NCLT Orders Byju's To Halt Second Rights Issue Amid Allegations Of Mismanagement
The National Company Law Tribunal (NCLT) has directed Byju's to maintain the status quo regarding its shareholding structure. This directive effectively halts the company's controversial second rights issue. The interim order was issued by a special bench consisting of Judicial Member M.S.S. Sundaram and Technical Member Manoj Kumar Dubey in response to a petition filed by a group...
The National Company Law Tribunal (NCLT) has directed Byju's to maintain the status quo regarding its shareholding structure. This directive effectively halts the company's controversial second rights issue. The interim order was issued by a special bench consisting of Judicial Member M.S.S. Sundaram and Technical Member Manoj Kumar Dubey in response to a petition filed by a group of investors alleging oppression and mismanagement.
Background
Byju's, led by founder Byju Raveendran, had planned a $200 million rights issue, which was executed in two tranches due to an inability to raise the full amount initially. The first rights issue did not generate the required funds which prompted the company to initiate a second rights issue on May 13, 2024. This second tranche faced significant opposition from a consortium of investors including MIH EdTech Investments (a subsidiary of Prosus NV), General Atlantic Singapore, Peak XV Partners, and Sofina. These investors accused Byju's of violating previous undertakings provided to the NCLT and alleged several acts of mismanagement.
NCLT's Decision
The NCLT interim order restrains Byju's from proceeding with the ongoing second rights issue until the main petition is resolved. Further, Byju's is required to keep all funds collected from the second rights issue in a separate escrow account, which must not be utilized until further notice.
The Petitioners alleged that Byju's violated a previous NCLT order dated February 27, 2024, which recorded Byju's commitment to not allot any new shares without increasing the authorized share capital. They further claimed that funds received from the rights issue were to be kept in a separate escrow account until the resolution of their plea. Despite this, Byju's went ahead with allotting shares to certain shareholders on March 2, 2024, and initiated the second rights issue.
The NCLT has asked Byju's to provide comprehensive details of the share allotments made on March 2, 2024, both before and after the increase in authorized share capital. This includes information about the shareholders, the number of shares they held, their entitlement as per the rights offer, and the details of funds paid and utilized.
Additionally, the NCLT has directed Byju's to file details of the concerned escrow bank accounts, showing transactions from the opening of the rights issue on January 29, 2024, to the present date.
The interim order by the NCLT comes amid ongoing financial and legal challenges faced by Byju's. Earlier this month, a consortium of lenders who had extended a $1.2 billion loan to Byju's sought to initiate bankruptcy proceedings against the company's subsidiaries—Epic, Tynker, and Osmo—in the United States. These lenders are in negotiations with Byju's regarding the prepayment of the term loan taken by another subsidiary, Byju's Alpha.
The matter is scheduled for further hearing on July 4, 2024.
Case Title: M/s. MIH Edtech Investments B.V. & Ors. vs M/s. Think & Learn Pvt. Ltd. & Ors.
Case Number: C.A. Nos.71, 72 & 76/2024 in C.P. No.18/BB/2024
Advocate for the Petitioner: Senior advocates Sudipto Sarkar and Satish Parasaran and advocates Shankh Sengupta, Sampath Kumar, Tine Abraham, Yogesh Singh, Akshaya R., Aubert Sebastian, Manasa S., Rangam Sharma, Lavanya B. Ananth, Sujoy Sur, Angelika Awasthi, Neha Dhavalikar, Aneeta Mathew, Prarthna Bathija and Subhang N appeared for investors.
Advocate for the Respondent: Senior advocates KG Raghavan and Dhyan Chinnappa along with advocates Manmeet Singh, Rishab Gupta, Ishu Gupta, Nidhi, Sairam Subramanian, Siddharth Doshi, Saloni Shah and Ashika Jain briefed by Saraf & Partners appeared for Byju's and Byju Raveendran.
Date of Judgment: 12.06.2024