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Supreme Court Sets Aside NCLAT Order Which Closed Insolvency Process Against Byju's Based On Settlement With BCCI
Anmol Kaur Bawa
23 Oct 2024 11:36 AM IST
The Supreme Court today (October 23) set aside the order of the National Company Law Appellate Tribunal which closed the insolvency proceedings against ed-tech company Byju's (Think and Learn Pvt Ltd) accepting a settlement between it and the Board of Control for Cricket in India (BCCI) for about Rs 158 crores.The Court held that the NCLAT erred in allowing the withdrawal of the...
The Supreme Court today (October 23) set aside the order of the National Company Law Appellate Tribunal which closed the insolvency proceedings against ed-tech company Byju's (Think and Learn Pvt Ltd) accepting a settlement between it and the Board of Control for Cricket in India (BCCI) for about Rs 158 crores.
The Court held that the NCLAT erred in allowing the withdrawal of the insolvency application by invoking its inherent powers under Rule 11 of the NCLAT Rules 2016. When there is a specific procedure provided for the withdrawal of insolvency applications, the NCLAT cannot invoke its inherent powers.
The Court also noted that as per the regulations, the application for withdrawal has to be submitted by the Interim Resolution Professional(IRP) and not by the parties themselves. It is the IRP who takes charge of the affairs of the corporate debtor once an insolvency application is admitted. The application for withdrawal must be submitted through the IRP.
The Court also stated that the NCLT cannot be considered a post office that merely approves the application for withdrawal given by the parties. Also, in the present case, it was the appellate forum, the NCLAT, which approved the withdrawal and not the NCLT, which is a gross illegality. Further, there was no formal application for withdrawal.
The Supreme Court noted that the correct course of action for the NCLAT would have been to stay the constitution of the Committee of Creditors and ask the parties to follow the procedure under Section 12A of the Insolvency and Bankruptcy Code (IBC) and Regulation 30-A of the Insolvency and Bankruptcy Board of India (IBBI) (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for the withdrawal.
The amount of Rs 158 crores, which was deposited by the BCCI and maintained in a separate escrow account, as per the Court's earlier interim order, should be now deposited into the escrow account of the Committee of Creditors and shall be maintained by them.
In the judgment, the Court held that the appellant Glas Trust Company LLC is not an unrelated party as its claims were verified. Hence, it has the locus to challenge the NCLAT order. At the same time, the Supreme Court refrained from entering a finding on the objections raised by the appellant.
"During the course of the proceedings before this Court, the CoC has been constituted. The parties are at liberty to invoke their remedies, to seek a withdrawal or settlement of claims, in compliance with the legal framework governing the withdrawal of CIRP. Nothing in this judgment should be construed as a finding on the conduct of any of the parties or other stakeholders involved in the insolvency proceedings," the Court held.
The Court gave its decision in the petitions filed by US-based lender Glas Trust Company LLC challenging the decision of the National Company Law Appellate Tribunal (NCLAT) to close the insolvency proceedings against ed-tech company Byju's (Think and Learn Pvt Ltd) accepting a settlement between it and the Board of Control for Cricket in India (BCCI) for about Rs 158 crores.
The bench led by CJI DY Chandrachud comprising Justices JB Pardiwala and Manoj Misra was hearing the challenge to the NCLAT's decision by a US-based lender Glas Trust Company LLC in appeal and reserved the judgment on September 26.
While reserving the judgment, the Court directed the Resolution Profession to maintain the status quo and not to hold any meeting of the Committee of Creditors (CoC) till the verdict is delivered.
On August 14 the Court stayed the NCLAT order which closed the insolvency proceedings initiated by the Board of Controllers of Cricket in India (BCCI) against ed-tech firm BYJU's over the dues of Rs. 158 Crores based on a settlement between the parties. The Court also directed the BCCI to deposit the sum of 158 Crores in a separate escrow account till further orders.
On August 20, the Top Court refused to pass orders to restrain the Resolution Professional from forming a Committee of Creditors for ed-tech company Byju's in the insolvency proceedings against it.
Senior Advocates Shyam Divan and Kapil Sibal appeared for the petitioners. Senior Advocate Dr AM Singhvi appeared for Byju's and Solicitor General Tushar Mehta for the BCCI.
NCLAT Order
Justice Rakesh Kumar Jain, presiding over the case noted that the source of the settlement funds was transparent and that the interests of all parties, including the Glas Trust, was preserved. The Glas Trust has the option to revive the case if needed but the settlement as it stands has been officially approved.
The settlement will be funded by Riju Ravindran, the brother of Byju's founder Byju Raveendran and a major shareholder in the company. Riju Ravindran has committed to using his personal funds to cover the arrears. These funds are derived from the sale of shares in Think & Learn, the parent company of Byju's, between May 2015 and January 2022.
The approval of this settlement followed concerns raised by US-based lenders. These lenders questioned the legitimacy of the funds being used, suspecting that they might be diverted from loans provided by them. In response, the NCLAT required Byju's to submit an undertaking confirming that the funds used for the settlement were not sourced from the term loans opposed by these lenders.
Background
The insolvency proceedings against Byju's began when the National Company Law Tribunal (NCLT) in Bengaluru ordered the initiation of corporate insolvency resolution on June 16, 2024. This action followed Byju's default on a ₹158.9 crore payment related to a sponsorship deal with the BCCI. The NCLT's decision included suspending Byju's board and appointing an interim resolution professional to manage the company's financial obligations.
At the heart of Byju's financial problems was the "Team Sponsor Agreement" with the BCCI established in July 2019. This agreement granted Byju's exclusive rights to brand display on the Indian cricket team's kit advertising during cricket telecasts and access to tickets for BCCI-organized matches. In exchange, Byju's agreed to pay a sponsorship fee. Although Byju's met its payment obligations through March 2022 and settled the fees for the India-South Africa series in June 2022, it failed to pay subsequent invoices. This resulted in a shortfall of ₹158.9 crore despite a bank guarantee of ₹143 crore being encashed.
Case Details : GLAS TRUST COMPANY LLC Vs BYJU RAVEENDRAN | Diary No. - 35406/2024
Citation : 2024 LiveLaw (SC) 826
