The SEBI Adjudication Order in the matter of Coffee Day Enterprises Limited (CDEL) serves as a stark reminder that internal certifications and affirmations, even those that never leave the organization’s walls, carry immense legal weight.
While certain documents (like financial results) are filed directly with Stock Exchanges, many critical affirmations are addressed internally to the Board of Directors, Audit Committee, or Compliance Officer as per the requirement of law. The CDEL case highlights that these internal “checks” must be handled with the same level of care as public filings, as they form the legal foundation upon which the integrity of the entire reporting system rests.
In the present matter, CDEL failed to recognize interest expenses on its borrowings based on the management’s expectations/ confidence for a future waiver and the assumption that providing for such interest would be misleading. This constituted a failure to adhere to Ind AS requirements for the preparation of financial statements and a failure to fulfil disclosure obligations.
The statutory auditors had highlighted this issue in audit qualifications in the reports for FY 2022-23 and 2023-24.
1. “Expectation” vs. Accrual
The CDEL Order emphasizes that signatories must exercise “utmost care, skill and diligence” when providing these affirmations.
- Accrual Basis (Ind AS 1): Entities must strictly adhere to the accrual basis of accounting.
- Derecognition Criteria (Ind AS 109): A financial liability can only be removed from the balance sheet when it is extinguished, meaning the obligation is legally discharged, cancelled, or expires. Mere “negotiations” for a waiver do not meet this legal threshold.
- The Transparency Myth: CDEL argued that non-recognition of interest was transparently disclosed in the ‘Notes to Accounts’. SEBI clarified that disclosure is not a substitute for compliance. An internal certification stating that financials are compliant cannot be justified by a footnote that simultaneously admits to a departure from accounting standards.
2. List of certifications
Below is the illustrative list where such certifications by CEO/CFO or Board of Directors are required under LODR and Act:
| Sr No | Certificate | Section/ Regulation | Time |
| 1. | CEO & CFO Certification | Regulation 17(8) of LODR | Quarterly |
| 2. | CEO & CFO Certification | Regulation 33(2)(a) of LODR | Quarterly |
| 3. | Certificate received from CFO on utilization of the funds transferred for CSR activities. | Rule 4(5) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 | Yearly |
| 4. | Regulation 34(3) r/w Schedule V (C)(10)(i) | Certificate on Non-disqualification of Directors | To be placed before the Board for inclusion in Annual Report. |
| 5. | As per schedule V Part E of LODR | Compliance Certificate from either the Auditors or Practicing Company Secretaries regarding compliances of conditions of Corporate Governance shall be annexed with the Director’s Report | To be placed before the Board for inclusion in Annual Report. |
| 6. | CEO/Managing Director/Whole Time Director/ Manager and CFO | Confirmation that terms of RPTs proposed to be entered into are in the interest of the Listed Entity | Industry standards on RPT dated 26 June 2025 |
3. Internal Affirmations: Substantive Obligations, Not Administrative Paperwork
A primary takeaway from the CDEL matter is that internal certifications, for instance those issued by the CEO and CFO to the Board of Directors under Regulation 17(8) of LODR, are not mere procedural formalities.
- The Responsibility of Integrity: These internal declarations affirm the integrity of financial systems. In CDEL, officials issued “true and fair” certifications despite a failure to accrue interest expenses exceeding ₹489 crores and statutory auditor’s observations in that regard.
- Personal Liability: SEBI held that these CEO and CFO failed to ensure the integrity of reporting systems, resulting in personal penalties. This underscores that addressing an affirmation internally does not shield an officer from regulatory scrutiny if that affirmation is fundamentally flawed.
4. Conclusion
The matter clearly emphasised that internal certifications may lose credibility where they are contradicted by explicit observations or qualifications recorded by statutory auditors, potentially raising concerns as to the robustness of the underlying financial reporting framework.
Further, the burden may rest on the CEO and CFO to demonstrate that reasonable care, due diligence, and independent verification were exercised prior to issuing such certifications. Every certification required under LODR or the Act must move beyond a “checkbox” approach. Ensuring exercise of professional scepticism is an essential.
Abbreviations:
SEBI- The Securities Exchange Board of India
LODR- Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015
CEO- Chief Executive Officer
CFO- Chief Financial Officer
Ind AS- Indian Accounting Standards
FY- Financial Year
CSR- Corporate Social Responsibility
RPT- Related Party Transactions