NCLT directs edtech major Byju's to keep status quo on shareholding

The National Company Law Tribunal (NCLT) Bengaluru on Wednesday told edtech firm Byju's to maintain the status quo with regard to existing shareholders and their shareholding.

"Status quo with regard to existing shareholders and their shareholding shall be maintained till the disposal of the main petition," the order that was made available on June 13 said.

This means that Byju's is restricted from issuing shares and using funds raised from a $200 million rights issue until the tribunal decides the matter.

The matter will be heard on July 4.

"This tribunal hereby restrains the respondents (Byju's) from going ahead with the present rights issue which is in progress, till the disposal of the main plea. The respondents are further directed to keep the amounts collected so far since the opening of the second rights issue in relation to this offer in a separate account which should not be utilised till the disposal of the main petition," the order further said.

The second rights issue started on May 13 and was to end on June 13. With that, Byju's won't be allowed to utilise any funds that it has so far collected from the second rights issue and the amount from the second rights issue will be deposited in a separate account.

The tribunal also directed Byju's to file the complete details of the concerned escrow bank accounts from the opening of the rights issue on January 29 till date in 10 days from June 12.

"The respondents are directed to file the complete details of the concerned escrow bank accounts from the opening of the rights issue on 29.01.2024 till date," the order said.

Byju's must also file details of the allotment made on March 2 before the increase of authorised share capital.

"Accordingly, the respondents are directed to file the complete details of the allotment made on 02.03.2024 before the increase of authorised share capital, giving the information such as the name, equity shares held on 27.01.2024, their entitlement as per rights offer and equity shares allotted on 02.03.2024; and also equity shares allotted after the increase of authorised share capital, amount paid by each of such persons along with date; and the amount utilised towards the allotment of rights issue shares with dates in tabular form," the order said.

An email query to the company remained unanswered till press time.

 

Problems mounting

According to industry sources, the development is expected to adversely impact the edtech firm to run its operations, pay the pending amount to the vendors as well as salaries to the employees. “The money is stuck. There is a possibility that Byju’s may challenge NCLT’s order at the National Company Law Appellate Tribunal (NCLAT),” said a person familiar with the company’s strategy.

Byju’s is facing multiple challenges, including a cash crunch, delays in financial reporting, and legal disputes with lenders and investors.

Byju’s is also grappling with another setback as it faces delays in paying salaries to employees. The delay stems from funds raised through a recent rights issue, which have been locked in a “separate account” due to the ongoing dispute with investors.

Byju’s and its investors are fighting at the National Company Law Tribunal (NCLT) over the company’s rights issue of $200 million in a petition alleging mismanagement.

The four investors, Prosus, General Atlantic, Sofina, and Peak XV Partners (formerly Sequoia India & Southeast Asia), 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.

“The NCLT order essentially pauses the second rights issue. No funds being allowed to be used also means illegal transactions can potentially be reversed,” said an investor who wished to remain anonymous.

An investor alleged that the first rights issue was for $200 million and Byju’s founder Byju Raveendran failed to raise that. “Raveendran did a second rights issue of $100 million. I am doubtful he raised $100 million as part of the first rights issue but that is the narrative he pushed,” alleged the investor.

A couple of thousand disgruntled former employees of Byju’s have joined hands to fight for their rights. Several among them, who are based in various parts of the country, are planning to take their former employer to the National Company Law Tribunal (NCLT) in Bengaluru for the payment of their dues.

Overseas, Riju Ravindran, a director of Byju’s parent company, Think & Learn Pvt, faces financial penalties for defying a US judge’s order to find out where the firm hid $533 million that disgruntled lenders said should be rightfully theirs.

The missing cash is part of the dispute between Byju’s and an ad hoc group of lenders (the Ad Hoc Group), which lent $1.2 billion as term loans (Term Loans) to the company.