The National Company Law Tribunal (NCLT) ordered Byju’s, a failing edtech business, to keep its shareholders’ share ownership structure as of 12 June. As per the 13 June public announcement of the judgement, “status quo about existing shareholders and their shareholding shall be maintained till the main petition is resolved.” This ruling guarantees that Byju’s ownership and shareholding structure will only alter once the NCLT’s major petition is resolved.
Byju’s faces setback in fundraising efforts
- Investor Dispute: A group of investors petitioned the National Company Law Tribunal (NCLT), challenging Byju’s recent rights issue.
- Second Rights Issue: The investors claimed that Byju’s conducted a “second rights issue” without proper authorization and raised the total amount through the first offering. Byju’s maintains it was simply an extension of the original $200 million rights issue.
- NCLT Ruling: The NCLT sided with the investors for now, halting the ongoing rights issue on 13 June.
- Frozen Funds: Any money Byju’s has collected from this second rights issue will be deposited in a separate escrow account. They cannot utilise these funds until the NCLT reaches a final decision.
- Next Steps: The NCLT has scheduled the next hearing for 4 July 2024. Byju’s will likely present their case during this hearing.
Impact on Byju’s: This ruling could delay Byju’s fundraising goals and financial plans. It also raises questions about the transparency of their fundraising efforts.
Unresolved Issue: Whether this was a “second rights issue” or an extension of the first remains to be seen. The NCLT’s final decision will provide more clarity.
Investor Concerns: The dispute highlights investor concerns about Byju’s financial health and transparency in its fundraising activities.
Judgment Instructs Respondents to Hold onto Money
“This Tribunal now restrains the Respondents (Byju’s) from pursuing the ongoing rights matter until the main plea is resolved. Additionally, the judgement instructed the respondents to hold onto the money they had already received since the second rights issue was opened “in a separate account which should not be utilised until the main petition is resolved.”
Additionally, the tribunal ordered Byju’s to submit all relevant escrow bank account records dating back to the right issue, beginning on 29 January and ending on 12 June, within ten days of that date.
Obligation for Byju’s
Moreover, before the authorised share capital is increased, Byju’s needs to file all of the information about the allocation made on 2 March. This needs to contain details such as the shareholder’s name, the equity shares owned on 27 January, the entitlement based on the rights offer, the equity shares distributed on 23 March, and the equity shares distributed following an increase in the authorised share capital, as per the order mentioned.
An application submitted by the company’s investors, including Peak XV Partners, General Atlantic, Chan-Zuckerberg Initiative, and Prosus, resulted in the order being passed. Because Byjus’ second rights issue would further reduce their stake in the company, the investors had petitioned the NCLT to stop it. Investors claimed at the hearing that Byju’s had yet to place the funds it had received from the rights offering into the escrow account before 27 February. They also claimed that shares were allotted to participants in the rights issue despite the tribunal’s directive to preserve the status quo about share ownership. The company was requested to hold the rights issue funds in an escrow account to safeguard investors’ rights.
The NCLT ordered Byju’s on 27 February to only assign shares to investors taking part in the rights issue once its authorised share capital had been increased. The company was also requested to hold the rights issue funds in an escrow account to safeguard investors’ rights.
It is now anticipated that the case will be heard on 4 July. Additionally, the investors have filed a suit for contempt against Byju’s for disobeying the tribunal’s rulings. It should be mentioned that Byju’s US-based lenders have petitioned the NCLT to prevent the business from selling, transferring, or pledging its shares.
The lenders informed the tribunal on 29 May that Byju’s was borrowing further money and alienating its shares in return, “causing grave prejudice to them,” and that this was how they filed the insolvency plea through the US-based non-bank loan agency Glas Trust Company LLC.
