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The National Company Law Appellate Tribunal (NCLAT) on Wednesday stayed the insolvency proceedings against Coffee Day Enterprises Ltd (CDEL), which operates the Cafe Coffee Day chain, until the next date of hearing.

The Chennai bench of the appellate tribunal stayed the operations of the National Company Law Tribunal (NCLT) order over a petition filed by Malavika Hegde, Executive Director – CEO of the suspended board of the company.

NCLAT also directed the financial creditor of CDEL—IDBI Trusteeship Services Ltd (IDBITSL)—claiming a default of Rs 228.45 crore, to file a counter affidavit over the company’s submissions.

“In these eventualities, the respondents are directed to file counter affidavits within a period of three weeks. Till the next date of listing, the effect of the operation of the impugned order, admitting the appellant (CDEL) to Section 7 procedures will be kept in abeyance,” said a bench comprising Justice Sharad Kumar Sharma and Jatindranath Swain.

The bench has, however, refrained from making any observations over the status of CDEL being a defaulter, saying the issue has to be decided at a later stage.

“At this stage, we are only consulting the argument extended by the parties pertaining to the procedural flaw committed by the respondent (IDBITSL) in drawing the proceeding under Section 7, which was mandatory going to the terms of the trust deed as relied on by the parties,” the bench said.

During the proceedings, counsel appearing for CDEL contended that NCLT has erred in admitting the insolvency plea filed by IDBITSL.

They contended that IDBITSL was not authorised to initiate a corporate insolvency resolution process as the Debenture Trustee Agreement and Debenture Trust Deed do not grant powers to initiate it.

It has not sought written instructions from debenture holders and only upon receipt of relevant instructions from the majority debenture holders (of the aggregate amount representing not less than 51% of the value of the nominal amount of the debentures) is entitled to exercise its rights, CDEL contended.

Earlier on August 8, NCLT’s Bengaluru bench admitted the plea filed by IDBITSL claiming a default of Rs 228.45 crore, and appointed an interim resolution professional to take care of the operation of the debt-ridden company.

Besides the Cafe Coffee Day chain, CDEL also owns and operates a resort, renders consultancy services, and is engaged in the sale and purchase of coffee beans.

The company had defaulted in the payment of coupon payments of redeemable non-convertible debentures (NCDs). The financial creditor had subscribed 1,000 NCDs through private placement and paid Rs 100 crore towards the subscription in March 2019.

CDEL executed and entered into an agreement with IDBITSL agreeing to appoint as the debenture trustee for the debenture holders. However, CDEL defaulted in paying the accrued aggregate coupon payments due on various dates between September 2019 and June 2020.

Consequently, the debenture trustee, on behalf of all the debenture holders, issued a notice of default on July 28, 2020, to CDEL and approached NCLT, which directed to initiate insolvency proceedings.

Coffee Day Enterprises is in trouble after the death of Founder-Chairman V G Siddhartha in July 2019. It is paring its debts through asset resolutions and has significantly scaled down from the time the trouble started.