pdf

Management Discussion & Analysis Report:

As stated in Regulation 34(2)(e) of the Listing Regulations, the Annual report shall contain a detailed report on Management Discussion & Analysis, which is hereto attached with the Annual report in “Annexure-I.”

Corporate Governance:

The report on Corporate Governance along with a Certificate from the Practicing Company Secretary regarding proper compliance of Corporate Governance pursuant to the requirements of Schedule V of the Listing Regulations forms an integral part of the Annual Report stated in “Annexure-II.”

Dividend Distribution Policy:

In accordance with Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2016, the Board of the Company has adopted Dividend Distribution policy in their meeting held on 18th May, 2017, which aims at marking the right balance between the quantum of dividend paid to its shareholders and the amount of profit retained for its commercial requirements. The said policy is hoisted in the website of the company.”

Board Diversity:

The Company recognizes and embraces the importance of diverse Board in its success. We believe that a truly diverse board will leverage differences in thought, perspective, knowledge, industry experience that will help us retain our competitive strength. The Company has evaluated the policy with a purpose to ensure adequate diversity in Board of Directors, which enables them to function efficiently and foster differentiated thought processes at the back of varied industrial and management expertise. The Board recognises the importance of a diverse composition and has therefore adopted a Board Diversity Policy. The policy is made available at the Companys official website via link:

https://www.coffeeday.com/PDF/BOARD%20DIVERSITY%20POLICY.pdf

Board Evaluation and Policy on Directors Appointment and Remuneration:

In accordance with Section 178(3) of the Companies Act, 2013, the Nomination and Remuneration Committee has specified the criteria and manner for effective evaluation of performance of ‘Board, its ‘Committees and ‘Individual Directors carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and reviewed its implementation and compliance.

The detailed policy in compliance with Section 178(3) of the Act read along with Regulation 19 of the Listing Regulations has been approved by the Board of Directors of the Company and is made accessible at the Companys official website at the following link: https://www.coffeeday.com/PDF/NOMINATION%20&%20REMUNERATION%20POLICY.pd f

Appointment/ Resignation/ Re-appointment of Board of Directors:

During the year under report, there has been a change in the Composition of Board, Late V.G.Siddhartha, our former Chairman was demised on 31st July 2020. Mrs. Sulakshana Raghavan, an Additional Non-Executive Independent Director appointed on the Board on 05th March 2019 resigned on 1st August 2019 and Mr. Sanjay Nayar, who was a nominee director of the company, resigned from his post on 13th November 2019.

Mr. Albert Hieronimus, Independent Director whose 1st term of 5 years ended on 16.01.2020 and appointed as an additional Independent director of the Company in board meeting held on 8th January 2020, in this connection the Board has proposed Mr. Albert Hieronimus re-appointment for a further term of 5 years on the board of the company subject to the approval of shareholders.

Mrs. C H Vasundhandara Devi (DIN: 07789047) was appointed as an Additional Director of the Company on 7th December 2020, In this connection the Board has proposed Mrs. C H Vasundhandara Devis appointment for a term of 5 years on the board of the company subject to the approval of shareholders.

Mr. Giri Devanur (DIN: 00125603) was appointed as an Additional Director of the Company on 7th December 2020, In this connection the Board has proposed Mr. Giri Devanurs appointment for a term of 5 years on the board of the company subject to the approval of shareholders.

Mr. Mohan Raghavendra Kondi (DIN: 01718628) was appointed as an Additional Director of the Company on 7th December 2020, In this connection the Board has proposed Mr. Mohan Raghavendra Kondis appointment for a term of 5 years on the board of the company subject to the approval of shareholders

Mrs. Malavika Hegde shall retire by rotation at the ensuing Annual General meeting and is eligible for re-appointment.

Mrs. Malavika Hegde who is a Non-Executive Director of the Company is proposed to be appointed as whole time Director of the company in the Board meeting held on 7th December 2020 subject to the approval of shareholders.

Also, the Board proposed to designate Mrs. Malavika Hegde as a Chief Executive Officer of the Company in their meeting held on 7th December 2020.

SIGNIFICANT DEVELOPMENT DURING THE YEAR

Post the unfortunate demise of Chairman Shri V G Siddhartha, the Company appointed Mr. Ashok Kumar Malhotra Ex-DIG CBI assisted by M/s. Agastya Legal LLP, New Delhi consisting of Legal Professionals head by Senior Partner Dr. M. R. Venkatesh to scrutinize the books of accounts of the Company and its subsidiaries. The Investigators submitted their investigation report on 24th July 2020 to the Company. The Investigation Report reported that, Rs 3,535 Crores is due from Mysore Amalgamated Coffee Estates Limited (MACEL) to the seven subsidiaries of the company. The Company on the receipt of Investigation Report appointed Justice. K.L. Manjunath, retired Judge of Hon. High Court of Karnataka to suggest and oversee actions for recovery of the dues from MACEL and to help on any other associated matters.

