A. The Case of Coffee Day Enterprises Limited- Non-recognition of finance cost:
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.
“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.
B. The Case of Golden Tobacco Limited- Diversion through Subsidiaries:
The recent SEBI Adjudication Order in the matter of Golden Tobacco Limited (GTL) further reinforces these principles, particularly regarding the role of the CFO in certifying financials.
In this case, GTL advanced approximately Rs. 17,517.57 lakhs to its wholly owned subsidiary, Golden Realty Infrastructure Ltd (GRIL), purportedly for land development rights.
SEBI’s investigation revealed a complex web of fund transfers:
- Conduit Mechanism: GRIL, which had no commercial substance or revenue, acted as a conduit, transferring the majority of these funds to WGF Financial Services Ltd and General Exports and Credit Limited.
- Ultimate Beneficiaries: From these intermediaries, funds were further diverted to various promoter-related entities.
The CFO’s Accountability:
Similar to the CDEL case, the CFO of GTL was held liable for violating Regulation 17(8) and 33(2)(a) of SEBI (LODR) Regulations, 2015.
The CFO submitted in his reply that the decisions to grant advances were made by the Board before his appointment and that he merely followed management instructions. He claimed he was merely an employee working under the guidance of the Managing Director and was never part of the Board or the decision-making process regarding these advances.
He further contested that his salary did not change after his promotion to CFO and that there was no mens rea (guilty intention) on his part. He asserted that he issued the certifications in good faith, following the instructions of the management to save his employment.
SEBI concluded:
- Statutory Liability: SEBI ruled that the violation pertains to the act of certifying the financial results during his tenure. Even if the funds were transferred earlier, his signature affirmed that the current financial statements (FY 2015-16 to FY 2020-21) were “true and fair” despite the ongoing diversion.
- Irrelevance of Intent: The absence of mens-rea (guilty mind) or the fact that an employee followed orders does not absolve an officer from the breach of civil obligations under securities law.
- Misrepresentation: GTL continued to show these advances as outstanding assets in its annual reports for over a decade (FY 2009-10 to FY 2020-21), even though the funds had been diverted and the development projects were never approved by the Delhi Development Authority (DDA).
SEBI concluded that the CFO is mandated by law to ensure financial results do not contain false or misleading statements. Relying on “management instructions” does not absolve the officer of this duty.
C. Internal Affirmations: Substantive Obligations, Not Administrative Paperwork:
A primary takeaway from both the CDEL and GTL matters is that internal certifications, such as those issued 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 certifications despite failing to accrue interest expenses exceeding ₹489 crores. In GTL, the CFO certified financials while funds were being diverted to promoter-related entities through a subsidiary which resulted into misrepresentation as stated above.
- Personal Liability: SEBI held that these officers failed to ensure the integrity of reporting systems, resulting in personal penalties. Addressing an affirmation internally does not shield an officer from regulatory scrutiny if that affirmation is fundamentally flawed.
D. 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 |
E. Conclusion
The matters 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 such official, CEO/ CFO etc, 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.
Coffee Day Enterprises Limited: https://www.sebi.gov.in/enforcement/orders/mar-2026/adjudication-order-in-the-matter-of-financial-mis-statements-of-coffee-day-enterprises-limited_100080.html
and Golden Tobacco Limited: https://www.sebi.gov.in/enforcement/orders/apr-2026/adjudication-order-in-the-matter-of-golden-tobacco-limited_101125.html
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