Edtech major Byju's, investors slug it out in NCLT over rights issue

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

Byju's and its investors locked horns at the National Company Law Tribunal (NCLT) on February 27 over the company's rights issue of $200 million in a petition alleging oppression and mismanagement. The company law court asked the embattled edtech firm to submit a written response to the investors' plea within three days, and reserved its order. The tribunal also issued notices to the Ministry of Corporate Affairs and the Registrar of Companies.
 

In the absence of any interim order, sources at Byju's said the company would go ahead with the rights issue that is expected to close on February 28.
 

The group of four investors — Prosus, General Atlantic, Sofina, and Peak XV (formerly Sequoia) — had sought a stay on the rights issue at less than 99 per cent enterprise valuation compared to Byju's peak valuation of $22 billion. They have the support of other shareholders including Tiger Global and Owl Ventures, according to sources.

The group of investors argued that they were being forced to participate and their shareholding would be reduced if they didn’t take part in the rights issue. The Byju Raveendran-led firm countered that the investors were “forum shopping” by approaching the NCLT and any order by the tribunal would "dilute the order of Karnataka High Court".

"The NCLT was not inclined to issue any order today (February 27). That means the rights issue can proceed as planned and will close tomorrow,” a source said.

Earlier in the day, investors argued that the process adopted by Byju’s for its rights issue appeared to be in breach of laws. The investors said the rights issue could not be allowed to proceed as an increase of authorised share capital was a requirement under law. They said they held over 25 per cent in the company, but were given zero information and there were ongoing investigations against the firm.
 

They also said the alleged board meeting of January 27, where the current board claims to have passed the proposal to have a rights issue, was not valid and that no such resolution was passed.
 

“Note that this meeting was scheduled as an investor update call and the investors had disputed such rights offer to be rolled out without the company giving them enough information on the financials, etc,” said an investor source.
 

The investors also argued that the low valuation of  $20 million for the rights issue was not justified or backed by any information or data.
 

Byju’s, which was once the most-valued Indian startup, argued that the investors were not considering the interest of 100 million students and the 12,000 employees but only focused on their value maximisation.

Investors also contended that they have no visibility on how the rights issue money will be used given there are so many ongoing investigations against the company and founder from the Enforcement Directorate (ED), Ministry of Corporate Affairs (MCA), lookout notice, and allegation of syphoning of funds including $533 million.

They alleged that there was diversion of funds of over $500 million by Byju’s to a hedge fund in the US. The address of the hedge fund was a pancake shop. The founder of the hedge fund is a 23-year-old without any training.