The Management of seven subsidiaries have decided to take a decision on recoverability of Rs. 3,535 Crores which is due from MACEL to the subsidiaries of the Company after the receipt of report from Justice K.L.Manjunath.

The day to day operations of the Company are being managed by the promoters family and professional team which is ensuring protection of interest of all stakeholders viz, shareholders, lenders, vendors, employees etc. The debt levels have reduced significantly from the beginning of the financial year March 2020.

The Company has formed a New Executive Committee on August 08, 2019 to address the crucial items in the interest of the company and for its smooth operations.

Directors Responsibility Statement:

In Compliance with section 134(5) of the Companies Act, 2013, the Board of Directors hereby confirms the following:

(a) In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

(c) The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) The Directors had prepared the annual accounts on a going concern basis; and

(e) The Company is responsible for establishing and maintain adequate and effective internal financial controls with regard to it business operations and in the preparation and presentation of the financial statements, in particular, the assertions on the internal financial controls in accordance with broader criteria established by the Company.

Towards the above objective, the directors have laid down the internal controls based on the internal controls framework established by the Company, which in all material respects were operating effectively as at March 31, 2020.

(f) The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate. The Company has substantially complied with material provisions of such acts and regulations as are relevant for its operations.

Declaration by Independent Directors:

All the Independent Directors have given their declarations stating that they meet the criteria of independence as laid down under Section 149(6) of the Act read with Regulation 16(1)(b) of the Listing Regulations. In the opinion of the Board, they fulfil the conditions of independence as specified in the Act and the Listing Regulations and are independent of the management.

Committees of the Board:

The Company has four main Committees of the Board i.e.:

(a.) Audit Committee,

(b.) Nomination and Remuneration Committee and,

(c.) Stakeholders Relationship Committee.

(d.) Corporate Social Responsibility.

The detailed information on each of these committees including its composition, functioning and number of meetings are disclosed in the Corporate Governance report annexed with the Annual report of the Company.

Meetings of the Board:

During the financial year 2019-20, the meetings of the Board of Directors were held Eleven (11) times. Details of these meetings and other Committee/General meetings are given in the report on Corporate Governance Report attached with the Annual report.

Particulars of Contracts/arrangements with related parties:

Post the unfortunate demise of Chairman Shri V G Siddhartha, the Company appointed Mr. Ashok Kumar Malhotra Ex-DIG CBI assisted by M/s. Agastya Legal LLP, New Delhi consisting of Legal Professionals head by Senior Partner Dr. M. R. Venkatesh to scrutinize the books of accounts of the Company and its subsidiaries. The Investigators submitted their investigation report on 24th July 2020 to the Company. The Investigation Report reported that, Rs 3,535 Crores is due from Mysore Amalgamated Coffee Estates Limited (MACEL) to the seven subsidiaries of the company. The Company on the receipt of Investigation Report appointed Justice. K.L. Manjunath, retired Judge of Hon. High Court of Karnataka to suggest and oversee actions for recovery of the dues from MACEL and to help on any other associated matters.

However, all the repetitive Related Party Transactions that were entered into during the FY 201920 were on an arms length basis and in the ordinary course of business. There were no materially significant Related Party Transactions made by the Company during the year that required shareholders approval under Regulation 23 of the Listing Regulations. Prior omnibus approval from the Audit Committee is obtained for transactions which are repetitive in nature. Further, disclosures are made to the Committee on a quarterly basis. None of the transactions entered into with related parties falls under the scope of Section 188(1) of the Act and hence there is no such requirement to enclose ‘Form AOC-2 pursuant to Section 134(3)(h) of the Act read with Rule 8(2) of the Companies (Accounts) Rules 2014.

The Company has adopted a Policy for dealing with Related Party Transactions and is made available on the Companys official website via web link: https://www.coffeeday.com/PDF/RPT%20POLICY.pdf

Material changes and commitment - if any, affecting the financial position of the Company from the end of the financial year till the date of this Report:

During the year under report, Tanglin Developments Limited and the company have agreed to sell the Way2wealth Securities Private Limited and to Shriram Ownership Trust.

Except this there has been no material change and commitment, affecting the financial performance of the Company which has occurred from the end of the financial year of the Company to which the financial statements relate to till the date of this report.

Change in nature of business:

There has been no change in the nature of business of the Company.

Conservation of Energy, Research and Development, Technology absorption, Foreign Exchange Earnings & Outgo:

The information on conservation on energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3) (m) of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014 is provided in “Annexure-III” to this Annual report.

