 "Funds safe, claims edtech major Byju's after US court's freeze order")
In a hearing presided over by Judge John T. Dorsey of the United States Bankruptcy Court for the District of Delaware, edtech firm Byju’s stated that the judge rejected the request made by the alleged debtor in possession and TLB Lenders for a mandatory injunction seeking the deposit of money with the court.
Instead, Byju’s reported that the court granted a preliminary injunction preventing transfers of the funds. This means that the funds remain safe where they are, and cannot be utilized or further transferred. Byju’s described this as a major setback to the lenders' efforts to gain control over the disputed funds, as the court found they had not met the standards for the grant of a mandatory injunction.
In connection with the Order passed at yesterday’s hearing, Byju’s mentioned that this Order merely maintains the status quo, as the firm has always maintained that the said funds are safely parked in one of its subsidiaries.
“As per the order, it will rightfully remain there. In fact, the court denied the primary relief requested - that a mandatory injunction be granted depositing the monies into court. We had also consistently maintained that the lenders last year were aware of the situation of the $500 million in Byju’s Alpha. We are satisfied that this matter has been laid to rest,” said Byju’s. “It is now clear that this so-called adhoc group is working in cohort with certain large investors of Byju’s to exploit the situation and make windfall gains. This cartel has selectively released some remarks made by the presiding judge to build fake narratives in the media. There should be no doubt that we will continue to fight this falsehood for the sake of all our stakeholders, including the millions of students whom we proudly serve. This case represents a concerning attempt by a group of opportunistic foreign lenders to exploit an Indian start-up by levelling baseless allegations with the sole intent of extracting punitive monetary concessions,” said Byju’s.
The legal counsel for Byju’s Alpha, the alleged debtor in possession, admitted that representatives of the lenders of Byju’s TLB had personally verified and certified that the $500 million funds were with a Byju’s subsidiary as of early 2023. The company said this supports Byju’s stance that the money has all along been with Byju’s subsidiaries and that Byju’s has all along acted transparently and in good faith. The company said that the judge remained unpersuaded by the lenders' assertions about locating the whereabouts of the said amount, let alone attaching it. Byju’s said the judge remained unconvinced by the lenders' assertions, recognising the lack of substantial grounds to grant their requests. No mandatory injunction was, therefore, issued in this regard.
Byju’s counsel argued that by not pursuing the matter in courts of New York (which have exclusive jurisdiction under the Credit Agreement), the ad hoc group of lenders implicitly conceded that this is not a case of rights being breached but merely a claim for a refund of the term loan amounts. Byju’s counsel further emphasised that the lenders cannot seek draconian relief of mandatory injunction seeking the deposit of the money in a bankruptcy court in furtherance of such monetary reliefs. This is more so when there is no evidence of irreparable harm.
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“They cannot ask for draconian provisions in a bankruptcy court merely to pursue their demand for monetary refund,” the counsel said. “This is not a case of irreparable harm. They know this. That is why they withdrew their case in Florida. They are trying to enforce rights they are not entitled to,” he added. The counsel also pleaded that it is outside the jurisdiction of the Delaware court to issue an injunction, though the judge proceeded to issue one. “If they want to maintain their claim that Byju’s is in breach of the covenant, then the proper jurisdiction is not Delaware but New York,” he submitted. “Instead, they have chosen to file their case in a bankruptcy court, which suggests that their primary objective is to seek a refund, rather than address any alleged contractual violations.”
The company said this line of questioning by Byju’s legal team effectively highlighted the lenders' strategic manoeuvring, which appears to be driven more by profiteering motivations than legitimate concerns over contractual breaches.
The company said it has reportedly made every interest payment under the Credit Agreement (on time and in full) until the ad hoc lender group arbitrarily and unlawfully accelerated the repayment of the loan. In fact, in Delaware Chancery Court proceedings initiated by lenders shortly after its unlawful acceleration, the Chancery Court ruled that lenders were not entitled to information in relation to the sums.
With the lenders' statements and the court's ruling rejecting the relief for a mandatory injunction, Byju’s said it has gained significant ground in the legal battle that has been forced upon it. “This case serves as a stark reminder of the need for greater oversight and accountability in the global financial system, where the pursuit of profit at all costs should never supersede ethical conduct,” said the company.
According to a Bloomberg report, Think & Learn Pvt (parent of Byju’s) must freeze $533 million to protect the money for disgruntled lenders who claim the cash should only be used to pay them, a US judge said Thursday.
The decision by US Bankruptcy Judge John Dorsey was a mixed victory for lenders. They earlier demanded the money be placed under the control of the federal court to prevent the cash from being spent by the Indian education-tech firm, which operates under the name Byju’s. Dorsey’s order was aimed at Riju Ravindran, one of the company’s directors and the brother of founder Byju Raveendran.
Lenders had previously seized control of a holding company set up by Think & Learn to issue $1.2 billion in debt. That unit, Byju’s Alpha, is now in bankruptcy under Dorsey’s oversight. Ravindran is appealing a decision by Delaware’s Chancery Court approving that seizure, according to Bloomberg report.
At the start of the Thursday bankruptcy hearing in Wilmington, Delaware, Dorsey ordered the arrest of the founder of a small Florida hedge fund for refusing to reveal where Think & Learn allegedly hid the cash. If he can be located by US Marshals, William C. Morton will be locked up for contempt of court under Dorsey’s order, according to Bloomberg report. Morton must also pay $10,000 a day until he provides details about the money, which was briefly placed with the hedge fund Camshaft Capital Fund.