The Bengaluru Bench of National Company Law Tribunal (NCLT) reserved judgement on interim orders in the oppression and mismanagement plea filed by four investors against edtech company Byju’s.

The investors had sought for a stay of $200 million rights issue that is to close on February 29. The investors alleged that they were being forced to participate as their shareholding would be reduced if they did not participate in the rights issue.

The tribunal has directed the parties to file written submissions of their contentions in three days and has also issued notice to Ministry of Corporate Affairs (MCA) and Registrar of Companies (ROC).

The tribunal has also observed that Byju’s board needs to call for an EGM to increase authorised capital and take shareholder approval before proceeding for rights issue. In response, Byju’s gave an undertaking to the court that they will not use the proceeds of the Rights issue until the authorization has been secured.

The hearing which went on for nearly five hours, saw an intense showdown between the investors of edtech giant Byju’s and the current board of directors of the company.

The investors--Prosus, GA, Sofina, and Peak XV — along with support from other shareholders, including Tiger, and Owl Ventures moved to the NCLT and sought for an interim relief with a stay on the rights issues and encumbering and transferring any assets of Byju’s and its subsidiary. Investors also requested the Bench to allow maintenance of status quo of shareholding and a complete disclosure of information by the company.

The NCLT plea by investors came before an extraordinary general meeting held on February 23, where investors like Prosus, General Atlantic and Peak XV voted to fire Raveendran.

Investor sources said that shareholders of about 60 per cent stake in Byju’s voted in favour of the resolutions, but company sources argued that those in favour of the resolutions only hold about 47 per cent of the shares.

The arguments

The investors alleged that the company’s move to call for rights issue is illegal and contrary to law and sought a stay, while the company’s board of directors argued that the investors were creating obstructions to the company.

The investors argued that Byju’s hid $533 million in an obscure three-year-old hedge fund. “$533 million has been siphoned off. He wants us to invest more money! How will we be protected. Investors fear irreversible consequences if diverted funds stay abroad,” said the lawyer on investors’ behalf.

The investors side arugued that funds from the rights issue will be in the company’s bank account and will not be utilised properly.

“If the amount is parked in their bank account especially when the man is sitting abroad, is not coming to India. It will become irreversible. And it’s not as though the company will survive by this rights issue money coming in, especially because in law, the company cannot use that money.”

The investors argued that 13 letters have been written between the end of 2022 and end of 2023 asking for information.

The company’s lawyer asserted that the funds from the rights issue will be be placed in a fresh account with the advisory council overseeing it.

“If the NCLT passes any order today, it will dilute the order of HC... The investors are not looking at the interest of 100 million students and the 12,000 employees but only at their value maximisation,” the company’s lawyer noted.

The saga so far

The embattled edtech is facing troubles from all front. The recently concluded EGM by the investors of Think & Learn (T&L), the parent company of Byju’s, voted on and passed several resolutions at the EGM, including the removal of chief executive officer (CEO) Byju Raveendran from the company and the change of the board, which currently includes his wife and co-founder Divya Gokulnath and his brother Riju Raveendran.

The extraordinary general meeting (EGM), which Raveendran, his wife, and brother — the only board members — decided not to attend, was faced several disruptions, reported businessline.

However, the edtech company Byju’s has termed the resolutions passed as invalid and ineffective.

Alongwith the investors plea at NCLT, Board of Control for Cricket in India (BCCI), France-based Teleperformance Business Services, and Surfer Technologies have all filed separate insolvency pleas against Byju’s. The NCLT has issued notice in all the insolvency petitions filed against the edtech giant.

The company’s TLB lenders, who, collectively extended more than 85 percent of Byju’s $1.2-billion lending, have also filed insolvency petition against the company.