AUDITORS:

a) Statutory Auditors:

The Company had appointed B S R & Associates, Chartered Accountants, Bangalore as Statutory Auditors of the Company for a period of Five years in the Annual general Meeting held on 27th September, 2018. B S R & Associates, after completing the Audit/ Limited Review Report for the quarter ending on 30th June 2019 resigned from the post of Statutory Auditors of the Company due to commercial reasons. The Board appointed M/s. Venkatesh & Co., Chartered Accountants, Chennai, as Statutory Auditors of the Company to fill the casual vacancy caused by resignation of B S R & Associates in the Board meeting held on 3rd August 2020 subject to the shareholders approval.

The Company on 9th October 2020, sought the shareholders approval through Postal Ballot(e- voting) for an appointment of M/s. Venkatesh & Co., Chartered Accountants, Chennai as Statutory Auditors of the company until the conclusion of the forthcoming Annual General Meeting.

The Board has proposed to appoint M/s. Venkatesh & Co., Chartered Accountants, as Statutory Auditors of the company for the period of 5 years from the Conclusion of this 12 th annual General meeting till the conclusion of 17th Annual General Meeting of the company.

b) Secretarial Auditor:

In accordance with Section 204 of the Act and the rules made there under, the Company has appointed M/s HRB & Co., to undertake the Secretarial Audit of the Company for the financial year ended 31st March, 2020. The Secretarial Audit report issued in this regard is attached as “Annexure-IV”.

c) Cost Auditor:

In terms of the provisions of Section 148 of the Act, the appointment of the Cost Auditors does not apply to the Company.

d) Internal Auditor:

Pursuant to the provisions of Section 138 of the Act read with the Companies (Accounts) Rules, 2014, the Company has appointed M/s A B S & Co., Chartered Accountants as Internal Auditors of the Company.

Significant and material orders passed by the Courts/Regulators:

During the year under report there were no significant and material orders passed by Courts/Regulators have been received by the company.

However, BSE and NSE have issued notices to the Company with respect to the non-submission of financial results under Reg 33 of the SEBI (LODR) 2015 for the quarter ending on June 30, 2019 and September 30, 2019. The company could not file the financial results within the due date due to delay in submission of the Investigation Report. Therefore the shares of the company were suspended from trading on the exchanges from 3rd February 2020. However, the company has submitted financial results for all the quarters of financial year 2019-20 and two quarters of financial year 2020-21 and is in the process of re-instating the trading.

Other than under Reg 33 of the SEBI (LODR) 2015, the Company has received a notice and several queries regarding sale of shares of Mindtree Limited from SEBI as per SEBI (SAST) Regulations 2011.

In the month of March 2020, the company has received notice from Registrar of Companies, Karnataka under section 206 of the Companies Act, 2013 and we have furnished all the required information.

The company has submitted Investigation Report to SEBI in turn SEBI raised certain queries on it and we have clarified all the queries raised by SEBI.

Your company is in continuous touch with all the regulators and statutory authorities and making its best efforts to comply with all the statutory matters.

Extract of Annual Return:

An extract of the Annual return in form MGT-9 in compliance with Section 92 of the Companies Act, 2013 read with applicable rules made thereunder is annexed as “Annexure-V” and is placed on the website www.coffeeday.com.

Secretarial Standards:

The Company complies with all Secretarial Standards issued by Institute of Company Secretaries of India.

Internal Financial Control (IFC) and its Adequacy:

The internal controls of the Company operate through well documented standard policies and guidelines. The Company has adequate internal financial control procedures commensurate with its size and nature of business, which helps in ensuring orderly and efficient conduct of its business. This system provide a reasonable assurance of financial and operational information, complying with applicable statutes, safeguarding of assets of the Company, prevention and detection of frauds, accuracy and completeness of accounting records and ensuring compliance with corporate policies.

All the significant internal audit observations and management actions thereon are reported to Audit Committee on a quarterly basis. The Audit Committee reviews the operations and assesses the adequacy of the actions proposed as well as monitors their implementation. The internal auditors conduct a quarterly follow-up for implementation of all audit recommendations and the status report is presented to the Audit Committee regularly.

The Companys management has assessed the effectiveness of the internal control over financial reporting for the year ended 31st March, 2020 and based on the assessment; believe that the system is working effectively. The Statutory Auditors have issued a report on the adequacy and effectiveness of the internal control systems over financial reporting.

Whistle Blower Policy/Vigil Mechanism:

As per the requirements laid down under Section 177(9) of the Act and Regulation 22 of the Listing Regulations, the Company has established the Whistle blower Policy which encourages Directors and employees to bring to the Companys attention, instances of unethical behaviour, actual or suspected incidents of fraud or violation of the Companys Code of Conduct that could adversely impact on Companys operations and business. The Policy provides that the Company investigates such incidents, when reported, in an impartial manner and takes appropriate action to ensure that requisite standards of professional and ethical conduct are always upheld. The practice of the Whistle blower Policy is overseen by the Audit Committee and no employee has been denied access to the Committee. The Whistle Blower Policy is available on the Companys official website and may be accessed through web link: http://www.coffeeday.com/PDF/CDEL- Whistle-Blower-Policy.pdf

Particulars of Employees:

As stated in provisions of Section 197(12) of the Act read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended from time to time, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules which includes the name of top 10 employees in terms of remuneration, forms part of this annual report. Pursuant to the provisions of Section 136(1) of the Act, the Board report is being sent to the shareholders including the said statement.

