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The National Company Law Tribunal (NCLT), Bengaluru, on Thursday, refused to stay Byju’s extraordinary general meeting (EGM) scheduled on Friday, March 29, to increase its authorised share capital. The cash-strapped edtech firm is raising funds of $200 million by way of a ‘rights issue’ to all its equity shareholders. The aim is to support its ongoing efforts to drive growth and achieve operational sustainability.
Investors of Byju’s parent Think & Learn, led by Prosus, had moved NCLT, seeking a stay on Friday’s EGM and to block the rights issue. Byju’s will need at least 50 per cent votes at the EGM to increase the share capital. If the company gets the majority votes, it can issue shares to new investors for the rights issue, according to the sources. Once new shares are issued, it cannot be reversed, and this is why the investors wanted to obtain a stay on the EGM. However, the tribunal refused to put a stay on the EGM and has now listed the case for hearing on April 4, where other issues will also be addressed.
According to the sources at Byju’s, the court was convinced by the evidence submitted and arguments made by Byju’s counsels, who made a case that the “only objective of the petitioners is to be restrictive”. The court also cited a Supreme Court judgment to conclude that since the only objective is to increase the authorised capital for the rights issue, there is no reason to pause or postpone the EGM. Byju’s counsel said that the litigating investors were two months ago provided access to the ‘electronic data room’ which had all the required information.
When the petitioners’ counsel compared the voting at Byju’s to the “upcoming general election where campaigning is important”, the judge immediately said the comparison is not valid. “He said that voting for a company resolution cannot be compared to the country’s general election,” said a person. Byju’s counsel also said that the required information and the EGM notice has been duly sent to every shareholder, including even those who have been against the rights issue from the outset. The court then asked the investors’ counsel why they keep insisting there might be shareholders who have not received the notice.
“The investors’ counsel failed to name even a single shareholder who has not received it,” said a Byju’s source. The person said that the judge asked, “Then why do you keep insisting that there are some who have not received the notice? Please do not waste the time of this court.”
Overall, the person said that the outcome was overwhelmingly positive for Byju’s, and the EGM will now be conducted as planned on March 29.
The NCLT heard both the investors and the company extensively. According to the investor sources, various non-compliances were shown to the NCLT which the NCLT members took note of and asked the parties to come to the NCLT on April 4 for a detailed hearing.
NCLT took note of the fact that the right to inspect the register of members and receive various information updates is essential for investors. Investors were granted the right to inspect the register of members. The company had specifically denied this right by way of letter dated March 20, 2024, according to the investor sources.
NCLT also asked the company to submit an affidavit that all information has been provided to the investors. “Investors had been denied basic information rights ahead of the EGM, and they will now be able to receive this information on an immediate basis,” said a person.
Karnataka High Court
In another relief to Byju’s, the Karnataka High Court on Thursday continued extending the interim protection and safeguarding founder Byju Raveendran against any potential ouster in an extraordinary general meeting (EGM) by investors in February. Earlier this protection was extended till March 28. On February 23, a group of investors of Byju’s such as Prosus, General Atlantic and Peak XV, during the extraordinary general meeting (EGM) voted and passed resolutions to remove founder Byju Raveendran as chief executive officer (CEO). Resolutions were also passed to change the board, which included Byju Raveendran’s wife and co-founder Divya Gokulnath, and his brother Riju Raveendran. However, the resolution couldn’t be executed due to the Karnataka High Court order.
According to the investor sources, Byju’s team came unprepared to court again and asked for an extension. “They have no conviction in their argument. Investors have filed their arguments in the High Court - the wait now is for Byju’s team to get its act together,” said an investor source. “This is Byju’s team’s second request for a delay. The hearing took place today at their request for a delay, and now they have asked for another,” said the person.
According to the sources at Byju’s, the lawyers of the four foreign investors agreed with Think & Learn counsel to postpone today's hearing on the Karnataka High Court stay, invalidating their alleged resolutions to oust Byju’s management. “It clearly shows the investors no longer actively pursue the weightless proposals of the invalid EGM, which was orchestrated primarily for a media slander campaign without any legal basis,” said the person. “The matter will be heard two months later, again signalling the investors’ lack of conviction in the so-called EGM to replace Byju and management.”
