- Four investors have filed a plea against Byju’s management, accusing them of mismanagement and poor governance.
- The NCLT has directed Byju's to hold funds from its second rights issue in a separate account pending the resolution of the ongoing legal challenges.
- Byju's challenges the NCLT's decision to halt its second rights issue by filing a writ petition with the Karnataka High Court.
Indian edtech giant, Byju’s has approached the Karnataka High Court with a writ petition challenging the decision by the National Company Law Tribunal (NCLT) to halt its second rights issue. While such challenges are typically addressed to the National Company Law Appellate Tribunal (NCLAT), Byju’s has opted for the High Court, arguing a violation of fundamental rights.
The High Court briefly reviewed the plea on June 18 and 21, with further hearings scheduled for June 24.
But what’s the whole matter?
Byju’s has mostly had a peculiar image in the industry. In the past, employees have alleged that Byju’s fosters a toxic work culture.
But that’s not the only controversy that the Bengaluru-based edtech major has faced. It has also witnessed a fair share of legal hurdles and currently, the company is entangled in one.
In February, four investors filed an 'oppression and mismanagement' plea against the company's management. This was the fifth legal challenge against Byju’s filed in the NCLT and the fourth in 2024 alone.
The investors, including MIH Edtech Investments B.V, Peak XV Partners Investments IV & V, Sofina S.A., and General Atlantic Singapore TL Pte. Ltd, have accused the management, including Byju Raveendran (CEO), his wife Divya Gokulnath, and his brother Riju Raveendran, of poor governance and operational failures.
Their demands include declaring the recent $200 million rights issue as void, a forensic audit of the company, and the appointment of a new CEO and board. They argue that the current management is unfit to run the company and have also raised concerns over transparency, regulatory non-compliances, and other corporate governance issues.
The plea also addresses the loss of control over significant assets, such as Aakash and Byju's Alpha (TLB loan default), further highlighting the financial mismanagement under the current leadership. Moreover, there are claims about the oppressive nature of the rights offered, with some actions being characterized as unauthorized and prejudicial to the rights of investors.
Now, it appears that the plea is closely connected to the outcomes of the Extraordinary General Meeting (EGM) held on February 23, during which investors chose to oust Raveendran and his family from the leadership of the edtech firm.
A representative from Prosus highlighted that the EGM concluded with several resolutions being passed. These included demands for addressing significant governance, financial mismanagement, and compliance issues within Byju's.
Additionally, there was a call for the restructuring of the Board of Directors to ensure that Think & Learn, the parent company of Byju’s, is no longer under the control of its founders.
However, in a statement, the company stated:
“Byju’s firmly declares that the resolutions passed during the recently concluded Extraordinary General Meeting (EGM)– attended by a small cohort of select shareholders– are invalid and ineffective. The passing of the unenforceable resolutions challenges the rule of law at worst.”
Now, what’s interesting and seems like a bold move is that Raveendran declared the day after shareholders voted to oust the founders that he remains the CEO, with no changes to the management or board.
In April, the Bengaluru Bench of the NCLT deferred the hearing of the oppression and mismanagement plea filed against Byju’s by investors to June 6.
Fast forward to June 12, the Bengaluru bench of NCLT issued an order to Byju's, instructing the edtech firm to refrain from using the funds from its second rights issue. Instead, the company was directed to hold these funds in a separate account until the resolution of the main petition.
This order came after Byju's initiated its second rights issue on May 13, which was scheduled to conclude the following day, June 13. A rights issue is a method where a company allows current shareholders to purchase additional shares at a discounted price, generally proportional to their existing holdings.
Additionally, it followed the company's inability to meet its capital targets with the initial rights offering conducted in January and February. The NCLT further mandated that the status quo regarding the existing shareholders and their shareholdings be maintained until the main petition is settled.
Industry insiders suggest that the ongoing legal struggles may severely disrupt Byju's operational capabilities, potentially affecting its ability to settle accounts with vendors and fulfill payroll commitments. The edtech giant is grappling with a series of daunting challenges, including financial strains, delayed financial disclosures, and contentious legal disputes with lenders and investors.
What do you think these developments could mean for the future of edtech firms in general? How might this impact investors' confidence in the edtech sector?
Edited by Harshajit Sarmah