Disclosure pertaining to the remuneration as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is provided in “Annexure-VI”.

Corporate Social Responsibility (CSR):

Pursuant to the provisions of Section 135 of the Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, and on the recommendations of the CSR Committee comprising of Mr. S.V. Ranganath as the Chairman and Mrs. Malavika Hegde as Members, the CSR policy is adopted and approved by the Board of the Company. The said policy has been hosted on the Companys website and is available on the link: http://www.coffeeday.com/PDF/CSR-Policy-CDEL.pdf. It lays down the purpose of formulation of the policy, areas of focus, composition of Committee and CSR budget.

Green Initiatives:

In commitment to keep in line with the Green Initiative and going beyond to it, electronic copy of the Notice of 12th Annual General Meeting of the Company are sent to all Members whose email addresses are registered with the Company/Depository Participant(s).

Prohibition and Redressal of Sexual Harassment at Work place:

The Company has zero tolerance for sexual harassment at workplace and has adopted a Policy on Prevention, Prohibition and Redressal of Sexual Harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules made thereunder. The Policy aims to promote a healthy work environment and to provide protection to employees at workplace and redress complaints of sexual harassment and related matters thereto. The Company has also constituted an Internal Complaints Committee, known as the Prevention of Sexual Harassment (POSH) Committee, to enquire into complaints of sexual harassment and recommend appropriate action.

During the financial year 2019-20, the Company has not received any complaints on sexual harassment.

Boards response on Auditors qualification, reservation or adverse remark or disclaimer made:

Disclaimer of opinion on standalone Report:

1.We have not been provided with sufficient evidence with respect to recoverability of dues from group companies amounting to INR 1,751 Crore (refer note 32 of the standalone financial statements). Further, we have not been provided appropriate evidence about any recognition of fair value of the estimated loss allowance on corporate guarantee given to its subsidiary (as detailed in note 26 of the standalone financial statement) as required by Ind AS 109, ‘Financial Instruments. We are therefore unable to comment on the recoverability of the stated balance from group companies, fair value of estimated loss allowance on corporate guarantee given to a subsidiary, and the impact on the standalone financial statement.

Managements Response:

The Company has given interest free advance of Rs.17,506 million to its subsidiaries which is repayable on demand. The Company has given a corporate guarantee of Rs. 1,000 million for a loan taken by a wholly owned subsidiary. As at the date of this Statement, such corporate guarantee has not been invoked by the lender. The Company is confident that the loan will be repaid by the subsidiary in the due course and hence, the loss allowance as per Ind AS 109 Financial Instruments has been estimated by the Management to be Rs. Nil.

2. It is observed that there has been a change in the percentage of shares held by the Company in two subsidiaries and one stepdown Subsidiary (as detailed in note 6 of the standalone financial statement) as of March 31, 2020 vis-a-vis March 31, 2019 due to invocation of shares by the lenders of the subsidiaries. However, while considering the amount invested in the subsidiaries, the Management of the Company has considered the erstwhile shareholding pattern prior to dilution as the Management believes that the change in shareholding is temporary in nature and the shares pledged will be redeemed back by the Company (as detailed in note 6 of the standalone financial statement). However, these shares have been transferred to such lenders before March 31, 2020. Consequently, the impact of the said transfer of Rs.156 crores on the value of investments, loan balances and the profit/loss on such a transfer has not been reflected correctly the standalone financial statements of the Company. Accordingly, the said treatment by the Company is not in line with the provisions of the Companies Act, 2013 and the requirements of the Indian Accounting Standards applicable on the Company.

Managements Response:

Change in the percentage of shares held by the Company in its two subsidiaries viz M/s TDL & M/s CDGL as of March 31, 2020 visa- vis March 31, 2019 due to invocation of shares pledged to the lenders of the subsidiaries. However, while considering the amount invested in the subsidiaries, Company has considered the erstwhile shareholding pattern prior to dilution as the Management believes that the change in shareholding is temporary in nature and the shares pledged will be redeemed back by the Company. However, these shares have been transferred to such lenders before March 31, 2020.

3. The Management of the Company has determined that no impairment is required to be recognized on its investments in subsidiaries, associates and joint ventures with a carrying value of INR 1,866 Crore as at March 31, 2020, as required by Ind AS 36, ‘Impairment of Assets, particularly consequent to developments during this period (refer note 6 of the Standalone Financial Statement). However, we have not been provided with the indicators used and the assessment performed by the Management in order to arrive at this decision. We are therefore unable to comment on whether the value of investments recognized in the standalone financial statement of the Company is appropriate.

