 "Report indicates no fraud at Byju's, Govt says probe is still underway")
This story has been updated
An investigation by the Ministry of Corporate Affairs has uncovered lapses in Byju's corporate governance but did not find evidence of financial fraud, as reported by Bloomberg on Wednesday (June 26).
An investigation by the Ministry of Corporate Affairs has uncovered lapses in Byju's corporate governance but did not find evidence of financial fraud, as reported by Bloomberg on Wednesday (June 26).
The ministry's year-long investigation revealed no signs of wrongdoing such as fund siphoning or financial account manipulation, the report said, citing sources familiar with the matter. However, it identified governance issues that contributed to the startup's growing losses.
However, the Ministry of Corporate Affairs (MCA) has clarified that the investigation into the financial misconduct allegations against the edtech firm Byju's is still in progress.
"There have been recent reports claiming that Byju's has been cleared of financial fraud in an ongoing investigation by the Ministry of Corporate Affairs (MCA). It is categorically clarified that such reports are factually incorrect and misleading," the MCA said.
Business Standard could not independently verify the story as the investigators' report is not yet public.
The ministry's probe offers some relief to Byju's, which has faced prolonged challenges. It temporarily halts any new scrutiny by Indian officials on issues that have already been investigated.
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The investigation did not directly address whether founder Byju Raveendran was responsible for the governance lapses or if he remains fit to lead the company, Bloomberg said. In recent months, investors have called for his removal, citing management and compliance failures.
The government's probe highlighted that poor corporate governance and compliance practices, combined with changes in the funding environment, contributed to Byju's increasing losses. Investigators noted the startup's failure to hire professionals to manage finances and compliance, leading to its financial troubles.
The Ministry of Corporate Affairs' report also found that Byju's did not fully disclose acquisition details to all directors and held meetings to approve such deals on short notice, Bloomberg noted. However, it acknowledged the founders' argument that some directors were investors in rival companies.
Nonetheless, the government's probe does little to resolve the company's broader issues. Byju's rapid expansion led to a cash shortage and a decline in valuation, resulting in multiple lawsuits in India and the US.
The downfall of Byju's
At its peak, Byju's was valued at $22 billion. The company saw significant growth during the Covid-19 pandemic, but as infections decreased and classrooms reopened, its cash reserves dwindled. Byju's is now facing several bankruptcy cases both domestically and internationally.
Prosus, an investment firm owned by Naspers, announced on Tuesday (June 25) that it had written off the value of its 9.6 per cent stake in Byju's, citing a significant decrease in value for equity investors. This move reflects Byju's severe financial difficulties. The edtech firm's valuation has plummeted, with many financial investors now valuing the company close to zero.
Prosus had invested around $500 million in Byju's, making it one of its major investments in the Indian startup scene. Other notable Indian startups in Prosus' portfolio include Swiggy, Meesho, and Eruditus.
Byju's valuation has been marked down by its early backers, including Prosus, over the past few years. The recent $200 million rights issue at a $225 million valuation represents a 99 per cent discount from its peak valuation of $22 billion. Founder Byju Raveendran's net worth has also dropped to zero, according to the 2024 Forbes Billionaire Index.
The financial woes have been accompanied by significant departures at the executive and board levels over the past year. Chief Financial Officer Ajay Goel left the company in October 2023, followed by India CEO Arjun Mohan in April 2024. Last month, Rajnish Kumar and T V Mohandas Pai, who joined Byju's advisory council in July 2023, also resigned.
HSBC noted in a May 21 report, "We assign zero value to Byju's stake amid multiple legal cases and funding crunch." Previously, HSBC had valued Prosus' nearly 10 per cent stake in Byju's at an 80 per cent discount to the latest publicly disclosed valuation.