Managements Response:

The Company has investments in subsidiaries, associates and joint venture amounting to Rs. 1866 crores as at 31 March 2020. The Company has carried out impairment assessment of above balances in its annual financial statements for the year ended 31 March 2020, as consistent with its past practice of carrying out impairment assessment at every year-end. The Management of the Company has determined that no impairment is required.

4. The Standalone Financial Statements of the Company has been prepared by the Management and Board of Directors using the going concern assumption (Refer note 38 of the standalone financial statement). The matters detailed in the above paragraphs may have a consequential implication on the Companys ability to continue as a going concern. We are therefore unable to comment on whether the going concern basis for preparation of the Statement is appropriate.

Managements Response:

These standalone financial results for the quarter and year ended 31 March 2020 have been prepared on a going concern basis in view of the positive net worth of the Company amounting to Rs.3173 crores as at 31 March 2020, significant value in diversified portfolio of investments held in subsidiaries / joint ventures / associates, established track record of the Company to monetize its assets as demonstrated by sale of stake in Mindtree Limited, sale of Global Village Tech Park owned by its wholly-owned subsidiary Tanglin Developments Limited, sale of stake in Way2Wealth Group entities, profitable resorts operations and consequential ability to service the obligations.

Disclaimer of opinion on Consolidated Report:

1. It is observed that there has been a change in the percentage of shares held by the Company in three of its subsidiaries as of March 31, 2020 vis-a-vis March 31, 2019 due to invocation of shares by the lenders of the subsidiaries. However, while considering the amount invested in the subsidiaries, the Management of the Company has considered the erstwhile shareholding pattern prior to dilution as the Management believes that the change in shareholding is temporary in nature and the shares pledged will be redeemed back by the Company (refer to note 62 of the Consolidated Financial statement). However, these shares have been transferred to such lenders before March 31, 2020. Consequently, the impact of the said transfer (of Rs.156 crores) on the standalone financial statements is not correctly reflected.

Further, the impact of the aforesaid on the consolidated financial statements of the Company, including but not limited to the profit attributable to the non-controlling interest in the Company are also not correctly reflected. Accordingly, the said treatment by the Company is not in line with the provisions of the Companies Act, 2013 and the requirements of the Indian Accounting Standards applicable on the Company.

Managements Response:

Change in the percentage of shares held by the Company in its three subsidiaries viz M/s Tanglin Developments Limited, M/s Coffee Day Global Limited & Sical Logistics Limited as of March 31, 2020 vis-a-vis March 31, 2019 due to invocation of shares pledged to the lenders of the subsidiaries. However, while considering the amount invested in the subsidiaries, Company has considered the erstwhile shareholding pattern prior to dilution as the Management believes that the change in shareholding is temporary in nature and the shares pledged will be released back to the Company. However, these shares have been transferred to such lenders before March 31, 2020.

2. In respect of the Holding Company and some of the subsidiaries, there are instances of noncompliance with certain debt covenants and defaults in repayment of interest and borrowing as per the schedule of repayment. However, we are unaware of any consequent action, if any taken by bankers/ lenders as provided in the relevant loan agreements (refer note 23A of the consolidated financial statement). We are therefore unable to comment on the consequential adjustments that might impact this statement on account of non-compliance with debt covenants.

Managements Response:

The Group has borrowings amounting to Rs. 3,013 crores as at 31 March 2020. There have been certain covenant breaches with respect to certain borrowings taken by the group from various lenders. Such breaches entitle the lenders to recall the loan. On the date of this statement, there have been certain defaults in repayments of principal and interest of the loans and certain lenders have exercised their rights including recall the loans. All interests including unpaid interest also accounted in the books.

3. Impairment for Goodwill of INR 375 Crore arising on consolidation has not been considered in the consolidated financial statement (Refer note 6 of the consolidated financial statement). The valuation report assessing the value of the said intangible asset has also not been provided to us. The above impairment is required by Ind AS 36, ‘Impairment of Assets, in view of the developments during the period including the investigation report submitted to the company. We are therefore unable to comment on whether any provisions on account of impairment is required and the impact of the same on this statement

Managements Response::

The Group has goodwill amounting to Rs. 375 crores as at 31 March 2020. The Parent Company has carried out impairment assessment of the goodwill in its annual financial statements for the year ended 31 March 2020 and has impaired goodwill of Rs.134 crore in this annual financial statement.

4. Auditors of 4 subsidiaries which in turn has 3 step-down subsidiaries (constituting 61% of revenue), based on their review, have issued a disclaimer of conclusion/qualification due to the possible impact of the recoverability of dues from Mysore Amalgamated Coffee Estates Limited (‘MACEL), a related party which in aggregate has a group exposure to the extent of Rs. 3513 Crores as detailed in note 57 of the statement

Managements Response:

The Board of Directors of the Parent Company at their meeting held on 30 August 2019 appointed Mr. Ashok Kumar Malhotra, retired DIG of Central Bureau of Investigation (CBI), who is assisted by Agastya Legal LLP (led by its senior partner Dr. M R Venkatesh) to independently investigate the circumstances leading to the statements made in the letter of the Promoter and the then Chairman and Managing Director of the Company, late Mr. V. G. Siddhartha dated 27 July 2019 and to scrutinize the books of accounts of the Company and its subsidiaries. Investigation had completed on 24 July 2020 and the report had mentioned MACEL owes a sum of Rs.3,535 crores to the subsidiaries of CDEL as at 31 July 2019. out of the above, a sum of Rs.842 crores was due to these subsidiaries by MACEL as at 31 March 2019 as per the Consolidated Audited Financial Statements. Therefore, a sum of Rs.2,693 crores is the incremental outstanding that needs to be addressed. The Company appointed Retired Honble Justice Sri.K.L.Manjunath, Judge of Honble High Court of Karnataka, to suggest and oversee actions for recovery of the dues from MACEL and to help on any other associated matters. No decision has been taken on recoverability of the dues from MACEL by the seven subsidiaries of the company. The Management of seven subsidiaries have decided to take a decision on recoverability of Rs. 3,535 Crores which is due from MACEL to the subsidiaries of the Company after the receipt of report from Justice K.L.Manjunath.

5. Auditors of 3 subsidiaries, based on their review, have issued a disclaimer of conclusion due to doubts on the recoverability of dues from 3 parties classified under other advances along with certain capital advance, supplier and debtor balances aggregating to Rs.364 crores (refer to note 42 of the consolidated financial statement).

Managements Response:

The group has created provision for Capital advances, Supplier advance and doubtful debts amount to Rs.364 crores. However the groups efforts for the recovery will continue.

6. Further, the component auditor of the subsidiary company has also highlighted non-compliance to the Indian Accounting Standards governing Investment Property, on the grounds that the subject properties have not been valued in with the methodology prescribed under the applicable Accounting Standard, but as per the value prescribed by the Government of Karnataka. (Refer note 5C of the Consolidated Financial Statement)

Managements Response:

The company obtains independent valuations for its major investment properties at least annually. The latest valuation is done on the basis of Guidance value as notified by Government of Karnataka and hence the company is unable to present the disclosure requirement as required by the Ind AS. The fair value of investment property has been determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued.

7. Auditor of 1 subsidiary which in turn has 14 step-down subsidiaries and 2 joint (constituting 29% of revenue), based on their review, have issued a qualified opinion due to acute liquidity crunch in one of its step-down subsidiaries, as qualified by the respective component auditor of the step-down subsidiary, and also due to the liquidity crunch faced by the Company itself as evidenced by losses incurred during the year, excess of current liabilities over current assets, loans due for repayment of the subsidiary and other step-down entities for which the holding company was the guarantor.

Managements Response:

The subsidiary has incurred losses during the Financial year, has excess of current liabilities over current assets, loans that have fallen due for repayment, loans which have fallen due of subsidiary companies for which the Holding Company is the guarantor. These events indicate that a material uncertainty related to the going concern assumption exists and the Groups ability to continue as a going concern is dependent on the financial support from the group and generation of the expected cash flows through operations, to be able to meet its obligations as and when they arise. However, the Group is confident of meeting its obligations in the normal course of business and accordingly the accounts of the Group have been prepared on a Going Concern basis.

8. Further, the auditor of another subsidiary has also highlighted that the Company (refer to note 59 of the consolidated financial statement) is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and has sought a one-time exemption of the same and response from the Reserve Bank of India (RBI) is awaited

Managements Response:

The financial income of the Parent Company, Coffee Day Trading Limited (‘CDTL) and Way2Wealth Securities Private Limited (W2WSPL) earned during the year ended 31 March 2020 constitutes more than 50% of its total income for the said period and financial assets constitutes more than 50% of its total assets as at 31 March 2020, thereby requiring these entities to register themselves as Non-Banking Financial Companies (‘NBFC) with the Reserve Bank of India (RBI) as per the requirements of Section 45-IA of Reserve Bank of India Act, 1934. On 13 March 2020, the Parent Company and Coffee Day Trading Limited have made an application to the Deputy General Manager of the Department of Non-Banking Supervision requesting for a onetime exemption from obtaining registration as NBFC under the provisions of RBI. As of the date of this Statement, the Parent Company and CDTL are awaiting response from RBI. W2WSPL has not filed an application with the RBI till date seeking condonation of the above non-compliance.

9. In a letter dated July 27, 2019 signed by late Mr. V. G. Siddhartha, the Promoter and then Chairman and Managing Director of the Parent Company, which has come to light, it was inter- alia stated that the Management and auditors were unaware of all his transactions. Attention is drawn to note 57 of the Statement, wherein, consequently, the Board of Directors have initiated an investigation into the circumstances leading to the statements made in the letter and to scrutinize the books of accounts of the Company and its subsidiaries. The investigation report submitted on July 24, 2020 has concluded that a sum of INR 3,535 Crore is due from MACEL a related entity to the subsidiaries of CDEL as on July 31, 2019. The report further concludes that out of this sum, INR 842 Crore was due to the subsidiaries as on March 31, 2019 and the balance sum of INR 2,693 Crore is the incremental outstanding which needs to be addressed. Further, the Board of the Company in the board meeting on August 21, 2020, appointed Retired Honble Justice Sri K L Manjunath, former Judge of Honble High Court of Karnataka to suggest and oversee actions for recovery of the dues from MACEL and to help on any other associated matters. The future course of action will be decided by the Management based on the decision taken by the Hon ble Justice Sri K L Manjunath. We are unable to comment on the appropriateness of the transactions, including regulatory non-compliances, if any, and the recoverability of the amounts due in the absence of requisite evidence not being made available to us and its impact to the Statement.

Managements Response:

The Board of Directors of the Parent Company at their meeting held on 30 August 2019 appointed Mr. Ashok Kumar Malhotra, retired DIG of Central Bureau of Investigation (CBI), who is assisted by Agastya Legal LLP (led by its senior partner Dr. M R Venkatesh) to independently investigate the circumstances leading to the statements made in the letter of the Promoter and the then Chairman and Managing Director of the Company, late Mr. V. G. Siddhartha dated 27 July 2019 and to scrutinize the books of accounts of the Company and its subsidiaries. Investigation had completed on 24 July 2020 and the report had mentioned MACEL owes a sum of Rs.3,535 crores to the subsidiaries of CDEL as at 31 July 2019. out of the above, a sum of Rs.842 crores was due to these subsidiaries by MACEL as at 31 March 2019 as per the Consolidated Audited Financial Statements. Therefore, a sum of Rs.2,693 crores is the incremental outstanding that needs to be addressed. The Company appointed Retired Honble Justice Sri.K.L.Manjunath, Judge of Honble High Court of Karnataka, to suggest and oversee actions for recovery of the dues from MACEL and to help on any other associated matters. No decision has been taken on recoverability of the dues from MACEL by the seven subsidiaries of the company. The Management of seven subsidiaries have decided to take a decision on recoverability of Rs. 3,535 Crores which is due from MACEL to the subsidiaries of the Company after the receipt of report from Justice K.L.Manjunath.

Secretarial Audit Qualifications:

1. In terms of provisions of Section 117, a copy of every resolution, in respect of matters specified in resolutions passed in pursuance of sub-section (3) of section 179, shall be filed with the Registrar within thirty days of the passing or making thereof .The Board of Directors on 31.07.2019 has constituted Executive Committee delegating the powers vested with the powers granted to Erstwhile Administrative Committee. A copy of Resolution is not been filed with the Registrar of Companies.

Managements Response:

The management of the Company has taken note of the Ministrys General Circular No. 12/2020 dated 30.03.2020 on Companies Fresh Start Scheme, 2020 which is extended till 31st December 2020 for filing the required forms. The same will be filed within the due date.

2. In terms of provisions of Section 135 of the Companies Act,2013, the company was required to constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. The company could not comply the same.

Managements Response:

Due to unavoidable circumstances there was a delay in re-constitution of CSR Committee. However, The Board on 7th December 2020 reconstituted the Committee in accordance with Section 135 of the Companies Act, 2013.

3. In terms of provisions of Section 203 of the Companies Act,2013, every listed company shall have either managing director, or Chief Executive Officer or manager and in their absence, a whole-time director as whole-time key managerial personnel. The company could not comply the same

Managements Response:

Mrs. Malavika Hegde who is a Non-Executive Director of the Company is proposed to be appointed as whole time Director (CEO)of the company in the Board meeting held on 7th December 2020 subject to the approval of shareholders in this convening Annual General Meeting.

4. Whereas in terms of the Regulation 17 (1)(c) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 The board of directors of the top 1000 listed entities (with effect from April 1, 2019) and the top 2000 listed entities (with effect from April 1, 2020) shall comprise of ‘not less than six directors . The company could not comply the same.

Managements Response:

The Company had six Directors as per SEBI(LODR) (amendment), Regulations, 2018, with effect from 1st April 2019, namely:

Name of Director DIN Designation
1 Mr. V.G Siddhartha 00063987 Chairman & Managing Director
2 Mrs. Malavika Hegde 00136524 Non-Executive Director
3 Mr. Sanjay Nayar 00002615 Nominee Director
4 Mr. S V Ranganath 00323799 Independent Director
5 Dr. Albert Hieronimus 00063759 Independent Director
6 Mrs. Sulakshana Raghavan 03523815 Independent Director

After the sad demise of our beloved Chairman Mr. V.G.Siddharth , Mrs. Sulakshana Raghavan and Mr. Sanjay Nayar resigned from the Board on 1st August, 2019 and 13 th November, 2019.

Since the Company is not in the top 2000 listed entities as on 31.03.2020 the Company need not have minimum six directors. However, the Board in their Meeting held on 7th December 2020 has appointed three Additional Directors. Therefore, the newly constituted Board consists of Six Directors.

5. Whereas in terms of the Regulation 24A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with Circular No. CIR/CFD/CMD1/27/2019 dated 08.02.2019, Every listed entity in India shall undertake secretarial audit and shall submit Annual secretarial compliance report within 60 days of the end of the financial year. Due to spread of COVID-19, the said due date was extended. However, the company could not comply the same.

Managements Response: Due to COVID-19 lockdowns and its related restrictions the Auditor could not complete the work within the stipulated time.

6. Whereas in terms of the Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 regarding delayed submission offinancial result for the year ended 31st March2020, the quarter ended 30.06.2019, quarter ended 30.09.2019, quarter ended 31.12.2019 and the quarter ended 31.03.2020. Company has also received notices offine in this regard from the Stock Exchanges. Since the company continued to be in non-compliance, the stock exchanges have suspended the trading.

Managements Response:

The company has submitted financial results for all the quarters of financial year 2019-20 and two quarters of financial year 2020-21 and is in the process of lifting the suspension of trading.

7. Whereas in terms of the Regulation 30(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2015, The promoter of the company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the 31.03.2020, in such form as may be specified within 7 days from the end of the said financial year. The company could not comply the same.

Managements Response:

Due to unavoidable circumstances the company could not receive the declaration from the promoters within the stipulated time. The Company has taken note of the same and has put in compliance tracker to avoid such delays in future.

8. Whereas in terms of the Regulation 31(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2015 The promoter along with persons acting in concert of the company shall declare to stock exchanges & Audit Committee on a yearly basis, within 7 working days from the end of such financial year that he has not made any encumbrance, directly or indirectly, ‘other than those already disclosed during the financial year. The company could not comply the same.

Managements Response:

Due to unavoidable circumstances the company could not receive the declaration from the promoters within the stipulated time. The Company has taken note of the same and has put in compliance tracker to avoid such delays in future.

9. Whereas in terms of the Regulation 7(2)(a) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 Every promoter, member of the promoter group, designated person and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified. The share pledged by the promoters was not disclosed to the company within the prescribed time.

Managements Response:

Due to unavoidable circumstances the company could not receive the declaration from the promoters within the stipulated time. However, on receipt of such declaration, the company has intimated within the stipulated time.

Risk Management and Assessment:

The Company is exposed to various risks considering the diversified parameters according to the different business sectors of the Company such as coffee business, technology park business, logistics business, financial services business and resort business. The Audit Committee oversees the area of financial risks and controls. Major risks identified by the business and functions are systematically addressed through mitigating actions on continuing basis. The Company has incorporated sustainability in the process, which helps the Board to align potential exposures with the risk appetite and highlight risks associated with chosen strategies.

Details in respect of frauds reported by Auditors under Section 143(12):

There was no instance of fraud during the year under review, which required the Statutory Auditors to report to the Audit Committee and / or Board under Section 143(12) of the Act and the rules made thereunder.

Statutory Disclosures:

None of the Directors of your Company are disqualified as per provisions of Section 164(2) of the Companies Act, 2013. Your Directors have made necessary disclosures, as required under various provisions of the Act and SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015.

General Disclosures:

a) Buy back of securities:

In accordance with Section 68 of the Act, the Company has not bought back any of its securities during the year.

b) Sweat Equity:

The Company has not issued any Sweat Equity Shares under the provisions of Section 54 of the Act.

c) Bonus Shares:

In terms of Section 63 of the Act, the Company had not issued Bonus Shares during the year under review.

d) Employee Stock Option Plan:

Pursuant to the provisions of Section 62 of the Act, the Company has not provided any Stock Option to the Employees of the Company.

Acknowledgement:

The Directors would like to express their gratitude towards the Companys employees, customers, Banks and institutions, investors and academic partners for their continuous support. They also

thank the concerned government departments and agencies for their co-operation. The Directors appreciate and value the contribution made by every member of the ‘Coffee Day family.

Place: Bangalore

For Coffee Day Enterprises Limited

Date:7th December,2020 S.V. Ranganath Malavika Hegde
Interim-Chairman & Director
Independent Director
DIN: 00323799 DIN: 00136524